UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2018
or
☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________to ___________
Commission file number 001-33997
Sino-Global Shipping America, Ltd.
(Exact name of registrant as specified in its charter)
Virginia
(State or other jurisdiction of
incorporation or organization)
11-3588546
(I.R.S. Employer
Identification No.)
1044 Northern Boulevard, Suite 305
Roslyn, New York 11576-1514
(Address of principal executive offices) (Zip Code)
(718) 888-1814
(Registrant’s telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Common Stock, Without Par Value Per Share
(Title of each class)
NASDAQ Capital Market
(Name of exchange on which registered)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
Securities Registered Pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulations 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 ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Non-accelerated filer ☐
Emerging growth company ☐
Accelerated filer ☐
Smaller reporting company ☒
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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of voting common stock held by non-affiliates of the registrant as of December 29, 2017, the last business day of the registrant’s second fiscal
quarter, was approximately $17,911,027.
The number of shares of common stock outstanding as of September 18, 2018 was 13,095,535.
DOCUMENTS INCORPORATED BY REFERENCE:
None.
SINO-GLOBAL SHIPPING AMERICA, LTD.
FORM 10-K
INDEX
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis or Plan of Operation
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits, Financial Statement Schedules
i
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1
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20
20
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20
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22
22
24
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28
28
29
Unless the context otherwise requires, in this annual report on Form 10-K (this “Report”):
INTRODUCTION
“We,” “us,” “our,” and “our Company” refer to Sino-Global Shipping America, Ltd., a Virginia company incorporated in April 2001, and all of its direct
and indirect consolidated subsidiaries;
“Sino-Global” or “Sino” refers to Sino-Global Shipping America, Ltd;
“Sino-China” refers to Sino-Global Shipping Agency Ltd., a Chinese legal entity,
“Trans Pacific” refers to and relates collectively to Trans Pacific Shipping Ltd., our wholly-owned subsidiary located in China, and Trans Pacific
Logistics Shanghai Ltd., 90% of whose equity is owned by Trans Pacific Shipping Ltd.;
“Shares” refers to shares of our common stock, without par value per share;
“PRC” refers to the People’s Republic of China, excluding, for the purpose of this annual report, Taiwan, Hong Kong and Macau;
“US” or “U.S.” refers to United States of America;
“HK” refers to Hong Kong; and
“RMB” or “Renminbi” refers to the legal currency of China, and “$” or “U.S. dollars” refers to the legal currency of the United States.
●
●
●
●
●
●
●
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●
Names of certain PRC companies provided in this Report are translated or transliterated from their original PRC legal names. Discrepancies, if any, in any
table between the amounts identified as total amounts and the sum of the amounts listed therein are due to rounding.
ii
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Report contains certain statements that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as
amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-looking statements,
including but not limited to statements regarding our projected growth, trends and strategies, future operating and financial results, financial expectations and
current business indicators are based upon current information and expectations and are subject to change based on factors beyond our control. Forward-looking
statements typically are identified by the use of terms such as “look,” “may,” “will,” “should,” “might,” “believe,” “plan,” “expect,” “anticipate,” “estimate” and
similar words, although some forward-looking statements are expressed differently. The accuracy of such statements may be impacted by a number of business
risks and uncertainties we face that could cause our actual results to differ materially from those projected or anticipated, including but not limited to the following:
● Our ability to timely and properly deliver shipping agency, shipping and chartering, inland transportation management and ship management services
among others;
● Our dependence on a limited number of major customers and related parties;
●
Political and economic factors in China and its relationship with U.S.;
● Our ability to expand and grow our lines of business;
● Unanticipated changes in general market conditions or other factors which may result in cancellations or reductions in the need for our services;
●
●
●
The effect of terrorist acts, or the threat thereof, on consumer confidence and spending or the production and distribution of product and raw materials
which could, as a result, adversely affect our services, operations and financial performance;
The acceptance in the marketplace of our new lines of services;
The foreign currency exchange rate fluctuations;
● Hurricanes or other natural disasters;
● Our ability to identify and successfully execute cost control initiatives;
●
The impact of quotas, tariffs or safeguards on our customer products that we service;
● Our ability to attract, retain and motivate skilled personnel; or
● Our expansion and growth into other areas of the shipping industry.
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes
no obligation to update this forward-looking information. Nonetheless, the Company reserves the right to make such updates from time to time by press release,
periodic report or other method of public disclosure without the need for specific reference to this Report. No such update shall be deemed to indicate that other
statements not addressed by such update remain correct or create an obligation to provide any other updates.
iii
Item 1. Business.
Overview
PART I
Sino-Global Shipping America, Ltd. (“Sino,” the “Company,” or “we”), a Virginia corporation, was founded in the United States (the “U.S.”) in 2001.
Sino is a non-asset based global shipping and freight logistics integrated solution provider. Sino provides tailored solutions and value-added services to its
customers to drive effectiveness and control in related aspects throughout the entire shipping and freight logistics chain. We operate in four segments including (1)
inland transportation management services which are operated by its subsidiaries in the PRC, Hong Kong and the U.S. (2) freight logistics services which are
operated by its subsidiaries in the PRC and the U.S. (3) container trucking services which are operated by its subsidiaries in the PRC and through a joint venture in
the U.S. from January to December 2017 and (4) bulk cargo container services which are currently operated by its subsidiary in the U.S. We also operated in
shipping agency business prior to fiscal year 2017 and have re-positioned ourselves to further operate in this segment in fiscal year 2019.
We conduct our business primarily through our wholly-owned subsidiaries in the U.S. (New York and Los Angeles), the People’s Republic of China
including Hong Kong (the “PRC” or “China”), Australia and Canada. Currently, a significant portion of our business is generated from the clients located in the
PRC.
Company Structure
The Company conducts its business primarily through its wholly-owned subsidiaries in the U.S. (New York and Los Angeles), China (including Hong
Kong), Australia, and Canada. The corporate structure diagram as of the date of this report is as below:
Our subsidiary in China, Trans Pacific Shipping Limited (“Trans Pacific Beijing”), a wholly owned foreign enterprise, invested in one 90%-owned
subsidiary, Trans Pacific Logistics Shanghai Limited (“Trans Pacific Shanghai”. Trans Pacific Beijing and Trans Pacific Shanghai are referred to collectively as
“Trans Pacific”). As PRC laws and regulations restrict foreign ownership of local shipping agency service businesses, we provided our shipping agency services in
the PRC through Sino-Global Shipping Agency Ltd. (“Sino-China” or “VIE”), a Chinese legal entity, which holds the licenses and permits necessary to operate
local shipping agency services in the PRC. Trans Pacific Beijing and Sino-China do not have a parent-subsidiary relationship. Trans Pacific Beijing has contractual
arrangements with Sino-China and its shareholders that enable us to substantially control Sino-China. Through Sino-China, we were able to provide local shipping
agency services in all commercial ports in the PRC. Sino-China is one of the committee members of China Association of Shipping Agencies & Non-Vessel-
Operating Common Carriers (“CASA”). CASA was approved to form by China Ministry of Communications. Sino-China is also our only entity that is qualified to
do shipping agency business in China. We keep the VIE to prepare ourselves for the market to turn around.
1
Corporate History and Our Business Segments
Since inception in 2001 and through our fiscal year ended June 30, 2013, our sole business was providing shipping agency services. In general, we
provided two types of shipping agency services: loading/discharging services and protective agency services, in which we acted as a general agent to provide value
added solutions to our customers. For loading/discharging agency services, we received the total payment from our customers in U.S. dollars and paid the port
charges on behalf of our customers in RMB. For protective agency services, we charged a fixed amount as agent fee while customers are responsible for the
payment of port costs and expenses. Under these circumstances, we generally required a portion of a customer’s payment in advance and billed the remaining
balance within 30 days after the transaction were completed. We believe the most significant factors that directly or indirectly affected our shipping agency service
revenues were:
●
●
●
●
●
●
the number of ship-times to which we provide port loading/discharging services;
the size and types of ships we serve;
the type of services we provide;
the rate of service fees we charge;
the number of ports at which we provide services; and
the number of customers we serve.
In June 2013, we entered into global logistics service agreement with TEWOO Chemical & Light Industry Zhiyuan Trade Co., Ltd, which is controlled by
Tianjin Zhiyuan Investment Group Co., Ltd (“Zhiyuan”). Zhiyuan is controlled by Mr. Zhong Zhang. who is our largest shareholder. Leveraging our business
relationship with Zhiyuan, we expanded our service offerings to include shipping and chartering services and inland transportation management services to
diversify our business. Leveraging our in-depth knowledge of the shipping industry, inland transportation management services are our tailored value-added
solution developed for Zhiyuan to prevent high-priced bulk from damages or losses during its inland transportation from warehouses to factories. Given the
industry norm of 12% of loss rate during transportation, our integrated inland transportation solution significantly reduces bulk losses and effectively addresses
issues in the freight logistics chain. Furthermore, after we have conducted an effective trial for Zhiyuan to reduce their bulk losses at the end of September 2014,
Tengda Northwest Ferroalloy Co., Ltd. (“Tengda Northwest”) signed a contract with us to mitigate their bulk losses through our inland transportation management
services.
2
In January 2016, we expanded our business to freight logistics service to provide import security filing services with U.S. Customs and Department of
Homeland Security, on behalf of importers who ship goods into the U.S. and also providing inland transportation services to these importers in the U.S.
In fiscal year 2017, we also expanded into container trucking services as new business sectors to provide related transportation logistics services to
customers in the U.S. and in China. We have signed cooperation agreements with COSCO China and Sinotrans, two state-owned enterprises of China, to provide
freight logistics services and container trucking services to them in the U.S. To ensure effective and high-quality services provided to our customers in the U.S., we
established a joint venture, ACH Trucking Center Corp., in the third quarter of fiscal 2017 with a U.S. local freight forwarder, Jetta Global Logistics Inc. The joint
venture ended in December 2017 and we continue to operate trucking business through our other subsidiaries. Since 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 in the financial statements.
As an effort to further diversify our business, in the second quarter of fiscal 2018, we have developed bulk cargo container services segment. Bulk cargo
container shipment refers to using containers to ship commodities which traditionally are shipped by freight cargo. Freight cargo rate is usually lower than that of
container freight rate, however the transit time is much longer and has high minimum quantity requirements. With the Chinese government banning the import of
environmental wastes by the end of 2017, the empty container rate of COSCO Group's container shipping from the United States to China is further reduced.
Therefore with the signing of a strategic cooperation agreement COSCO Beijing, we are able to take advantage of the low container rate to jointly promote bulk
cargo container transportation. Revenue from bulk cargo container services amounted to $638,227 for the fiscal 2018 while we didn’t have such business in 2017.
In the first quarter of fiscal 2018, we established a wholly-owned subsidiary, Ningbo Saimeinuo Supply Chain Management Ltd which primarily engages
in transportation management and freight logistics services.
Our Strategy
Our strategy is to:
●
Provide better solutions for issues and challenges faced by the entire shipping and freight logistics chain to better serve our customers and explore
additional growth avenues.
● Diversify our current service offerings organically or through acquisitions and/or strategic alliance; continue to grow our business in the U.S. market;
● Continue to streamline our business practice, optimize our cost structure and improve our operating efficiency through effective planning, budgeting,
execution and cost control and strengthening our IT infrastructure;
● Continue to reduce our dependency on our legacy business and few key customers; and
● Continue to monetize our relationships with our strategic partners and leverage their support and our innovation to expand our business.
With the establishment of our subsidiary in Los Angeles, we added cargo forwarding services to our service platform in the second quarter of fiscal 2017,
which is included in our inland transportation business line at the end of June 30, 2016. As we are developing our cargo forwarding services, the Company
provides freight logistics services and container trucking services as two new business segments in fiscal 2017. During fiscal year 2018, the Company began to
provide bulk cargo container services to the customers.
3
Our Goals and Strategic Plan
By leveraging our fine reputation, extensive business relationships, technical ability and in-depth knowledge of the shipping industry, our goal is to
further strengthen our position as a leading global logistics solution provider who offers innovative resolutions to better address complex issues in different aspects
in the entire shipping and freight logistics chain.
We historically focused our business on providing our customers with customized shipping agency services. In the past, our business came predominately
from our strong business relationships with our key strategic partners in China. To reduce our dependency on a single business line, we have leveraged, and will
continue to leverage, our business relationships with strategic partners to introduce new service offerings to the market and to diversify our business. Our strategic
plan for the next five years is to continue to diversify our service mix and actively seek new growth opportunities to expand our business footprint in the U.S.
market to reduce our dependency on the revenue generated from China. For decades, the shipping industry has been operated under traditional business models
without many meaningful changes. Today, technological innovation has already played a big role in changing every conventional industry. We believe the internet
will be a big part of the future logistics chain services and a transformative era in shipping and freight logistics business is coming. As an innovative solution
provider, we plan to apply our technical ability, industry expertise and cutting-edge information technology in the conventional shipping business to better connect
supply and demand and to develop seamless linkages in logistics chains.
As a result of our plan to diversify, we continued to provide on inland transportation management services and logistics between the U.S. and China, such
as providing freight logistics services, container trucking services and bulk cargo container services. During this process, we will continue to adjust and develop
our strategic plans based on the change of business environment.
However, with our decades of experience in shipping agency business and solid business relationships with Baogang Group and Shougang Group, who
are among the biggest importers of iron ore in China, we believe it is to the Company’s best interest to redirect our focus on this segment in 2019 based on our
assessment of current global trading environments. To our understanding, we are one of few shipping agents specialized in providing a full range of general
shipping agency services in China and the only shipping agency company listed on a public exchange in the U.S. while other shipping agencies are much smaller
and more fragmented. With the setup of the Ningbo joint venture, we are able to use our resources such as our customer base, our currently developing IT
infrastructure and our business insight to build a global network of shipping agencies. In addition, our current business segments like freight logistics and container
trucking can also be integrated and enable us to provide more comprehensive logistics services for our customers.
Our plan is to develop a shipping agency network in China and South East Asia for the next three years and expand our shipping agency network
worldwide. We plan to build the network through acquisitions or strategic partnership with other shipping agencies. Our shipping agency business will be mostly
conducted through our China, Hong Kong and Australia subsidiaries.
Within the next one or two years, we plan to cover the following ports in our network. Ports in China include Zhanjiang, Fangcheng, Ningbo, Shanghai,
Tianjin, Caofeidian, Bayuquan, Dalian, Qingdao, and Rizhao.
We also plan to develop shipping agency network in other Asia-Pacific countries like South Korea, Thailand, Singapore and Australia.
Our Hong Kong subsidiary will manage the Asia-Pacific shipping agency business network.
We plan to expand to European ports and major ports in America within the next three to five years.
4
Our Customers
In light of our strategic relationship with Zhiyuan Investment Group that began with the signing of a 5-year global logistics service agreement in June
2013, we expanded our business platform to include additional service offerings. We started to provide inland transportation management services to a third-party
customer, Tengda Northwest Ferroalloy Co., Ltd. (“Tengda Northwest”), during the quarter ended September 30, 2014. As we continue to diversify our service
platform, we endeavor to reduce our dependency on a few customers which we provide freight logistics, container trucking services, and bulk cargo container
services.
For the year ended June 30, 2018, four customers accounted for 50%, 16%, 15% and 9% of the Company’s revenues, respectively. For the year ended
June 30, 2017, three customers accounted for 26%, 24% and 19% of the Company’s revenues, respectively.
Our Suppliers
Our operations consist of working directly with our customers to understand in detail their needs and expectations and then managing local suppliers to
ensure that our customers’ needs are met. For the year ended June 30, 2018, two suppliers accounted for 64% and 18% of the total costs of revenue, respectively.
For the year ended June 30, 2017, two suppliers accounted for 42% and 11% of the total cost of revenue, respectively.
Our Strengths
We believe that the following strengths differentiate us from our competitors:
●
●
●
Proven
industry
experience
and
problem-solving
reputation
. We are a non-asset based global shipping and freight logistics solution provider. Unlike a
traditional shipping agent, we provide tailored solutions and value-added services to our customers to drive effectiveness and control in related aspects
throughout the entire shipping and freight logistics chain. We believe that our years of successful track record of applying integrated solutions to complex
issues in the global shipping logistics business gives us a competitive advantage in attracting large clients and helps us maintain strong long terms
business relationship with them.
Strong
leadership
and
a
competent
professional
team
. Our CEO is an industry veteran with more than thirty years of extensive industry experiences
including ten years’ working for COSCO, one of the largest shipping companies in the world. Most of our employees have marine business experience,
and many of our managers/chief operators served in other large Chinese shipping companies prior to joining us. With these professionals and experienced
staff, we believe that we provide the best services to our customers at competitive prices.
Extensive
network
and
positive
industry
recognition.
Doing business in China often requires a strong business network and support of key strategic
partners. The Company served as one of the executive directors of China Association of Shipping Agencies & Non-Vessel-Operating Common Carriers
(CASA), the authoritative industry association in China. We are the only non-state-owned enterprise represented on the CASA board guiding the
development of the industry. Our good reputation and industry recognition enables us to maintain strong relationships with our business partners and have
an extensive network of contacts throughout the industry, which helps us gain necessary support to execute our business plans.
5
●
Lean
organization
and
a
flexible
business
model.
Although we are a small business with limited resources, we have a cohesive and effective
organizational structure with the goal of maximizing customer value while minimizing waste. Our unique flexible business model allows us to quickly
respond to changing market demand and offer our customers innovative problem-solving solutions, quality customer service, and competitive prices to
achieve greater market acceptance and gain additional market share.
● U.S.-registered
and
NASDAQ-listed
public
company
. We believe our status as a U.S. corporation gives us more credibility among existing and potential
customers, suppliers, and other business partners than a privately owned company would have in our industry. Our ability to raise capital through the
capital market or use our common stock as “currency” to facility potential merger and acquisition transactions can also help us carry out or accelerate our
growth strategies.
Our Opportunities
For more than thirty years, the shipping and freight logistics industry has been operated under traditional business models without meaningful change.
Many of these business practices are inefficient and problematic; therefore, maintaining an innovative mindset is critical to achieving continuous business success
and growth. We are a value-added logistics solution provider with successful past performance and individuals that have been in the industry for a long time.
Instead of playing the traditional logistics broker role, we focus on providing technology solutions and innovative leading-edge services to bridge the asset-based
world with the digital world. We shape our industry practice and profit model by analyzing wider developments both in the global markets and the technology
industry so we can address unique problems that are currently pervasive across the shipping and freight logistics industry.
We believe we can capture the business opportunity and grow our business organically or through acquisitions or strategic alliance by:
● Continuing to streamline our business operations and improve our operating efficiency through innovative technology, effective planning, budgeting,
execution and cost control;
● Diversifying our business to focus on providing innovative technology based solution to our customers to promote our sustainable business growth;
● Developing new service lines along the shipping and freight logistics industry value chain, and leveraging our relationships with COSCO, Zhiyuan
Investment Group and other potential strategic business partners to expand our global business footprint.
●
The current market of China's shipping agency industry is mature comparing to what it was ten years ago when the shipping agency industry was fueled
by the massive construction of China's infrastructure, yet the over-supply of shipping agencies has also shrunk the profits of the industry. Many shipping
agencies were constrained by the small size and the limited services. We have the professionalism and are the pioneers and leaders in the shipping agency
industry in China. SINO is a NASDAQ-listed company that already has more flexibility in capital raise comparing to companies that are not on a U.S.
major stock exchange or private companies. We already have a network that covers the US East coast, West coast, Canada, Australia, Hong Kong,
Beijing, and Ningbo. We maintain strong relationships with customers and market resources. The current shipping agency market is more competitive, yet
enable companies like us who has better resources in this market niche to expand,
6
Our Challenges
We face significant challenges when executing our strategy, including:
● Given the complexity and length of restructuring our business, we face the challenge of generating sufficient cash from our current business activities to
support our daily operations during the transition;
● We may not be able to establish a separate department to solve critical issues in today’s shipping logistics industry;
● We may not be able to manage our growth when we form more joint ventures for our shipping agency business as we need to better our standard
operating and control procedures which may pose more challenges to our management.
● We may not have or not be able to get the necessary funds to continue to expand our service and market our services successfully;
● Our ability to respond to increasing competitive pressure on our growth and margins;
● Our ability to gain further expertise and to serve new customers in new service areas;
●
From time to time, we may have difficulty carrying out services effectively and in a profitable way due to the cyclical nature of the shipping industry,
which could lead to a prolonged period of sluggish demand for our services;
● Our ability to respond promptly to a changing regulatory environment, macroeconomic conditions, industry trends, and competitive landscape; and
● Developing a winning business model takes time and a new business model may not be recognized by the market immediately. As a publicly traded
company, management may be forced to fulfill near-term performance goals that may not be consistent with the Company’s long-term vision.
● We may not have the technological feasibility to compete in the marketplace.
Our Competition
The market segments that we serve do not have high entry barriers. There are many companies ranging from small to large in China that provide shipping
and freight-related logistics services. At present, the state-owned companies in China still dominate the industry and generate a majority of the revenues in the
industry. These companies have greater service capabilities, a larger customer base and more financial, marketing, network and human resources than we do. Most
of them in a wide range of businesses and involve many aspects of the industry chain. However, we focus on providing tailored solutions and value-added services
to select high-profile customers to drive effectiveness and control in related aspects throughout the entire shipping and freight logistics chain. As a boutique
company that provides specialized services with limited resources and history, we face intense competition in the particular market segments that we serve. Our
ability to be successful in our industry depends on our deep understanding of the complexity of industry issues and challenges and our technical ability to develop
best solutions to respond to the identified issues and provide effective problem-solving strategies to our targeted customers to achieve the fastest and most cost-
effective outcomes. Our value-added services and innovative approaches are highly recognized by our customers, which helps us to gain additional market share
and compete effectively with the companies that may be better capitalized than we are or may provide services we do not or cannot provide to our customers.
Employees
As of the date of this report, we have 23 employees, 13 of whom are based in China. Of the total, four are in management, eleven are in operations, five
are in finance and accounting and three are in administration and technical support. We believe that our relationship with our employees is good. We have never
had a work stoppage, and our employees are not subject to a collective bargaining agreement.
Recent Development
Sino has signed joint project agreements with Sinotrans Guangxi and COSFRE Beijing during the fourth quarter of fiscal year 2017. The project involved
a shift from the current bulk cargo transportation model to a containerized model. The Company has started a trial by facilitating the delivery of Sulphur from Long
Beach, California, in the U.S., to Fangcheng Port, Guangxi, PRC and ultimately to the warehouse of the customer. At the end of the fiscal year 2017, there was no
revenue or cost of revenue recognized from this business model. Management expects the transportation of cargo via a containerized model will become a new
business segment in incoming years.
7
On August 24, 2017, Sino signed a marketing promoting service agreement with COSCO Qingdao. According to this agreement, COSCO Qingdao will
help Sino to promote shipping and multimodal transportation, including inland trucking container transportation services, switch bill of lading and freight
collection services.
On September 11, 2017, the Company set up a 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 transportation management and freight logistics services.
On March 12, 2018, we raised approximately $2.6 million in a registered direct offering to sell an aggregate of 2,000,000 shares of our common stock at
$1.50 per share, Series A Warrants to purchase up to an aggregate of 2,000,000 shares of common stock at an initial exercise price equal to $1.75 per share (and
will expire on the five and a half years’ anniversary of the initial issuance date) and Series B Warrants to purchase up to an aggregate of 2,000,000 shares of
common stock at an initial exercise price equal to $1.75 per share (and will expire on the thirteen (13) month anniversary of the initial issuance date).
On September 3, 2018, we entered into a co-operation agreement with Ningbo Far-East Universal Shipping Agency Co., Ltd (“Ningbo Far-East”) to set
up a joint venture in Hong Kong to engage in worldwide shipping agency and management business. The Company will have a 51% ownership in the joint venture.
Ningbo Far-East is the top ranking shipping agency for private enterprises in Ningbo and Zhoushan ports in China.
Item 1A. Risk Factors.
This item is not applicable to a smaller reporting company such as us.
Item 1B. Unresolved Staff Comments.
The Company does not have any unresolved or outstanding Staff Comments.
Item 2. Properties.
We currently rent five facilities in the PRC, Hong Kong and the United States. Our PRC headquarter is in Beijing, and our U.S. headquarter is in New
York.
Office
Beijing, PRC
Shanghai, PRC
New York, USA
Hong Kong
Los Angeles, USA
Item 3. Legal Proceedings.
Rental Term
Expires 11/30/2018
Space
91 m 2
Expires 07/31/2019
285.99 m 2
Address
Rm2212 Building B
Boya International Center
No. 1 Lizezhongyi Road,Wangjing
Chaoyang District
Beijing, PRC 100102
Rm 12D & 12E, No.359
Dongdaming Road,
Hongkou District,
Shanghai, PRC 200080
1044 Northern Boulevard,
Suite 305 Roslyn,
New York 11576-1514
Expires 08/31/2019
179 m 2
77 m 2
20/F, Hoi Kiu Commercial Building,
158 Connaught Road Central, HK
Expires 05/17/2019
21680 Gateway Center Drive,
Suite 330 Diamond Bar,
California 91765
Expires 04/30/2020
121.24 m 2
We were named as a defendant in a breach of service contract lawsuit filed with the California Superior Court on January 19, 2018. We filed a motion
with the court to force the plaintiff to litigate the dispute in arbitration rather than in court based on an arbitration provision in the contract. We received a demand
for arbitration and the commencement of the arbitration is pending. It is premature to assess the outcome of the pending arbitration but we believe it will not likely
have a material effect on our operations or consolidated financial results.
Item 4. Mine Safety Disclosures.
This item is not applicable to the Company.
8
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market for Our Common Stock
PART II
Our common stock is traded on the NASDAQ Stock Market under the symbol SINO. The high and low common stock sales prices per share during the
periods indicated were as follows:
Quarter Ended
Fiscal year 2018
Common stock sales price per share:
High
Low
Fiscal year 2017
Common stock sales price per share:
High
Low
Sep. 30
Dec. 31
Mar. 31
Jun. 30
Year
$
$
$
$
3.07 $
2.89 $
3.15 $
2.51 $
2.57 $
1.12 $
1.48 $
1.08 $
2.24 $
0.64 $
6.73 $
0.97 $
4.70 $
2.34 $
3.45 $
2.57 $
3.15
1.08
6.73
0.64
Approximate Number of Holders of Our Common Stock
As of September 18, 2018, there are 14 holders of record of our common stock. This number does not include shareholders who hold their shares of
common stock in street name.
Dividend Policy
We have never declared or paid any cash dividends on our common stock. We anticipate that we will retain any earnings to support operations and to
finance the growth and development of our business. Therefore, we do not expect to pay cash dividends in the foreseeable future. Any future determination relating
to our dividend policy will be made at the discretion of our Board of Directors and will depend on a number of factors, including future earnings, capital
requirements, financial conditions and future prospects and other factors the Board of Directors may deem relevant. Payments of dividends by Trans Pacific to our
company are subject to restrictions including primarily the restriction that foreign invested enterprises may only buy, sell and/or remit foreign currencies at those
banks authorized to conduct foreign exchange business after providing valid commercial documents.
Recent Sales of Unregistered Securities and Issuer Purchases of Equity Securities
Recent Sales of Unregistered Securities
In March 2017, the Company entered into a consulting and advisory services agreement with a consulting firm, who provides 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 of the service in reliance on the exemption under Section 4(2)
of the Securities Act of 1933, as amended (the “Securities Act”). The shares were issued as restricted shares on March 22, 2017.
In a private placement that closed concurrently with a registered direct offering of 2,000,000 shares of the common stock at a price of $1.50 per share on
March 12, 2018, we also sold to investors series “A” warrants to purchase an aggregate of up to 2,000,000 shares of our common stock and series “B” warrants to
purchase an aggregate of up to 2,000,000 shares of our common stock. The series “A” warrants are exercisable beginning on September 14, 2018, at an exercise
price of $1.75 per share, and which will expire on the five and a half year anniversary of the initial issuance date. The series “B” warrants are exercisable beginning
on September 14, 2018 at an exercise price of $1.75 per share and will expire on the thirteen (13) month anniversary of the initial issuance date. The warrants and
the shares of common stock issuable upon the exercise of the warrants are being offered pursuant to an exemption from the registration requirements of the
Securities Act provided in Section 4(a)(2) of the Securities Act and/or Rule 506(b) of Regulation D.
9
Other Information
On May 4, 2018, the Compensation Committee of the Board of the Company granted an aggregate of 660,000 shares of common stock valued at $1.15
per share on grant date with a total fair value of $759,000 to its directors and officers under the Company’s 2014 Stock Incentive Plan, as amended, as below: (i)
300,000 shares to Mr. Lei Cao, Chief Executive Officer; (ii) 180,000 shares to Mr. Zhikang Huang, Chief Operating Officer; (iii) 40,000 shares to Ms. Tuo Pan,
Chief Financial Officer; (iv) 20,000 shares to Mr. Yafei Li, Chief Technology Officer; and (v) 40,000 shares to each of Tieliang Liu, Ming Zhu, and Jing Wang,
each an independent director (collectively, the “Plan Stock Grants”). All the shares granted vested immediately.
On September 21, 2018, the Company is authorized to issue a total of 430,000 shares of the common stock valued at $1.10 per share on grant date with a
total fair value of $473,000 under the 2014 Stock Incentive Plan to three employees, vesting immediately.
Item 6. Selected Financial Data
The Company is not required to provide the information required by this item because the Company is a smaller reporting company.
10
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The
following
discussion
and
analysis
of
our
company’s
financial
condition
and
results
of
operations
should
be
read
in
conjunction
with
our
audited
consolidated
financial
statements
and
the
related
notes
included
elsewhere
in
the
Annual
Report.
This
discussion
contains
forward-looking
statements
that
involve
risks
and
uncertainties.
Actual
results
and
the
timing
of
selected
events
could
differ
materially
from
those
anticipated
in
these
forward-looking
statements
as
a
result
of
various
factors.
Overview
Fiscal year 2018 highlights
Sales in the year ended June 30, 2018 increased by $11,618,950, or 101.5%, from $11,445,613 for the year ended June 30, 2017, to $23,064,563. The
increase was mainly due to:
● We continued to expand our freight logistics segment through continuing co-operations with our major customers. Revenue from the freight logistics
segment increased by about $11.0 million or 228.7% compared to 2017.
●
In an effort to diversify our business, in the second quarter of fiscal 2018, we have developed bulk cargo container services segment. Bulk cargo container
shipment refers to using containers to ship commodities which traditionally are shipped by freight cargo. The freight cargo rate is usually lower than of
the container freight rate, however the transit time is much longer and has high minimum quantity requirements. With the Chinese government banning
the import of environmental wastes by the end of 2017, the empty container rate of COSCO Group's container shipping from the United States to China is
further reduced. Therefore with the signing of a strategic cooperation agreement COSCO Beijing, we are able to take advantage of the low container rate
to jointly promote bulk cargo container transportation. Revenue from bulk cargo container services amounted to $638,227 for fiscal 2018 while we did
not have such business in 2017.
● 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 transportation management and freight logistics
services. Sino Ningbo’s operating results were included in the consolidated financial statements starting the fourth quarter of fiscal year 2018.
● On March 14, 2018, we raised approximately $2.6 million net proceeds in a registered direct offering for an aggregate of 2,000,000 shares of our common
stock at $1.50 per Share. The offering is concurrent with a private placement of two series of warrants as described elsewhere in this Report.
2019 Trends
On September 3, 2018, we entered into a co-operation agreement with Ningbo Far-East Universal Shipping Agency Co., Ltd (“Ningbo Far-East”) to set
up a joint venture in Hong Kong to engage in worldwide shipping agency and management business. The Company shall have 51% ownership in the joint venture.
Ningbo Far-East is one of the top ranking shipping agencies for private enterprises in Ningbo and Zhoushan ports.
In the past few years, we have sought diversification for our business and have since developed freight logistics, container trucking and inland
transportation management segments and temporarily suspended our shipping agency business. However with our decades of experiences in shipping agency
business and solid business relationships, we believe it is for the Company’s best interest to redirect our focus on this segment in 2019 based on our assessment of
current global trading environments. To our understanding, we are one of the few shipping agents specialized in providing a full range of general shipping agency
services in China and the only shipping agency company listed on a major stock exchange in the U.S. while other shipping agencies are much smaller. The market
in this industry is fragmented. The setup of Sino Ningbo allows us to use our resources such as our customer base, our IT infrastructure currently under
development and our business insight to build a global network of shipping agencies. In addition, our current business segments like freight logistics and container
trucking can also be integrated and provide more comprehensive logistics services for our customers.
Our plan is to develop a shipping agency network in China and South East Asia for the next three years and to expand our shipping agency network
worldwide. We plan to build the network through acquisitions or strategic partnership with other shipping agencies. Our shipping agency business will be mostly
conducted through our subsidiaries in China, Hong Kong and Australia.
11
Company Structure
The Company, founded in 2001, is a non-asset based global shipping and freight logistics integrated solution provider. We provide tailored solutions and
value-added services for our customers to drive effectiveness and control in related aspects throughout the entire shipping and freight logistics chain. We conduct
our business primarily through our wholly-owned subsidiaries in the U.S., the People’s Republic of China (the “PRC”) (including Hong Kong), Australia and
Canada. The majority of our business is generated from clients located in the PRC and the U.S.
We operates in four segments including (1) inland transportation management services which are operated by our subsidiaries in the PRC, Hong Kong
and the U.S. (2) freight logistics services which are operated by our subsidiaries in the PRC and the U.S. (3) container trucking services which are operated by our
subsidiaries in the PRC and through a joint venture in the U.S. from January to December 2017 and (4) bulk cargo container services which are currently operated
by our subsidiary in the U.S.
On January 5, 2017, we formed a 51% joint venture company named ACH Trucking Center Corp. (“ACH Center”) to provide short haul trucking
transportation and logistics services to customers located in the New York and New Jersey areas. However we terminated 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 were not reported as discontinued
operations in the financial results.
On September 11, 2017 we also set up Sino Ningbo which mainly engages in transportation management and freight logistics services. Sino Ningbo’s
operating results were included in the consolidated financial statements for fiscal year 2018. Our corporate structure diagram as of the date of this report is as
below:
Results of Operations
Revenues
Total revenues increased by $11,618,950 or 101.5%, from $11,445,613 for the year ended June 30, 2017 to $23,064,563 for the fiscal 2018. The increase
was mainly due to the Company’s continuing efforts to diversify its business, resulting in the rise in revenues generated from its freight logistics services, container
trucking services and bulk cargo container services segments while revenue from inland transportation management services had a slight decrease of 4.5%.
12
The following tables present summary information by segment for the years ended June 30, 2018 and 2017:
Revenues
- Related party
- Third parties
Total
Cost of revenues
Gross profit
Depreciation and amortization
Total capital expenditures
Gross profit margin
Revenues
- Related party
- Third parties
Total revenues
Cost of revenues
Gross profit
Depreciation and amortization
Total capital expenditures
Gross profit margin
For the year ended June 30, 2018
Inland
Transportation
Management
Services
Freight
Logistics
Services
Container
Trucking
Services
Bulk Cargo
Container
Services
$
$
$
$
$
$
$
2,059,406
3,441,001
5,500,407
874,760
4,625,647
72,954
-
$
$
$
$
$
$
$
-
15,829,444
15,829,444
13,519,486
2,309,958
1,902
778,182
$
$
$
$
$
$
$
-
1,096,485
1,096,485
696,998
399,487
20,063
44,595
$
$
$
$
$
$
$
-
638,227
638,227
494,449
143,778
-
-
$
$
$
$
$
$
$
Total
2,059,406
21,005,157
23,064,563
15,585,693
7,478,870
94,919
822,777
84.1%
14.6%
36.4%
22.5%
32.4%
For the year ended June 30, 2017
Inland
Transportation
Management
Services
Freight
Logistics
Services
Container
Trucking
Services
Bulk Cargo
Container
Services
$
$
$
$
$
$
$
2,746,423
3,012,177
5,758,600
620,259
5,138,341
27,857
61,359
$
$
$
$
$
$
$
-
4,815,450
4,815,450
3,710,364
1,105,086
21,510
1,053
$
$
$
$
$
$
$
-
871,563
871,563
649,968
221,595
-
-
$
$
$
$
$
$
$
- $
- $
- $
- $
- $
- $
- $
Total
2,746,423
8,699,190
11,445,613
4,980,591
6,465,022
49,367
62,412
89.2%
22.9%
25.4%
-
56.5%
13
% changes For the year ended June 30, 2018 to 2017
Inland
Transportation
Management
Services
Freight
Logistics
Services
Container
Trucking
Services
Bulk Cargo
Container
Services
Total
(25.0)%
14.2%
(4.5)%
41.0%
(10.0)%
161.9%
(100.0)%
-
228.7%
228.7%
264.4%
109.0%
(91.2)%
73,801.4%
-
25.8%
25.8%
7.2%
80.3%
-
-
(25.0)%
141.5%
101.5%
212.9%
15.7%
92.3%
1,218.3%
Revenues
- Related party
- Third parties
Total revenues
Cost of revenues
Gross profit
Depreciation and amortization
Total capital expenditures
Revenues
(1) Revenues from Inland Transportation Management Services
In September 2013, the Company executed an inland transportation management service contract with Zhiyuan Investment Group, a related party,
whereby the Company agreed to provide certain solutions to help control the potential loss of commodities during the transportation process. The Company also
began providing inland transportation management services to a third-party customer, Tengda Northwest, following the quarter ended September 2014. Both
contracts have been extended to FY 2019. For Tengda Northwest, the service fee charge was RMB 32 per ton and RMB 38 per ton for Zhiyuan Investment Group.
The rates are determined by the scope of services provided.
For the years ended June 30, 2018 and 2017, inland transportation management services generated related party revenue of $2,059,406 and $2,746,423,
respectively, representing a 25.0% decrease. The decrease was mainly from a decrease in quantity transported of 354,852 tons for the year ended June 30, 2018
compared to 498,210 tons for the year ended June 30, 2017 coupled with the effects of depreciation of USD against RMB. The exchange rate for US$1 to RMB
was 6.51 for the year ended June 30, 2018 compared to 6.81 for the year ended June 30, 2017.
Revenue generated from Tengda for the years ended June 30, 2018 and 2017 amounted to $3,441,001 and $3,012,177, respectively. The overall increase
in revenue of $428,824 or 14.2% was mainly due to the increase in quantity transported. Transported quantities were 697,285 tons for the year ended June 30, 2018
compared to 648,739 tons for the year ended June 30, 2017. The 7.5% increase in quantity was combined with the effect of currency fluctuation resulting in 14.2%
increase in revenue.
For the years ended June 30, 2018 and 2017, gross profit of inland transportation management services amounted to $4,625,647 and $5,138,341,
respectively, representing a 10.0% decrease. Overall gross margins for this segment decreased to 84.1% for the year ended June 30, 2018 from 89.2% for the year
ended June 30, 2017. The decrease of gross margins in the current year was due to decrease in revenue of the customer with a higher margin.
(2) Revenues from Freight Logistic Services
Freight logistics services; mainly include cargo forwarding, brokerage and other freight services. During the year ended June 30, 2018, revenues
generated by freight logistics services has increased $11,013,994 or 228.7% and gross profit margin decreased by 8.4% from 22.9% to 14.6% compared to the
same period in 2017.
14
Revenue increase was primarily due to services provided to two of our clients; approximately $15.1 million or 95.6% of revenue was generated from the
current period, as compared to $2.2 million in the corresponding period in 2017. The increase in sales is mainly from services provided to major customers who
ship minerals and coals between Australia and China. The gross margin decreased 8.4% primarily due to the change in the kind of services provided. Even with the
same customer, every transaction has a unique gross margin according to differing service scopes. Usually, a business in full-scale scope has a higher gross margin,
and the business with fragmented scope has a lower gross margin. Our fragmented scope business increased significantly, such as revenue from the two major
customers, and contributed a much higher portion of revenue in this sector than full-scale business compared to the prior period.
O n January 5, 2017, we entered into a joint venture agreement with Jetta Global Logistics Inc. (“Jetta Global”) and formed a new joint venture company
named ACH Trucking Center Corp. (“ACH Center”). Along with the establishment of ACH Center, we began providing short haul trucking transportation and
logistics services to customers located in the New York and New Jersey areas. We held a 51% ownership stake in ACH Center. Although the establishment of
ACH Center brought benefits for us and Jetta Global, it could not satisfy long term development for both us and Jetta Global. We 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 our consolidated revenue
and the termination did not constitute a strategic shift that will have a major effect on our operations and financial results, the results of operations for ACH Center
were not reported as discontinued operations. Revenue from ACH Center amounted to $46,935 or 0.3% of the segment’s revenue for the year ended June, 2018
and gross profit from ACH Center amounted to $13,989 representing 0.6% of the segment’s gross profit.
(3) Revenues from Container Trucking Services
Since we completed our web-based short-haul container trucking service platform, we began generating revenue from short-haul trucking and containers
services through the service platform. For the year ended June 30, 2018, revenue generated from container trucking services was $1,096,485, and the related gross
profit was $399,487. Overall revenue from this segment increased by $224,922 or 25.8% and gross profit margin increase by 11.0% was mainly due to the increase
of trucking services in US and the utilization of the web based platform.
Revenue from ACH Center amounted to $42,968 or 3.9% of the segment’s revenue for the year ended June 30, 2018 and gross profit from ACH Center
amounted to $4,297 representing 1.1% of the segment’s gross profit.
(4) Bulk Cargo Container Service
In the second quarter of fiscal 2018, we separated our bulk cargo container services as a unique segment.
Bulk cargo container shipment refers to using containers to ship commodities which traditionally uses freight cargo. The freight cargo rate is usually
lower than of the of container freight rate, however the transit time is much longer and has high minimum quantity requirements. With the Chinese government
banning the import of environmental wastes by the end of 2017, the empty container rate of COSCO Group's container shipping from the United States to China is
further reduced. Therefore with the signing of a strategic cooperation agreement with COSCO Beijing, we are able to take advantage of the low container rate to
jointly promote bulk cargo container transportation.
For the year ended June 30, 2018, we shipped 140 containers with 18 tons per container of sulfur from Long Beach, CA in the U.S. to our customers in
China. The arrangement included coordinating with the customer to sign the purchase contract with sulfur suppliers in the United States, organizing the container
shipping, and custom clearance; all of which have been fulfilled when we shipped the product to the customer’s designated port, Qingdao PRC. Gross revenue
generated from the bulk cargo container services was $638,227 and the related cost was $494,449 with gross profit of $143,778 or 22.5%. We were the agent in
this transaction as we did not take any inventory risk; we reported revenue on a net basis less the cost of sulfur. Due to the integrated and value added services we
provide to our customers, the average gross profit was higher than freight logistics.
15
Operating Costs and Expenses
Total operating costs and expenses increased by $13,904,664 or 166.6%, from $8,344,431 for the year ended June 30, 2017 to $22,249,095 for the year
ended June 30, 2018. This increase was primarily due to the increase in general and administrative expenses and selling expenses partially offset by the increase in
cost of revenues as discussed below.
The following table sets forth the components of the Company’s costs and expenses for the periods indicated:
2018
For the years ended June 30,
2017
Change
US$
%
US$
%
US$
%
23,064,563
15,585,693
32.4%
6,202,555
458,166
22,246,414
100.0%
67.6%
11,445,613
4,980,591
100.0%
43.5%
11,618,950
10,605,102
56.5%
-24.1%
26.9%
2.0%
96.5%
3,152,336
211,504
8,344,431
27.5%
1.8%
72.8%
3,050,219
246,662
13,904,983
101.5%
212.9%
96.8%
116.6%
166.6%
Revenues
Cost of revenues
Gross margin
General and administrative expenses
Selling expenses
Total Costs and Expenses
Costs of Revenues
The cost of revenues was $15,585,693 for the year ended June 30, 2018, an increase of $10,605,102, or 212.9%, as compared to $4,980,591 for the year
ended June 30, 2017. The overall cost of revenues as a percentage of our revenues increased from 43.5% for the year ended June 30, 2017, to 67.6% for the year
ended June 30, 2018. 92.5% of increase was mainly from freight logistics services segment due to increase in freight cost of carriers as a result of rising fuel costs.
Cost of revenue for freight logistics and container trucking services are mainly freight cost to various freight carriers.
Cost of revenue for inland transportation segment consisted mainly of the cost of labor and other overhead costs and cost of revenue for bulk container
cargo segments were costs paid to COSCO for container shipments. The decrease in overall gross profit margin of 24.1% is mainly due to different scope of
services we provided to customers.
General and Administrative Expenses
The Company’s general and administrative expenses consist primarily of salaries and benefits, office rent, office expenses, regulatory filing and listing
fees, amortization of stock-based compensation expenses, legal, accounting and other professional service fees. For the year ended June 30, 2018, we had
$6,202,555 of general and administrative expenses, as compared to $3,152,336 for the year ended June 30, 2017, an increase of $3,050,219, or 96.8%. Stock-based
compensation to business consultants amounted to $621,834 while stock-based compensation to management and employees amounted to $1,041,665, representing
a total of 134.3% increase from 2017. The Company’s provision for doubtful accounts was $1,726,599 in 2018 compared with a recovery of doubtful accounts of
$18,912 in 2017. The increase was due to a change in the allowance policy to reserve any past due amounts over 180 days compared to 365 days in the previous
year. As we continue our business relationship with several large customers, we are giving them more time to pay, however we are monitoring the payments
closely and do not think there are any collection issues with respect to our trade accounts receivable. General and administrative expenses as a percentage of
revenue remained consistent at 26.9% and 27.5% for the years ended June 30, 2018 and 2017, respectively.
16
Selling Expenses
Our selling expenses consist primarily of business promotion and salaries and commissions for our operating staff at the ports at which we provide
services. For the year ended June 30, 2018, we had $458,166 of selling expenses as compared to $211,504 for the year ended June 30, 2017, an increase of
$246,662, or 116.6%. We increased our business development efforts to explore new business opportunities while maintaining our current customer relationships.
As a percentage of revenue, our selling expenses was 2.0% for the year ended June 30, 2018 compared to 1.8% for the corresponding period in 2018.
Operating Income
We had operating income of $818,149 for the year ended June 30, 2018, compared to an operating income of $3,101,182 for the comparable period ended
June 30, 2017. The decrease was mainly due to increased costs of revenue and selling, general and administrative expenses discussed above.
Financial Income, Net
Our net financial income was $79,502 for the year ended June 30, 2018, compared to $30,278 for the same period in 2017. We have operations in the
U.S., Canada, Australia, Hong Kong and the PRC, and our financial income for this reporting period primarily reflects the foreign currency transaction income or
loss expressed in U.S. Dollars .
Taxation
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 we have 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.
As of June 30, 2018, we re-measured deferred tax assets based on current effective rate of 21% at which these deferred tax amounts are expected to
reverse in the future. In addition, we are subject to a one-time transition tax for all untaxed foreign earnings of its foreign subsidiaries. Foreign earnings held in the
form of cash and cash equivalents are taxed at a 15.5% rate, and the remaining earnings are taxed at a rate of 8%, net of certain exemptions.
We recorded an income tax expense of $949,659 for the year ended June 30, 2018 compared to income tax benefit of $472,084 for 2017. Current income
tax increased by $557,442 or 201.0% compare to the prior year, resulting mainly from an increase in net income from operations in China and the U.S. We had
approximately $4.6 million of taxable income in the US which includes non-deductible stock compensation expenses of $1.0 million, $1.7 million increase in
allowance for doubtful accounts and $2.6 million of one time transition tax. A total of approximately $4.6 million of NOL was utilized and the tax benefit derived
from such NOL was approximately $1.3 million. Approximately $2.6 million of NOL was applied to the transition tax and the rest was applied to current year
taxable income. Federal NOL at June 30, 2018 was approximately $1.5 million which are all pre-2017 NOL that expires in 2036.
During the year ended June, 2018, we recognized a total deferred income tax expense of $114,901, which was mainly due to the increase in allowance for
bad debts, decrease in net operating loss (“NOL”) and decrease in the valuation allowance against the deferred tax assets, based on the Company’s latest projected
taxable income.
We periodically evaluate the likelihood of the realization of deferred tax assets, and reduce the carrying amount of the deferred tax assets by a valuation
allowance to the extent it believes a portion will not be realized. We consider many factors when assessing the likelihood of future realization of the deferred tax
assets, including our recent cumulative earnings, expectation of future income, the carry forward periods available for tax reporting purposes, and other relevant
factors. We have provided an allowance against the deferred tax assets balance as of June 30, 2018. The net decrease in valuation for June 30, 2018 amounted to
$1,350,100, 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 the Company’s forecasted pretax income and continuing
utilization of NOL, management has determined that there is sufficient positive evidence to conclude that it is more likely than not that all of its deferred taxes are
realizable.
17
Net Income
As a result of the foregoing, we had net income of $523,107 for the year ended June 30, 2018, compared to $3,603,544 for the year ended June 30, 2017.
After the deduction of non-controlling interest, net income attributable to Sino-Global was $459,051 for the year ended June 30, 2018, compared to $3,624,892 for
the year ended June 30, 2017. Including comprehensive income from foreign currency translation, comprehensive income attributable to the Company was
$601,208 for the year ended June 30, 2018, compared to a comprehensive income attributable to the Company was $3,491,235 for the year ended June 30, 2017.
Liquidity and Capital Resources
Cash Flows and Working Capital
As of June 30, 2018, we had $7,098,259 in cash and cash equivalents. We held approximately 12.2% of our cash in banks located in New York, Los
Angeles, Canada, Australia and Hong Kong and held approximately 87.8% of our cash in banks located in the PRC.
The following table sets forth a summary of our cash flows for the periods indicated:
Net cash provided by(used in) operating activities
Net cash used in investing activities
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of year
Cash and cash equivalents at the end of year
The following table sets forth a summary of our working capital:
For the years ended
June 30,
2018
(1,807,652) $
(2,452,884) $
2,585,091 $
(1,635,483) $
8,733,742 $
7,098,259 $
2017
2,994,770
(62,412)
4,402,488
7,347,748
1,385,994
8,733,742
$
$
$
$
$
$
Total Current Assets
Total Current Liabilities
Working Capital
Current Ratio
June 30,
2018
June 30,
2017
Diff.
%
$
$
$
23,832,388 $
6,622,553 $
17,209,835 $
3.60
16,754,888 $
3,086,496 $
13,668,392 $
5.43
7,077,500
3,536,057
3,541,443
(1.83)
42.2%
114.6%
25.9%
(33.7)%
We finance our ongoing operating activities primarily by using funds from our operations and raising capital. We routinely monitor current and expected
operational requirements to evaluate the use of available funding sources. In assessing liquidity, management monitors and analyzes the Company’s cash on-hand,
its ability to generate sufficient revenue sources in the future and the Company’s operating and capital expenditure commitments. The Company plans to fund
continuing operations through identifying new prospective joint venture and strategic alliance opportunities for new revenue sources, and by reducing costs to
improve profitability and replenish working capital. Considering our existing working capital position and ability to access other funding sources, management
believes that the foregoing measures will provide sufficient liquidity for the Company to meet its future liquidity and capital obligations.
Operating Activities
Our net cash used in operating activities was $1.81 million for the year ended June 30, 2018 compared to net cash provided by operating activities of $3.0
million for the year ended June 30, 2017. The decrease in operating cash outflow is due to a decrease of net income from $3.6 million to $0.52 million, an increase
of $7.42 million in accounts receivable as we grant more credit and longer terms to continued customers as a result of sales increase, an increase of $0.66 million in
advance freight costs, a $0.28 million increase in prepaid expenses offset by an increase of $3.06 million in accounts payable and $0.75 million in taxes payable.
18
Our net cash derived from operating activities was $3.0 million for the year ended June 30, 2017, including net income of $3.60 million from increased
revenue generated from inland transportation management services, freight logistics services with strong margin contributions and decreased general and
administrative expenses. In addition, advances to suppliers-third parties decreased significantly by $2.09 million because we received certain freight services
regarding to our prepayments pursuant to our Memorandum of Understanding with Singapore Metals & Minerals Pte Ltd. and Galasi Jernsih Sdn BHD. However,
advances to suppliers-related party increased by $3.32 million because of the Cooperative Transportation Agreement that was signed with Zhiyuan International
Investment & Holding Group (Hong Kong) Co., Ltd. (“Zhiyuan Hong Kong”), a related party, pursuant to which we advanced transportation payments of
approximately $3.33 million during the year ended June 30, 2017. Cash inflows from operating activities for the year ended June 30, 2017 reflect the above
mentioned factors.
Investing Activities
Net cash used in investing activities was $2.45 million for the year ended June 30, 2018 compared to net cash used in investing activities of $0.06 million
for the same period of 2017. For the year ended June 30, 2018, The cash outflow is mainly use for leasehold improvements $0.82 million of our offices and
purchase of equipment of $0.2 million to implement our logistics platform software. In order to further improve our IT infrastructure we made a prepayment to
upgrade our server and ERP system of $1.4 million while for the year ended June 30, 2017, we only purchased office equipment of $0.06 million.
Financing Activities
Net cash provided by financing activities was $2.59 million for the year ended June 30, 2018 compared to $4.4 million for the year ended June 30, 2017.
For the year ended June 30, 2018, we received net proceeds in the amount of $2.59 million from issuance of 2 million shares of our common stock from a
registered direct offering,
Net cash provided by financing activities was $4.4 million for the year ended June 30, 2017, of which $0.08 million was from exercise of 75,000 shares
stock options were exercised by our employees. In addition, the Company received net proceeds in the amount of $4.3 million from a registered direct sale of 1.5
million shares of our common stock to institutional investors.
Critical Accounting Policies
We prepare our consolidated financial statements in accordance with US GAAP. These accounting principles require us to make judgments, estimates and
assumptions on the reported amounts of assets and liabilities at the end of each fiscal period, and the reported amounts of revenues and expenses during each fiscal
period. We continually evaluate these judgments and estimates based on our own historical experience, knowledge and assessment of current business and other
conditions, our expectations regarding the future based on available information and assumptions that we believe to be reasonable.
There have been no other material changes during the year ended June 30, 2018 in our significant accounting policies from those previously disclosed in
the Company’s annual report for the fiscal year ended June 30, 2017. The discussion of our critical accounting policies contained in Note 2 to our consolidated
financial statements in this Report, “Summary of our Significant Accounting Policies”, is incorporated herein by reference.
19
Off-Balance Sheet Commitments and Arrangements
We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered
into any derivative contracts that are indexed to our shares and classified as shareholders’ equity or that are not reflected in our consolidated financial statements.
Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serve as credit, liquidity or market risk support
to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in
leasing, hedging or research and development services with us.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.
Item 8. Financial Statements and Supplementary Data.
The Company’s financial statements and the related notes, together with the report of Friedman LLP, are set forth following the signature pages of this
Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains controls and procedures designed to ensure that information required to be disclosed by the issuer in the reports that it files or
submits under the Act (15 U.S.C. 78a et
seq.
) is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and
forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an
issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive and
principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
As of June 30, 2018, the Company carried out an evaluation, under the supervision of and with the participation of its management, including the Company’s Chief
Executive Officer and Acting Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based
on the foregoing evaluation, Chief Executive Officer and Acting Chief Financial Officer concluded that the Company’s disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act were not effective to ensure that the information required to be disclosed by the Company in the
reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and
forms due to ineffective internal controls over financial reporting that are more fully described in the management annual report on internal control over financial
reporting below.
20
Management’s Annual Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-
15(f) under the Securities and Exchange Act of 1934, as amended. The Company’s internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that:
●
●
●
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and
that the Company’s receipts and expenditures are being made only in accordance with the authorization of its management and directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could
have a material effect on the financial statements.
Management assessed our internal control over financial reporting as of the year ended June 30, 2018. In making this assessment, management used the
criteria set forth in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission (“2013 COSO”) in the report entitled “Internal Control-
Integrated Framework.” The 2013 COSO framework summarizes each of the components of a company’s internal control system, including (i) the control
environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring.
Based on management’s assessment using the 2013 COSO criteria, management has concluded that our internal control over financial reporting was not
effective as of June 30, 2018, to allow our management, employees and consultants, in the normal course of performing their assigned functions, to prevent or
detect misstatements on a timely and reasonable basis and to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles. due to the following material weaknesses:
●
●
Lack of segregation of duties for accounting personnel who prepared and reviewed the journal entries;
Lack of a full time U.S. GAAP personnel in the accounting department to monitor the recording of the transactions.
The Company is not required to have its internal control over financial reporting as of June 30, 2018 audited by its auditors because it is a smaller
reporting company.
Changes in Internal Control over Financial Reporting.
There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934) during the
three months ended June 30, 2018 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial
reporting.
Item 9B. Other Information.
None.
21
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
Regulation S-K Item 401
Lei Cao
Chief Executive Officer and Director
Age - 54
Director since 2001
Mr. Cao is our Chief Executive Officer and a Director. Mr. Cao founded our company in 2001 and has been the Chief Executive Officer since that time.
Mr. Cao has been Chief Executive officer of our company since its formation. Prior to founding our company, Mr. Cao was a Chief Representative of Wagenborg-
Lagenduk Scheepvaart BV, Holland, from 1992 to 1993, Director of the Penavico-Beijing’s shipping agency from 1987 through 1992, and a seaman for Cosco-
Hong Kong from 1984 through 1987. Mr. Cao received his EMBA degree in 2009 from Shanghai Jiao Tong University. Mr. Cao was chosen as a director because
he is the founder of our company and we believe his knowledge of our company and years of experience in our industry give him the ability to guide our company
as a director.
Jing Wang
Independent Director
Age - 70
Director since 2007
Mr. Wang currently serves as Chief Economist to China Minsheng Banking Corp., Ltd. and has held this position since December 2002. Mr. Wang was a
Chinese Project Advisor for the World Bank from 1990 until 1994. From 1998 through 2000, Mr. Wang was the vice director of Tianjin Security and Futures
Supervision Office, in charge of initial public offerings and listing companies. Mr. Wang is an independent director for Tianjin Binhai Energy & Development Co.
Ltd., (Shenzhen Stock Exchange: 000695); Tianjin Marine Shipping Co., Ltd. (Shanghai Stock Exchange: 600751), and ReneSola Company (London Stock
Exchange: SOLA). Mr. Wang received a Bachelor degree in Economics from Tianjin University of Finance and Economics. The Board believes that Mr. Wang’s
economics background and experience working with public companies qualify him to serve a director of the Company.
Tieliang Liu
Independent Director
Age - 58
Director since 2013
Dr. Liu currently serves as the vice president in charge of accounting and finance to China Sun-Trust Group Ltd. and has held this position since 2001.
Dr. Liu was a financial controller for Huaxing Group Ltd from 1998 to 2001. From 1996 through 1998, he was the chief accountant of China Enterprise Consulting
Co., Ltd. Before working in industry, Dr. Liu taught accounting and finance in a university for more than ten years and has published dozens of books and articles.
Dr. Liu is a CPA in China. He received a PhD, master’s and bachelor’s degrees from Tianjin University of Finance and Economics. Dr. Liu has been chosen to
serve as a director because of his accounting and business knowledge and experience in working with small and medium-sized companies.
Ming Zhu
Independent Director
Age - 59
Director since 2014
Mr. Zhu has been an international business consultant with RMCC Investment LLC, a Richmond, Virginia based consulting firm, since 1994. Mr. Zhu
holds a master’s degree in tourism and business from Virginia Commonwealth University. Mr. Zhu has also served as an independent director at eFuture
Information Technology Inc. since 2007 and as an independent director of Tri-Tech Holding, Inc. since 2012. Mr. Zhu was chosen as a director because of his
experience with public companies and his knowledge of our company.
Bradley A. Haneberg
Independent Director
Age – 50
Director since 2018
Mr. Haneberg formed his own boutique securities-centric law firm, Haneberg Hurlbert, PLC, in 2014. From 2002-2014, he served in various roles
(including Partner and Co-Chairman of the Corporate and Municipal Finance Section of Kaufman & Canoles, P.C., a large full-service firm headquartered in
Norfolk, Virginia. From 2001 to 2002, Mr. Haneberg served as of counsel to Reed Smith, a major full-service firm headquartered in Pittsburg, Pennsylvania. From
1996 to 2001, Mr. Haneberg was affiliated with LeClair Ryan, a large full-service firm headquartered in Richmond, Virginia. From 1993 to1996, Mr. Haneberg
was associated with Waller Lansden Dortch & Davis, a large full-service firm headquartered in Nashville, Tennessee. Mr. Haneberg received his undergraduate
education at the College of William & Mary in Williamsburg, Virginia (1990) and his legal education from the University of Tennessee College of Law in
Knoxville, Tennessee (1993).
22
Zhikang Huang
Chief Operating Officer and Director
Age - 41
Mr. Huang has been our Chief Operating Officer since 2010. Prior to 2010, he served as Director of Sino-Global Shipping Australia, for which he was
responsible for regional operations, marketing and regulation oversight. From 2006 through 2010, Mr. Huang served as our Company’s Vice President, with duties
focused on company operation and strategy, international shipping and marketing. From 2004 through 2006, Mr. Huang served as our Company’s Operations
Manager, and from 2002 through 2004, he served as an operator with our Company. Mr. Huang obtained his degree in English from Guangxi University in 1999.
Tuo Pan
Acting Chief Financial Officer
Age – 33
Ms. Pan is our Acting Chief Financial Officer and a seasoned Certified Public Accountant licensed in Australia. Since 2008, Ms. Pan has overseen the
finance and accounting functions of Sino-Global Shipping Australia Pty Ltd. Ms. Pan received her bachelor’s degree in Accounting and Finance and a master’s
degree in Advance Accounting from the Curtin University of Technology in Western Australia. From August 2007 to July 2008, Ms. Pan worked as an auditor and
project manager of Baker Tilly China Ltd., and participated in various projects from e-Future Information Technology Inc, TMC Education Corporation Ltd, to
China Ministry of Commerce, among others.
Involvement in Certain Legal Proceedings
To the best of our knowledge, none of our directors or executive officers has been convicted in a criminal proceeding, excluding traffic violations or
similar misdemeanors, or has been a party to any judicial or administrative proceeding during the past ten years that resulted in a judgment, decree or final order
enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state
securities or commodities laws, any laws respecting financial institutions or insurance companies, any law or regulation prohibiting mail or wire fraud in
connection with any business entity or been subject to any disciplinary sanctions or orders imposed by a stock, commodities or derivatives exchange or other self-
regulatory organization, except for matters that were dismissed without sanction or settlement. None of our directors, director nominees or executive officers has
been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules
and regulations of the Commission.
Board Leadership Structure
Mr. Lei Cao currently holds both the positions of Chief Executive Officer and Chairman of the Board. These two positions have not been consolidated
into one position; Mr. Cao simply holds both positions at this time. The Board of Directors believes that Mr. Cao’s service as both Chief Executive Officer and
Chairman of the Board is in the best interests of the Company and its shareholders. Mr. Cao possesses detailed and in-depth knowledge of the issues, opportunities
and challenges facing the Company and its business and is thus best positioned to develop agendas that ensure that the Board’s time and attention are focused on
the most critical matters. His combined role enables decisive leadership, ensures clear accountability, and enhances the Company’s ability to communicate its
message and strategy clearly and consistently to the Company’s shareholders, employees, customers and suppliers.
We do not have a lead independent director because we believe our independent directors are encouraged to freely voice their opinions on a relatively
small company board. We believe this leadership structure is appropriate because we are a smaller reporting company; as such, we deem it appropriate to be able to
benefit from the guidance of Mr. Cao as both our Chief Executive Officer and Chairman of the Board.
23
Risk Oversight
Our Board of Directors plays a significant role in our risk oversight. The Board of Directors makes all relevant Company decisions. As such, it is
important for us to have our Chief Executive Officer serve on the Board as he plays a key role in the risk oversight of the Company. As a smaller reporting
company with a small board of directors, we believe it is appropriate to have the involvement and input of all of our directors in risk oversight matters.
Section 16(a) Beneficial Ownership Reporting Compliance (Regulation S-K Item 405)
Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to the Company under 17 CFR 240.16a-3(e) during its most recent fiscal
year and Forms 5 and amendments thereto furnished to the Company with respect to its most recent fiscal year, and any written representation referred to in
paragraph (b)(1) of this section, the Company is not aware of any director, officer, beneficial owner of more than ten percent of any class of equity securities of the
Company registered pursuant to Section 12 that failed to file on a timely basis, as disclosed in the above forms, reports required by Section 16(a) during the most
recent fiscal year except that Mr. Bradley Haneberg did not file the Form 3 on time. As of the date of this report, such Form 3 has been filed.
Regulation S-K Item 406
The Company has adopted a Code of Ethics and has filed a copy of the Code of Ethics with the Commission. A copy of the Code of Ethics is also
available from the Company’s website (www.sino-global.com) or directly at the following link: http://www.sino-global.com/Cache/1500091697.PDF?
O=PDF&T=&Y=&D=&FID=1500091697&iid=4702267
Regulation S-K Item 407(c)(3)
None.
Regulation S-K Item 407(d)(4) and (5)
The Company has an audit committee, consisting solely of the Company’s independent directors, Tieliang Liu, Jing Wang and Ming Zhu. Mr. Liu
qualifies as the audit committee financial expert. The Company’s audit committee charter is available on the Company’s website (www.sino-global.com) or
directly at the following link: http://media.corporate-ir.net/media_files/irol/22/221375/corpgov/AuditCommCharte09272008.pdf.
Item 11. Executive Compensation.
The following table shows the annual compensation paid by us to Mr. Lei Cao, our Principal Executive Officer, Ms. Tuo Pan, our Acting Chief Financial
Officer, and Mr. Zhikang Huang, our Chief Operating Officer, for the years ended June 30, 2018 and 2017. No other officer had total compensation during either
of the previous two years of more than $100,000.
Summary Compensation Table
Name
Lei Cao,
Principal Executive Officer
Tuo Pan,
Acting Chief Financial Officer
Zhikang Huang,
Chief Operating Officer
Year
2018
2017
2018
2017
2018
2017
$
$
$
$
$
$
Salary
Bonus
Compensation Compensation
Total
Securities-
based
All other
180,000
180,000
- $
-
345,000
-
- $
- $
- $
-
- $
-
46,000
-
207,000
-
- $
- $
- $
- $
60,000
60,000
100,000
100,000
24
525,000
180,000
106,000
60,000
307,000
100,000
Outstanding Equity Awards of Named Executive Officers at Fiscal Year-End
As of June 30, 2018, we had three named executive officers, Mr. Lei Cao, our Chief Executive Officer, Ms. Tuo Pan, our Acting Chief Financial Officer,
and Mr. Zhikang Huang, our Chief Operating Officer.
Option Awards (1)
Equity
incentive plan
awards:
Name
(a)
Lei Cao,
Principal Executive Officer
Tuo Pan,
Acting Chief Financial Officer
Zhikang Huang,
Chief Operating Officer
Number of
securities
underlying
unexercised
options (#)
exercisable
(b)
Number of
securities
underlying
unexercised
options (#)
unexercisable
(c)
Number of
securities
underlying
unexercised
unearned
options (#)
(d)
Option
Exercise
price ($)
(e)
Option
expiration
date
(f)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1) Our Company has made stock awards to executive officers. The details are shown as Item 12.
Director Compensation for the year ended June 30, 2018 (1)
Name
Tieliang Liu
Jing Wang
Ming Zhu
Bradley A. Haneberg (2)
Fees earned or
paid in cash
($)
Stock
awards
($)
Option
awards
($)
All other
compensation
($)
20,000
20,000
20,000
5,000
0
0
0
0
0
0
0
0
Total
($)
20,000
20,000
20,000
5,000
0
0
0
0
(1) This table does not include Mr. Lei Cao, our Chief Executive Officer, because although Mr. Cao is a director and named executive officer, Mr. Cao’s
compensation is fully reflected in the Summary Compensation Table.
(2) Bradley was appointed as a member of the Board since May 4, 2018.
25
Employment Agreements with the Company’s Named Executive Officers
Sino-China has employment agreements with each of Mr. Lei Cao, Ms. Tuo Pan and Mr. Zhikang Huang. These employment agreements provide for
five-year terms that extend automatically in the absence of termination provided at least 60 days prior to the anniversary date of the agreement. If we fail to provide
this notice or if we wish to terminate an employment agreement in the absence of cause, then we are obligated to provide at least 30 days’ prior notice. In such case
during the initial term of the agreement, we would need to pay such executive (i) the remaining salary through the date of May 4, 2023, (ii) two times of the then
applicable annual salary if there has been no Change in Control, as defined in the employment agreements or three-and-half times of the then applicable annual
salary if there is a Change in Control.
We are, however, permitted to terminate an employee for cause without penalty to our company, where the employee has committed a crime or the
employee’s actions or inactions have resulted in a material adverse effect to us.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The below table reflects, as of June 30, 2018, the number of shares of common stock authorized by our shareholders to be issued (directly or by way of
issuance of securities exercisable for or convertible into) as incentive compensation to our officers, directors, employees and consultants.
Number of
securities
remaining
available for
future
issuance under
equity
compensation
plans
(excluding
securities
reflected in
column (a)) (c)
Number of
securities to be
issued upon
exercise of
outstanding
options,
warrants and
rights (a)
Weighted-
average exercise
price of
outstanding
options,
warrants and
rights (b)
Plan category
Equity compensation plans under the 2008 Incentive Plan approved by security holders
10,000 $
7.03
238,903(1)
Equity compensation plans under the 2014 Incentive Plan approved by security holders
75,000 $
1.10
7,370,000(1)
Equity compensation plans not approved by security holders
-
-
-
(1) Pursuant to our 2008 Incentive Plan, we are authorized to issue options to purchase 302,903 shares of our common stock. We issued 64,000 options, of which
54,000 options have been exercise or expired as of June 30, 2018. Pursuant to our 2014 Incentive Plan, we are authorized to issue, in the aggregate, 10,000,000
shares of common stock or other securities convertible or exercisable for common stock. We have granted options to purchase an aggregate of 150,000 shares
of common stock under the 2014 Incentive Plan in July 2016, among which, options to purchase 75,000 shares of common stock have been exercised. In
addition, we have issued, in the aggregate, 600,000 shares of common stock to consultants to our Company in 2014, 660,000 shares of common stock to our
officers and directors in 2016, 660,000 shares of common stock to our officers and directors in 2018, 130,000 to three employees in 2017 and 430,000 shares
of common stock to three employees in September 2018 under the 2014 Incentive Plan. Accordingly, we may issue options to purchase 238,903 shares under
the 2008 Incentive Plan, and we may issue 7,370,000 shares of common stock or other securities convertible or exercisable for common stock under the 2014
Incentive Plan.
26
The below table reflects the ownership of our common stock by officers, directors and holders of more than five percent of our common stock.
Percentages are based on 13,271,032 shares of common stock issued and 13,095,535 shares outstanding as of September 18, 2018.
Name and Address
Mr. Lei Cao (1)
Mrs. Tuo Pan (1)
Mr. Michael Huang (1)
Mr. Jing Wang (1)
Mr. Liu Tieliang (1)
Mr. Ming Zhu (1)
Mr. Yafei Li (1)
Mr. Bradley A. Haneberg
Total Officers and Directors (8 individuals)
Other Five Percent Shareholders
Mr. Zhong Zhang (2)
*
Less than 1%.
Title of
Class
Common
Common
Common
Common
Common
Common
Common
Common
Common
Amount of
Beneficial
Ownership
Percentage
Ownership
1,705,040
55,000
260,000
80,000
80,000
80,000
39,000
0
2,299 ,040
13.0%
*
*
*
*
*
*
-
17.6%
Common
1,800,000
13.7%
(1) The individual’s address is c/o Sino-Global Shipping America, Ltd., 1044 Northern Boulevard, Roslyn, New York 11576-1514.
(2) Mr. Zhang’s address is care of Tianjin Zhiyuan Investment Group Co., Ltd, 10th Floor, Tianwu Huaqing Building, No.22, Jinrong Road, Dasi Industrial Park,
Xiqing District Economic Development Zone, Tianjin City, P.R. China, 300385.
27
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The Board of Directors maintains a majority of independent directors who are deemed to be independent under the definition of independence provided
by NASDAQ Stock Market Rule 4200(a)(15). Other than as described herein, no transactions required to be disclosed under Item 404 of Regulation S-K have
occurred since the beginning of the Company’s last fiscal year.
In June 2013, we 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, our largest shareholder. In September 2013, we executed an inland transportation management service contract with the Zhiyuan Investment
Group whereby we 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, we generated revenue of $2,059,406 (8.9% of our total revenue in 2018) and $2,746,423 (24% of our
total revenue in 2017) for the years ended June 30, 2018 and 2017, respectively. The amount due from Zhiyuan Investment Group at June 30, 2018 was
$2,319,993. We expect that the full amount will be collected by March 2019. Subsequently, we entered into a supplemental service agreement with Zhiyuan to
extend the service period to September 1, 2019.
On February 18, 2017, we entered into a cooperative transportation agreement with a related party, Zhiyuan International Investment & Holding Group
(Hong Kong) Co., Limited (“Zhiyuan Hong Kong”) which is owned by the Company’s largest shareholder, 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”). We 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 we will receive a 1% to 1.25% transportation fee
incurred in the Project as a commission for its services rendered. On July 7, 2017, we signed a supplemental agreement with Zhiyuan Hong Kong, to which we will
cooperate with Zhiyuan Hong Kong exclusively on the entire Project’s transportation needs with respect to transporting construction materials from manufacturers
to the port of Malaysia and to the factory site. Pursuant to the supplemental agreement, we agreed to make prepayments to Zhiyuan Hong Kong for our share of
packaging and transporting costs related to the Project; in return, we will receive 15% of the cost incurred in the Project from Zhiyuan Hong Kong as a service fee.
We have completed our services pursuant to the supplemental agreement and received a $575,115 service fee in June 2018. We also expect the entire advance will
be reimbursed to us by October 2018.
In December 2016, we entered into a joint venture agreement with Jetta Global to form ACH Trucking Center to provide short-haul trucking
transportation and logistics services to customers located in the New York and New Jersey areas. ACH Logistic Inc. (ACH Logistic) and Jetta Global are invested
by the same owner and both of the companies provided freight logistics service and container trucking service to us. For the year ended June 30, 2017, ACH
Logistic and Jetta Global provided services in the amount of $788,775 and $222,869 to us, respectively. As of June 30, 2017, the amount due to ACH Logistic and
Jetta Global amounted to $131,262 and $75,061, respectively. The joint venture ended in December 2017.
Item 14. Principal Accountant Fees and Services.
Friedman LLP was appointed by the Company to serve as its independent registered public accounting firm for fiscal years ended June 30, 2018 and
2017. Audit services provided by Friedman LLP for fiscal years of 2018 and 2017 included the examination of the consolidated financial statements of the
Company; and services related to periodic filings made with the Commission. In addition, Friedman LLP provided review services relating to the Company’s
quarterly reports.
Audit Fees
During fiscal years of 2018 and 2017, Friedman LLP’s fees for the annual audit of our financial statements and the quarterly reviews of the financial
statements included in periodic reports were $206,000 and $190,000, respectively.
Audit-Related Fees
For the year ended June 30, 2018, audit fees related to our S-3 and S-1 filings are $24,721 and $11,200, respectively.
Tax Fees
Tax fees related to tax return preparation amounted to $28,350 and $27,771 during fiscal years of 2018 and 2017, respectively.
All Other Fees
None.
Audit Committee Pre-Approval Policies
Before Friedman LLP was engaged by the Company to render audit or non-audit services, the engagement was approved by the Company’s audit
committee. All services rendered by Friedman LLP have been so approved.
28
Item 15.
Exhibits, Financial Statement Schedules.
Number
3.1
3.2
4.1
4.2
4.3
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
14.1
21.1
23.1
31.1
31.2
32.1
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
Exhibit
Articles of Incorporation of Sino-Global Shipping America, Ltd. (1)
Bylaws of Sino-Global Shipping America, Ltd. (2)
Specimen Certificate for Common Stock (2)
Form of Series A Warrant to purchase Common Stock dated March 12, 2018. (8)
Form of Series B Warrant to purchase Common Stock dated March 12, 2018. (8)
Exclusive Management Consulting and Technical Services Agreement by and between Trans Pacific and Sino-China. (2)
Exclusive Marketing Agreement by and between Trans Pacific and Sino-China. (2)
Proxy Agreement by and among Lei Cao, Mingwei Zhang, the Company and Sino-China. (2)
Equity Interest Pledge Agreement by and among Trans Pacific, Lei Cao and Mingwei Zhang. (2)
Exclusive Equity Interest Purchase Agreement by and among the Company, Lei Cao, Mingwei Zhang and Sino-China. (2)
First Amended and Restated Exclusive Management Consulting and Technical Services Agreement by and between Trans Pacific and Sino-China.
(2)
First Amended and Restated Exclusive Marketing Agreement by and between Trans Pacific and Sino-China. (2)
The Company’s 2008 Stock Incentive Plan. (2)
The Company’s 2014 Stock Incentive Plan. (6)
Asset Purchase Agreement by and between Sino-Global and the selling shareholder dated April 10, 2015. (4)
Securities Purchase Agreement dated February 15, 2017 (7)
Engagement Agreement by and between the Company and FT Global Capital, Inc. dated February 14, 2017 (7)
Securities Purchase Agreement dated March 12, 2018. (8)
Placement Agent Agreement dated March 12, 2018. (8)
Offer Letter by and between Mr. Bradly Haneberg and Sino-Global Shipping America, Ltd., dated May 4, 2018. (9)
Employment Agreement by and between Mr. Lei Cao and Sino-Global Shipping America, Ltd., dated May 4, 2018. (9)
Employment Agreement by and between Ms. Tuo Pan and Sino-Global Shipping America, Ltd., dated May 4, 2018. (9)
Employment Agreement by and between Mr. Zhikang Huang and Sino-Global Shipping America, Ltd., dated May 4, 2018. (9)
Code of Ethics of the Company.(3)
List of subsidiaries of the Company. (10)
Consent of Independent Audit Firm. (11)
Certification of CEO pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. (11)
Certification of CFO pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. (11)
Certifications of CEO and CFO pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(11)
XBRL Instance Document.
XBRL Taxonomy Extension Schema.
XBRL Taxonomy Extension Calculation Linkbase.
XBRL Taxonomy Extension Definition Linkbase.
XBRL Taxonomy Extension Label Linkbase.
XBRL Taxonomy Extension Presentation Linkbase.
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
Incorporated by reference to the Company’s Current Report on Form 8-K filed on January 27, 2014.
Incorporated by reference to the Company’s Registration Statement on Form S-1, Registration Nos. 333-150858 and 333-148611.
Incorporated by reference to the Company’s Form 10-KSB filed on September 29, 2008, File No. 001-34024.
Incorporated by reference to the Company’s Registration Statement on Form S-1, Registration No. 333-199160
Incorporated by reference to the Company’s Form 10-K filed on September 18, 2015.
Incorporated by reference to the Company’s Form S-8 filed on April 23, 2014.
Incorporated by reference to the Company’s Current Report on Form 8-K filed on February 15, 2017
Incorporated by reference to the Company’s Current Report on Form 8-K filed on March 12, 2018
Incorporated by reference to the Company’s Current Report on Form 8-K filed on May 10, 2018
Incorporated by reference to the Company’s Registration Statement on Form S-1, Registration No.333-224467
Filed herewith.
29
In accordance with the requirements of the Exchange Act, the Company caused this report to be signed on its behalf by the undersigned, thereunto duly
SIGNATURES
authorized.
September 28, 2018
SINO-GLOBAL SHIPPING AMERICA, LTD.
By:
/s/ Lei Cao
Lei Cao
Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
September 28, 2018
September 28, 2018
September 28, 2018
September 28, 2018
September 28, 2018
September 28, 2018
September 28, 2018
By:
By:
By
By:
By:
By:
By:
/s/ Lei Cao
Lei Cao
Chief Executive Officer & Chairman of the Board
(Principal Executive Officer)
/s/ Tuo Pan
Tuo Pan
Acting Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
/s/ Zhikang Huang
Zhikang Huang
Chief Operating Officer and Director
/s/ Jing Wang
Jing Wang
Director
/s/ Ming Zhu
Ming Zhu
Director
/s/ Tieliang Liu
Tieliang Liu
Director
/s/ Bradley A. Haneberg
Bradley A. Haneberg
Director
30
SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATES
INDEX TO FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of June 30, 2018 and 2017
Consolidated Statements of Income and Comprehensive Income for the Years Ended June 30, 2018 and 2017
Consolidated Statements of Cash Flows for the Years Ended June 30, 2018 and 2017
Consolidated Statements of Changes in Equity for the Years Ended June 30, 2018 and 2017
Notes to the Consolidated Financial Statements
F- 1
PAGE
F-2
F-3
F-4
F-5
F-6
F-7
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Sino-Global Shipping America, Ltd.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Sino-Global Shipping America, Ltd. and Affiliates (collectively, the “Company”) as of June 30,
2018 and 2017, and the related consolidated statements of income and comprehensive income, changes in equity and cash flows for each of the years in the two-
year period ended June 30, 2018, and the related notes (collectively referred to as the financial statements). In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the financial position of Sino-Global Shipping America, Ltd. as of June 30, 2018 and 2017, and the results
of their operations and their cash flows for each of the years in the two-year period ended June 30, 2018, in conformity with accounting principles generally
accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements
based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required
to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were
we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control
over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Friedman LLP
We have served as the Company’s auditor since 2007.
New York, New York
September 28, 2018
F- 2
SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATES
CONSOLIDATED BALANCE SHEETS
Assets
Current assets
Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts of $1,682,228 and $185,821 as of June 30, 2018 and 2017,
respectively
Other receivables, less allowance for doubtful accounts of $145,176 and $145,244 as of June 30, 2018 and 2017,
respectively
Advances to suppliers-third parties
Advances to suppliers-related party
Prepaid expense and other current assets
Due from related party
Total Current Assets
Property and equipment, net
Intangible assets, net
Prepaid expenses
Other long-term assets - deposits
Deferred tax assets, net
Total Assets
Liabilities and Equity
Current Liabilities
Advances from customers
Accounts payable
Taxes payable
Due to related parties
Accrued expenses and other current liabilities
Total Current Liabilities
Total Liabilities
Commitments and Contingencies
Equity
Preferred stock, 2,000,000 shares authorized, no par value, none issued.
Common stock, 50,000,000 shares authorized, no par value; 13,271,032 and 10,281,032 shares issued as of June 30, 2018
and 2017, respectively; 13,095,535 and 10,105,535 outstanding as of June 30, 2018 and 2017, respectively
Additional paid-in capital
Treasury stock, at cost, 175,497 shares as of June 30, 2018 and 2017
Accumulated deficit
Accumulated other comprehensive loss
Total Sino-Global Shipping America Ltd. Stockholders' Equity
Non-controlling Interest
Total Equity
Total Liabilities and Equity
June 30,
2018
June 30,
2017
$
7,098,259 $
8,733,742
8,428,853
2,569,141
69,239
2,144,985
3,414,619
588,439
2,087,994
37,811
54,890
3,333,038
311,136
1,715,130
23,832,388
16,754,888
956,429
153,056
438,151
143,303
634,500
187,373
-
6,882
117,478
749,400
$
26,157,827 $
17,816,021
$
415,385 $
3,225,661
2,700,619
-
280,888
369,717
206,211
1,886,216
206,323
418,029
6,622,553
3,086,496
6,622,553
3,086,496
-
-
23,717,330
1,755,573
(417,538)
(434,856)
(272,407)
20,535,379
688,934
(417,538)
(893,907)
(414,564)
24,348,102
19,498,304
(4,812,828)
(4,768,779)
19,535,274
14,729,525
$
26,157,827 $
17,816,021
The accompanying notes are an integral part of these consolidated financial statements.
F- 3
SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Net revenues - third parties
Net revenues - related party
Total revenues
Cost of revenues
Gross profit
General and administrative expenses
Selling expenses
Total operating expenses
Operating income
Financial income, net
Other income, net
Total other income
Net income before provision for income taxes
Income tax benefit (expense)
Net income
Net income (loss) attributable to non-controlling interest
For the Years Ended
June 30,
2018
2017
$
21,005,157 $
2,059,406
23,064,563 $
(15,585,693)
7,478,870
8,699,190
2,746,423
11,445,613
(4,980,591)
6,465,022
(6,202,555)
(458,166)
(6,660,721)
(3,152,336)
(211,504)
(3,363,840)
818,149
3,101,182
79,502
575,115
654,617
30,278
-
30,278
1,472,766
3,131,460
(949,659)
472,084
523,107
3,603,544
64,056
(21,348)
Net income attributable to Sino-Global Shipping America, Ltd.
$
459,051 $
3,624,892
Comprehensive income
Net income
Other comprehensive income (loss) - foreign currency translation gain (loss)
Comprehensive income
Less: Comprehensive income (loss) attributable to non-controlling interest
Comprehensive income attributable to Sino-Global Shipping America Ltd.
Earnings per share
-Basic
-Diluted
Weighted average number of common shares used in computation
-Basic
-Diluted
$
523,107 $
65,981
589,088
(12,120)
3,603,544
(73,741)
3,529,803
38,568
$
601,208 $
3,491,235
$
$
0.04 $
0.04 $
0.41
0.41
11,037,343
12,023,036
8,911,494
8,949,960
The accompanying notes are an integral part of these consolidated financial statements.
F- 4
SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Operating Activities
Net income
Adjustment to reconcile net income to net cash provided by (used in) operating activities:
Stock-based compensation – employees, management and directors
Amortization of stock-based compensation - consultants
Amortization of stock option expense
Depreciation and amortization
Provision for (recovery of) doubtful accounts
Deferred tax provision (benefit)
Changes in assets and liabilities
Increase in accounts receivable
Decrease (increase) in other receivables
Decrease (increase) in advances to suppliers-third parties
Increase in advances to suppliers-related party
Decrease (increase) in prepaid expenses
Increase in other long-term assets
Increase in due from related parties
Increase in advances from customers
Increase (decrease) in accounts payable
Increase in taxes payable
Increase (decrease) in due to related parties
Increase (decrease)in accrued expenses and other current liabilities
Net cash provided by (used in) operating activities
Investing Activities
Acquisition of property and equipment
Acquisition of intangible assets
Prepayment for acquisition of intangible assets
Net cash used in investing activities
Financing Activities
Proceeds from issuance of common stock, net
Proceeds from exercise of stock options
Net cash provided by financing activities
Effect of exchange rate fluctuations on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental information
Income taxes paid
For the Years Ended
June 30,
2018
2017
$
523,107 $
3,603,544
1,032,000
621,834
9,665
94,919
1,726,599
114,900
(7,421,179)
(31,328)
(662,144)
-
(280,627)
(470,319)
(604,863)
38,174
3,064,257
754,512
(206,323)
(110,836)
-
599,846
110,195
49,367
(18,912)
(749,400)
(260,165)
249,768
2,085,281
(3,317,382)
143,796
(70,806)
(117,772)
343,790
(272,474)
278,288
206,323
131,483
(1,807,652)
2,994,770
(822,777)
(190,000)
(1,440,107)
(62,412)
-
-
(2,452,884)
(62,412)
2,585,091
-
4,319,988
82,500
2,585,091
4,402,488
39,962
12,902
(1,635,483)
7,347,748
8,733,742
1,385,994
$
7,098,259 $
8,733,742
$
68,268 $
89,324
The accompanying notes are an integral part of these consolidated financial statements.
F- 5
SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Common stock
Shares
Amount
Additional
paid-in
capital
Treasury stock
Shares
Amount
Accumulated
deficit
comprehensive
income (loss)
Accumulated
other
Total
Non-
stockholders'
controlling
Equity
interest
Total
Equity
8,456,032 $ 15,500,391 $ 1,140,962
(175,497) $
(417,538) $ (4,518,799) $
(280,907) $ 11,424,109 $ (4,807,347) $ 6,616,762
Balance as of
June 30, 2016
Issuance of
common stock
1,500,000
4,319,988
-
-
75,000
82,500
-
-
110,195
250,000
632,500
(562,223)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4,319,988
-
4,319,988
-
-
82,500
-
82,500
110,195
-
110,195
-
70,277
-
70,277
-
3,624,892
(133,657)
-
(133,657)
3,624,892
59,916
(21,348)
(73,741)
3,603,544
Exercise of stock
options
Amortization of
stock options
Shares issued for
professional
services
Foreign currency
translation
Net income
Balance as of
June 30, 2017
10,281,032
20,535,379
688,934
(175,497)
(417,538)
(893,907)
(414,564)
19,498,304
(4,768,779)
14,729,525
Issuance of
common stock
2,000,000
1,510,951
1,074,140
-
-
-
-
2,585,091
-
2,585,091
Stock based
compensation to
management
and board
Stock based
compensation to
employee
Amortization of
stock
compensation
Shares issued for
professional
services
Disposition of
joint venture
Foreign currency
translation
Net income
Balance as of
660,000
759,000
-
130,000
364,000
(91,000)
-
-
9,665
200,000
758,834
(137,000)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
759,000
-
759,000
-
273,000
-
273,000
-
9,665
-
9,665
-
-
621,834
-
621,834
-
(31,929)
(31,929)
-
-
-
459,051
142,157
-
142,157
459,051
(76,176)
64,056
65,981
523,107
June 30, 2018
13,271,032 $ 23,717,330 $ 1,755,573
(175,497) $
(417,538) $
(434,856) $
(272,407) $ 24,348,102 $ (4,812,828) $ 19,535,274
The accompanying notes are an integral part of these consolidated financial statements.
F- 6
SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1. ORGANIZATION AND NATURE OF BUSINESS
Founded in the United States (the “U.S.”) in 2001, Sino-Global Shipping America, Ltd., a Virginia corporation (“Sino-Global” or the “Company”), is a
non-asset based global shipping and freight logistics integrated solution provider. The Company provides tailored solutions and value-added services to its
customers to drive effectiveness and control in related 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 (the “PRC”) (including Hong Kong), Australia and Canada. The
majority of the Company’s business is generated from clients located in the PRC and the U.S.
The Company’ operates in four segments including (1) inland transportation management services which are operated by its subsidiaries in the PRC,
Hong Kong and the U.S.; (2) freight logistics services which are operated by its subsidiaries in the PRC and the U.S.; (3) container trucking services which are
operated by its subsidiaries in the PRC and through a joint venture in the U.S. from January to December 2017; and (4) bulk cargo container services which are
currently operated by its subsidiary in the U.S.
In order to increase the Company’s operations in the U.S. and to enhance the Company’s competitiveness with information technology, in August 2016,
the Company’s Board of Directors (the “Board”) authorized management to move forward with the development of a mobile application that will provide a full-
service logistics platform between the U.S. and the PRC for short-haul trucking in the U.S. Upon the implementation of the application, the Company signed two
significant agreements with COSCO Beijing International Freight Co., Ltd. (“COSFRE Beijing”) and Sino-Trans Guangxi in December 2016. Pursuant to the
agreement with COSFRE Beijing, the Company 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. The Company has increased its business in the U.S. since the launch of the short haul container
truck services web-based platform. For the strategic cooperation framework agreement with Sino-Trans Guangxi, which is a subsidiary of Sino-Trans Limited, the
Company 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 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 transport 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. The Board subsequently authorized the Company
to upgrade its enterprise resource planning system (ERP) in order to manage its operations in real time throughout its multiple locations and to integrate with web
applications.
On January 5, 2017, the Company entered into a joint venture agreement with Jetta Global Logistics Inc. (“Jetta Global”) and formed a new joint venture
company named ACH Trucking Center Corp. (“ACH Center”). 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 benefits 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.
On September 11, 2017, the Company set up a new wholly-owned subsidiary, Ningbo Saimeinuo Supply Chain Management Ltd. (“Sino Ningbo”), via its
wholly-owned entity, Sino-Global Shipping New York Inc. This subsidiary primarily engages in transportation management and freight logistics services. Sino
Ningbo’s operating results were included in the consolidated financial statements starting the fourth quarter of fiscal year 2018.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States
of America (“US GAAP”). The consolidated financial statements include the accounts of all directly, indirectly owned subsidiaries and variable interest entity. All
intercompany transactions and balances have been eliminated in consolidation.
F- 7
(b) Basis of Consolidation
The consolidated financial statements include the accounts of the Company, its subsidiaries, and its affiliates. All significant intercompany transactions
and balances are eliminated in consolidation. Sino-Global Shipping Agency Ltd., a PRC corporation (“Sino-China”), is considered a variable interest entity
(“VIE”), with the Company as the primary beneficiary. The Company, through Trans Pacific Beijing, entered into certain agreements with Sino-China, pursuant to
which the Company receives 90% of Sino-China’s net income. The Company does not receive any payments from Sino-China unless Sino-China recognizes net
income during its fiscal year. These agreements do not entitle the Company to any consideration if Sino-China incurs a net loss during its fiscal year. If Sino-China
incurs a net loss during its fiscal year, the Company is not required to absorb such net loss.
As a VIE, Sino-China’s revenues are included in the Company’s total revenues, and any loss from operations is consolidated with that of the Company.
Because of contractual arrangements between the Company and Sino-China, the Company has a pecuniary interest in Sino-China that requires consolidation of the
financial statements of the Company and Sino-China.
The Company has consolidated Sino-China’s operating results because the entities are under common control in accordance with ASC 805-10, “Business
Combinations”. The agency relationship between the Company and Sino-China and its branches is governed by a series of contractual arrangements pursuant to
which the Company has substantial control over Sino-China. Management makes ongoing reassessments of whether the Company remains the primary beneficiary
of Sino-China.
The carrying amount and classification of Sino-China's assets and liabilities included in the Company’s consolidated balance sheets were as follows:
Total current assets
Total assets
Total current liabilities
Total liabilities
F- 8
June 30,
2018
June 30,
2017
$
3,434,850 $
3,992,131
21,979
21,979
9,327,990
9,472,651
4,517
4,517
(c) Fair Value of Financial Instruments
The Company follows the provisions of ASC 820, Fair Value Measurements and Disclosures, which clarifies the definition of fair value, prescribes
methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1 — Observable inputs such as unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level 2 — Inputs other than quoted prices that are observable for the asset or liability in active markets, quoted prices for identical or similar assets and
liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.
Level 3 — Unobservable inputs that reflect management’s assumptions based on the best available information.
The carrying value of accounts receivable, other receivables, other current assets, and current liabilities approximate their fair values because of the short-
term nature of these instruments.
(d) Use of Estimates and Assumptions
The preparation of the Company’s consolidated financial statements in conformity with US GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and
the reported amounts of revenues and expenses during the reporting periods. Estimates are adjusted to reflect actual experience when necessary. Significant
accounting estimates reflected in the Company’s consolidated financial statements include revenue recognition, fair value of stock based compensation, cost of
revenues, allowance for doubtful accounts, deferred income taxes, income tax expense 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 consolidated
financial statements are presented in USD. Foreign currency transactions are translated into USD using the fixed exchange rates in effect at the time of the
transaction. Generally, foreign exchange gains and losses resulting from the settlement of such transactions are recognized in the consolidated statements of
operations. The Company translates the foreign currency financial statements of Sino-China, Sino-Global Shipping Australia, Sino-Global Shipping Hong Kong,
Sino-Global Shipping Canada, Trans Pacific Beijing and Trans Pacific Shanghai in accordance with ASC 830-10, “Foreign Currency Matters”. Assets and
liabilities are translated at current exchange rates quoted by the People’s Bank of China at the balance sheet dates and revenues and expenses are translated at
average exchange rates in effect during the year. The resulting translation adjustments are recorded as other comprehensive income (loss) and accumulated other
comprehensive loss as a separate component of equity of the Company, and also included in non-controlling interests.
The exchange rates for the years ended June 30, 2018 and 2017 are as follows:
June 30,
2018
2017
Foreign currency
RMB:1USD
AUD:1USD
HKD:1USD
CAD:1USD
(f) Cash and Cash Equivalents
Balance Sheet Profits/Loss Balance Sheet Profits/Loss
6.8126
1.3267
7.7651
1.3270
6.5047
1.2903
7.8243
1.2697
6.6186
1.3505
7.8442
1.3141
6.7806
1.3028
7.8059
1.2982
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 June 30, 2018, and 2017, cash balances of $6,205,960 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 June 30, 2018, and 2017, cash balance of $848,657 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.
F- 9
(g) Receivables and Allowance for Doubtful Accounts
Accounts receivable are presented at net realizable value. The Company maintains allowances for doubtful accounts and for estimated losses. The
Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual
receivable balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balances,
customers’ historical payment history, their current credit-worthiness and current economic trends. Receivables are considered past due after 180 days. Accounts
Receivable are written off against the allowances only after exhaustive collection efforts.
Other receivables represent mainly prepaid employee insurance and welfare benefits, which will be subsequently deducted from the employee payroll,
guarantee deposits on behalf of ship owners as well as office lease deposits.
(h) Property and Equipment, net
Net property and equipment are stated at historical cost less accumulated depreciation. Historical cost comprises its purchase price and any directly
attributable costs of bringing the assets to its working condition and location for its intended use. Depreciation is calculated on a straight-line basis over the
following estimated useful lives:
Buildings
Motor vehicles
Furniture and office equipment
Leasehold improvements
20 years
5-10 years
3-5 years
Shorter of lease term or useful lives
The carrying value of a long-lived asset is considered impaired by the Company when the anticipated undiscounted cash flows from such asset is less than
its carrying value. If impairment is identified, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset.
Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved or based on independent appraisals.
Management has determined that there were no impairments at the balance sheet dates.
(i) Intangible Assets, net
Intangible assets are recorded at cost less accumulated amortization. Amortization is calculated on a straight-line basis over the following estimated useful
lives:
Logistics platform
3 years
The Company evaluates intangible assets for impairment whenever events or changes in circumstances indicate that the assets might be impaired. There
was no such impairment as of June 30, 2018.
(j) Revenue Recognition
● Revenues from inland transportation management services are recognized when commodities are being released from the customers’ warehouse.
● Revenues from ship management services are recognized when the related contractual services are rendered.
● Revenues from freight 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.
(k) Taxation
Because the Company and its subsidiaries and Sino-China are incorporated in different jurisdictions, they file separate income tax returns. The Company
uses the liability method of accounting for income taxes in accordance with US Generally Accepted Accounting Principles (“US GAAP”). Deferred taxes, if any,
are recognized for the future tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts in the
consolidated financial statements. A valuation allowance is provided against deferred tax assets if it is more likely than not that the asset will not be utilized in the
future.
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on
examination by the taxing authorities, based on the technical merits of the position. The Company recognizes interest and penalties, if any, related to unrecognized
tax benefits as income tax expense. The Company had no uncertain tax positions as of June 30, 2018 and 2017, respectively.
F- 10
Income tax returns for the years prior to 2014 are no longer subject to examination by US tax authorities.
On December 22, 2017, the “Tax Cuts and Jobs Act” (the “Act”) was enacted. Under the provisions of the Act, the U.S. corporate tax rate decreased from
35% to 21%. As the Company has a June 30 fiscal year-end, the lower corporate income tax rate will be phased in, resulting in a U.S. statutory federal rate of
approximately 28% for our fiscal year ending June 30, 2018, and 21% for subsequent fiscal years. Additionally, the Tax Act imposes a one-time transition tax on
deemed repatriation of historical earnings of foreign subsidiaries, and future foreign earnings are subject to U.S. taxation. The change in rate has caused the
Company to re-measure all U.S. deferred income tax assets and liabilities for temporary differences and net operating loss (“NOL”) carryforwards and recorded a
one-time transition tax expense.
PRC Enterprise Income Tax
PRC enterprise income tax is calculated based on taxable income determined under the PRC Generally Accepted Accounting Principles (“PRC GAAP”)
at 25%. Sino-China and Trans Pacific are registered in PRC and governed by the Enterprise Income Tax Laws of the PRC.
PRC Business Tax and Surcharges
Revenues from services provided by the Company’s PRC subsidiaries and affiliates, including Sino-China and Trans Pacific are subject to the PRC
business tax of 5%. Business tax and surcharges are paid on gross revenues generated from shipping agency services minus the costs of services which are paid on
behalf of the customers.
In addition, under the PRC regulations, the Company’s PRC subsidiaries and affiliates are required to pay the city construction tax (7%) and education
surcharges (3%) based on the calculated business tax payments.
The Company’s PRC subsidiaries and affiliates report revenues net of PRC’s business tax and surcharges for all the periods presented in the consolidated
statements of operations.
(l) Earnings (loss) per Share
Basic earnings (loss) per share is computed by dividing net income (loss) attributable to holders of common shares of the Company by the weighted
average number of common shares of the Company outstanding during the applicable period. Diluted earnings per share reflect the potential dilution that could
occur if securities or other contracts to issue common shares of the Company were exercised or converted into common shares of the Company. Common share
equivalents are excluded from the computation of diluted earnings per share if their effects would be anti-dilutive.
For the year ended June 30, 2018 and 2017, the effect of potential shares of common stock of the Company was dilutive since the exercise prices for
options and warrants were lower than the average market price for the related periods. As a result, a total of 985,693 and 38,466 of unexercised options and
warrants were dilutive for the year ended June 30, 2018 and 2017, respectively, and were included in the computation of diluted EPS.
(l) Comprehensive Income (loss)
The Company reports comprehensive income (loss) in accordance with the FASB issued authoritative guidance which establishes standards for reporting
comprehensive income (loss) and its component in financial statements. Comprehensive income (loss), as defined, includes all changes in equity during a period
from non-owner sources.
(m) Stock-based Compensation
Valuations are based upon highly subjective assumptions about the future, including stock price volatility and exercise patterns. The fair value of share-
based payment awards was estimated using the Black-Scholes option pricing model. Expected volatilities are based on the historical volatility of the Company’s
stock. The Company uses historical data to estimate option exercise and employee terminations. The expected term of options granted represents the period of time
that options granted are expected to be outstanding. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in
effect at the time of the grant.
(n) 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”).
F- 11
(0) Recent Accounting Pronouncements
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 permits Companies
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). In August 2015, the FASB issued ASU No.
2015-14, “Deferral of the Effective Date” (“ASU 2015-14”), which defers the effective date for ASU 2014-09 by one year. For public entities, the guidance in
ASU 2014-09 will be effective for annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those periods), which
means it will be effective for the Company’s fiscal year beginning July 1, 2018. In March 2016, the FASB issued ASU No. 2016-08, “Principal versus Agent
Considerations (Reporting Revenue versus Net)” (“ASU 2016-08”), which clarifies the implementation guidance on principal versus agent considerations in the
new revenue recognition standard. In April 2016, the FASB issued ASU No. 2016-10, “Identifying Performance Obligations and Licensing” (“ASU 2016-10”),
which reduces the complexity when applying the guidance for identifying performance obligations and improves the operability and understandability of the
license implementation guidance. In May 2016, the FASB issued ASU No. 2016-12 “Narrow-Scope Improvements and Practical Expedients” (“ASU 2016-12”),
which amends the guidance on transition, collectability, noncash consideration and the presentation of sales and other similar taxes. In December 2016, the FASB
further issued ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers” (“ASU 2016-20”), which makes
minor corrections or minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant
administrative cost to most entities. The amendments are intended to address implementation and provide additional practical expedients to reduce the cost and
complexity of applying the new revenue standard. These amendments have the same effective date as the new revenue standard. Preliminarily, the Company plans
to adopt Topic 606 in the first quarter of its fiscal year 2019 using the modified retrospective method, and is continuing to evaluate the impact of its pending
adoption of Topic 606 will have on its financial statements. The Company believes that its current revenue recognition policies are generally consistent with the
new revenue recognition standards set forth in ASU 2014-09. Potential adjustments to input measures are not expected to be pervasive to the majority of the
Company’s contracts. The Company does not believe the adoption of this ASU would have a material effect on the Company’s financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-2”) which revises accounting for operating leases by a lessee,
among other changes, and requires a lessee to recognize a liability to make lease payments and an asset representing its right to use the underlying asset for the
lease term in the balance sheet. This update will be effective for public entities for fiscal years beginning after December 15, 2018, including interim periods within
those fiscal years. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, to clarify how to apply certain aspects of the
new leases standard. The amendments address the rate implicit in the lease, impairment of the net investment in the lease, lessee reassessment of lease
classification, lessor reassessment of lease term and purchase options, variable payments that depend on an index or rate and certain transition adjustments, among
other issues. In addition, in July 2018, the FASB issued ASU 2018-11, Leases
(Topic
842),
Targeted
Improvements,
which provides an additional (and optional)
transition method to adopt the new leases standard. Under the new transition method, a reporting entity would initially apply the new lease requirements at the
effective date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, continue to report comparative
periods presented in the financial statements in the period of adoption in accordance with current U.S. GAAP (i.e., ASC 840, Leases) and provide the required
disclosures under ASC 840 for all periods presented under current U.S. GAAP. A modified retrospective transition approach is required for lessees for capital and
operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical
expedients available. The Company plans to adopt these new guidance in the first quarter of fiscal year 2010 and is still evaluating the effect that this guidance will
have on the Company’s financial statements and related disclosures.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,
to address diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments provide guidance
on the following eight specific cash flow issues: (1) Debt Prepayment or Debt Extinguishment Costs; (2) Settlement of Zero-Coupon Debt Instruments or Other
Debt Instruments with Coupon Interest Rates That Are Insignificant in Relation to the Effective Interest Rate of the Borrowing; (3) Contingent Consideration
Payments Made after a Business Combination; (4) Proceeds from the Settlement of Insurance Claims; (5) Proceeds from the Settlement of Corporate-Owned Life
Insurance Policies, including Bank-Owned; (6) Life Insurance Policies; (7) Distributions Received from Equity Method Investees; (8) Beneficial Interests in
Securitization Transactions; and Separately Identifiable Cash Flows and Application of the Predominance Principle. The amendments are effective for public
business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption
in an interim period. The amendments should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the
amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The
Company does not believe the adoption of this ASU would have a material effect on the Company’s financial statements.
F- 12
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 does not believe the adoption of this ASU would have a material effect on the Company’s financial statements.
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 re-characterize 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 consolidated financial statements.
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).
In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment
Accounting. The guidance largely aligns the accounting for share-based payment awards issued to employees and nonemployees, whereby the existing employee
guidance will apply to nonemployee share-based transactions (as long as the transaction is not effectively a form of financing), with the exception of specific
guidance related to the attribution of compensation cost. The cost of nonemployee awards will continue to be recorded as if the grantor had paid cash for the goods
or services. In addition, the contractual term will be able to be used in lieu of an expected term in the option-pricing model for nonemployee awards. The ASU is
effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The ASU is required to be applied on a prospective
basis to all new awards granted after the date of adoption. The Company is still evaluating the effect that this guidance but does not expect the standard to have a
material impact on its consolidated financial statements.
The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the
Company’s consolidated financial statements.
Note 3. ACCOUNTS RECEIVABLE, NET
The Company’s net accounts receivable is as follows:
Trade accounts receivable
Less: allowances for doubtful accounts
Accounts receivables, net
June 30,
2018
June 30,
2017
$
$
10,111,081 $
(1,682,228)
8,428,853 $
2,754,962
(185,821)
2,569,141
F- 13
Movement of allowance for doubtful accounts is as follows:
Beginning balance
Provision for doubtful accounts
Less: write-off/recovery
Exchange rate effect
Ending balance
June 30,
2018
June 30,
2017
$
$
185,821 $
1,519,122
(24,101)
1,386
1,682,228 $
207,028
-
(18,912)
(2,295)
185,821
For the year ended June 30, 2018, the provision for doubtful accounts was $1,519,122. No provision was made in same period 2017.
Note 4. ADVANCES TO SUPPLIERS
The Company’s advances to suppliers – third parties are as follows:
Deposit for ERP (1)
Deposit for IT infrastructure (2)
Freight fees (3)
Other
Total advances to suppliers-third parties
June 30,
2018
June 30,
2017
$
$
437,357 $
1,002,750
564,365
140,513
2,144,985 $
-
-
29,960
24,930
54,890
(1) On December 27, 2017, with the approval of the Board, the Company signed a contract with Tianjin Anboweiye Technology Ltd Co. (“Tianjin Anboweiye”),
to develop a more complete ERP system based on the Company’s current operations and projected future growth. In March 2018, the Company paid a deposit
to start phase one of the development which includes upgraded accounting and human resources modules, new order processing and customer relationship
management system. The Company paid a $437,357 deposit to Tianjin Anboweiye as of June 30, 2018. The total contract price for phase one amounted to
RMB 4,000,000, approximately USD 615,000. The project is currently in the planning and design stage. The Company expects the planning stage will be
completed in and will start development in October 2018. The remaining balance will be settled upon completion of services in fiscal year 2021.
(2) On June 22, 2018, the Company entered into contract to improve its IT infrastructure. The total contract for the services is $1.2 million and the Company paid
a deposit of $1.0 million. The contract includes four parts: $420,000 for hardware leasing of twelve months; $480,000 for onsite services and IT consulting for
a two year period; $60,000 for operating system set up and $240,000 for continuing integration and with the ERP system and data management for two years.
The system is expected to be installed in October 2018.
(3) The prepaid freight fee is the Company’s advances made for various shipping cost for shipments in July 2018.
The Company’s advances to suppliers – related party are as follows:
Freight fees
Total advances to suppliers-related party
F- 14
June 30,
2018
June 30,
2017
$
$
3,414,619 $
3,414,619 $
3,333,038
3,333,038
On February 18, 2017, the Company entered into a cooperative transportation agreement with a related party, Zhiyuan International Investment &
Holding Group (Hong Kong) Co., Ltd. (the “Buyer” or “Zhiyuan Hong Kong”). Zhiyuan Hong Kong, which is jointly owned by the Company’s largest shareholder
along with China Minmetals Corporation and China Metallurgical Group Corporation, acts as the general designer, general equipment provider and general service
contractor in the upgrade and renovation project of Perwaja Steel, located in Malaysia (the “Project”). The Company agreed to provide high-quality services,
including the design of a detailed transportation plan as well as execution and necessary supervision of the plan at Zhiyuan Hong Kong’s demand, for which the
Company will receive a 1% to 1.25% transportation fee incurred in the Project as a commission for its services rendered. On July 7, 2017, the Company signed a
supplemental agreement with the Buyer, to which the Company will cooperate with Zhiyuan Hong Kong exclusively on the entire Project’s transportation needs
with respect to transporting construction materials from manufacturers to the port of Malaysia and to the factory site. Pursuant to the supplemental agreement, the
Company 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. As of June 2018, the Company has completed its services pursuant to the
supplemental agreement and received a $ 575,115 service fee in June 2018. The Company also expects that the entire advance will be reimbursed by October 2018.
Note 5. PREPAID EXPENSES AND OTHER CURRENT ASSETS
The Company’s prepaid expenses and other current assets are as follows:
Consultant fees (1)
Advance to employees
Prepaid income taxes
Other (including prepaid insurance, rent, listing fees)
Deposit for leasehold improvement on IT infrastructure facility (2)
Total
Less: current portion
Total noncurrent portion
June 30,
2018
June 30,
2017
$
$
- $
355,294
800
232,345
438,151
1,026,590
(588,439)
438,151 $
158,150
64,160
41,891
53,817
-
318,018
(311,136)
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 $316,298 was paid to the consulting company. Consulting fees have been and will be ratably charged to expenses over the terms of the above-
mentioned agreements. The prepaid consulting fees had been fully amortized as of June 30, 2018 upon the maturity of service period.
(2): The Company paid a $438,151 deposit for leasehold improvements on its IT infrastructure facility including upgrading the server room of its Shanghai office.
The total project cost is approximately $615,000 and is expected to be completed in October 2019.
F- 15
Note 6. PROPERTY AND EQUIPMENT, NET
The Company’s net property and equipment as follows:
Land and buildings
Motor vehicles
Computer equipment
Office equipment
Furniture and fixtures
System software
Leasehold improvements
Total
Less: Accumulated depreciation and amortization
Property and equipment, net
$
June 30,
2018
June 30,
2017
203,371 $
598,094
165,561
76,065
165,047
120,485
828,365
198,512
542,471
155,141
66,097
163,219
117,733
62,857
2,156,988
1,306,030
(1,200,559)
(1,118,657)
$
956,429 $
187,373
Depreciation and amortization expense for the years ended June 30, 2018 and 2017 were $57,975 and $49,367, respectively.
Note 7. INTANGIBLE ASSETS, NET
Net intangible assets consisted of the following at:
Full service logistics platforms
Less: Accumulated amortization
Intangible asset, net
June 30,
2018
June 30,
2017
$
190,000 $
-
(36,944)
$
153,056 $
-
-
As part of the above-mentioned intelligent logistics platform (see Note 4), four information applications were completed by Tianjin Anboweiye in
November 2017 and placed into service, including route planning and route execution for customers in China. The platforms are being amortized over three years.
Amortization expense amounted to $36,944 for the year ended June 30, 2018.
Note 8. EQUITY
Stock issuance
On February 21, 2017, the Company completed a sale of 1.5 million registered shares of its common stock, no par value, at a price of $3.18 per share to
three institutional investors for aggregate gross proceeds to the Company of $4.77 million. The Company’s net proceeds from the offering, after deducting offering
expenses and placement agent fees in the amount of $0.45 million, were approximately $4.32 million. Sino-Global will use the net proceeds of the offering for
working capital and general corporate purposes.
On March 12, 2018, the Company entered into a Securities Purchase Agreement with investors pursuant to which the Company sold to the investors in a
registered direct offering, an aggregate of 2,000,000 shares of the common stock of the Company, no par value per share, at a price of $1.50 per share for aggregate
gross proceeds of $3 million. The placement agent received a cash commission fee equal to 7.5% of the gross proceeds. The offering was closed on March 14,
2018. The offering of the 2 million shares 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 agreed to a lock-up period of 60 days from the date of the purchase agreement.
F- 16
Concurrently to the registered direct offering closed on March 14, 2018, the Company sold the investors Series “A” warrants to purchase up to an
aggregate of 2,000,000 shares of common stock at an exercise price of $1.75 per share and Series “B” warrants to purchase up to an aggregate of 2,000,000 shares
of common stock at an exercise price of $1.75 per share. The sale of the Series “A” warrants and Series “B” warrants is a private placement in reliance upon an
exemption afforded under Regulation D of the Securities Act. The Series “A” warrants 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 are $2,585,091.
On April 26, 2018, the Company filed a registration statement on Form S-1 (“S-1”) to register the resale of an aggregate of 4,000,000 shares of common
stock underlying the Series A and B Warrants mentioned above. The S-1 was declared effective by the SEC on May 8, 2018.
The warrants are classified as equity since they qualify for exception from derivative accounting as they are considered to be indexed to the Company’s
own stock and require net share settlement. The fair value of the warrants of $1,074,140 is valued based on the Black-Scholes-Merton model and is recorded as
additional paid-in capital from common stock based on relative fair value of proceeds received using the following assumptions:
Annual dividend yield
Expected life (years)
Risk-free interest rate
Expected volatility
Following is a summary of the status of warrants outstanding and exercisable as of June 30, 2018:
Series A
Series B
-
5.5
2.72%
110.31%
-
1.08
2.16%
73.88%
Weighted
Average
Exercise Price
Shares
139,032 $
4,000,000
-
(139,032)
4,000,000 $
- $
9.30
1.75
-
9.30
1.75
-
Warrants
Exercisable
- $
- $
Weighted
Average
Exercise Price
1.75
1.75
Average
Remaining
Contractual Life
5.21 years
0.79 years
Warrants outstanding, as of June 30, 2017
Issued
Exercised
Expired
Warrants outstanding, as of June 30, 2018
Warrants exercisable, as of June 30, 2018
Warrants Outstanding
2018 Series A 2,000,000
2018 Series B 2,000,000
Stock based compensation
On June 6, 2014, the Company entered into management consulting and advisory services agreements with two consultants, pursuant to which the
consultants should assist the Company in, among other things, financial and tax due diligence, business evaluation and integration, 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. During June 2014, a total of 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 are 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 were valued at $1,140,000, and the service terms are
from September 2014 to November 2016. Consulting expenses for the above services were $0 and $218,045 for the years ended June 30, 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 lasted 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 $0 and $173,137 for the years ended June 30,
2018 and 2017, respectively
F- 17
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 for 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 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 and consulting expenses were $0 and $138,387 for the years ended June 30, 2018 and 2017, respectively.
In March 2017, the Company entered into a consulting and advisory services agreement with consulting entity, 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 of the services, which were issued as restricted shares at $2.53 per
share on March 22, 2017 to the consultant. These shares were valued at $632,500 and consulting expenses were $210,834 and $70,278 for the years ended June
30, 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. One 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. $273,000 was recorded as compensation expense for the year ended June 30, 2018.
On October 27, 2017, the Company issued 200,000 shares of restricted common stock on the grant date with a fair value of $548,000 to a consulting
company pursuant to a consulting agreement. The scope of services primarily covers advising on business development, strategic planning and compliance during
the one-year service period from October 17, 2017 to October 16, 2018. $411,000 was recorded as consulting expenses for the year ended June 30, 2018.
On May 4, 2018, the Company's board approved the issuance of 660,000 shares of its common stock under the 2014 Stock Incentive Plan to its
management team and Board of Directors. These shares were valued at $1.15 per share on grant date with a total fair value of $759,000. The shares vested
immediately and $759,000 was recorded as compensation expense for the year ended June 30, 2018.
On June 7, 2018, the Company agreed to issue 400,000 shares of common stock with a fair value of $508,000 to a PRC attorney pursuant to a service
agreement. The scope of services primarily covers legal consultation in PRC during the two-year service period from July 2018 to June 2020. The Company will
start amortizing the value of these shares to legal expenses starting July 1, 2018.
$1,653,834 and $599,846 were charged to general and administrative expenses during the years ended June 30, 2018 and 2017, respectively.
Note 9. STOCK OPTIONS
The issuance of the Company’s options is exempted from registration under 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 of 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 10,000 options granted in 2013 is 10 years and the exercise price is $2.01. The fair value 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 5 years. The total fair
value of the options was $19,400. In accordance with the vesting periods, the Company amortized stock option expense of $0 and $3,880 for the years ended June
30, 2018 and 2017.
Pursuant to the Company’s 2014 Stock Incentive Plan, effective on July 26, 2016, the Company granted options to purchase 150,000 shares of Common
Stock to two employees with a one-year vesting period, one half of which vested on October 26, 2016, and the other half on July 26, 2017. The exercise price of
the 150,000 options is $1.10, which was equal to the share price of the Company’s Common Stock on July 26, 2016. The grant date fair value of such options was
$0.77 per share. The fair value was calculated using the Black-Scholes options pricing model with the following assumptions: volatility of 99.68%, risk free
interest rate of 1.15%, and expected life of 5 years. The total fair value of the options was $115,979. In accordance with the vesting periods, $ 9,665 and 106,315
were recorded as general and administrative expenses related to these options for the years ended June 30, 2018 and 2017. In February 2017, 75,000 of these
options were exercised by the two employees of the Company.
F- 18
A summary of the options is presented in the table below:
Options outstanding, as of June 30, 2017
Granted
Exercised
Cancelled, forfeited or expired
Options outstanding, as of June 30, 2018
Options exercisable, as of June 30, 2018
Weighted
Average
Exercise Price
Shares
141,000 $
-
-
(56,000)
85,000 $
85,000 $
3.81
-
-
7.75
1.21
1.21
Following is a summary of the status of options outstanding and exercisable at June 30, 2018:
Outstanding Options
Exercisable Options
Exercise Price
Number
$
$
2.01
1.10
10,000
75,000
85,000
Note 10. NON-CONTROLLING INTEREST
Average
Remaining
Contractual Life
4.59 years
3.07 years
$
$
Average
Exercise
Price
2.01
1.10
Number
10,000
75,000
85,000
Average
Remaining
Contractual
Life
4.59 years
3.07 years
The Company’s non-controlling interest consists of the following:
Sino-China:
Original paid-in capital
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
Trans Pacific Logistics Shanghai Ltd.
ACH Trucking Center Corp.
Total
Note 11. COMMITMENTS AND CONTINGENCIES
Lease Obligations
June 30,
2018
June 30,
2017
$
$
356,400 $
1,044
142,900
(5,521,638)
(5,021,294)
208,466
-
(4,812,828) $
356,400
1,044
217,379
(5,421,578)
(4,846,755)
46,047
31,929
(4,768,779)
The Company leases certain office premises and apartments for employees under various operating lease agreements with terms through April 16, 2020.
Rental expenses for the years ended June 30, 2018 and 2017 were $236,033 and $266,316, respectively.
Contractual Obligations:
The Company entered into a contract to upgrade its ERP system. The total contract costs amounting to RMB 4,000,000, approximately USD 615,000,
which the Company made a deposit of $437,357. The remaining balance will be settled upon the completion of services in fiscal year 2021.
F- 19
On June 22, 2018, the Company entered into a contract to improve its IT infrastructure. The total contract price for the services is $1.2 million and the
Company paid a deposit of $1.0 million. The remaining $0.2 million will be paid upon completion of services in fiscal year 2020.
Twelve months ending June 30,
2019
2020
2021
Contingencies
Leases
Contractual
Total
$
$
206,883 $
52,803
259,686 $
$
200,000
177,643
377,643 $
206,883
252,803
177,643
637,329
The Labor Contract Law of the PRC requires employers to insure the liability of the severance payments for terminated employees that have worked for
the employers for at least two years prior to January 1, 2008. The employers will be liable for one month for severance pay for each year of the service provided by
the employees. As of June 30, 2018 and 2017, the Company has estimated its severance payments of approximately $58,543 and $48,713, respectively, which have
not been reflected in its consolidated financial statements, because management cannot predict what the actual payment, if any, will be in the future.
Sino-China has employment agreements with each of Mr. Lei Cao, Ms. Tuo Pan and Mr. Zhikang Huang. These employment agreements provide for
five-year terms that extend automatically in the absence of termination provided at least 60 days prior to the anniversary date of the agreement. If we fail to provide
this notice or if we wish to terminate an employment agreement in the absence of cause, then we are obligated to provide at least 30 days’ prior notice. In such case
during the initial term of the agreement, we would need to pay such executive (i) the remaining salary through the date of May 4, 2023, (ii) two times of the then
applicable annual salary if there has been no Change in Control, as defined in the employment agreements or three-and-half times of the then applicable annual
salary if there is a Change in Control.
From time to time, the Company is involved in routine litigation that arises in the ordinary course of business. The Company was named as a defendant in
a breach of service contract lawsuit in the amount of $225,000 filed with the California Superior Court on January 19, 2018. The Company filed a motion with the
court to force the plaintiff to arbitration rather than to litigate the dispute in court based on the arbitration provision in the contract. The court approved to stay the
case pending the resolution of the arbitration and has scheduled a status conference for March 19, 2019. Management believes it is premature to assess the outcome
of the pending arbitration but believes it will not likely have a material effect on the Company’s consolidated operations or financial position.
Note 12. INCOME TAXES
On December 22, 2017, the “Tax Cuts and Jobs Act” (the “Act”) was enacted. Under the provisions of the Act, the U.S. corporate tax rate decreased from
35% to 21%. Since the Company has a June 30 fiscal year-end, a blended U.S. statutory federal rate of approximately 28% for the fiscal year ending June 30, 2018
is applied to the provision for income tax and a 21% rate for subsequent fiscal years.
As of June 30, 2018, the Company re-measured deferred tax assets based on current effective rate of 21% at which these deferred tax amounts are
expected to reverse in the future.
In addition, the Company is subject to a one-time transition tax for all untaxed foreign earnings of its foreign subsidiaries. Foreign earnings held in the
form of cash and cash equivalents are taxed at a 15.5% rate, and the remaining earnings are taxed at a rate of 8%, net of certain exemptions. This resulted in an
approximate increase of $2,625,000 to the Company’s June 30, 2018 taxable income and the Company applied its available NOL towards the transition tax.
The Company’s income tax benefit (expense) for the years ended June 30, 2018 and 2017 are as follows:
Current
USA
Hong Kong
PRC
Deferred
U.S.
Total income tax benefit (expense)
F- 20
For the years ended
June 30,
2018
2017
$
$
(120,448) $
(91,545)
(622,765)
(834,758)
-
(70,958)
(206,358)
(277,316)
(114,901)
(949,659) $
749,400
472,084
Income tax expense for the years ended June 30, 2018 and 2017 varied from the amount computed by applying the statutory income tax rate to income
before taxes. Reconciliations between the expected federal income tax rates using the federal statutory tax rate of 34% for the year ended June 30, 2017 and a
blended rate of 28% for the year ended June 30, 2018 to the Company’s effective tax rate are as follows:
U.S. statutory tax rate
Permanent difference*
Change in valuation allowance
Rate differential in foreign jurisdiction
*
Permanent difference includes non-deductible stock compensation expenses and transition tax.
The Company’s deferred tax assets are comprised of the following:
Allowance for doubtful accounts
Stock-based compensation
Net operating loss
Total deferred tax assets
Valuation allowance
Deferred tax assets, net - long-term
For the years ended
June 30,
2018
%
2017
%
28.0
70.4
(28.9)
(5.0)
64.5
34.0
3.9
(39.9)
(13.1)
(15.1)
For the years ended
June 30,
2018
2017
$
$
540,000 $
-
355,000
895,000
(260,500)
634,500 $
106,000
790,000
1,464,000
2,360,000
(1,610,600)
749,400
The Company’s operations in the U.S. have incurred a cumulative net operating loss (“NOL”) of approximately $6,100,000 as of June 30, 2017 which
may reduce future federal taxable income. During the year ended June 30, 2018, a total of approximately $4,587,000 of NOL was utilized and the tax benefit
derived from such NOL was approximately $1,280,000. Approximately $2,626,000 of NOL was applied to the transition tax discussed above and the rest was
applied to current year taxable income. Federal NOL at June 30, 2018 was approximately $1,531,000 that are pre-2017 NOL expiring in 2036.
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 June 30, 2018. The net decrease
in valuation for June 30, 2018 amounted to $1,350,100, on the basis of management’s reassessment of the amount of its deferred tax assets that are more likely
than not to be realized. Management considers new evidence, both positive and negative, that could affect its future realization of deferred tax assets. Due to the
Company’s forecasted pretax income and continuing utilization of its NOL, management determined that there is sufficient positive evidence to conclude that it is
more likely than not that all of its deferred taxes are realizable.
The Company’s taxes payable consists of the following:
VAT tax payable
Corporate income tax payable
Others
Total
Note 13. CONCENTRATIONS
Major Customer
June 30,
2018
June 30,
2017
$
$
531,337 $
2,104,232
65,050
2,700,619 $
520,436
1,290,832
74,948
1,886,216
For the year ended June 30, 2018, four customers accounted for 50%, 16%, 15% and 9% of the Company’s revenues, respectively. At June 30, 2018, one
of these four customers accounted for 100% of the Company’s accounts due from related parties (See Note 15) and the remaining three customers accounted for
approximately 92% of the Company’s accounts receivable.
F- 21
For the year ended June 30, 2017, three customers accounted for 26%, 24% and 19% of the Company’s revenues, respectively. At June 30, 2017, one of
these three customers accounted for 100% of the Company’s accounts due from related parties (See Note 15) and the remaining two customers accounted for
approximately 63% of the Company’s accounts receivable.
Major Suppliers
For the year ended June 30, 2018, two suppliers accounted for 64% and 18% of the total costs of revenue, respectively. For the year ended June 30, 2017,
two suppliers accounted for 42% and 11% of the total cost of revenues, 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 four operating segments:
(1) inland transportation management services; (2) freight logistics services; (3) container trucking services; (4) bulk cargo container services.
As stated in Note 1, ACH Center’s operating revenue was less than 1% of the Company’s consolidated revenue for 2018 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.
The following tables present summary information by segment for the years ended June 30, 2018 and 2017, respectively:
Inland
Transportation
Management
Services
For the year ended June 30, 2018
Freight
Logistic
Services
Container
Trucking
Services
Bulk Cargo
Container
Services
$
$
$
$
$
$
$
2,059,406 $
3,441,001 $
5,500,407 $
874,760 $
4,625,647 $
72,954 $
- $
- $
15,829,444 $
15,829,444 $
13,519,486 $
2,309,958 $
1,902 $
778,182 $
- $
1,096,485 $
1,096,485 $
696,998 $
399,487 $
20,063 $
44,595 $
- $
638,227 $
638,227 $
494,449 $
143,778 $
- $
- $
Total
2,059,406
21,005,157
23,064,563
15,585,693
7,478,870
94,919
822,777
For the year ended June 30, 2017
Inland
Transportation
Management
Services
Freight
Logistic
Services
Container
Trucking
Services
Bulk Cargo
Container
Services
Total
$
$
$
$
$
$
$
2,746,423 $
3,012,177 $
5,758,600 $
620,259 $
- $
4,815,450 $
4,815,450 $
3,710,364 $
5,138,341 $
27,857 $
61,359 $
1,105,086 $
21,510 $
1,053 $
- $
871,563 $
871,563 $
649,968 $
221,595 $
- $
- $
- $
- $
- $
- $
2,746,423
8,699,190
11,445,613
4,980,591
- $
- $
- $
6,465,022
49,367
62,412
Revenues
- Related party
- Third parties
Total Revenues
Cost of revenues
Gross profit
Depreciation and amortization
Total capital expenditures
Revenues
- Related party
- Third parties
Total Revenues
Cost of revenues
Total
Gross profit
Depreciation and amortization
Total capital expenditures
Total assets as of:
Inland Transportation Management Services
Freight Logistics Services
Container Trucking Services
Bulk Cargo Container Services
Total Assets
F- 22
June 30,
2018
June 30,
2017
$
$
18,338,099 $
161,667
7,228,209
429,852
26,157,827 $
15,552,593
1,704,946
558,482
-
17,816,021
Note 15. RELATED PARTY TRANSACTIONS
As of June 30, 2018 and 2017, the outstanding amounts due from related parties consist of the following:
Tianjin Zhiyuan Investment Group Co., Ltd.
Less: allowance for doubtful accounts
Total
June 30,
2018
June 30,
2017
$
$
2,319,993 $
(231,999)
2,087,994 $
1,715,130
-
1,715,130
In June 2013, the Company signed a five-year global logistic service agreement with Tianjin Zhiyuan Investment Group Co., Ltd. (the “Zhiyuan
Investment Group”) and TEWOO Chemical & Light Industry Zhiyuan Trade Co., Ltd. (together with Zhiyuan Investment Group, “Zhiyuan”). Zhiyuan Investment
Group is owned by Mr. Zhang, the largest shareholder of the Company. In September 2013, the Company executed an inland transportation management service
contract with the Zhiyuan Investment Group whereby it would provide certain advisory services and help control potential commodities loss during the
transportation process. As a result of the inland transportation management services provided to Zhiyuan, the Company generated revenue of $2,059,406 (8.9% of
the Company’s total revenue in 2018) and $2,746,423 (24% of the Company’s total revenue in 2017) for the years ended June 30, 2018 and 2017, respectively. The
amount due from Zhiyuan Investment Group as of June 30, 2018 was $2,319,993. The Company expects that the full amount will be collected by March 2019. As
of June 30, 2018, the Company provided a 10% allowance for doubtful accounts of the amount due from Zhiyuan. Subsequently, the Company entered into a
supplemental service agreement with Zhiyuan to extend the service period to September 1, 2019.
As of June 30, 2018 and 2017, the outstanding amounts advances to suppliers-related party consist of the following:
Zhiyuan International Investment & Holding Group (Hong Kong) Co., Ltd.
Total
June 30,
2018
June 30,
2017
3,414,619
3,414,619 $
3,333,038
3,333,038
$
On February 18, 2017, the Company entered into a cooperative transportation agreement with a related party, Zhiyuan Hong Kong which is owned by the
Company’s largest shareholder, 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. On July 7, 2017, the Company signed a supplemental agreement with the Buyer, to which the Company will cooperate with Zhiyuan Hong Kong
exclusively on the entire Project’s transportation needs with respect to transporting construction materials from manufacturers to the port of Malaysia and to the
factory site. Pursuant to the supplemental agreement, the Company 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
has completed its services pursuant to the supplemental agreement and received a $575,115 service fee in June 2018. The Company expects the entire advance will
be reimbursed by October 2018.
In December 2016, the Company entered into a joint venture agreement with Jetta Global to form ACH Trucking Center to provide short-haul trucking
transportation and logistics services to customers located in the New York and New Jersey areas. ACH Logistic Inc. (ACH Logistic) and Jetta Global are invested
by the same owner and both of the companies provided freight logistics service and container trucking service to the Company. For the year ended June 30, 2017,
ACH Logistic and Jetta Global provided services in the amount of $788,775 and $222,869 to the Company, respectively. As of June 30, 2017, the amount due to
ACH Logistic and Jetta Global was $131,262 and $75,061, respectively. All balances were paid in 2018.
Note 16. SUBSEQUENT EVENT
In July 2018, the Company entered into a supplemental agreement with Tengda Northwest to extend the global logistic service period until July 3, 2019.
In August 2018, the Company entered into a supplemental agreement with Zhiyuan to extend the inland transportation management service period until
September 1, 2019.
On September 3, 2018, the Company entered into co-operation agreement with Ningbo Far-East Universal Shipping Agency Co., Ltd to set up a joint
venture in Hong Kong to engage in worldwide shipping agency and management business. The Company will have 51% ownership in the joint venture.
On September 21, 2018, the Company is authorized to issue a total of 430,000 shares of the common stock valued at $1.10 per share on grant date with a
total fair value of $473,000 under the 2014 Stock Incentive Plan to three employees, vesting immediately.
F- 23
Consent of Independent Audit Firm
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23.1
We consent to the incorporation by reference in the Registration Statement on Form S-3 (No. 333-222098), the Registration Statement on Form S-8 (No. 333-
195459) pertaining to the 2014 Stock Incentive Plan of Sino-Global Shipping America, Ltd. and the Registration Statement on Form S-8 (No. 333-163329)
pertaining to the 2008 Stock Incentive Plan of Sino-Global Shipping America, Ltd., of our report dated September 28, 2018 with respect to the consolidated
financial statements of Sino-Global Shipping America, Ltd. and Affiliates included in its Annual Report on Form 10-K for the fiscal year ended June 30, 2018,
filed with the Securities and Exchange Commission on September 28, 2018.
/s/ Friedman LLP
New York, New York
September 28, 2018
Certification Pursuant to
Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Amended
Exhibit 31.1
I, Lei Cao, certify that:
1. I have reviewed this annual report on Form 10-K of Sino-Global Shipping America, Ltd.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and
have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter
(the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
Date: September 28, 2018
/s/ Lei Cao
Lei Cao
Chief Executive Officer
(Principal Executive Officer)
Certification Pursuant to
Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Amended
Exhibit 31.2
I, Tuo Pan, certify that:
1. I have reviewed this annual report on Form 10-K of Sino-Global Shipping America, Ltd.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and
have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter
(the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
Date: September 28, 2018
/s/ Tuo Pan
Tuo Pan
Acting Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report on Form 10-K for the year ended June 30, 2018 (the “Report”) of Sino-Global Shipping America, Ltd. (the “Company”) as
filed with the Securities and Exchange Commission on the date hereof, we, Lei Cao, Chief Executive Officer, and Tuo Pan, Acting Chief Financial Officer, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Lei Cao
Lei Cao
Chief Executive Officer
(Principal Executive Officer)
/s/ Tuo Pan
Tuo Pan
Acting Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
September 28, 2018