XNAS:SINO Sino-Global Shipping America Ltd Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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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 quarterly period ended March 31, 2012

 

¨ 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)

 

136-56 39th Avenue, Room #305

Flushing, New York 11354

(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 10,000,000 shares of common stock, without par value per share, and 1,000,000 shares of preferred stock, without par value per share. As of the date of this report, the Company has 2,903,841 issued shares of common stock and no shares of preferred stock.

 

 
 

 

SINO-GLOBAL SHIPPING AMERICA, LTD.

FORM 10-Q

 

INDEX

 

PART I. FINANCIAL INFORMATION 1
Item 1. Financial Statements 1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 1
Item 3. Quantitative and Qualitative Disclosures about Market Risk 10
Item 4/4T. Controls and Procedures 11
PART II. OTHER INFORMATION 12
Item 1. Legal Proceedings 12
Item 1A. Risk Factors 12
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 12
Item 3. Defaults upon Senior Securities 12
Item 4. Mine Safety Disclosures 12
Item 5. Other Information 12
Item 6. Exhibits 13

 

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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:

 

  · the ability to timely and accurately provide shipping agency services;
  · its dependence on a limited number of larger customers;
  · political and economic factors in the Peoples’ Republic of China (“PRC”);
  · the Company’s ability to expand and grow its lines of business;
  · unanticipated changes in general market conditions or other factors, which may result in cancellations or reductions in the need for the Company’s services;
  · a weakening of 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 the Company’s new lines of services;
  · foreign currency exchange rate fluctuations;
  · hurricanes or other natural disasters;
  · the Company’s ability to identify and successfully execute cost control initiatives;
  · the impact of quotas, tariffs, or safeguards on the importation or exportation of the Company’s customer’s products; or
  · other risks outlined above and in the Company’s other filings made periodically by the Company.

 

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.

 

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PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

See the 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 

 

We are a shipping agency service provider for ships coming to and departing from Chinese ports. Our company was incorporated in New York in February 2001. On September 18, 2007, we amended the Articles of Incorporation and Bylaws of our New York corporation to merge into a new Virginia corporation, Sino-Global Shipping America, Ltd.

 

Our principal geographic market is in the People’s Republic of China (“PRC”). As PRC laws and regulations restrict foreign ownership of shipping agency service businesses, we operate our business in the PRC through Sino-Global Shipping Agency, Ltd. (“Sino-China”), a PRC limited liability company wholly owned by our founder and Chief Executive Officer, Cao Lei, and Chief Financial Officer, Zhang Mingwei, both of whom are PRC citizens. Sino-China holds the licenses and permits necessary to provide shipping services in the PRC. Headquartered in Beijing with branches in Qingdao, Tianjin, Qinhuangdao and Fangchenggang, we provide general shipping agency services in all commercial ports in China.

 

On November 13, 2007, we formed our wholly owned foreign-owned enterprise, Trans Pacific Shipping Limited (“Trans Pacific Beijing”), which has two subsidiaries, (i) the 90%-owned Trans Pacific Logistics Shanghai Limited (“Trans Pacific Shanghai”, Trans Pacific Beijing and Trans Pacific Shanghai are referred to collectively as “Trans Pacific”) and (ii) the 19.80%-owned Sino-Global Shipping Agency Development Co., Limited (“Sino-Global Development”). On October 31, 2011, Trans Pacific Beijing reduced its investment in Sino-Global Development from 40% to 19.8% by transferring 20.2% of its share to the other shareholder due to successive operating losses on Sino-Global Development. 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.

 

To build an international shipping agency service network, we formed a wholly-owned subsidiary, Sino-Global Shipping Australia Pty Ltd. (“Sino-Global AUS”) in Perth, Australia on July 3, 2008 which serves the needs of customers shipping into and out of Western Australia. We also signed an agreement with Monson Agencies Australia (“Monson”), one of the largest shipping agency service providers in Australia. Through Monson, we are able to provide general shipping agency services to all ports in Australia.

 

We established another wholly-owned subsidiary, Sino-Global Shipping (HK) Limited (“Sino-Global HK”) on September 22, 2008. Sino-Global HK is our control and management center for southern Chinese ports and enables our company to extend its offering of comprehensive shipping agency services to vessels going to and from one of the world’s busiest ports. On July 27, 2009, Sino-Global HK signed an exclusive partnership agreement with Forbes & Company Limited (“Forbes”), which is a listed company on the Bombay Stock Exchange (BOM: 502865) and one of the largest shipping and logistic service providers in India. Through our relationship with Forbes, we are able to provide general shipping agency services to all ports in India.

 

On July 5, 2011, Sino-China signed a Strategic Cooperative Agreement with COSCO Container Shipping Agency Co. Limited, one of the largest state-owned shipping agents in China. The Agreement entitles us to use COSCO Container Shipping Agency’s name to market business in China and overseas. In addition, we are able to provide shipping agency services through over 50 COSCO’s offices in China.

 

1
 

 

On October 12, 2011, we signed a Memorandum of Understanding with King & Sons Shipping Agency (“King & Sons”), subsidiary of Grindrod Limited, a public company listed on the Johannesburg Securities Exchange (JSE: GNDP) and one of the oldest shipping agents in South Africa. Through our relationship with King & Sons, we are able to provide general shipping agency services to all ports in South Africa.

 

On November 08, 2011, the Company signed a Memorandum of Understanding with Wilson Sons Shipping Agency (“Wilson Sons”), the oldest and the leading independent Brazilian ship agent. Through the Company’s relationship with Wilson Sons, it is able to provide general shipping agency services to all ports in Brazil.

 

Revenues 

 

As a result of the strict financing policies imposed by the Chinese government, the volume of iron ore imported to China has been significantly reduced since the second half of our fiscal 2011. Facing the reduced number of ships discharging iron ore at Chinese ports, we conducted intensive marketing activities to new customers and managed a marginal increase in our revenues. The number of ships we served increased from 341 to 351 and 125 to 129 for the nine and three months ended March 31, 2011 and 2012, respectively. However, the increased number of ships served primarily used our protective services, which generate lower agency fees per ship. For the nine and three months ended March 31, 2012, our total revenues amounted to approximately $25.73 million and $9.11 million, compared to our total revenues of $26.33 million and $9.07 million for the same periods in fiscal 2011.

 

Our total revenues are net of PRC business taxes and related surcharges. Sino-China’s revenues are subject to a 5% business tax as well as an additional 0.5% surcharge after deducting the costs of services. We deduct these amounts from our gross revenues to arrive at our total revenues.

 

We charge the shipping agency fees in two ways: (1) the fixed fees are predetermined with a customer, and (2) the cost-plus fees are calculated based on the actual costs incurred plus a mark up. 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 rate of service fees we charge;

• the number of ports at which we provide services; and

• the number of customers we serve.

 

Historically, our services have primarily been driven by the increase in the number of ships and customers, provided that the rate of service fees is determined by market competition. We believe that an increase in the number of ports served generally leads to an increase in the number of ships and customers. We expect that we will continue to earn a substantial majority of our revenues from our shipping agency services. As a result, we plan to continue to focus most of our resources on expanding our business to cover more ports in the PRC and overseas. In addition, we will allocate our resources in marketing our brand to customers, including ship owners and charters, which transport goods from all ports around the world to China. We believe that our diversified focus on loading and discharging cargo in both Chinese and overseas ports will enable us to continue growing quickly and also place us in a better position to manage the exchange rate risk associated with the trend of the U.S. dollar’s devaluation against the RMB because our overseas revenues and port charges are normally paid in foreign currencies. To the extent these other foreign currencies devalue against the RMB, of course, we would still face exchange rate risks.

 

Operating Costs and Expenses

 

Our operating costs and expenses consist of costs of revenues, general and administrative expenses and selling expenses. Our company’s total operating costs and expenses increased as a percentage of total revenues for the nine and three months ended March 31, 2012. To maintain our top line growth, we conducted intensive market activities to attract the new clients. As a result, our general and administrative expenses increased significantly. The following table sets forth the components of our company’s costs and expenses for the periods indicated. 

 

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   For the nine months ended March 31, 
   2012   2011   Change 
   US$   %   US$   %   US$   % 
                         
Revenues   25,725,311    100.00    26,331,088    100.00    (605,777)   (2.30)
                               
Costs and expenses                              
Cost of services   (23,840,881)   (92.67)   (23,740,899)   (90.16)   (99,982)   0.42 
                               
General and administrative expenses   (3,976,137)   (15.46)   (3,185,577)   (12.10)   (790,560)   24.82 
Selling expenses   (296,353)   (1.15)   (324,592)   (1.23)   28,239    (8.70)
    (28,113,371)        (27,251,068)        (862,303)     

  

   For the three months ended March 31, 
   2012   2011   Change 
   US$   %   US$   %   US$   % 
                         
Revenues   9,110,006    100.00    9,065,518    100.00    44,488    0.49 
                               
Costs and expenses                              
Cost of services   (8,634,188)   (94.78)   (8,170,398)   (90.13)   (463,790)   5.68 
                               
General and administrative expenses   (1,149,522)   (12.62)   (1,049,933)   (11.58)   (99,589)   9.49 
Selling expenses   (83,547)   (0.92)   (156,202)   (1.72)   72,655    (46.51)
Total costs and expenses   (9,867,257)        (9,376,533)        (490,724)     

  

Costs of Revenues. Costs of revenues represent the expenses incurred in the periods when a ship docks in a harbor to load and unload cargo. We typically pay the costs of revenues on behalf of our customers. Except for Australia and Canada where our revenues and costs are settled in the local currencies, we receive most revenues from our clients in U.S. dollars and pay most costs of revenues to the local port agents in RMB in China. As such, the costs of revenues will change if the foreign currency exchange rates change. Our costs of revenues could also increase if the ports were to raise their charges, particularly in the case of overtime payments during the public holidays.

 

Our costs of revenues as a percentage of our total revenues increased from 90.16% to 92.67% for the nine months and from 90.13% to 94.78% for the three months ended March 31, 2011 and 2012, respectively. The costs of revenues have increased primarily because of the devaluation of the US dollar against the RMB by 4.62% and 4.12% for the nine and three month comparative periods. In addition, our revenues from Beijing Shourong Forwarding Limited reduced from 60% of our total revenues for the nine months ended March 31, 2011 down to 53% of our total revenues for the nine months ended March 31, 2012. As services provided to this customer have historically been at an above-average gross margin, the change of proportion of revenues from this customer also negatively impacted our gross margin.

 

General and Administrative Expenses. Our general and administrative expenses primarily consist of salaries and benefits for our staff (both operating and administrative personnel), depreciation expenses, office rental expenses and expenses for legal, accounting and other professional services. For the nine and three months ended March 31, 2012, our general and administrative expenses as a percentage of our total revenues increased from 12.10% to 15.46% and from 11.58% to 12.62% over the same periods in 2011 because of the increase of expenses in implementing our international expansion strategies. The general and administrative expenses of our Australian and Hong Kong offices constituted about 10.45% and 10.75% of our total general and administrative expenses for the nine and three months ended March 31, 2012, compared to that of 7.49% and 9.64% for the same period ended March 31, 2011.

 

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Selling Expenses. Our selling expenses primarily consist of commissions and traveling expenses for our operating staff to the ports at which we provide services. As we tightened control over selling expenses, our selling expenses decreased in absolute amount and as a percentage of our total net revenues for the nine and three months ended March 31, 2012.

 

Critical Accounting Policies

 

We prepare the 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.

 

The selection of critical accounting policies, the judgments and other matters affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors that should be considered when reviewing our financial statements. We believe the following accounting policies involve the most significant judgments and estimates used in the preparation of our condensed consolidated financial statements.

 

Revenue Recognition

 

Revenue comprises the value of charges for the services in the ordinary course of our company’s activities and disbursements made on behalf of customers. Revenues are recognized from shipping agency services upon completion of the services, which generally 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 current liabilities.

 

Some contracts provide that revenues are recognized as a mark up of actual expenses incurred. In a situation where the services are completed but the information on the actual expenses is not available at the end of the fiscal period, we estimate revenues and costs based on our previous experience for the revenues of the same kind of vessels, port charges on the vessel’s particulars/movement and costs rate of the port. In general, the estimated revenues are based on the contract amounts. In other situations, the estimated revenues are based on the contract amounts plus any additional costs incurred, such as extra weight taxes because of extended parking time at a harbor, additional tow boats used because of inclement weather, overtime during public holidays and so on. If such contributory factors change, our revenues will increase or decrease accordingly. The estimated costs of revenue are based on the cost information provided by the local port and /or our historical experience of similar transactions. Since all estimated costs are paid in RMB, if the valuation of the RMB increases compared to the USD, then the estimated costs will increase accordingly.

  

Basis of Consolidation

 

The consolidated financial statements include the accounts of the parent and its subsidiaries. All significant inter-company transaction and balances are eliminated in consolidation. Sino-China is considered to be a Variable Interest Entity (“VIE”) and we are the primary beneficiary. On November 14, 2007, our company through Trans Pacific Beijing entered into agreements with Sino-China, pursuant to which we receive 90% of Sino-China’s net income. We do not receive any payment from Sino-China unless Sino-China recognizes net income during its fiscal year. Sino-China pays consulting and marketing fees equal to 85% and 5%, respectively, of its net income to our wholly foreign-owned 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 our company.

 

The accounts of Sino-China are consolidated in the accompanying consolidated financial statements pursuant to Accounting Standard Codification (“ASC”) 810-10, “Consolidation”. As a VIE, Sino-China’s sales are included in our total sales, its income (loss) from operations is consolidated with our company’s, and our net income (loss) from continuing operations before non-controlling interest in income (loss) includes all of Sino-China’s net income (loss). Our non-controlling interest in its income (loss) is then added in calculating the net income (loss) attributable to our company. Because of the contractual arrangements, our company had a pecuniary interest in Sino-China that requires consolidation of our and Sino-China’s financial statements.

 

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Equity Investment

 

Investments in companies that are owned 20% to 50% for which we have significant influence but not control are accounted for by the equity method. Under the equity method, we recognize in earnings our proportionate share of the income or loss of the investee. Our income and earnings per share are affected by the income or loss of the investee.

 

With an expectation to open additional business opportunity to the Company, Sino-Global Development was formed on November 9, 2009. At the time of its formation, Trans Pacific Beijing owned 40% of Sino-Global Development. Since Sino-Global Development has reported successive losses and is insolvent, Trans Pacific Beijing has recognized an investment loss of $189,772 for the nine months ended March 31, 2012. On October 31, 2011, Trans Pacific Beijing transferred 20.2% of its 40% share to the other shareholder due to successive operating losses in Sino-Global Development.

 

Accounts Receivable

 

Accounts receivable are recognized at net realizable value. We maintain allowances for doubtful accounts for estimated losses resulting from the failure of customers to make required payments in the relevant time period. We review the accounts receivable on a periodic basis and record general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, we consider many factors, including the age of the balance, the customer’s historical payment history, its current credit-worthiness and current economic trends. Receivables are considered past due after 365 days. Accounts are written off only after exhaustive collection efforts. Because of the worldwide financial crisis, we have experienced difficulties in collecting cash from some of our customers. As a result of these experiences, management has determined that its bad debts should be increased. In accordance with the Company’s accounting policies, management has determined that an allowance of $310,939 was required at March 31, 2012, and $194,955 at June 30, 2011.

 

When a client requests our shipping agency services, we communicate with port officials and our service partners rely on our prior experience for similar vessels with similar needs in the same ports to obtain an estimate for the cost of services. We then calculate our shipping agency fees in two ways: (1) the fixed fees are predetermined with a customer, and (2) the cost-plus fees are calculated based on the actual costs incurred plus a mark up.

 

We generally obtain advance payment of our shipping agency fees prior to providing service to our clients. This significantly reduces the amount of accounts receivable when the shipping agency fees are recognized. To the extent our estimates are insufficient; we bill our clients for the balance to be paid within 30 days.

 

We use advance payments to pay a number of fees on behalf of our clients before their ships arrive in port, including harbor, berthing, mooring/unmooring, tonnage, immigration, quarantine and tug hire fees. We record the amounts we receive as Advances from Customers and the amounts we pay as Advances to Suppliers. We recognize revenues and expenses once the client’s ship leaves the harbor and the client pays any outstanding amounts. In some cases, a delay in receiving bills will require us to estimate the Service Revenues and Costs of Services in accordance with the rate and formulas approved by the Ministry of Communications. When this happens, we record the difference between Service Revenues (as recognized) and Advances from Customers as Accounts Receivable and the difference between Cost of Services and Advances to Suppliers as Accounts Payable. To the extent we recognize revenues and costs in this way, our Accounts Receivable and Accounts Payable will reflect this estimation until we receive the bills and information we require to adjust revenues and expenses to reflect our actual Service Revenues and Cost of Services. Any adjustment to actual from the estimated Revenues and Cost of Services recorded has been and is expected to be immaterial.

 

Property and Equipment

 

We calculate gains and losses on disposals by comparing proceeds with the carrying amount of the related assets and include these gains and losses in the consolidated statements of operations. We consider the carrying value of a long-lived asset to be impaired when the anticipated undiscounted cash flow from such asset is less than its carrying value. If impairment is identified, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved or based on independent appraisals.

 

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Translation of Foreign Currency

 

The accounts of our company and Sino-China are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). Our functional currency is the U.S. dollar, while Trans Pacific and Sino-China report their financial position and results of operations in Renminbi. The accompanying unaudited condensed consolidated financial statements are presented in U.S. dollars. Foreign currency transactions are translated into U.S. dollars using the fixed exchange rates in effect at the time of the transaction. Generally foreign exchange gains and losses resulting from the settlement of such transactions are recognized in the consolidated statements of operations. We translate foreign currency financial statements of Sino-China, Trans Pacific, Sino-Global HK and Sino-Global AUS 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 periods.

 

Taxation

 

Because we and Sino-China are incorporated in different jurisdictions, we file separate income tax returns. We are subject to income and capital gains taxes in the United States. Additionally, dividend payments made by our company are subject to withholding tax in the United States.

 

The Company follows the provisions of ASC 740-10, “Accounting for Income Taxes”, which addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740-10, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position would be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. ASC 740-10 also provides guidance on derecognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.

 

The implementation of ASC 740-10 resulted in no material liability for unrecognized tax benefits and no material change to the beginning retained earnings of the Company. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statement of Operations.

 

PRC Enterprise Income Tax

 

PRC enterprise income tax is calculated based on taxable income determined under PRC GAAP. Sino-China and Tran Pacific are registered in PRC and governed by the Enterprise Income Tax Laws of the PRC. Their taxable incomes are subject to an enterprise income tax rate of 25%.

 

PRC Business Tax

 

Revenues from services provided by Sino-China are subject to PRC business tax of 5% and additional surcharges of 0.5%. We pay business tax on gross revenues generated from our shipping agency services minus the costs of services, which are paid on behalf of our customers.

 

2012 Trends

 

Under the difficult macro economic conditions for shipping industries all over the world, our revenues declined 2.30% for the nine months and slightly increased 0.49% for the three months ended March 31, 2012. We expect our revenues could decrease if the economic conditions worsen. In the uncertain economic environment, we believe that growth is a key for a small company like us to survive and develop. As such, we will continue setting the top line growth as our first priority and increase in revenues from our agency services to vessels coming to Chinese ports as well as expanding business activities at the loading ports in Australia, Canada, South Africa and Brazil.

 

In addition to the difficulties in revenue growth, we have experienced significant difficulties in managing our foreign exchange risks. Because we receive most of our revenues in U.S. dollars and pay most of our expenses in Chinese RMB, we have faced increased costs of revenues due to the devaluation of the U.S. dollar against the RMB over the last few years. The devaluation of the U.S. dollar against the Chinese RMB is still our main challenge. We expect the trend will continue in fiscal 2012 and our gross margin will continue to be negatively affected by the devalued U.S. dollar. As a small company, we cannot bear the risk of using financial instruments to hedge foreign exchange rates. Our strategies are to allocate our funds into different currencies and encourage our customers to pay us in their local currency.

 

Our general and administrative expenses are significantly higher than their pre-IPO levels as a result of our domestic and international business expansion and our company’s public listing. In the 2012 fiscal year, we will continue our combined effort to control our budget and promote business growth.

 

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Results of Operations

 

Nine Months Ended March 31, 2012 Compared to Nine Months Ended March 31, 2011

 

Revenues. Our total revenues decreased by 2.30% from $26,331,088 for the nine months ended March 31, 2011 to $25,725,311 in the comparable nine months in 2012. The number of ships that generated revenues for us increased from 341 to 351 for the comparable nine month periods ended March 31, 2011 and 2012. The reason for the contrast trend of increased number of ships and the decreased revenues is that we provided protective services for more ships, which generated significantly lower revenues per ship. For the nine months ended March 31, 2012, we provided protective services to 65 ships, compared to 35 ships for the same nine months in 2011.

 

Total Operating Costs and Expenses. Our total operating costs and expenses increased by 3.16% from $27,251,068 for the nine months ended March 31, 2011 to $28,113,371 for the nine months ended March 31, 2012. This increase was primarily due to increases in our general and administrative expenses.

 

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Costs of Revenues. Our cost of revenues increased by 0.42% from $23,740,899 for the nine months ended March 31, 2011 to $23,840,881 for the nine months ended March 31, 2012. Costs of revenues increased compared to the decrease of revenues, resulting in the decrease of gross margins from 9.84% down to 7.33% for the comparative nine months ended March 31, 2011 and 2012, respectively. This was largely due to the devaluation of the U.S. dollar against the Chinese RMB. The average foreign exchange rate was $1.00 to RMB 6.3605 for the nine months ended March 31, 2012 compared to $1.00 to RMB 6.6683 for the nine months ended March 31, 2011, representing a 4.62% increase in the value of RMB against the U.S. dollar during the period. We successfully negotiated an approximately 5% agency fee increase with our largest customer, Beijing Shourong Forwarding Limited beginning in March 2011. The agency fee change partially mitigated the negative impact from the U.S. dollar devaluation on our gross margin.

 

  Ÿ

General and Administrative Expenses. Our general and administrative expenses increased by 24.82% from $3,185,577 for the nine months ended March 31, 2011 to $3,976,137 for the nine months ended March 31, 2012. This increase was mainly due to (1) an increase of $282,047 in salaries and human resource expenses, (2) increased bad debts provision of $117,041 and (3) an increase of $405,289 in business promotion and expansion expenses. In a challenging economic climate in our industry, we have needed to allocate additional funds both to maintain our current clients and also to market to potential clients in China and internationally.

 

 

 

Ÿ Selling Expenses. Our selling expenses decreased by 8.70% from $324,592 for the nine months ended March 31, 2011 to $296,353 for the nine months ended March 31, 2011 due to our efforts to control selling expenses. Most selling expenses are commissions paid to business partners who refer shipping agency business to us.

 

Operating Loss. We had an operating loss of $2,388,060 for the nine months ended March 31, 2012, compared to operating loss of $919,980 for the comparable nine months in 2011. The operating loss for the period ended March 31, 2012 was primarily due to the increase in costs of revenue and general and administrative expenses.

 

Financial Income, Net. Our net financial income was $58,705 for the nine months ended March 31, 2012, compared to our net financial income of $148,429 for the nine months ended March 31, 2011. The net financial incomes were derived largely from the foreign exchange benefit recognized in the financial statement consolidation. As described in the above “Translation of Foreign Currency”, foreign exchange gains and losses resulting from the settlement of such transactions are recognized in the consolidated statements of operations.

 

Loss from Equity Investment. As explained previously, we recognized an investment loss of $189,772 in the Sino-Global Development for the nine months ended March 31, 2012, because it has reported successive operating losses and become insolvent.

 

Taxation. Our income tax benefits were $31, 232 for the nine months ended March 31, 2012, compared to income tax benefits of $5,412 for the nine months ended March 31, 2011. As we made tax provision of $29,768 and recognized net deferred tax assets of $61,000, the income tax benefits of the nine months ended March 31, 2012 were $31, 232. See Note 10 of the consolidated financial statements for more details.

 

7
 

 

Net Loss. As a result of the foregoing, we had a net loss of $2,424,480 for the nine months ended March 31, 2012, compared to net loss of $719,512 for the period ended March 31, 2011. After deduction of non-controlling interest in loss, net loss attributable to Sino-Global Shipping America, Ltd. was $1,538,176 for the nine months ended March 31, 2012, compared to net loss of $408,999 for the nine months ended March 31, 2011. Since we allocated more resources in international marketing and more personnel for overseas operations, the expenses related to Sino-Global Shipping America Limited increased significantly.

 

Three Months Ended March 31, 2012 Compared to Three Months Ended March 31, 2011

 

Revenues. Our total revenues increased by 0.49% from $9,065,518 for the three months ended March 31, 2011 to $9,110,006 in the comparable three months in 2012. Although the number of ships that generated revenues for us increased from 125 to 129 in the comparable three months ended March 31, 2011 and 2012, the revenue per vessel decreased. The reason for the contrast trend of increased number of ships and the decreased revenues is primarily because we provided protective services for more ships, which generated significantly lower revenues per ship. For the three months ended March 31, 2012, we provided protective services to 34 ships, compared to 18 ships for the same three months in 2011. In addition, we provided services to some smaller ships, which generated lower revenues.

 

Total Operating Costs and Expenses. Our total operating costs and expenses increased by 5.23% from $9,376,533 for the three months ended March 31, 2011 to $9,867,257 for the three months ended March 31, 2012. This increase was primarily due to increases in our costs of revenues and general and administrative expenses.

 

  Ÿ

Costs of Revenues. Our cost of revenues increased by 5.68% from $8,170,398 for the three months ended March 31, 2011 to $8,634,188 for the three months ended March 31, 2012. Costs of revenues increased more than the increase of revenues, resulting in a decrease of gross margins from 9.87% down to 5.22% for the comparative three months ended March 31, 2011 and 2012, respectively. This decrease is largely due to the devaluation of the U.S. dollar against the Chinese RMB during the period. The average foreign exchange rate was RMB 6.3084 to $1.00 for the three months ended March 31, 2012 compared to RMB 6.5795 to $1.00 for the three months ended March 31, 2011, representing a 4.12% increase in the value of the RMB against the U.S. dollar during the period.

 

  Ÿ

General and Administrative Expenses. Our general and administrative expenses increased by 9.49% from $1,049,933 for the three months ended March 31, 2011 to $1,149,522 for the three months ended March 31, 2012. This increase was mainly due to (1) an increase of $36,159 in salaries and human resource expenses and (2) an increase in business promotion and expansion expenses of $68,332.

 

 

 

Ÿ Selling Expenses. Our selling expenses decreased by 46.51% from $156,202 for the three months ended March 31, 2011 to $83,547 for the three months ended March 31, 2012, mainly due to lower commission payments because of budget control efforts.

 

Operating Profit (Loss). We had an operating loss of $757,251 for the three months ended March 31, 2012, compared to operating loss of $311,015 for the comparable three months in 2011. The operating loss for the third quarter of fiscal 2012 was primarily due to the increase in costs of revenues and general and administrative expenses.

 

Financial Income, Net. Our net financial expense was $42,152 for the three months ended March 31, 2012, compared to our net financial income of $28,530 for the three months ended March 31, 2011. The net financial expense comes partially from a decrease in interest income from money deposits in banks and partially from the foreign exchange gains recognized in the consolidation of financial statements. As described in the above “Translation of Foreign Currency”, foreign exchange gains and losses resulting from the settlement of such transactions are recognized in the condensed consolidated statements of operations.

 

Taxation. Our income tax benefits were $7,111 for the three months ended March 31, 2012, compared to tax benefits of $34,600 for the three months ended March 31, 2011. As we had losses on our consolidated results of operations, we incurred estimated income tax benefit on the profitable results of our U.S. operations.

 

Net Income. As a result of the foregoing, we had a net loss of $770,155 for the quarter ended March 31, 2012, compared to net loss of $254,387 for the quarter ended March 31, 2011. After deduction of non-controlling interest in loss, net loss attributable to Sino-Global Shipping America, Ltd. was $477,388 for the three months ended March 31, 2012, compared to net loss of $152,571 for the three months ended March 31, 2011.

 

8
 

 

Liquidity and Capital Resources

 

Cash Flows and Working Capital

 

We have financed our operations primarily through cash flows from operations and cash derived from our initial public offering. As of March 31, 2012, we had $6,417,455 in cash and cash equivalents. Our cash and cash equivalents primarily consist of cash on hand and cash in banks.

 

The following table sets forth a summary of our cash flows for the periods indicated:

  

   For the nine months ended March 31, 
   2012   2011 
   US$   US$ 
Net cash provided by (used in) operating activities   1,644,160    (504,603)
Net cash used in investing activities   (42,874)   (34,781)
Net cash used in financing activities   (15,151)   (2,780)
Net increase (decrease) in cash and cash equivalents   1,538,627    (597,041)
Cash and cash equivalents at beginning of Period   4,878,828    5,926,153 
Cash and cash equivalents at end of Period   6,417,455    5,329,112 

 

Operating Activities

 

Our revenues slightly decreased for the nine months ended March 31, 2012 compared to our revenues for the nine months ended March 31, 2011. Our operating loss increased primarily because of higher costs of revenue and general and administrative expenses in the nine months ended March 31, 2012. Net cash provided by operating activities of $1,644,160 for the nine months ended March 31, 2012, is mainly attributable to a decrease in prepaid tax of $260,303, a decrease in advances from customers of $428,970 and an increase in accounts payable of $4,924,359, offset by a net loss of $2,424,480, an increase in advance to suppliers of $384,142 and an increase in accounts receivable of $856,578.

 

Since we collect most of our revenues in U.S. dollars and pay most of our costs and expenses in RMB, the increase in the valuation of RMB against U.S. dollar has caused a decline in gross margin and higher expenses for our Company for the nine months ended March 31, 2012.

 

In order for us to maintain a steady and positive cash position, we believe the U.S. dollar has to increase and maintain its valuation against RMB or we need to become less reliant on the U.S. dollar in our operations. The vast majority of our revenues are either received in U.S. dollars or calculated in U.S. dollars and paid in local currencies, so we expect we will be substantially dependent on the value of the U.S. dollar for the foreseeable future, even where the revenues are not paid in U.S. dollars. If the U.S. dollar does not increase its valuation against the RMB, we will continue to focus on maintaining our high growth rate so as to overcome, or least mitigate, the negative impact from the U.S. dollar’s devaluation. In addition, we believe that our diversified operations in China and overseas will also help us to manage the foreign exchange rate risks.

 

Investing Activities

 

Net cash used in investing activities was $42,874 compared to net cash used in investing activities of $34,781 for the nine months ended March 31, 2012 and 2011, respectively. We made capital expenditures representing 0.39% and 0.38% of our total assets during the nine-month periods ended March 31, 2012 and 2011, respectively.

 

Financing Activities

 

Net cash used in financing activities was $15,151 for the nine months ended March 31, 2012 from the increase of non-controlling interest in majority-owned subsidiary.

 

9
 

 

We believe that current cash, cash equivalents, and anticipated cash flow from 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. 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. If we are unable to obtain additional equity or debt financing as required, our business, operations and prospects may suffer.

 

Contractual Obligations and Commercial Commitments

 

We have leased certain office premises and apartments for employees under operating leases through October 31, 2013. Below is a summary of our company’s contractual obligations and commitments as of March 31, 2012:

 

   Payment Due by Period 
   Total   Less than 1 year   1-3 years   More than 3
years
 
Contractual Obligations                
Operating leases  $172,777   $135,249   $37,528   $ 

  

The Labor Contract Law of the PRC requires employers to assure the liability of severance payments if employees are terminated and have been working for their employers for at least two years prior to January 1, 2008. The employers will be liable for one month of severance pay for each year of service provided by the employees. As of March 31, 2012, our company has estimated its severance payments to be approximately $152,600, which has not been reflected in our consolidated condensed financial statements.

 

Company Structure

 

We conduct our operations primarily through our wholly-owned subsidiaries, Trans Pacific, Sino-AUS and Sino-HK and our variable interest entity, Sino-China. As a result, our ability to pay dividends and to finance any debt we may incur depends upon dividends paid by our subsidiaries and management fees paid by Sino-China. 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 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.

 

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 condensed 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

 

Not applicable.

 

10
 

 

Item 4/4T. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Our Company maintains a system of 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, 2012, our company carried out an evaluation, under the supervision of and with the participation of management, including our company’s chief executive officer and chief financial officer, of the effectiveness of the design and operation of our company’s disclosure controls and procedures. Based on the foregoing, the chief executive officer and 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 our company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934) during the nine months ended March 31, 2012 that have materially affected, or are reasonably likely to materially affect, our company’s internal control over financial reporting.

 

11
 

 

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We are periodically involved in legal proceedings in the ordinary course of business. During the three and nine months ended March 31, 2012, neither we nor any of our subsidiaries or affiliate was involved in any material pending legal proceedings. Nor was any of our property subject to any such material pending legal proceedings.

 

Item 1A. Risk Factors

 

Not applicable.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

(a)           None

 

(b)           The annual report filed on September 26, 2011 for the fiscal year ended June 30, 2011 (SEC Accession No. 0001144204-11-054806) is incorporated herein by reference, subject to the replacement of the table under Item 5 thereof with the following table showing the use of proceeds from our initial public offering.

  

   Budgeted Use of Net
Proceeds
   Through March 31, 2012 
Description of Use  US$   %   US$   %  
Organization of our company and creation of contractual arrangements among our company, Sino-China and Trans Pacific   100,000    1.23%   103,526    1.27%
Domestic and international business expansion*   5,930,941    72.74%   3,388,924    41.56%
Sarbanes-Oxley compliance   500,000    6.13%   296,689    3.64%
Marketing of company across China, United States and internationally   244,621    3.00%   924,024    11.33%
Develop information exchange system   400,000    4.91%   112,164    1.38%
Train staff   163,081    2.00%   406,347    4.98%
Fixed asset purchase   407,702    5.00%   438,791    5.38%
Miscellaneous expenses   407,702    5.00%   646,244    7.93%
Stock repurchases   -    -    372,527    4.57%
                     
Total   8,154,047    100.00%   6,689,236    82.04%

 

*           We have modified our description of Use of IPO Proceeds from “Business expansion in 15 to 35 main ports in China” to “Domestic and international business expansion”. We have identified opportunities to provide shipping agency services to vessels that load exported commodities at overseas ports and believe the modified use of proceeds will allocate the funds more efficiently and in the best interests of our shareholders.

 

(c)         During the nine months ended March 31, 2012, the company did not repurchase any shares of common stock.

 

Item 3. Defaults upon Senior Securities

 

None.

  

Item 4. Mine Safety Disclosures

 

None. 

 

Item 5. Other Information

 

None.

 

12
 

 

Item 6. Exhibits

 

The following exhibits are filed herewith:

 

Number   Exhibit
3.1   Articles of Incorporation of Sino-Global Shipping America, Ltd.(1)
3.2   Bylaws of Sino-Global Shipping America, Ltd.(1)
4.1   Specimen Certificate for Common Stock.(1)
10.1   Exclusive Management Consulting and Technical Services Agreement by and between Trans Pacific and Sino-China.(1)
10.2   Exclusive Marketing Agreement by and between Trans Pacific and Sino-China.(1)
10.3   Proxy Agreement by and among Cao Lei, Zhang Mingwei, the Registrant and Sino-China.(1)
10.4   Equity Interest Pledge Agreement by and among Trans Pacific, Cao Lei and Zhang Mingwei.(1)
10.5   Exclusive Equity Interest Purchase Agreement by and among the Registrant, Cao Lei, Zhang Mingwei and Sino-China.(1)
10.6   First Amended and Restated Exclusive Management Consulting and Technical Services Agreement by and between Trans Pacific and Sino-China.(1)
10.7   First Amended and Restated Exclusive Marketing Agreement by and between Trans Pacific and Sino-China.(1)
10.8   Agency Agreement by and between the Registrant and Beijing Shou Rong Forwarding Service Co., Ltd.(2)
10.9   Lease Agreement dated December 8, 2009.(3)
13.1   Annual report of our company on Form 10-K for the year ended June 30, 2011.(4)
14.1   Code of Ethics of our company.(5)
21.1   List of subsidiaries of our 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)

EX-101.INS   XBRL Instance Document. (8)
EX-101.SCH   XBRL Taxonomy Extension Schema Document. (8)
EX-101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document. (8)
EX-101.DEF   XBRL Taxonomy Extension Definition Linkbase Document. (8)
EX-101.LAB   XBRL Taxonomy Extension Label Linkbase Document. (8)
EX-101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document. (8)

  

(1) Incorporated by reference to the Company’s Registration Statement on Form S-1, Registration No. 333-148611.
(2) Incorporated by reference to our company’s Form 8-K filed on January 15, 2010, File No. 001-34024.
(3) Incorporated by reference to our company’s Form 8-K filed on February 4, 2010, File No. 001-34024.
(4) Incorporated by reference to our company’s Form 10-K filed on September 26, 2011, File No. 001-34024.
(5) Incorporated by reference to our company’s Form 10-KSB filed on September 29, 2008, File No. 001-34024.
(6) Incorporated by reference to our company’s Form 10-K filed on September 22, 2009, File No. 001-34024.
(7) Filed herewith.
(8)  Furnished herewith. 

 

13
 

 

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 14, 2012 By: /s/ Zhang Mingwei  
    Zhang Mingwei  
    Chief Financial Officer  
    (Principal Financial and Accounting Officer)  

 

14
 

 

SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATE

 

Index to Financial Statements

 

  PAGE
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:  
   
Condensed Consolidated Balance Sheets as of March 31, 2012 and June 30, 2011 F-2
   
Condensed Consolidated Statements of Operations and Comprehensive loss for the nine and three months ended March 31, 2012 and 2011 F-3
   
Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2012 and 2011 F-4
   
Notes to the Unaudited Condensed Consolidated Financial Statements F-5

 

F-1
 

 

SINO-GLOBAL SHIPPING AMERICA LTD. AND AFFILIATE

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

   March 31,   June 30, 
   2012   2011 
   US$   US$ 
         
Assets          
Current assets          
Cash and cash equivalents   6,417,455    4,878,828 
Advances to suppliers   722,449    338,307 
Accounts receivable, less allowance for doubtful accounts of $310,939 and $194,955 as of March 31, 2012 and June 30, 2011   2,588,584    1,847,990 
Other receivables, less allowance for doubtful accounts of $80,000 as of March 31, 2012 and June 30, 2011   337,624    417,853 
Prepaid expenses and other current assets   84,212    86,453 
Prepaid taxes   26,189    286,492 
Employee loans receivable   6,991    10,662 
Income tax receivable   1,885    1,885 
Deferred tax assets   175,000    117,000 
           
Total current assets   10,360,389    7,985,470 
           
Property and equipment, net   472,720    587,024 
Security deposits   25,357    31,026 
Employee loans receivable less current portion   6,988    11,896 
Deferred tax assets   255,000    252,000 
Equity investment   -    186,514 
           
Total Assets   11,120,454    9,053,930 
           
Liabilities and Equity          
Current liabilities          
Advances from customers   281,921    710,891 
Accounts payable   7,837,912    2,913,553 
Accrued expenses   67,248    81,146 
Income tax payable   5,433    - 
Other current liabilities   199,995    173,249 
           
Total Current Liabilities   8,392,509    3,878,839 
           
Total Liabilities   8,392,509    3,878,839 
           
Commitments and Contingencies          
           
Equity          
Preferred stock, 1,000,000 shares authorized, no par value; none issued   -    - 
Common stock, 10,000,000 shares authorized, no par value; 3,029,032 shares issued and 2,903,841 outstanding   7,709,745    7,709,745 
Additional paid-in capital   1,191,796    1,191,796 
Treasury stock, at cost   (372,527)   (372,527)
Accumulated deficit   (2,826,958)   (1,288,783)
Accumulated other comprehensive loss   824    (9,023)
Unearned Compensation   (397,558)   (397,558)
           
Total Sino-Global Shipping America Ltd. equity   5,305,322    6,833,650 
           
Non-Controlling interest   (2,577,377)   (1,658,559)
           
Total equity   2,727,945    5,175,091 
           
Total Liabilities and Equity   11,120,454    9,053,930 

 

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

 

F-2
 

 

SINO-GLOBAL SHIPPING AMERICA LTD. AND AFFILIATE

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)

 

   For the nine months ended 
March 31,
   For the three months ended 
March 31,
 
   2012   2011   2012   2011 
   US$   US$   US$   US$ 
                 
Revenues   25,725,311    26,331,088    9,110,006    9,065,518 
                     
Cost of revenues   (23,840,881)   (23,740,899)   (8,634,188)   (8,170,398)
Gross profit   1,884,430    2,590,189    475,818    895,120 
                     
General and administrative expense   (3,976,137)   (3,185,577)   (1,149,522)   (1,049,933)
Selling expense   (296,353)   (324,592)   (83,547)   (156,202)
    (4,272,490)   (3,510,169)   (1,233,069)   (1,206,135)
                     
Operating Loss   (2,388,060)   (919,980)   (757,251)   (311,015)
                     
Financial income (expense), net   58,705    148,429    (42,152)   28,530 
Non-operating revenue   52,533    14,927    36,167    5,011 
Non-operating costs   (14,461)   (216)   (14,461)   (1)
Other income   25,343    76,846    1,204    1,488 
Loss from equity investment   (189,772)   (44,930)   (773)   (13,000)
    (67,652)   195,056    (20,015)   22,028 
                     
Net loss before provision for income taxes   (2,455,712)   (724,924)   (777,266)   (288,987)
                     
Income tax benefit   31,232    5,412    7,111    34,600 
                     
Net loss   (2,424,480)   (719,512)   (770,155)   (254,387)
                     
Net loss attributed to non-controlling interest   (886,304)   (310,513)   (292,767)   (101,816)
                     
Net loss attributable to Sino-Global Shipping America Ltd.   (1,538,176)   (408,999)   (477,388)   (152,571)
                     
Net loss   (2,424,480)   (719,512)   (770,155)   (254,387)
                     
Other comprehensive income                    
Foreign currency translation adjustments   9,847    (13,220)   13,836    2,980 
Comprehensive loss   (2,414,633)   (732,732)   (756,319)   (251,407)
                     
Comprehensive loss attributable to non-controlling interest   (903,667)   (312,387)   (294,335)   (103,334)
                     
Comprehensive loss attributable to Sino-Global Shipping America Ltd.   (1,510,966)   (420,345)   (461,984)   (148,073)
                     
Loss per share                    
-Basic and diluted   (0.53)   (0.14)   (0.16)   (0.05)
                     
Weighted average number of common shares used in computation                    
-Basic and diluted   2,903,841    2,903,841    2,903,841    2,903,841 

 

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

 

F-3
 

 

SINO-GLOBAL SHIPPING AMERICA LTD. AND AFFILIATE

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

   For the nine months ended 
March 31,
 
   2012   2011 
   US$   US$ 
         
Cash flows from operating activities          
           
Net loss   (2,424,480)   (719,512)
Adjustment to reconcile net loss to net cash provided by (used in) operating activities          
Depreciation   193,913    186,512 
Provision for doubtful accounts   115,984    - 
Deferred tax benefit   (61,000)   (33,000)
Loss from equity investment   189,772    44,930 
Changes in assets and liabilities          
Increase in advances to supplier   (384,142)   (220,176)
Increase in accounts receivable   (856,578)   (727,138)
Decrease (Increase) in other receivables   80,229    (72,312)
Decrease in prepaid expense and other current assets   2,241    15,993 
Decrease in prepaid tax   260,303    291,813 
Decrease in employee loan receivables   8,579    38,269 
Decrease in income tax receivables   -    121,502 
Decrease (Increase) in security deposits   5,669    (30,624)
(Decrease) Increase in advances from customers   (428,970)   122,317 
Increase in accounts payable   4,924,359    442,764 
(Decrease) Increase in accrued expenses   (13,898)   28,989 
Increase in income taxes payable   5,433    4,276 
Increase in other current liabilities   26,746    794 
           
Net cash provided by (used in) operating activities   1,644,160    (504,603)
           
Cash flows from investing activities          
Capital expenditures and other additions   (42,874)   (34,781)
           
Net cash used in investing activities   (42,874)   (34,781)
           
Cash flows from financing activities          
Increase in noncontrolling interest   (15,151)   (2,780)
           
Net cash used in financing activities   (15,151)   (2,780)
           
Effect of exchange rate fluctuations on cash and cash equivalents   (47,508)   (54,877)
           
Net increase (decrease) in cash and cash equivalents   1,538,627    (597,041)
           
Cash  and cash equivalents at beginning of period   4,878,828    5,926,153 
           
Cash and cash equivalents at end of period   6,417,455    5,329,112 
           
Supplemental information          
Interest paid   -    713 
Income taxes paid   19,800    - 

 

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

 

F-4
 

 

SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATE

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1. ORGANIZATION AND NATURE OF BUSINESS

 

Sino-Global Shipping America, Ltd. (the “Company”) was incorporated on February 2, 2001 in New York. On September 18, 2007, the Company amended the Articles of Incorporation and Bylaws to merge into a new Corporation, Sino-Global Shipping America, Ltd. in Virginia.

 

The Company’s principal geographic market is in the People’s Republic of China (“PRC”). As PRC laws and regulations restrict foreign ownership of shipping agency service businesses, the Company provides its 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 shipping services in the PRC. Sino-China is located in Beijing with branches in Qingdao, Tianjin, Qinhuangdao and Fangchenggang and provides general shipping agency services in all commercial ports in the PRC.

 

On November 13, 2007, the Company formed a wholly owned foreign-owned enterprise, Trans Pacific Shipping Limited (“Trans Pacific Beijing”), which has two subsidiaries, (i) the 90%-owned Trans Pacific Logistics Shanghai Limited (“Trans Pacific Shanghai”) and (ii) the 19.8%-owned Beijing Sino-Global Shipping Agency Development Co., Limited (“Sino-Global Development”). On October 31, 2011, Trans Pacific Beijing reduced its investment in Sino-Global Development from 40% to 19.8% by transferring 20.2% of its share to the other shareholder due to successive operating losses on Sino-Global Development.

 

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.

 

To build an international shipping agency service network, the Company formed a wholly-owned subsidiary, Sino-Global Shipping Australia Pty Ltd. (“Sino-Global AUS”) in Perth, Australia on July 3, 2008, which serves the needs of customers shipping into and out of Western Australia. The Company also signed an agreement with Monson Agencies Australia (“Monson”), one of the largest shipping agency service providers in Australia. Through the Company’s relationship with Monson, the Company is able to provide general shipping agency services to all ports in Australia.

 

The Company established another wholly-owned subsidiary, Sino-Global Shipping (HK) Limited ("Sino-Global HK") to perform as a control and management center for southern Chinese ports and enables the Company to extend its offering of comprehensive shipping agency services to vessels going to and from one of the world's busiest ports. Sino-Global HK has signed an exclusive partnership agreement with Forbes & Company Limited (“Forbes”), which is a listed company on the Bombay Stock Exchange (BOM: 502865) and one of the largest shipping and logistic service providers in India. Through the Company’s relationship with Forbes, it is able to provide general shipping agency services to all ports in India.

 

F-5
 

 

On July 5, 2011, Sino-China signed a Strategic Cooperative Agreement with COSCO Container Shipping Agency Co. Limited, one of the largest state-owned shipping agents in China. The Agreement entitles us to use COSCO Container Shipping Agency’s name to market business in China and overseas. In addition, we are able to provide shipping agency services through over 50 COSCO’s offices in China.

 

On October 12, 2011, the Company signed a Memorandum of Understanding with King & Sons Shipping Agency (“King & Sons”), subsidiary of Grindrod Limited, a public company listed on the Johannesburg Securities Exchange (JSE: GNDP) and one of the oldest shipping agents in South Africa. Through the Company’s relationship with King & Sons, it is able to provide general shipping agency services to all ports in South Africa.

 

On November 8, 2011, the Company signed a Memorandum of Understanding with Wilson Sons Shipping Agency (“Wilson Sons”), the oldest and the leading independent Brazilian ship agent. Through the Company’s relationship with Wilson Sons, it is able to provide general shipping agency services to all ports in Brazil.

 

On May 20, 2008, the Company completed an initial public offering of 1,229,032 shares of common stock at a $7.75 offering price. Our shares started trading on the NASDAQ Capital Market the next day. Following the initial public offering, the Company’s Board authorized a stock repurchase program under which it was able to repurchase up to 10% of its then outstanding common stock for a period of 12 months. In September 2009, the Board approved the extension of the stock repurchase program for another six months ended April 2010. In total, the Company repurchased 125,191 shares of common stock from the open market at an average price of $2.98 per share including trading expenses. The total cost of stock repurchase was $372,527.

 

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”). 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.

 

In the opinion of the Company’s management, the unaudited condensed consolidated financial statements include all adjustments necessary to present fairly the consolidated financial position, results of operations and cash flows of the Company for the periods presented. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2011, filed on September 26, 2011 (the “Annual Report”).

 

F-6
 

 

(b) Basis of consolidation

 

The condensed consolidated financial statements include the accounts of the parent and its subsidiaries. All significant inter-company 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 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 pays consulting and marketing fees equal to 85% and 5%, respectively, of its net income to the Company’s wholly owned foreign subsidiary, Trans Pacific, and Trans Pacific supplies the technology and personnel needed to service Sino-China. Sino-China was designed to operate in China for the benefit of the Company.

 

The accounts of Sino-China are consolidated in the accompanying unaudited condensed consolidated financial statements pursuant to Accounting Standards Codification (“ASC”) 810-10, “Consolidation”. As a VIE, Sino-China’s sales are included in the Company’s total sales, and its income (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 income because the entities are under common control in accordance with ASC 805-10, “Business Combinations”. For this reason, the Company has included 90% of Sino-China’s net income in the Company’s net income, and only the 10% of Sino-China’s net income not paid to the Company represents the non-controlling interest in Sino-China’s income. Management makes ongoing reassessments of whether the Company is the primary beneficiary of Sino-China.

  

The carrying amount and classification of Sino-China's assets and liabilities included in the Unaudited Condensed Consolidated Balance Sheets are as follows:

 

   March 31,   June 30, 
   2011   2011 
   US$   US$ 
         
 Total current asstes   1,303,839    958,934 
 Total assets   1,568,092    1,324,636 
 Total current liabilities   341,781    308,737 
 Total liabilities   341,781    308,737 

 

(c) Fair Value of Financial Instruments

 

The carrying amounts reported in the unaudited condensed consolidated financial statements for current assets and current liabilities approximate fair value due to the short-term nature of these financial instruments. The Company determined that the carrying value of the employee loan approximated this fair value.

 

F-7
 

  

(d) Use of Estimates and Assumptions

 

The preparation of the unaudited condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Estimates are adjusted to reflect actual experience when necessary. Significant accounting estimates reflected in the Company’s condensed consolidated financial statements include revenue recognition, cost of revenues, allowance for doubtful accounts, the useful lives of property and equipment.

 

Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates.

 

(e) Translation of Foreign Currency

 

The accounts of the Company and 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 (“$”) 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 US dollars using the fixed exchange rates in effect at the time of the transaction. Generally foreign exchange gains and losses resulting from the settlement of such transactions are recognized in the unaudited condensed consolidated statements of operations. The Company translates foreign currency financial statements of Sino-China, Sino-Global AUS, Sino-Global HK and Trans Pacific 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 periods. 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.

 

(f) Cash and Cash Equivalents

 

Cash and cash equivalents consist of cash on hand, and other highly liquid investments which are unrestricted as to withdrawal or use, and which have 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. Cash balances in the United States are insured by the Federal Deposit Insurance Corporation subject to certain limitations.

 

(g) Property and Equipment

 

Property and equipment are stated at historical cost less accumulated depreciation and amortization. Historical cost comprises its purchase price and any directly attributable costs of bringing the assets to its working condition and location for its intended use. Depreciation is calculated on a straight-line basis over the following estimated useful lives:

 

F-8
 

 

   
Buildings 20 years
Motor vehicles 5-10 years
Furniture and office equipment 3-5 years

 

The carrying value of a long-lived asset is considered impaired by the Company when the anticipated undiscounted cash flows from such asset is less than its carrying value. If impairment is identified, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved or based on independent appraisals. Management has determined that there were no impairments at the balance sheet dates.

 

(h) Equity Investment

 

Investments in companies that are owned 20% to 50% for which the Company has significant influence but not control are accounted for by the equity method. Under the equity method, the Company recognizes in earnings its proportionate share of the income or loss of the investee.

 

With an expectation to open additional business opportunity to the Company, Sino-Global Development was formed on November 9, 2009 with Trans Pacific Beijing initially holding a 40% interest. On October 31, 2011, Trans Pacific Beijing transferred 20.2% of its 40% share to the other shareholder due to successive operating losses on Sino-Global Development. Sino-Global Development has reported successive losses and is insolvent, Trans Pacific Beijing has recognized an investment loss of $189,772 for the nine months ended March 31, 2012.

 

(i) Revenue recognition

 

The Company charges shipping agency fees in two ways: (1) fixed fees that are predetermined with the customer, and (2) cost-plus fees that are calculated based on the actual costs incurred plus a markup. The Company generally requires payments in advance from customers and bills them on the balance within 30 days after the transactions are completed.

 

Revenues are recognized from shipping agency services 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 current liabilities.

 

Some contracts provide that revenues are recognized as a mark up of actual costs incurred. In a situation where the services are completed but the information on the actual expenses is not available at the end of the fiscal period, we estimate revenues and costs based on our previous experience for the revenues of the same kind of vessels, port charges on the vessel’s particulars/movement and costs rate of the port. In general, the estimated revenues are based on the contract amounts. In other situations, the estimated revenues are based on the contract amounts plus any additional costs incurred, such as extra weight taxes because of extended parking time at a harbor, additional tow boats used because of inclement weather, overtime during public holidays and so on. If such contributory factors change, our revenues will increase or decrease accordingly. The estimated costs of revenue are based on the cost information provided by the local port and /or our historical experience of similar transactions. Since all estimated costs and expenses are paid in RMB, if the valuation of the RMB increases compared to the USD, then the estimated costs will increase accordingly.

 

F-9
 

 

The Company reports its revenue on the gross amounts billed to customers based on several criteria: (1) the Company assumes all credit risk for the amounts billed to customers, (2) the Company has multiple suppliers for services ordered by customers and discretion to select the supplier that provides the services, and (3) the Company determines the nature, type or specifications of the services ordered by customers and the Company is responsible for fulfilling these services.

 

(j) 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 balance, customer’s historical payment history, its current credit-worthiness and current economic trends. Receivables are considered past due after 365 days. In accordance with the accounting policies, management has determined that an allowance of $310,939 was required at March 31, 2012, and $194,955 at June 30, 2011. Accounts are written off after exhaustive efforts at collection.

 

(k) Taxation

 

Because the Company and Sino-China are incorporated in different jurisdictions, they file separate income tax returns. The Company uses the liability method of accounting for income taxes in accordance with US GAAP. Deferred taxes, if any, are recognized for the future tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts in the condensed consolidated financial statements. A valuation allowance is provided against deferred tax assets if it is more likely than not that the asset will not be utilized in the future.

 

The Company follows the provisions of ASC 740, “Income Taxes”, which addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position would be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on derecognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. The implementation of ASC 740 resulted in no material liability for unrecognized tax benefits and no material change to the beginning retained earnings of the Company. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense.

 

Income tax returns for the years prior to 2009 are no longer subject to examination by tax authorities.

 

F-10
 

 

PRC Enterprise Income Tax

 

PRC enterprise income tax is calculated based on taxable income determined under PRC GAAP at 25%. Sino-China and Trans Pacific are registered in PRC and governed by the Enterprise Income Tax Laws of the PRC.

 

PRC Business Tax and Surcharges

 

Revenues from services provided by Sino-China and Trans Pacific are subject to the PRC business tax of 5%. Business tax and surcharges are paid on gross revenues generated from shipping agency services minus the costs of services which are paid on behalf of the customers.

 

In addition, under the PRC regulations, Sino-China is required to pay the city construction tax (7%) and education surcharges (3%) based on the calculated business tax payments.

 

Sino-China reports its revenues net of PRC’s business tax and surcharges for all the periods presented in the condensed consolidated statements of operations.

 

(l) Loss per share

 

Loss per share is calculated in accordance with ASC 260, “Earnings Per Share”. 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 years. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common shares were exercised or converted into common shares. Convertible, redeemable preferred shares are included in the computation of diluted earnings per share on an “if-converted” basis, when the impact is dilutive. Contingent exercise price resets are accounted for in a manner similar to contingently issuable shares. Common share equivalents are excluded from the computation of diluted earnings per share if their effects would be anti-diluted.

 

The effect of 138,000 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.

 

3. OTHER RECEIVABLES / OTHER CURRENT LIABILITIES

 

(a) Other Receivables

 

Other receivables represent mainly amounts to be received from customers for advance payments made to the port agent for reimbursed charges to be incurred in connection with the costs of services and loans to employees.

 

(b) Other Current Liabilities

 

Other current liabilities represent mainly advance payments received from customers for reimbursed port agent charges to be incurred and miscellaneous accrued liabilities.

 

4. EMPLOYEE LOANS RECEIVABLE

 

The employee loans receivable represent receivables from employees other than executive officers for three automobiles sold to these employees. These receivables are secured by the automobiles and the personal assets of the employees. The Company has not imputed any interest on these receivables due to immateriality.

 

F-11
 

 

   March 31,   June 30, 
   2012   2011 
   US$   US$ 
         
Loans from employees, secured by their personal assets, receivable in monthly installments of approximately $583 bearing no interest through August 2014   13,979    22,558 
           
Less : Current maturities   (6,991)   (10,662)
    6,988    11,896 

 

5. ADVANCES TO SUPPLIERS/ADVANCES FROM CUSTOMERS

 

(a) Advances to Suppliers

 

Advances to suppliers represent costs of services and fees paid to suppliers in advance in connection with the agency services fees income to be recognized.

 

(b) Advances from Customers

 

Advances from customers represent money received from customers in advance in connection with the agency services fees income to be recognized.

 

6. PROPERTY AND EQUIPMENT

 

Property and equipment are as follows:

 

   March 31,   June 30, 
   2012   2011 
   US$   US$ 
         
Land and building    78,983    76,819 
Motor vehicles   923,033    893,818 
Computer equipment    127,239    110,479 
Office equipment   46,582    37,059 
Furniture & Fixtures    53,610    36,837 
System software   121,125    117,807 
Leasehold improvement    67,715    65,859 
           
Total    1,418,287    1,338,678 
           
Less : Accumulated depreciation and amortization    945,567    751,654 
           
Property and equipment, net    472,720    587,024 

 

F-12
 

 

7. NON-CONTROLLING INTEREST

 

Non-controlling interest consists of the following:

 

   March 31,   June 30, 
   2012   2011 
   US$   US$ 
         
Sino-China:          
Original paid-in capital   356,400    356,400 
Additional paid-in capital   1,044    1,044 
Accumulated other comprehensive loss   (51,752)   (34,390)
Accumulated deficit   (2,887,998)   (2,004,046)
Other adjustments   (25,912)   (23,559)
    (2,608,218)   (1,704,551)
Trans Pacific Logistics Shanghai Ltd.   30,841    45,992 
Total   (2,577,377)   (1,658,559)

 

8. COMMITMENTS AND CONTINGENCY

 

(a) Office leases

 

The Company leases certain office premises and apartments for employees under operating leases through October 31, 2013. Future minimum lease payments under operating leases agreements are as follows:

 

   Amount 
    US$ 
      
Twevle months ending March 31,     
      
2013   135,249 
2014   37,528 
    172,777 

 

Rent expense for the nine months ended March 31, 2012 and 2011 was $256,413 and $224,939, respectively. Rent expense for the three months ended March 31, 2012 and 2011 was $74,017 and $82,611, respectively.

 

(b) Contingency

 

The Labor Contract Law of the People’s Republic of China requires employers to assure the liability of the severance payments if employees are terminated and have been working for the employers for at least two years prior to January 1, 2008. The employers will be liable for one month for severance pay for each year of the service provided by the employees. As of March 31, 2012, the Company has estimated its severance payments of approximately $152,600, which has not been reflected in its consolidated financial statements, as the probability of payment is remote.

 

9. FINANCIAL INCOME (EXPENSES), NET

 

Financial income (expenses) for the nine months ended March 31, 2012 and 2011 and the three months ended March 31, 2012 and 2011 are as follows:

 

F-13
 

 

   For the nine months ended 
March 31,
   For the three months ended 
March 31,
 
   2012   2011   2012   2011 
   US$   US$   US$   US$ 
                 
Interest income   19,244    30,722    3,975    8,115 
Interest expense   -    (713)   -    - 
Bank charge   (11,721)   (14,571)   (4,456)   (3,987)
Foreign currency translation   51,182    132,991    (41,671)   24,402 
    58,705    148,429    (42,152)   28,530 

 

10. INCOME TAXES

 

The Company’s deferred tax assets are comprised of the allowance for doubtful accounts and the net operating loss carryforward. The net operating loss carryforward may be available to reduce future years’ taxable income through year 2031. Management believes that the realization of the benefits from these losses appears uncertain and has provided a valuation allowance to reduce the deferred tax asset. The income tax benefit (provision) for the nine and three months ended March 31, 2012 and 2011 are as follows:

 

   For the nine months ended 
March 31,
   For the three months ended 
March 31,
 
   2012   2011   2012   2011 
   US$   US$   US$   US$ 
                 
Current                    
USA   (29,768)   (27,588)   (2,889)   (400)
China   -    -    -    - 
    (29,768)   (27,588)   (2,889)   (400)
Deferred                    
Allowance for doubtful accounts   58,000    -    10,000    - 
Net operating loss carryforward   431,000    35,000    236,000    35,000 
Valuation allowance   (428,000)   (2,000)   (236,000)   - 
Net deferred   61,000    33,000    10,000    35,000 
Total   31,232    5,412    7,111    34,600 

 

11. MAJOR CUSTOMER

 

For the nine months ended March 31, 2012 and 2011, approximately 60% and 53%, respectively, of the Company’s revenues were from one customer. The Company provides services to one customer under an exclusive agency agreement that expires on December 31, 2012.  At March 31, 2012, the same customer accounted for approximately 10% of the total accounts receivable balance. A second customer represented approximately 11% of the Company’s revenues for the nine months ended March 31, 2012.

 

————————————————————————

 

F-14

 

XNAS:SINO Sino-Global Shipping America Ltd Quarterly Report 10-Q Filling

Sino-Global Shipping America Ltd XNAS:SINO Stock - Get Quarterly Report SEC Filing of Sino-Global Shipping America Ltd XNAS:SINO stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

XNAS:SINO Sino-Global Shipping America Ltd Quarterly Report 10-Q Filing - 3/31/2012
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