U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
x Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the period ended March 31, 2015
¨ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ___________ to ___________.
Commission File Number 001-34024
Sino-Global Shipping America, Ltd.
(Exact name of registrant as specified in its charter)
| Virginia | 11-3588546 | |
| (State or other jurisdiction of | (I.R.S. employer | |
| Incorporation or organization) | identification number) |
1044 Northern Boulevard, Suite 305
Roslyn, New York 11576-1514
(Address of principal executive offices and zip code)
(718) 888-1814
(Registrant’s telephone number, including area code)
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 x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
| Large accelerated filer ¨ | Accelerated filer ¨ |
| Non-accelerated filer ¨ (Do not check if a smaller reporting company) | Smaller reporting company x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. The Company is authorized to issue 50,000,000 shares of common stock, without par value per share, and 2,000,000 shares of preferred stock, without par value per share. As of the date of this report, the Company has 7,400,841 issued and outstanding shares of common stock and no shares of preferred stock.
SINO-GLOBAL SHIPPING AMERICA, LTD.
FORM 10-Q
INDEX
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This document contains certain statements of a forward-looking nature. Such forward-looking statements, including but not limited to 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 the control of the Company. 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 that could cause 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, ship management, shipping and chartering and inland transportation management services; | |
| · | Assuming we acquire the Vessel, our ability to integrate the Vessel into our operations in a seamless manner without causing disruption to our current businesses as well as, among other items, our ability to successfully generate revenues and cash flows from the Vessel; | |
| · | Our dependence on a limited number of major customers and related parties; | |
| · | Political and economic factors in the Peoples’ Republic of China (“PRC”); | |
| · | 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; | |
| · | Economic conditions which would reduce demand for services provided by the Company and could adversely affect profitability; | |
| · | 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 the Company’s shipping agency services, operations and financial performance; | |
| · | The acceptance in the marketplace of our new lines of services; | |
| · | Foreign currency exchange rate fluctuations; | |
| · | Hurricanes or other natural disasters; | |
| · | The impact of quotas, tariffs or safeguards on our customer products that we service; and | |
| · | Our ability to attract, retain and motivate skilled personnel. |
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.
| 1 |
See the Company’s unaudited condensed consolidated financial statements following the signature page of this report, which are incorporated herein by reference.
Item 2. 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 unaudited condensed consolidated financial statements and the related notes included elsewhere in this 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
Founded in the United States (“US”) in 2001, we are a shipping agency, logistics and ship management services company. Our current service offerings consist of shipping agency services, shipping and chartering services, inland transportation management services and ship management services. We conduct our business primarily through our wholly-owned subsidiaries in the People’s Republic of China (the “PRC” or “China”), Hong Kong (“HK”), Australia, Canada and New York. Substantially all of our business is generated from clients located in China. Our subsidiaries in Hong Kong and Australia operate our shipping agency business. Our HK subsidiary operates our shipping and chartering services and ship management services. Our subsidiary in China operates our inland transportation management services.
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 shipping agency service businesses, we used to provide shipping agency services in the PRC through Sino-Global Shipping Agency Ltd. (“Sino-China”), 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 have the ability to provide local shipping agency services in all commercial ports in the PRC. During fiscal year 2014, we completed a number of cost reduction initiatives and reorganized our shipping agency business in the PRC to improve our operating margin. In light of our decision not to pursue the local shipping agency business and as a result of the business reorganization efforts, we no longer provide shipping agency services through our VIE structure and have not undertaken any business through or with Sino-China since approximately June 30, 2014.
Business Segments
We currently deliver the following services: shipping agency and ship management services, shipping and chartering services, and inland transportation management services. Historically, we were in the business of solely providing shipping agency services. With the support of our largest shareholder, Mr. Zhong Zhang and the company he controls, Tianjin Zhi Yuan Investment Group Co., Ltd. (the “Zhiyuan Investment Group”), we expanded our service platform during fiscal year 2014 to include shipping and chartering services (launched during the quarter ended September 30, 2013) and inland transportation management services (launched during the quarter ended December 31, 2013). With the acquisition of Longhe Ship Management (Hong Kong) Co., Limited (“LSM”), a ship management company that is based in Hong Kong, we added ship management services to our service platform in September 2014.
| 2 |
The following table presents summary information by segment for the nine and three months ended March 31, 2015 and 2014:
| For the nine months ended March 31, 2015 | For the nine months ended March 31, 2014 | |||||||||||||||||||||||||||||||
| Shipping Agency and Ship Management Services | Shipping and Chartering Services | Inland Transportation Management Services | Consolidated | Shipping Agency and Ship Management Services | Shipping and Chartering Services | Inland Transportation Management Services | Consolidated | |||||||||||||||||||||||||
| Revenues | $ | 4,690,972 | $ | - | $ | 3,534,295 | $ | 8,225,267 | $ | 4,628,578 | $ | 1,937,196 | $ | 1,316,600 | $ | 7,882,374 | ||||||||||||||||
| Cost of revenues | $ | 3,756,926 | $ | - | $ | 547,665 | $ | 4,304,591 | $ | 3,598,641 | $ | 1,291,048 | $ | 187,396 | $ | 5,077,085 | ||||||||||||||||
| Gross profit | $ | 934,046 | $ | - | $ | 2,986,630 | $ | 3,920,676 | $ | 1,029,937 | $ | 646,148 | $ | 1,129,204 | $ | 2,805,289 | ||||||||||||||||
| Gross margin | 19.9 | % | 84.5 | % | 47.7 | % | 22.3 | % | 33.4 | % | 85.8 | % | 35.6 | % | ||||||||||||||||||
| For the three months ended March 31, 2015 | For the three months ended March 31, 2014 | |||||||||||||||||||||||||||||||
| Shipping Agency and Ship Management Services | Shipping and Chartering Services | Inland Transportation Management Services | Consolidated | Shipping Agency and Ship Management Services | Shipping and Chartering Services | Inland Transportation Management Services | Consolidated | |||||||||||||||||||||||||
| Revenues | $ | 1,231,182 | $ | - | $ | 1,295,580 | $ | 2,526,762 | $ | 1,226,015 | $ | - | $ | 866,510 | $ | 2,092,525 | ||||||||||||||||
| Cost of revenues | $ | 980,136 | $ | - | $ | 240,441 | $ | 1,220,577 | $ | 825,181 | $ | - | $ | 123,333 | $ | 948,514 | ||||||||||||||||
| Gross profit | $ | 251,046 | $ | - | $ | 1,055,139 | $ | 1,306,185 | $ | 400,834 | $ | - | $ | 743,177 | $ | 1,144,011 | ||||||||||||||||
| Gross margin | 20.4 | % | 81.4 | % | 51.7 | % | 32.7 | % | 85.8 | % | 54.7 | % | ||||||||||||||||||||
Revenues
(1) Revenues from Shipping Agency and Ship Management Services
| · | Shipping Agency Services |
We provide two types of shipping agency services: loading/discharging services and protective services. For protective agency services, we charge fixed fees while our customers are responsible for the payment of port costs and expenses. For loading/discharging agency services, we receive the total amount from our customers and pay the port charges on our customers’ behalf. Under these circumstances, we generally require payments in advance from customers and bill them the balances within 30 days after the transactions are completed. We believe the most significant factors that directly or indirectly affect our shipping agency service revenues are:
| ¨ | the number of ships 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. |
For the nine months ended March 31, 2015 and 2014, our shipping agency revenues were $4,500,897 and $4,628,578, respectively. The decline in revenues was due mainly to the decrease in the total number of ships we served - from 238 for the nine months ended March 31, 2014 to 117 for the same period in 2015. For the three months ended March 31, 2015 and 2014, our shipping agency revenues were $1,231,182 and $1,226,015, respectively. Our quarterly revenues were also negatively impacted by the decrease in the total number of ships we served - from 78 for the three months ended March 31, 2014 to 20 for the same period in 2015. Decreases in the number of ships served were driven by intense competition in the industry, with established and new competitors offering rates that in many cases are much lower than we can offer.
| 3 |
| For the nine months ended March 31, | For the three months ended March 31, | |||||||||||||||||||||||||||||||
| 2015 | 2014 | Change | % | 2015 | 2014 | Change | % | |||||||||||||||||||||||||
| Number of ships served | ||||||||||||||||||||||||||||||||
| Loading/discharging | 49 | 46 | 3 | 6.5 | 19 | 6 | 13 | 216.7 | ||||||||||||||||||||||||
| Protective | 68 | 192 | (124 | ) | (64.6 | ) | 1 | 72 | (71 | ) | (98.6 | ) | ||||||||||||||||||||
| Total | 117 | 238 | (121 | ) | (50.8 | ) | 20 | 78 | (58 | ) | (74.4 | ) | ||||||||||||||||||||
| · | Ship Management Services |
On September 8, 2014, we acquired LSM, a ship management services company based in Hong Kong from Mr. Deming Wang. From September to December 2014, LSM managed seven vessels and outsourced the actual ship management duties (which include among other things, crew, technical and insurance arrangements) to Qingdao Longhe Ship Management Services Co., Ltd., a company controlled by Mr. Deming Wang. Based on industry publications and information received from third parties, we grew concerned about the financial viability of vessel owners who were our customers and determined to suspend service to such customers since early January 2015. Because we acted swiftly to suspend such services, we avoided any payment and collection issues with these customers. While we do not currently serve any other customers in this business segment, we are in discussions with a number of potential customers to provide such services. The ship management services generated revenues of $190,075 for the nine months ended March 31, 2015 (from the closing date to March 31, 2015) and none for the three months ended March 31, 2015.
(2) Revenues from Shipping and Chartering Services
During September 2013, we executed shipping and chartering service agreement with the Zhiyuan Investment Group whereby we were engaged to assist in the transportation of approximately 51,000 tons of chromite ore from South Africa to China. The service agreement with the Zhiyuan Investment Group resulted in revenues of $1,937,196 and gross profit of $646,148 for the nine months ended March 31, 2014, and no revenue and cost were occurred for the three months ended March 31, 2014. We did not provide any shipping and chartering service to the Zhiyuan Investment Group or other customer in the nine and three months ended March 31, 2015.
(3) Revenues from Inland Transportation Management Services
In September 2013, we executed an inland transportation management service contract with the Zhiyuan Investment Group whereby we would provide certain advisory services to help control potential commodities loss during the transportation process. We started to provide inland transportation management services to a third-party customer, Tengda Northwest Ferroalloy Co., Ltd., since the quarter ended September 2014. As a result, for the nine months ended March 31, 2015 and 2014, the inland transportation management services generated revenues of $3,534,295 and $1,316,600, and gross profit of $2,986,630 and $1,129,204, respectively. For the three months ended March 31, 2015 and 2014, the inland transportation management services generated revenues of $1,295,580 and $866,510, and gross profit of $1,055,139 and $743,177, respectively.
Operating Costs and Expenses
Our operating costs and expenses consist of cost of revenues, general and administrative expenses (“G&A expenses”), and selling expenses. As a result of a change in our service mix year over year toward lower cost services, we were able to reduce our total operating costs and expenses by $76,916 for the nine months ended March 31, 2015 as compared to the same period of 2014. For the three months ended March 31, 2015 as compared to the same period of 2014, our total operating costs and expenses increased $268,141 due mainly to higher G&A expenses attributable to legal, accounting and other professional fees incurred in connection with our securities registration activities as well as higher business development expenses.
| 4 |
The following tables set forth the components of our costs and expenses for the periods indicated.
| For the nine months ended March 31, | ||||||||||||||||||||||||
| 2015 | 2014 | Change | ||||||||||||||||||||||
| US$ | % | US$ | % | US$ | % | |||||||||||||||||||
| Revenues | 8,225,267 | 100.0 | % | 7,882,374 | 100.0 | % | 342,893 | 4.4 | % | |||||||||||||||
| Cost of revenues | 4,304,591 | 52.3 | % | 5,077,085 | 64.4 | % | (772,494 | ) | -15.2 | % | ||||||||||||||
| Gross margin | 47.7 | % | 35.6 | % | 12.1 | % | ||||||||||||||||||
| General and administrative expenses | 3,326,769 | 40.4 | % | 2,492,197 | 31.6 | % | 834,572 | 33.5 | % | |||||||||||||||
| Selling expenses | 66,877 | 0.8 | % | 205,871 | 2.6 | % | (138,994 | ) | -67.5 | % | ||||||||||||||
| Total Costs and Expenses | 7,698,237 | 93.7 | % | 7,775,153 | 98.6 | % | (76,916 | ) | -1.0 | % | ||||||||||||||
| For the three months ended March 31, | ||||||||||||||||||||||||
| 2015 | 2014 | Change | ||||||||||||||||||||||
| US$ | % | US$ | % | US$ | % | |||||||||||||||||||
| Revenues | 2,526,762 | 100.0 | % | 2,092,525 | 100.0 | % | 434,237 | 20.8 | % | |||||||||||||||
| Cost of revenues | 1,220,577 | 48.3 | % | 948,514 | 45.3 | % | 272,063 | 28.7 | % | |||||||||||||||
| Gross margin | 51.7 | % | 54.7 | % | -3.0 | % | ||||||||||||||||||
| General and administrative expenses | 1,069,623 | 42.3 | % | 996,355 | 47.6 | % | 73,268 | 7.4 | % | |||||||||||||||
| Selling expenses | 156 | 0.0 | % | 77,346 | 3.7 | % | (77,190 | ) | -99.8 | % | ||||||||||||||
| Total Costs and Expenses | 2,290,356 | 90.7 | % | 2,022,215 | 96.6 | % | 268,141 | 13.3 | % | |||||||||||||||
| · | Costs of Revenues |
Our cost of revenues as a percentage of our revenues decreased from 64.4% to 52.3% for the nine months ended March 31, 2015 and 2014, respectively. The decrease was due mainly to the increase in revenues from our high-gross margin inland transportation management services. Our inland transportation management services revenues as a percentage of total revenues increased from approximately 17% for the nine months ended March 31, 2014 to 43% for the nine months ended March 31, 2015. Our cost of revenues as a percentage of our revenues increased slightly from 45.3% for the three months ended March 31, 2014 to 48.3% for the three months ended March 31, 2015, due mainly to higher operating costs associated with our shipping agency services.
| · | General and Administrative Expenses |
Our general and administrative expenses consist primarily of salaries and benefits, business development, office rental, meeting fees, legal, accounting and other professional service fees. The increase in our general and administrative expenses for the nine and three months ended March 31, 2015 as compared to the same period of 2014 was due mainly to the higher legal, accounting and other professional service fees incurred in connection with our securities registration activities and higher business development expenses.
| · | Selling Expenses |
Our selling expenses consist primarily of commissions for our operating staff to the ports at which we provide services. Our selling expenses decreased for the nine and three months ended March 31, 2015 as compared to the same period of 2014 was due mainly to a decline in shipping agency revenues and a decline in the total number of ships we served as discussed above.
| 5 |
Critical Accounting Policies
We prepare the unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“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.
We accounted for the business acquisition of Longhe Ship Management (Hong Kong) Co., Limited (“LSM”) under the purchase method of accounting. Under the purchase method, assets and liabilities of the business acquired are recorded at their estimated fair values as of the date of acquisition with any excess of the cost of the acquisition over the fair value of the net tangible and intangible assets acquired recorded as goodwill. Results of operations of the acquired business are included in the income statement from the date of acquisition.
There have been no other material changes during the nine and three months ended March 31, 2015 in our significant accounting policies to those previously disclosed in the Company’s June 30, 2014 annual report.
2015 Trends
In light of the overall business environment in China, we expect difficult macroeconomic conditions in fiscal year 2014 to continue in fiscal year 2015; and we believe competition and rising labor costs in the PRC will continue to erode our operating margin. Our shipping agency business has been negatively impacted by the slowdown in the Chinese economy and intense competition; and we expect this trend to continue in 2015. To mitigate against further revenue decline and earnings erosion, we will continue to diversify our revenue streams and leverage our business relationship with the Zhiyuan Investment Group to broaden our experience and expertise in the logistics services industry. In addition, we have expanded our business development initiatives to diversify our revenue streams, including but not limited to the identification of suitable acquisition candidates. In April 2015, we entered into an Asset Purchase Agreement with Rong Yao International Shipping Limited (the “Vessel Seller”), a Hong Kong corporation, regarding an acquisition of a small oil/chemical tanker (the “Vessel”) from the Vessel Seller. The closing of the Vessel acquisition will be subject to a number of conditions. We believe this acquisition marks the next step of our turnaround story as we expand our business from being a service provider to an asset owner with an integrated, scalable service platform and believe it will strengthen our operating cash flows and enhance our ability to deliver sustainable earning growth.
Results of Operations
Nine Months Ended March 31, 2015 Compared to Nine Months Ended March 31, 2014
Revenues. Our total revenues increased by $342,893 or 4.4% from $7,882,374 for the nine months ended March 31, 2014 to $8,225,267 for the comparable period in 2015. The increase was due mainly to higher revenues generated from inland transportation management services during the nine months ended March 31, 2015.
| · | Revenues from our inland transportation management services increased by $2,217,695 from $1,316,600 for the nine months ended March 31, 2014 to $3,534,295 for the same period in 2015. The increase was due mainly to the delivery of inland transportation management services to a new customer, Tengda Northwest Ferroalloy Co., Ltd., since the quarter ended September 2014. |
| · | For the nine months ended March 31, 2015, we recognized revenues of $4,500,897 from our shipping agency services, as compared to $4,628,578 for the nine months ended March 31, 2014. |
| · | Revenues from the newly acquired ship management services were $190,095 from the closing date to March 31, 2015. |
| · | We did not provide any shipping and chartering services during the nine months ended March 31, 2015. For the same period in 2014, we reported revenues of $1,937,196 for providing such services to the Zhiyuan Investment Group. |
Total Operating Costs and Expenses. Our total operating costs and expenses decreased by $76,916 or 1.0% from $7,775,153 for the nine months ended March 31, 2014 to $7,698,237 for the same period in 2015. This decrease was due primarily to a decrease in our overall cost of revenues and selling expenses, partially offset by higher general and administrative expenses.
| · | Our cost of revenues decreased by $772,494 or15.2% from $5,077,085 for the nine months ended March 31, 2014 to $4,304,591 for the nine months ended March 31, 2015. The decrease was due mainly to a more favorable service mix in the 2015 period. For the nine months ended March 31, 2015, our revenues came mainly from shipping agency services and inland transportation management services. However, for the same period in 2014, our revenues came mainly from shipping agency services and shipping and chartering services. The decline in our overall cost of revenues was due mainly to the nature of our inland transportation management services, which feature lower overhead than our shipping and chartering services. |
| · | Our general and administrative expenses increased by $834,572 or 33.5% from $2,492,197 for the nine months ended March 31, 2014 to $3,326,769 for the nine months ended March 31, 2015. This increase was due mainly to higher business development expenses of $227,863, office expense of $318,938, legal fees of $304,604 and recognition of stock-based compensation for common stock issued to consultants of $314,622. |
| · | Our selling expenses decreased by $138,994 or 67.5% from $205,871 for the nine months ended March 31, 2014 to $66,877 for the nine months ended March 31, 2015. The decrease was attributed to the decline in the total number of ships we served as discussed above. As revenue from the shipping agency services segment decline, our sales commission expenses decreased accordingly. |
Operating Income. We had operating income of $527,030 for the nine months ended March 31, 2015, compared to $107,221 for the comparable period ended March 31, 2014. The increase was due mainly to an increase in revenue from the inland transportation management services and the reduced costs of revenue and selling expenses.
Financial Expense, Net. Our net financial expense was $59,892 for the nine months ended March 31, 2015, compared to financial expense of $52,174 for the nine months ended March 31, 2014. We have operations in the US, Canada, Australia, Hong Kong and China. Our financial expense or income reflected the foreign currency exchange effect for each reporting period indicated.
Taxation. Our income tax benefit was $85,530 for the nine months ended March 31, 2015, compared to $5,919 for the nine months ended March 31, 2014. As we had a tax expense of $5,770 and deferred tax benefit of $91,300, the income tax benefit for the nine months ended March 31, 2015 was $85,530.
Net income. As a result of the foregoing, we had net income of $573,154 for the nine months ended March 31, 2015, compared to net income of $198,137 for the nine months ended March 31, 2014. After deduction of non-controlling interest, net income attributable to Sino-Global was $819,864 for the nine months ended March 31, 2015, compared to net income of $1,100,636 for the nine months ended March 31, 2014. With other comprehensive loss foreign currency translation, comprehensive income attributable to Sino-Global was $888,671 for the nine months ended March 31, 2015, compared to comprehensive income of $1,085,746 for the nine months ended March 31, 2014.
Three Months Ended March 31, 2015 Compared to Three Months Ended March 31, 2014
Revenues. Our total revenues increased by $434,237 or 20.8% from $2,092,525 for the three months ended March 31, 2014 to $2,526,762 for the comparable period in 2015. The increase was due mainly to the increase in revenues from inland transportation management services during the three months ended March 31, 2015.
| · | Revenues from our inland transportation management services increased by $429,070 from $866,510 for the three months ended March 31, 2014 to $1,295,580 for the same period in 2015. The increase was due mainly to the higher service needs from our customers. |
| · | We did not provide any shipping and chartering services during the three months ended March 31, 2015 and 2014. |
| · | For the three months ended March 31, 2015 and 2014, we recognized revenues of $1,231,182 and $1,226,015 from our shipping agency services, respectively. |
| 6 |
Total Operating Costs and Expenses. Our total operating costs and expenses increased by $268,141 or 13.3% from $2,022,215 for the three months ended March 31, 2014 to $2,290,356 for the same period in 2015. This increase was due primarily to an increase in our cost of revenues and general and administrative expense, partially offset by lower selling expenses.
| · | Our cost of revenues increased by $272,063 or 28.7% from $948,514 for the three months ended March 31, 2014 to $1,220,577 for the three months ended March 31, 2015. The increase was due mainly to higher revenues from inland transportation management services which led to more costs to be allocated. Our revenues from inland transportation management services increased by $429,045, or 49.51%, from $866,510 for the three months ended March 31, 2014 to $1,295,580 for the three months ended March 31, 2015. |
| · | Our general and administrative expenses increased by $73,268 or 7.4% from $996,355 for the three months ended March 31, 2014 to $1,069,623 for the three months ended March 31, 2015. This increase was due mainly to higher office expenses of $211,611, legal fees of $187,178 and recognition of stock-based compensation for common stock issued to consultants of $120,067. |
| · | Our selling expenses decreased by $77,190 or 99.8% from $77,346 for the three months ended March 31, 2014 to $156 for the three months ended March 31, 2015, mainly due to a decline in the number of ships we served. Selling expenses for the 2015 period were significantly lower than in 2014 because such expenses are commission driven, with a threshold of sales required to result in any commission payment beyond salaries. In 2015, sales were below this threshold. |
Operating Income. We had operating income of $236,406 for the three months ended March 31, 2015, compared to $70,310 for the comparable period ended March 31, 2014. The increase was due mainly to an increase in revenue from inland transportation management services.
Financial Expense, Net. Our net financial income was $61,442 for the three months ended March 31, 2015, compared to financial expense of $91,896 for the three months ended March 31, 2014. We have operations in the US, Canada, Australia, Hong Kong and China. Our financial expense or income reflected the foreign currency exchange effect for each reporting period indicated.
Taxation. Our income tax benefit was $34,067 for the three months ended March 31, 2015, compared to a tax benefit of $1,186 for three months ended March 31, 2014. As we had a tax expense of nil and deferred tax benefit of $34,067, the income tax benefit for the three months ended March 31, 2015 was $34,067.
Net income. As a result of the foregoing, we had net income of $331,913 for the three months ended March 31, 2015, compared to net income of $86,399 for the three months ended March 31, 2014. After deduction of non-controlling interest, net income attributable to Sino-Global was $350,983 for the three months ended March 31, 2015, compared to net income of $326,121 for the three months ended March 31, 2014. With other comprehensive loss foreign currency translation, comprehensive income attributable to Sino-Global was $651,751 for the three months ended March 31, 2015, compared to comprehensive income of $303,809 for the three months ended March 31, 2014.
Liquidity and Capital Resources
Cash Flows and Working Capital
We have financed our operations primarily through collection of trade receivables, repayment of short-term loan from a related party and proceeds from issuing common stock. As of March 31, 2015, we had $1,107,197 in cash and cash equivalents. 81.23% of our cash in banks is located in New York, Canada, Australia and Hong Kong and 18.77% of cash in banks located in China.
| 7 |
The following table sets forth a summary of our cash flows for the periods indicated:
| For the nine months ended March 31, | ||||||||
| 2015 | 2014 | |||||||
| Net cash used in operating activities | $ | (1,870,004 | ) | $ | (627,753 | ) | ||
| Net cash provided by (used in) investing activities | $ | 1,030,342 | $ | (203,702 | ) | |||
| Net cash provided by financing activities | $ | 967,820 | $ | - | ||||
| Net increase (decrease) in cash and cash equivalents | $ | 204,666 | $ | (758,196 | ) | |||
| Cash and cash equivalents at the beginning of the period | $ | 902,531 | $ | 3,048,831 | ||||
| Cash and cash equivalents at the end of the period | $ | 1,107,197 | $ | 2,290,635 | ||||
The following table sets forth a summary of our working capital:
| March 31, 2015 | June 30, 2014 | Diff. | % | |||||||||||||
| Total Current Assets | $ | 7,157,057 | $ | 4,957,798 | $ | 2,199,259 | 44.4 | % | ||||||||
| Total Current Liabilities | $ | 1,194,378 | $ | 1,230,795 | $ | (36,417 | ) | -3.0 | % | |||||||
| Working Capital | $ | 5,962,679 | $ | 3,727,003 | $ | 2,235,676 | 60.0 | % | ||||||||
| Current Ratio | 5.99 | 4.03 | 1.96 | 48.8 | % | |||||||||||
Operating Activities
Net cash used in operating activities was $1,870,004 for the nine months ended March 31, 2015, as compared to net cash used in operating activities of $627,753 for the comparable period in 2014. The increase in our operating cash outflows was mainly attributable to an increase in accounts receivable of $1,529,255, an increase in advances to suppliers of $678,086, an increase in other receivables of $522,823 and a decrease in account payable of $175,195, partially offset by an increase in advances from customers of $136,460.
Investing Activities
Net cash provided by investing activities was $1,030,342 for the nine months ended March 31, 2015, as compared to net cash used in investing activities of $203,702 for the same period in 2014. The change was due mainly to the repayment of a short-term loan from our related party, the Zhiyuan Investment Group of $1,114,428.
Financing Activities
Net cash provided by financing activities was $967,820 for the nine months ended March 31, 2015, due to the net proceeds from the issuance of our common stock of 647,000 shares in July 2014.
Working Capital
Total working capital amounted to $5,962,679 as at March 31, 2015 compared to $3,727,003 as at June 30, 2014. Total current assets increased by $2,199,259 or 44.4% from $4,957,798 as at June 30, 2014 to $7,157,057 as at March 31, 2015. Increase in total current assets is due mainly to an increase in cash and cash equivalents of $204,666, increase in accounts receivable of $1,546,264, increase in advance to suppliers of $678,086, increase in other receivable of $522,823 and increase in prepaid expense-current of $406,098, offset by a decrease in due from related parties of $1,158,678.
| 8 |
Total current liabilities amounted to $1,194,378 as at March 31, 2015, in comparison to $1,230,795 as at June 30, 2014. Total current liabilities decreased by $36,417 or 3.0% primarily because of a decrease in accounts payable of $175,195 and a decrease in accrued expenses of $145,641, offset by an increase in other current liabilities of $147,959 and advances from customers of $136,460.
As a result of the overall increase in our current assets, the current ratio increased from 4.03 at June 30, 2014 to 5.99 at March 31, 2015.
We believe that current cash and cash equivalents, and the anticipated cash flow from our operations will be sufficient to meet our anticipated cash needs, including cash needs for working capital and capital expenditures, for at least the next 12 months. We may, however, require additional cash due to changing business conditions or other future developments, including any investments or acquisitions we may decide to pursue. In particular, we expect that we would be unable to purchase the Vessel from the Vessel Seller as described herein unless we are able to pursue additional sources of financing for the difference between the value of the Vessel and the amount of capital we have available to us. If our existing cash is insufficient to meet our requirements, we may seek to sell additional equity securities or borrow from banks. However, financing may not be available in the amounts we need or on terms acceptable to us, if at all. The sale of additional equity securities, including convertible debt securities, would dilute our shareholders. The incurrence of debt would divert cash from working capital and capital expenditures to service debt obligations and could result in operating and financial covenants that would restrict our operations and our ability to pay dividends to our shareholders.
Contractual Obligations and Commercial Commitments
We have leased certain office premises under operating leases through August 31, 2019. Below is a summary of our contractual obligations and commitments as of March 31, 2015:
| Amount | ||||
| Twelve months ending March 31, | ||||
| 2016 | $ | 122,898 | ||
| 2017 | 65,576 | |||
| 2018 | 67,293 | |||
| 2019 | 69,062 | |||
| Thereafter | 30,265 | |||
| $ | 355,094 | |||
Company Structure
We conduct our operations primarily through our wholly-owned subsidiaries. As a result, our ability to pay dividends and to finance any debt we may incur depends upon dividends paid by our subsidiaries. If our subsidiaries incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us. In addition, Trans Pacific, our subsidiary in China, is permitted to pay dividends to us only out of its retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Under PRC law, wholly foreign-owned enterprises like Trans Pacific are required to set aside at least 10% of their after-tax profit each year to fund a statutory reserve until the amount of the reserve reaches 50% of such entity’s registered capital.
To the extent Trans Pacific does not generate sufficient after-tax profits to fund this statutory reserve, its ability to pay dividends to us may be limited. Although these statutory reserves can be used, among other ways, to increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies, these reserve funds are not distributable as cash dividends except in the event of a solvent liquidation of the companies. Other than as described in the previous sentences, China’s State Administration of Foreign Exchange (“SAFE”) has approved the company structure between our company and Trans Pacific, and Trans Pacific is permitted to pay dividends to our company.
| 9 |
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 3. Quantitative and Qualitative Disclosures about Market Risk
This Item is not applicable because we are a smaller reporting company.
Item 4/4T. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our 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 March 31, 2015, our Company carried out an evaluation, under the supervision of and with the participation of management, including our Company’s chief executive officer and acting chief financial officer, of the effectiveness of the design and operation of our company’s disclosure controls and procedures. Based on the foregoing evaluation, the chief executive officer and acting chief financial officer concluded that our Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were effective in timely alerting them to information required to be included in the Company’s periodic Securities and Exchange Commission filings.
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 March 31, 2015 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse affect on our business, financial condition or operating results.
| 10 |
This Item is not applicable because we are a smaller reporting company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
| (a) | We did not issue any unregistered securities during the three months ended March 31, 2015; however, subsequent to such period, we issued 1.2 million shares pursuant to an asset purchase agreement dated April 10, 2015. The terms of such issuance have been disclosed in a Form 8-K dated April 13, 2015 and described in more detail in the Registrant’s registration statement on Form S-1, as amended (No. 333-199160). We issued 1,200,000 shares of common stock on April 10, 2015. The securities were issued to the seller of a certain vessel, the Rong Zhou, and were valued at $1.85 per share for purposes of such issuance. The issuance was completed in reliance on exemptions from the registration requirements of the Securities Act of 1933, as amended, pursuant to Regulation S, Rule 506 and/or Section 4(2) of the Securities Act. |
| (b) | None. |
| (c) | None. |
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
On January 26, 2015, the Company filed a Form 8-K to disclose the entry into a Memorandum of Understanding (the “MOU”), by and between the Company and Rong Yao International Shipping Limited (the “Vessel Seller”), a Hong Kong corporation, pursuant to which the Company agreed to acquire a small oil/chemical tanker (the “Vessel”) from the Vessel Seller. The Company filed another Form 8-K on April 13, 2015 to disclose that the Registrant and Vessel Seller had entered into an asset purchase agreement (the “Asset Purchase Agreement”) regarding such Vessel. The Company issued 1.2 million unregistered shares of common stock to the Vessel Seller on April 10, 2015 (the “First Installment”). The Company filed an amendment to its registration statement on Form S-1 (File No. 333-199160) on April 15, 2015 (as subsequently amended on April 29, 2015) to register the resale of shares issued to the Vessel Seller in connection with the First Installment.
| 11 |
The following exhibits are filed herewith:
| Number | Exhibit | |
| 3.1 | First Amended and Restated Articles of Incorporation of Sino-Global Shipping America, Ltd.(1) | |
| 3.2 | Bylaws of Sino-Global Shipping America, Ltd.(2) | |
| 4.1 | Specimen Certificate for Common Stock(2) | |
| 10.1 | Exclusive Management Consulting and Technical Services Agreement by and between Trans Pacific and Sino-China.(2) | |
| 10.2 | Exclusive Marketing Agreement by and between Trans Pacific and Sino-China.(2) | |
| 10.3 | Proxy Agreement by and among Lei Cao, Mingwei Zhang, the Company and Sino-China.(2) | |
| 10.4 | Equity Interest Pledge Agreement by and among Trans Pacific, Lei Cao and Mingwei Zhang.(2) | |
| 10.5 | Exclusive Equity Interest Purchase Agreement by and among the Company, Lei Cao, Mingwei Zhang and Sino-China.(2) | |
| 10.6 | First Amended and Restated Exclusive Management Consulting and Technical Services Agreement by and between Trans Pacific and Sino-China.(2) | |
| 10.7 | First Amended and Restated Exclusive Marketing Agreement by and between Trans Pacific and Sino-China.(2) | |
| 10.8 | The Company’s 2008 Stock Incentive Plan.(2) | |
| 10.9 | The Company’s 2014 Stock Incentive Plan.(3) | |
| 10.10 | Asset Purchase Agreement dated April 10, 2015(4) | |
| 14.1 | Code of Ethics of the Company.(5) | |
| 21.1 | List of subsidiaries of the Company.(6) | |
| 31.1 | Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(7) | |
| 31.2 | Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(7) | |
| 32.1 | Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(7) | |
| 32.2 | Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(7) | |
| 99.1 | Press release dated January 26, 2015 titled “Sino-Global Enters into Memorandum of Understanding to Acquire a Small Oil/Chemical Tanker”.(8) | |
| 99.2 | Press release dated April 13, 2015 titled “Sino-Global Signs Asset Purchase Agreement”.(9) | |
| 99.3 | Press release dated May 13, 2015 titled “Sino-Global Announces Fiscal Year 2015 Third Quarter Financial Results.”(7) | |
| EX-101.INS | XBRL Instance Document. (7) | |
| EX-101.SCH | XBRL Taxonomy Extension Schema Document. (7) | |
| EX-101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. (7) | |
| EX-101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. (7) | |
| EX-101.LAB | XBRL Taxonomy Extension Label Linkbase Document. (7) | |
| EX-101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. (7) |
| (1) | Incorporated by reference to the Company’s Form 8-K filed on January 27, 2014, File No. 001-34024. |
| (2) | Incorporated by reference to the Company’s Registration Statement on Form S-1, filed on January 1, 2008 (as amended) and May 12, 2008, File Nos. 333-150858 and 333-148611, respectively. |
| (3) | Incorporated by reference to the Company’s Registration Statement on Form S-8, filed with the SEC on April 23, 2014, File No. 333-194211. |
| (4) | Incorporated by reference to the Company’s Registration Statement on Form S-1 filed on October 3, 2014 (as amended), File No. 333-199160. |
| (5) | Incorporated by reference to the Company’s Form 10-KSB filed on September 29, 2008, File No. 001-34024. |
| (6) | Incorporated by reference to the Company’s Form 10-Q filed on November 13, 2013, File No. 001-34024. |
| (7) | Filed herewith. |
| (8) | Incorporated by reference to the Company’s Form 8-K filed on January 26, 2015, File No. 001-34024. |
| (9) | Incorporated by reference to the Company’s Form 8-K filed on April 13, 2015, File No. 001-34024. |
| 12 |
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| SINO-GLOBAL SHIPPING AMERICA, LTD. | |||
| May 13, 2015 | By: | /s/ Anthony S. Chan | |
| Anthony S. Chan | |||
| Acting Chief Financial Officer | |||
| (Principal Financial and Accounting Officer) | |||
| 13 |
SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATES
Index to Financial Statements
PAGE
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-1 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-2 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-3 |
SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF BUSINESS
Founded in the United States (“US”) in 2001, Sino-Global Shipping America, Ltd. (“Sino-Global” or the “Company”) is a shipping agency, logistics and ship management services company. The Company’s current service offerings consist of shipping agency services, shipping and chartering services, inland transportation management services and ship management services. The Company conducts its business primarily through its wholly-owned subsidiaries in China, Hong Kong, Australia, Canada and New York. Substantially all of the Company’s business is generated from clients located in the People’s Republic of China (the “PRC”), and its operations are primarily conducted in the PRC and Hong Kong.
The Company’s 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 shipping agency service businesses, the Company used to provide its shipping agency services in the PRC through Sino-Global Shipping Agency Ltd. (“Sino-China”), 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 the Company to substantially control Sino-China. Through Sino-China, the Company has the ability to provide shipping agency services in all commercial ports in the PRC. During fiscal year 2014, the Company completed a number of cost reduction initiatives and reorganized its shipping agency business in the PRC to improve its operating margin. In light of the Company’s decision not to pursue the local shipping agency business and as a result of the business reorganization efforts, since approximately June 30, 2014, the Company no longer provides shipping agency services through its VIE structure and has not undertaken any business through or with Sino-China as of March 31, 2015.
The Company’s shipping agency business is operated by its subsidiaries in Hong Kong and Australia. The Company’s shipping and chartering services as well as its ship management services are operated by its HK subsidiary. The Company’s inland transportation management services are operated by its subsidiary in China.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information pursuant to the rules and regulations of the Securities Exchange Commission (“SEC”). The financial statements include the accounts of all directly, indirectly owned subsidiaries and variable interest entity (“VIE”). All significant intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, all adjustments considered necessary to give a fair presentation have been included. Interim results are not necessarily indicative of results of a full year. The information in this Form 10-Q should be read in conjunction with information included in the Company’s 2014 annual report in the Form 10-K filed on September 15, 2014.
| F-4 |
(b) Basis of Consolidation
The unaudited condensed consolidated financial statements include the accounts of the Company, its subsidiaries, and its affiliates. All significant intercompany transactions and balances are eliminated in consolidation. Sino-China is considered a variable interest entity (“VIE”), and the Company is the primary beneficiary. The Company through Trans Pacific Beijing entered into agreements with Sino-China, pursuant to which the Company receives 90% of Sino-China’s net income. The Company does not receive any payment from Sino-China unless Sino-China recognizes net income during its fiscal year. These agreements do not entitle the Company to any consideration if Sino-China incurs a net loss during its fiscal year. In accordance with these agreements, Sino-China shall pay consulting and marketing fees equal to 85% and 5%, respectively, of its net income to the Company’s wholly owned foreign subsidiary, Trans Pacific Beijing, and Trans Pacific Beijing supplies the technology and personnel needed to service Sino-China. Sino-China was designed to operate in China for the benefit of the Company.
As a VIE, Sino-China’s revenues are included in the Company’s total revenues, and its loss from operations is consolidated with the Company’s. Because of the contractual arrangements, the Company had a pecuniary interest in Sino-China that requires consolidation of the Company’s and Sino-China’s financial statements.
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.
The carrying amount and classification of Sino-China's assets and liabilities included in the Company’s Unaudited Condensed Consolidated Balance Sheets are as follows:
| March 31, | June 30, | |||||||
| 2015 | 2014 | |||||||
| Total current assets | $ | 96,039 | $ | 173,273 | ||||
| Total assets | 281,045 | 419,048 | ||||||
| Total current liabilities | 238,242 | 312,521 | ||||||
| Total liabilities | 238,242 | 312,521 | ||||||
| F-5 |
(c) Revenue Recognition Policy
| Ÿ | Revenues from shipping agency services are recognized upon completion of services, which coincides with the date of departure of the relevant vessel from port. Advance payments and deposits received from customers prior to the provision of services and recognition of the related revenues are presented as advances from customers. |
| Ÿ | Revenues from shipping and chartering services are recognized upon performance of services as stipulated in the underlying contract. |
| Ÿ | Revenues from inland transportation management services are recognized when commodities are being released from the customer’s warehouse. |
| Ÿ | Revenues from ship management services are recognized when the related contractual services are rendered. |
(d) 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 US dollars (“USD”) while Sino-China reports its financial position and results of operations in Renminbi (“RMB”). The accompanying unaudited condensed consolidated financial statements are presented in US dollars. Foreign currency transactions are translated into USD using fixed exchange rates in effect at the time of the transaction. Generally foreign exchange gains and losses resulting from the settlement of such transactions are recognized in the unaudited condensed consolidated statements of operations. The Company translates foreign currency financial statements of Sino-China, Sino-Global Shipping Australia, Sino-Global Shipping Hong Kong, Sino-Global Shipping Canada and Trans Pacific Beijing 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. Resulting translation adjustments are recorded as other comprehensive income (loss) and accumulated as a separate component of equity of the Company and also included in non-controlling interest.
The exchange rates as of March 31, 2015 and June 30, 2014 and for the nine months and three months ended March 31, 2015 and 2014 are as follows:
| March 31, | June 30, | Nine months ended March 31, | Three months ended March 31, | |||||||||||||||||||||
| 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |||||||||||||||||||
| Foreign currency | Balance Sheet | Balance Sheet | Profits/Loss | Profits/Loss | Profits/Loss | Profits/Loss | ||||||||||||||||||
| RMB:1USD | 6.2005 | 6.2043 | 6.1831 | 6.1060 | 6.2364 | 6.1008 | ||||||||||||||||||
| 1AUD:USD | 1.3115 | 1.0609 | 1.1748 | 1.0958 | 1.2721 | 1.1155 | ||||||||||||||||||
| 1HKD:USD | 7.7536 | 7.7503 | 7.7542 | 7.7560 | 7.7558 | 7.7591 | ||||||||||||||||||
| 1CAD:USD | 1.2678 | 1.0672 | 1.1554 | 1.0638 | 1.2409 | 1.1027 | ||||||||||||||||||
(e) Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, and other highly liquid investments which are unrestricted as to withdrawal or use, and which have maturities 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 and the United States. As of March 31, 2015 and June 30, 2014, the Company’s uninsured bank balances were mainly maintained at financial institutions located in the PRC, totaling $205,654 and $262,885 respectively.
| F-6 |
(f) Accounts Receivable
Accounts receivable are presented at net realizable value. The Company maintains allowances for doubtful accounts 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 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 365 days. Accounts are written off after exhaustive efforts at collection.
(g) Earnings per Share (“EPS”)
Basic earnings per share is computed by dividing net income attributable to holders of common shares by the weighted average number of common shares 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 were exercised or converted into common shares. Common share equivalents are excluded from the computation of diluted earnings per share if their effects would be anti-dilutive.
The effect of 66,000 stock options and 139,032 warrants for all periods presented were not included in the calculation of diluted EPS because they would be anti-dilutive as the exercise prices for such options and warrants were higher than the average market price for the nine and three months ended March 31, 2015 and 2014.
(h) Risks and Uncertainties
The operations of the Company are primarily located in the PRC. Accordingly, the Company’s business, financial condition, 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 exchanges in the political, regulatory and social conditions in the PRC, and by changes in governmental policies or interpretations with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things. In addition, the Company only controls Sino-China through a series of agreements. If such agreements were cancelled, modified or otherwise not complied with, the Company may not be able to retain control of this consolidated entity and the impact could be material to the Company’s operations. 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 customer, Tianjin Zhi Yuan Investment Group Co., Ltd. (the “Zhiyuan Investment Group”).
| F-7 |
(i) Business Combinations
Business combinations are accounted for under the purchase method of accounting. Under the purchase method, assets and liabilities of the business acquired are recorded at their estimated fair values as of the date of acquisition with any excess of the cost of the acquisition over the fair value of the net tangible and intangible assets acquired recorded as goodwill. Results of operations of the acquired business are included in the income statement from the date of acquisition.
(j) Recent Accounting Pronouncements
In August 2014, the FASB issued ASU No. 2014-15, “Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”), which requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued and provides guidance on determining when and how to disclose going concern uncertainties in the financial statements. Certain disclosures will be required if conditions give rise to substantial doubt about an entity’s ability to continue as a going concern. ASU 2014-15 applies to all entities and is effective for annual and interim reporting periods ending after December 15, 2016, with early adoption permitted. The Company does not expect that the adoption of this standard will have a material effect on the Company’s consolidated financial statements.
In November 2014, FASB issued Accounting Standards Update No. 2014-16, Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity (a consensus of the FASB Emerging Issues Task Force). The amendments permit the use of the Fed Funds Effective Swap Rate (also referred to as the Overnight Index Swap Rate, or OIS) as a benchmark interest rate for hedge accounting purposes. Public business entities are required to implement the new requirements in fiscal years (and interim periods within those fiscal years) beginning after December 15, 2015. All other types of entities are required to implement the new requirements in fiscal years beginning after December 15, 2015, and interim periods beginning after December 15, 2016. The Company does not expect the adoption of ASU 2014-16 to have material impact on the Company's consolidated financial statement.
In November 2014, FASB issued ASU No. 2014-17, Pushdown Accounting (a consensus of the FASB Emerging Issues Task Force), which allows an acquired entity to elect to apply pushdown accounting in its separate financial statements on a change-in-control event. The acquired entity elects whether to apply pushdown accounting individually for each change-in-control event, and may apply pushdown accounting during the reporting period in which the change-in-control event occurs. Effective November 18, 2014, an acquired entity may apply ASU 2014-17 to future change-in-control events. The Company does not expect the adoption of ASU 2014-17 to have material impact on the Company's consolidated financial statement.
On December 23, 2014, FASB issued Accounting Standards Update (ASU) No. 2014-18, “Accounting for Identifiable Intangible Assets in a Business Combination”. The ASU contains an accounting alternative for private companies that acquire identifiable intangible assets in a business combination. Under the accounting alternative, many customer-related intangible assets and all noncompete agreements would not be recognized separately and would be subsumed into goodwill. An entity that elects this alternative is also required to adopt the alternative accounting in FASB Accounting Standards Update No. 2014-02, Accounting for Goodwill. (However, an entity that elects to adopt the goodwill alternative does not need to adopt the guidance in ASU 2014-18.) ASU 2014-18 does not require an entity to provide any incremental disclosures beyond those required by ASC 805. Once elected, the accounting alternative would be applied to all future business combinations entered into in the first annual period beginning after December 15, 2015. Early adoption would be permitted. The Company does not expect the adoption of ASU 2014-18 to have material impact on the Company's consolidated financial statement.
| F-8 |
On January 9, 2015, FASB published ASU 2015-01, Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. The ASU applies to all entities and is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The Company does not expect the adoption of ASU 2015-01 to have material impact on the Company's consolidated financial statement.
In February 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, which is intended to improve targeted areas of consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures. This ASU will be effective for periods beginning after December 15, 2015, for public companies. Management is evaluating the potential impact, if any, on the Company’s financial position and results of operations.
3. ACQUISITION OF LONGHE SHIP MANAGEMENT COMPANY
On August 8, 2014, the Company entered into an agreement to acquire all of the equity of Longhe Ship Management (Hong Kong) Co., Limited (“LSM”) from Mr. Deming Wang to further broaden its service platform. Mr. Deming Wang is a shareholder of the Company who held approximately 3.6% of the shares of common stock of the Company at the time of the acquisition agreement. Under the terms of the acquisition agreement, the purchase price for LSM will be between 20,000 and 200,000 shares of common stock of the Company, depending on the net income of LSM from July 4, 2014 through December 31, 2014. The first payment due under the agreement was an escrow payment of 50,000 shares of common stock of the Company. On August 22, 2014, the Company issued such 50,000 shares to be held in escrow to Mr. Deming Wang, in connection with the acquisition of LSM.
On September 8, 2014, the closing date, LSM’s total assets were $199,482, or 2.6% of the Company’s consolidated total assets; and its total liabilities were $26,655, or 2.6% of the Company’s consolidated total liabilities. The assets acquired consisted of cash of $23,289, accounts receivable of $47,409 and other receivables of $128,784, the liabilities consisted of accounts payable of $24,054, other payables of $2,022 and accrued expenses of $579.
| F-9 |
The following unaudited pro forma condensed financial information presents the combined results of operations of the Company and LSM as if the acquisition had occurred as of the beginning of each period presented. The pro forma information assumes the acquisition of LSM occurred on July 1, 2013.
| As of and for the nine months ended March 31, 2015 | As of and for the nine months ended March 31, 2014 | |||||||||||||||||||||||||||||||
| SINO Group | LSM | Elimination | Combined | SINO Group | LSM | Elimination | Combined | |||||||||||||||||||||||||
| Revenue | $ | 8,035,192 | $ | 285,024 | $ | - | $ | 8,320,216 | $ | 7,882,374 | $ | - | $ | - | $ | 7,882,374 | ||||||||||||||||
| Cost of revenues | $ | 4,401,029 | $ | 144,612 | $ | - | $ | 4,545,641 | $ | 5,077,085 | $ | - | $ | - | $ | 5,077,085 | ||||||||||||||||
| Gross profit | $ | 3,634,163 | $ | 140,412 | $ | - | $ | 3,774,575 | $ | 2,805,289 | $ | - | $ | - | $ | 2,805,289 | ||||||||||||||||
| Net income | $ | 480,450 | $ | 136,807 | $ | - | $ | 617,257 | $ | 198,137 | $ | - | $ | - | $ | 198,137 | ||||||||||||||||
| Total assets | $ | 8,006,930 | $ | 267,880 | $ | (173,079 | ) | $ | 8,101,731 | $ | 4,518,347 | $ | - | $ | - | $ | 4,518,347 | |||||||||||||||
| Total liabilities | $ | 1,192,289 | $ | 2,089 | $ | - | $ | 1,194,378 | $ | 1,169,160 | $ | - | $ | - | $ | 1,169,160 | ||||||||||||||||
| As of and for the three months ended March 31, 2015 | As of and for the three months ended March 31, 2014 | |||||||||||||||||||||||||||||||
| SINO Group | LSM | Elimination | Combined | SINO Group | LSM | Elimination | Combined | |||||||||||||||||||||||||
| Revenue | $ | 2,526,762 | $ | - | $ | - | $ | 2,526,762 | $ | 2,092,525 | $ | - | $ | - | $ | 2,092,525 | ||||||||||||||||
| Cost of revenues | $ | 1,220,577 | $ | - | $ | - | $ | 1,220,577 | $ | 948,514 | $ | - | $ | - | $ | 948,514 | ||||||||||||||||
| Gross profit | $ | 1,306,185 | $ | - | $ | - | $ | 1,306,185 | $ | 1,144,011 | $ | - | $ | - | $ | 1,144,011 | ||||||||||||||||
| Net income | $ | 331,976 | $ | (63 | ) | $ | - | $ | 331,913 | $ | 86,399 | $ | - | $ | - | $ | 86,399 | |||||||||||||||
| Total assets | $ | 8,006,930 | $ | 267,880 | $ | (173,079 | ) | $ | 8,101,731 | $ | 4,518,347 | $ | - | $ | - | $ | 4,518,347 | |||||||||||||||
| Total liabilities | $ | 1,192,289 | $ | 2,089 | $ | - | $ | 1,194,378 | $ | 1,169,160 | $ | - | $ | - | $ | 1,169,160 | ||||||||||||||||
The unaudited pro forma condensed financial information is not intended to represent or be indicative of the consolidated results of operations of the Company that would have been reported had the acquisition been completed as of the beginning of the period presented, and should not be taken as being representative of the future consolidated results of operations of the Company.
Due to concerns of the financial viability of the vessel owners and their ability to pay ship management fees to the Company, Sino-Global has stopped providing ship management services to these owners since early January 2015. While the Company does not currently serve any other customers in this business segment, it is in discussions with a number of potential customers to provide such services.
In April 2015, the Company and Mr. Wang executed a satisfaction agreement whereby Sino-Global shall release from escrow 20,000 shares of its restricted common stock as full payment for the Company’s acquisition of LSM to Mr. Wang. As of the filing of this report, these 20,000 shares have not been released from escrow pending clearance by the Company’s transfer agent, and the remaining 30,000 shares are to be cancelled.
4. ADVANCES TO SUPPLIERS
The Company’s advance to suppliers is as follows:
| March 31, | June 30, | |||||||
| 2015 | 2014 | |||||||
| Sainuo Investment Management Ltd | $ | 564,471 | $ | - | ||||
| Zhejiang Shengsi Baojie International Shipping Agency Ltd | 106,318 | - | ||||||
| Others | 15,779 | 8,482 | ||||||
| Total | $ | 686,568 | $ | 8,482 | ||||
On November 3, 2014, the Company entered into an advisory service agreement with Sainuo Investment Management Ltd. ( “Sainuo”) whereby Sainuo, a professional services firm based in the PRC specializing in mergers and acquisitions, business restructuring and appraisal, had been engaged to assist the Company in the identification of suitable acquisition candidates and performance of required due diligence. Pursuant to the service agreement, Sainuo will be paid a success fee (which amount is calculated based on 8% of the value of the acquisition but not to exceed RMB 3.5 million). On November 24, 2014, the Company advanced RMB 3.5 million to Sainuo in accordance with the service agreement. If Sainuo is unable to secure a viable acquisition candidate and close the acquisition before March 31, 2015, Sainuo must return the advance payment (less actual expenses incurred which amount is capped at RMB 100,000) to the Company.
| F-10 |
On April 10, 2015, the Company entered into an Asset Purchase Agreement with Rong Yao International Shipping Limited, a Hong Kong company (the “Vessel Seller”), pursuant to which the Company agreed to acquire, subject to a number of closing conditions, the “Rong Zhou,” an 8,818 gross tonnage oil/chemical transportation tanker (the “Vessel”) from the Vessel Seller (see Note 16, Subsequent Events). In connection with the Vessel acquisition, Sainuo, the Vessel Seller and Sino-Global executed an agreement on April 22, 2015 whereby Sainuo shall collect a service fee of RMB 300,000 from the Company and remit RMB 3.2 million to the Vessel Seller as Sino-Global’s partial payment of the Vessel purchase price.
5. ACCOUNTS RECEIVABLE, NET
The Company’s net accounts receivable is as follows:
| March 31, | June 30, | |||||||
| 2015 | 2014 | |||||||
| Trade accounts receivable | $ | 2,454,998 | $ | 925,743 | ||||
| Less: allowances for doubtful accounts | (426,849 | ) | (443,858 | ) | ||||
| Accounts receivables, net | $ | 2,028,149 | $ | 481,885 | ||||
6. OTHER RECEIVABLES / OTHER CURRENT LIABILITIES
Other receivables represent mainly travel and business advances to employees, as well as deposit for rent etc. Other current liabilities represent mainly advance payments received from customers for reimbursable port agent charges to be incurred and other miscellaneous items.
7. PREPAID EXPENSES
Prepaid expenses are as follows:
| March 31, | June 30, | |||||||
| 2015 | 2014 | |||||||
| Consultant fees (See note 9) | $ | 825,378 | $ | 468,000 | ||||
| Legal fees | - | 24,802 | ||||||
| Other | 182,118 | 4,727 | ||||||
| Total | 1,007,496 | 497,529 | ||||||
| Less current portion | 622,827 | 216,729 | ||||||
| Total noncurrent portion | $ | 384,669 | $ | 280,800 | ||||
| F-11 |
8. PROPERTY AND EQUIPMENT, AT COST
Property and equipment are as follows:
| March 31, | June 30, | |||||||
| 2015 | 2014 | |||||||
| Land and building | $ | 217,084 | $ | 216,951 | ||||
| Motor vehicles | 710,600 | 710,148 | ||||||
| Computer equipment | 146,153 | 133,145 | ||||||
| Office equipment | 63,257 | 50,790 | ||||||
| Furniture and fixtures | 156,063 | 100,021 | ||||||
| System software | 128,253 | 128,178 | ||||||
| Leasehold improvement | 68,739 | 68,697 | ||||||
| Total | 1,490,149 | 1,407,930 | ||||||
| Less : Accumulated depreciation and amortization | 1,202,080 | 1,113,208 | ||||||
| Property and equipment, net | $ | 288,069 | $ | 294,722 | ||||
Depreciation and amortization expense for the nine months ended March 31, 2015 and 2014 was $140,464 and $103,041, respectively. Depreciation and amortization expense for the three months ended March 31, 2015 and 2014 was $32,100 and $29,409, respectively.
9. EQUITY TRANSACTIONS
On June 27, 2014, the Company entered into an Underwriting Agreement (the “Underwriting Agreement”) with National Securities Corporation (the “Underwriter”) relating to the registered offering of 572,000 shares of common stock, without par value per share. The price to the public in the offering was $1.76 per share. Under the terms of the Underwriting Agreement, the Company also granted the Underwriter an option, exercisable for 30 days, to purchase up to an additional 85,800 shares of common stock from the Company at the same price to cover over- allotments, if any. The Company closed the public offering on July 2, 2014 and the Underwriter purchased an additional 75,000 shares. The offering was made pursuant to our effective shelf registration statement on Form S-3 (Registration Statement No. 333-194211) declared effective by the Securities and Exchange Commission on April 15, 2014, as supplemented by an applicable prospectus supplement. The total number of shares sold in the offering was 647,000. The Company received total cash proceeds of approximately $1 million from this public offering.
The Company entered into management consulting and advisory services agreements with two consultants on June 6, 2014. 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. The remaining 400,000 shares of the Company's common stock were then issued to the consultants on August 29, 2014 at $1.68 per share. Their service agreements are for the period July 1, 2014 to December 31, 2016. The related consulting fees have been and will be ratably charged to expense over the term of the agreements.
| F-12 |
On August 22, 2014, the Company issued 50,000 shares of the Company’s common stock to be held in escrow to Mr. Deming Wang, in connection with the acquisition of LSM (see Note 3, Acquisition of Longhe Ship Management Company). Pursuant to the satisfaction agreement executed in April 2015, Sino-Global shall release from escrow to Mr. Wang 20,000 shares of its common stock as full payment for the Company’s acquisition of LSM. The remaining 30,000 shares that were previously issued but held in escrow will be cancelled.
In connection with the Asset Purchase Agreement that was executed on April 10, 2015 (see Note 16, Subsequent Events), the Company issued to the Vessel Seller 1.2 million shares of its restricted common stock representing $2,220,000 of the $10.5 million purchase price for the Vessel. The Company and the Vessel Seller agreed that each of the 1.2 million shares issued to the Vessel Seller was valued at $1.85. In connection therewith, the Company filed a registration statement on April 15, 2015 covering the offer of the 1.2 million shares issued to the Vessel Seller.
10. NON-CONTROLLING INTEREST
Non-controlling interest consists of the following:
| March 31, | June 30, | |||||||
| 2015 | 2014 | |||||||
| Sino-China: | ||||||||
| Original paid-in capital | $ | 356,400 | $ | 356,400 | ||||
| Additional paid-in capital | 1,044 | 1,044 | ||||||
| Accumulated other comprehensive loss | (66,299 | ) | (64,872 | ) | ||||
| Accumulated deficit | (5,186,725 | ) | (5,006,843 | ) | ||||
| (4,895,580 | ) | (4,714,271 | ) | |||||
| Trans Pacific Logistics Shanghai Ltd. | 13,753 | 20,240 | ||||||
| Total | $ | (4,881,827 | ) | $ | (4,694,031 | ) | ||
| F-13 |
11. COMMITMENTS
The Company leases certain office premises under operating leases through August 31, 2019. Future minimum lease payments under operating leases agreements are as follows:
| Amount | ||||
| Twelve months ending March 31, | ||||
| 2016 | $ | 122,898 | ||
| 2017 | 65,576 | |||
| 2018 | 67,293 | |||
| 2019 | 69,062 | |||
| Thereafter | 30,265 | |||
| $ | 355,094 | |||
Rent expense for the nine months ended March 31, 2015 and 2014 was $150,724 and $157,036, respectively. Rent expense for the three months ended March 31, 2015 and 2014 was $50,503 and $68,986, respectively.
12. INCOME TAXES
Income tax expense for the nine months and three months ended March 31, 2015 and 2014 varied from the amount computed by applying the statutory income tax rate to income before taxes. A reconciliation between the expected federal income tax rate using the federal statutory tax rate of 35% to the Company’s effective tax rate is as follows:
| For the nine months ended March 31, | For the three months ended March 31, | |||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| % | % | % | % | |||||||||||||
| U.S. expected federal income tax benefit | 35.0 | 35.0 | 35.0 | 35.0 | ||||||||||||
| U.S state, local tax net of federal benefit | 10.9 | 10.9 | 10.9 | 10.9 | ||||||||||||
| U.S. permanent difference | (0.2 | ) | (0.8 | ) | (0.2 | ) | (1.2 | ) | ||||||||
| U.S. temporary difference | (45.7 | ) | (45.1 | ) | (45.7 | ) | (44.7 | ) | ||||||||
| Permanent difference related to other countries | 21.9 | 3.1 | 11.4 | 1.4 | ||||||||||||
| Hong Kong statutory income tax rate | (16.5 | ) | (16.5 | ) | (16.5 | ) | (16.5 | ) | ||||||||
| Hong Kong income tax benefit | 12.1 | 16.5 | 16.5 | 16.5 | ||||||||||||
| Total tax expense | 17.5 | 3.1 | 11.4 | 1.4 | ||||||||||||
The U.S. temporary difference consisted mainly of unearned compensation amortization and provision for allowance for doubtful accounts.
| F-14 |
The income tax (provision) benefit for the nine and three months ended March 31, 2015 and 2014 are as follows:
| For the nine months ended March 31, | For the three months ended March 31, | |||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| Current | ||||||||||||||||
| USA | $ | - | $ | (34,659 | ) | $ | - | $ | (34,659 | ) | ||||||
| Hong Kong | (5,770 | ) | - | - | - | |||||||||||
| China | - | (122 | ) | - | (122 | ) | ||||||||||
| (5,770 | ) | (34,781 | ) | - | (34,781 | ) | ||||||||||
| Deferred | ||||||||||||||||
| USA | 91,300 | 40,700 | 34,067 | 35,967 | ||||||||||||
| China | - | - | - | - | ||||||||||||
| 91,300 | 40,700 | 34,067 | 35,967 | |||||||||||||
| Total | $ | 85,530 | $ | 5,919 | $ | 34,067 | $ | 1,186 | ||||||||
Deferred tax assets are comprised of the following:
| March 31, | June 30, | |||||||
| 2015 | 2014 | |||||||
| Allowance for doubtful accounts | $ | 220,000 | $ | 224,000 | ||||
| Stock-based compensation | 377,000 | 411,000 | ||||||
| Net operating loss | 1,955,000 | 1,004,000 | ||||||
| Total deferred tax assets | 2,552,000 | 1,639,000 | ||||||
| Valuation allowance | (2,296,800 | ) | (1,475,100 | ) | ||||
| Deferred tax assets, net - long-term | $ | 255,200 | $ | 163,900 | ||||
Operations in the US have incurred a cumulative net operating loss of $5,241,863 as of March 31, 2015, which may be available to reduce future taxable income. This carry-forward will expire if not utilized by 2034. Deferred tax assets relating to the allowance for doubtful accounts, stock compensation expenses and net operating losses amounting to $220,000, $377,000 and $1,955,000 have been recorded respectively. 90% of the deferred tax assets balance has been provided as a valuation allowance as of March 31, 2015 based on management’s estimate.
13. CONCENTRATIONS
Major Customers
For the nine months ended March 31, 2015, three customers accounted for 22%, 21% and 14% of the Company’s revenues. For the nine months ended March 31, 2014, two customers accounted for 41% and 19% of the Company’s revenues.
Major Suppliers
For the nine months ended March 31, 2015, three suppliers accounted for 54%, 19% and 9% of the total cost of revenues. For the nine months ended March 31, 2014, two suppliers accounted for 31% and 25% of the total cost of revenues.
| F-15 |
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 details on the Company's business segments.
The Company's chief operating decision maker has been identified as the Chief Executive Officer who reviews the financial information of separate operating segments when making decisions about allocating resources and assessing performance of the group. Based on management's assessment, the Company has determined that it has three operating segments: shipping agency and ship management services, shipping and chartering services, and in land transportation management services.
The following tables present summary information by segment for the nine and three months ended March 31, 2015 and 2014, respectively:
| For the nine months ended March 31, 2015 | ||||||||||||||||
| Shipping Agency and Ship Management Services | Shipping & Chartering Services | Inland Transportation Management Services | Total | |||||||||||||
| Revenues | $ | 4,690,972 | $ | - | $ | 3,534,295 | $ | 8,225,267 | ||||||||
| Cost of revenues | $ | 3,756,926 | $ | - | $ | 547,665 | $ | 4,304,591 | ||||||||
| Gross profit | $ | 934,046 | $ | - | $ | 2,986,630 | $ | 3,920,676 | ||||||||
| Depreciation and amortization | $ | 132,203 | $ | - | $ | 8,261 | $ | 140,464 | ||||||||
| Total capital expenditures | $ | 84,086 | $ | - | $ | - | $ | 84,086 | ||||||||
| Total assets | $ | 7,869,985 | $ | - | $ | 231,746 | $ | 8,101,731 | ||||||||
| For the nine months ended March 31, 2014 | ||||||||||||||||
| Shipping Agency and Ship Management Services | Shipping & Chartering Services | Inland Transportation Management Services | Total | |||||||||||||
| Revenues | $ | 4,628,578 | $ | 1,937,196 | $ | 1,316,600 | $ | 7,882,374 | ||||||||
| Cost of revenues | $ | 3,598,641 | $ | 1,291,048 | $ | 187,396 | $ | 5,077,085 | ||||||||
| Gross profit | $ | 1,029,937 | $ | 646,148 | $ | 1,129,204 | $ | 2,805,289 | ||||||||
| Depreciation and amortization | $ | 74,525 | $ | 699 | $ | 27,817 | $ | 103,041 | ||||||||
| Total capital expenditures | $ | 193,001 | $ | - | $ | 10,701 | $ | 203,702 | ||||||||
| Total assets | $ | 3,099,046 | $ | 446,594 | $ | 972,707 | $ | 4,518,347 | ||||||||
| For the three months ended March 31, 2015 | ||||||||||||||||
| Shipping Agency and Ship Management Services | Shipping & Chartering Services | Inland Transportation Management Services | Total | |||||||||||||
| Revenues | $ | 1,231,182 | $ | - | $ | 1,295,580 | $ | 2,526,762 | ||||||||
| Cost of revenues | $ | 980,136 | $ | - | $ | 240,441 | $ | 1,220,577 | ||||||||
| Gross profit | $ | 251,046 | $ | - | $ | 1,055,139 | $ | 1,306,185 | ||||||||
| Depreciation and amortization | $ | 29,511 | $ | - | $ | 2,589 | $ | 32,100 | ||||||||
| Total capital expenditures | $ | 56,978 | $ | - | $ | - | $ | 56,978 | ||||||||
| Total assets | $ | 7,869,985 | $ | - | $ | 231,746 | $ | 8,101,731 | ||||||||
| For the three months ended March 31, 2014 | ||||||||||||||||
| Shipping Agency and Ship Management Services | Shipping & Chartering Services | Inland Transportation Management Services | Total | |||||||||||||
| Revenues | $ | 1,226,015 | $ | - | $ | 866,510 | $ | 2,092,525 | ||||||||
| Cost of revenues | $ | 825,181 | $ | - | $ | 123,333 | $ | 948,514 | ||||||||
| Gross profit | $ | 400,834 | $ | - | $ | 743,177 | $ | 1,144,011 | ||||||||
| Depreciation and amortization | $ | 19,852 | $ | 233 | $ | 9,324 | $ | 46,057 | ||||||||
| Total capital expenditures | $ | 1,472 | $ | - | $ | 8,861 | $ | 10,333 | ||||||||
| Total assets | $ | 3,099,046 | $ | 446,594 | $ | 972,707 | $ | 4,518,347 | ||||||||
| F-16 |
15. RELATED PARTY TRANSACTIONS
In June 2013, the Company signed a 5-year global logistic service agreement with TEWOO Chemical & Light Industry Zhiyuan Trade Co., Ltd. and TianJin Zhi Yuan Investment Group Co., Ltd. (together “Zhiyuan”). TianJin Zhi Yuan Investment Group Co., Ltd. (the “Zhiyuan Investment Group”) is owned by Mr. Zhong Zhang, the largest shareholder of the Company. During the quarter ended September 30, 2013, the Company executed a shipping and chartering services agreement with Zhiyuan Investment Group whereby it assisted in the transportation of approximately 51,000 tons of chromite ore from South Africa to China. In September 2013, the Company executed an inland transportation management service contract with Zhiyuan Investment Group whereby it would provide certain advisory services and help control its potential commodities loss during the transportation process. In addition, the Company executed a one-year short-term loan agreement with the Zhiyuan Investment Group, effective January 1, 2014, to facilitate the working capital needs of the Zhiyuan Investment Group on an as-needed basis. As at June 30, 2014, the net amount due from the Zhiyuan Investment Group was $2,920,950. In September 2014, the Company collected approximately $2.7 million from the Zhiyuan Investment Group, representing full repayment of the short-term loan and payment of approximately $1.6 million of outstanding trade receivable. In October 2014, the Company collected approximately $384,000 from the Zhiyuan Investment Group to reduce the outstanding trade receivable. During the nine months ended March 31, 2015, the Company continued to provide inland transportation management services to the Zhiyuan Investment Group. The net amount due from the Zhiyuan Investment Group at March 31, 2015 was $1,762,380.
As at March 31, 2015 and June 30, 2014, the Company is owed $252,707 and $252,815, respectively, from Sino-G Trading Inc. (“Sino-G”), an entity that is owned by the brother-in-law of the Company’s CEO. Sino-G used to act as a funds transfer agent for the Company’s services in Tianjin, PRC. In accordance with a repayment agreement between the Company and Sino-G, the amount outstanding is expected to be repaid in full before June 30, 2015.
16. SUBSEQUENT EVENTS
On April 10, 2015, the Company entered into an Asset Purchase Agreement with Rong Yao International Shipping Limited, a Hong Kong company (the “Vessel Seller”), pursuant to which the Company agreed to acquire, subject to a number of closing conditions, the “Rong Zhou,” an 8,818 gross tonnage oil/chemical transportation tanker (the “Vessel”) from the Vessel Seller; and in connection therewith, the Company issued to the Vessel Seller 1.2 million shares of its restricted common stock representing $2,220,000 of the $10.5 million purchase price for the Vessel. The Company and the Vessel Seller agreed that each of the 1.2 million shares issued to the Vessel Seller was valued at $1.85. In connection therewith, the Company filed a registration statement on April 15, 2015 covering the offer of the 1.2 million shares issued to the Vessel Seller. Although the Company believes the acquisition of the Vessel will close on or about June 30, 2015, no assurances can be given when such closing will occur.
On May 5, 2015, the Company entered into management consulting and advisory services agreements with three consultants. 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 will be issued to these three consultants. Their service agreements are for a period of 18 months, effective May 2015. The related consulting fees will be ratably charged to expense over the term of the agreements.
| F-17 |