U.
S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
10-KSB
|
þ
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Annual
report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934
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|
|
For
the fiscal year ended
June
30, 2008
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|
¨
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Transition
report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934
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For
the
transition period from ___________ to ___________.
Commission
File Number 001-34024
Sino-Global
Shipping America, Ltd.
(Exact
name of small business issuer as specified in its charter)
|
Virginia
(State
or other jurisdiction of
incorporation
or organization)
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11-3588546
(I.R.S.
employer
identification
number)
|
36-09
Main Street
Suite
9C-2
Flushing,
NY 11354
(Address
of principal executive offices and zip code)
(718)
888-1814
(Registrant’s
telephone number, including area code)
Securities
registered under Section 12(b) of the Exchange Act:
|
Title
of each class
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Name
of each exchange on which registered
|
|
Common
Stock, without par value per share
|
NASDAQ
Capital Market
|
Securities
registered under Section 12(g) of the Exchange Act:
None.
Check
whether the issuer is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act.
o
Check
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
þ
No
o
Check
if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained,
to
the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
þ
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
o
No
þ
State
issuer’s revenues for its most recent fiscal year. $15,087,238.
State
the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity
was
sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days. (See definition of affiliate in Rule
12b-2 of the Exchange Act.)
Based
on
an average of the high ($4.93) and low ($4.36) prices per share of common stock
on September 26, 2008, the aggregate market value of issued and outstanding
common stock held by non-affiliates was $7,640,987.84.
APPLICABLE
ONLY TO CORPORATE ISSUERS:
State
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 issued 3,029,032 shares
of
common stock and no shares of preferred stock.
DOCUMENTS
INCORPORATED BY REFERENCE
This
Form
10-KSB incorporates the registration statements filed with the Commission on
January 11 and May 12, 2008, as amended (file nos. 333-150858 and 333-148611)
(the “Registration Statements”) and prospectus filed pursuant to Rule 424(b)(3)
of the Securities Act of 1933 (the “Securities Act”) on May 21, 2008 (the “IPO
Prospectus”). The Registration Statements and IPO Prospectus are incorporated by
reference into Parts I, II and III of this Form 10-KSB.
Transitional
Small Business Disclosure Format (Check one): Yes
o
No
þ
SINO-GLOBAL
SHIPPING AMERICA, LTD.
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PART
I
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3
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Item
1.
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Description
of Business
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3
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Item
2.
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Description
of Property
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3
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Item
3.
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Legal
Proceedings
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3
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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3
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PART
II
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3
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Item
5.
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Market
for Common Equity and Related Stockholder Matters and Small Business
Issuer Purchases of Equity Securities
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3
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Item
6.
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Management’s
Discussion and Analysis or Plan of Operation
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4
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Item
7.
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Financial
Statements
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16
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Item
8.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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16
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Item
8A/8A(T).
|
Controls
and Procedures
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16
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Item
8B.
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Other
Information
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16
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PART
III
|
16
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Item
9.
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Directors,
Executive Officers, Promoters, Control Persons and Corporate Governance;
Compliance with Section 16(a) of the Exchange Act
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16
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Item
10.
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Executive
Compensation
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17
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Item
11.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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17
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Item
12.
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Certain
Relationships and Related Transactions, and Director
Independence
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18
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Item
13.
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Exhibits
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18
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Item
14.
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Principal
Accountant Fees and Services
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18
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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:
|
|
·
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the
ability to timely and accurately provide shipping agency services;
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|
·
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its
dependence on a limited number of larger customers;
|
|
|
·
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political
and economic factors in the Peoples’ Republic of China;
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|
|
·
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the
Company’s ability to expand and grow its lines of business;
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·
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unanticipated
changes in general market conditions or other factors, which may
result in
cancellations or reductions in need for the Company’s services;
|
|
|
·
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a
weakening of economic conditions which would reduce demand for services
provided by the Company and could adversely affect profitability;
|
|
|
·
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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;
|
|
|
·
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the
acceptance in the marketplace of the Company’s new lines of services;
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|
|
·
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foreign
currency exchange rate fluctuations;
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·
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hurricanes
or other natural disasters;
|
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|
·
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the
Company’s ability to identify and successfully execute cost control
initiatives;
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|
·
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the
impact of quotas, tariffs, or safeguards on the importation or exportation
of the Company’s customer’s products; or
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·
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other
risks outlined above and in the Company’s other filings made periodically
by the Company.
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·
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the
Company’s ability to attract, retain and motivate skilled personnel to
serve 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.
PART
I
Item
1.
Description
of Business.
The
section of the Registration Statements and IPO Prospectus entitled “Our
Business” is incorporated herein by reference.
Item
2.
Description
of Property.
The
section of the Registration Statements and IPO Prospectus entitled “Description
of Property” is incorporated herein by reference.
Item
3.
Legal
Proceedings.
None.
Item
4.
Submission
of Matters to a Vote of Security Holders.
None.
PART
II
| Item 5. |
Market
for Common Equity and Related Stockholder Matters and Small Business
Issuer Purchases of Equity
Securities.
|
(a)
None.
(b)
The
section of the Registration Statements and IPO Prospectus entitled “Use of
Proceeds” is incorporated herein by reference. As of the date of this report,
Sino-Global Shipping America, Ltd. (the “Company”) has greater cash assets than
it had immediately following the closing of its initial public offering. The
effective date of the Securities Act registration statement for which the use
of
proceeds information is being disclosed is May 21, 2008, and the Commission
file
numbers assigned to the registration statement are 333-150858 and 333-148611.
The
offering closed on May 20, 2008. All of the common shares, without par value
per
share, registered in the offering were placed by the placement agent, Anderson
& Strudwick, Incorporated. The Registration Statements registered the
initial public offering of up to 1,229,032 shares of the Company’s common stock
and the resale of up to 217,960 shares of the Company’s common stock. All of the
initial public offering shares were placed at a price of $7.75 per share, and
all such shares were sold in the offering, with an aggregate price of
$9,524,998. The Company did not receive any proceeds from the sale of any shares
by the selling shareholders.
The
net
proceeds of the offering, including the private placement of securities related
to the selling shareholders, were $9,172,314. Expenses included placement agent
commissions, legal fees, escrow agent fees and fees payable in connection with
the private placement. All of these fees were payable to parties other than
directors, officers, general partners of the Company or their associates; to
persons owning ten (10) percent or more of any class of equity securities of
the
Company; and to affiliates of the Company.
The
Company has used the devoted offering proceeds to the following purposes during
the fiscal year ended June 30, 2008.
|
Description of Use
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Proposed
Expenditure
Amount
|
Actual Expenditures
in Year Ended
June 30, 2008
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|||||
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Organization
of our company and creation of contractual arrangements among our
company,
Sino-China and Trans Pacific
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$
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100,000
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$
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28,562
|
|||
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Business
expansion in 15 to 35 main ports in China
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5,930,941
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28,710
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|||||
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Sarbanes-Oxley
compliance
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500,000
|
—
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|||||
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Marketing
of company across China, United States and internationally
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244,621
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34,754
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|||||
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Develop
information exchange system
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400,000
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—
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|||||
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Train
staff
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163,081
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—
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|||||
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Fixed
asset purchase
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407,702
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—
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|||||
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Miscellaneous
expenses
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407,702
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—
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|||||
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|||||||
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Total
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$
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8,154,048
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$
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92,026
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|||
(c)
None.
Item
6.
Management’s
Discussion and Analysis or Plan of Operation.
You
should read the following discussion and analysis of our financial condition
and
results of operations in conjunction with our audited historical consolidated
financial statements and the related notes included elsewhere in this Annual
Report. This discussion contains forward-looking statements that involve risks
and uncertainties. Our 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, including those set forth under “Risk Factors” and
elsewhere in this prospectus.
Overview
We
are a
shipping agency service provider for foreign ships coming to Chinese ports.
Our
company, previously known as Sino-Global-Shipping (America) Ltd., was
incorporated in New York in February 2001. On September 18, 2007, we amended
the
Article of Incorporation and Bylaws to merge into a new corporation with the
current name of Sino-Global Shipping America, Ltd., in Virginia.
Our
principal geographic market is in the PRC. As PRC laws and regulations prohibit
or restrict foreign ownership of shipping agency service businesses, we operate
our business in the PRC through 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 five branches in Ningbo, Qingdao, Tianjin,
Qinhuangdao and Fangchenggang, Sino-China provides general shipping agency
services in 76 ports in China and serves as a local shipping agent in each
of
these five port cities. For the ports where it does not have a local
license, Sino-China appoints a local agent for its local shipping agency service
businesses.
On
November 13, 2007, we formed our wholly foreign-owned enterprise, Trans Pacific,
in Beijing. Trans Pacific and Sino-China do not have a parent-subsidiary
relationship. Instead, each of Trans Pacific and us has contractual arrangements
with Sino-China and its shareholders that enable us to substantially control
Sino-China. See “Our Corporate Structure - Contractual Arrangements with
Sino-China and its Shareholders.”
On
May
20, 2008, we completed an initial public offering of 1,229,032 ordinary shares
at $7.75 offering price. Our shares started trading on NASDAQ Capital Market
next day.
Our
revenues have grown significantly in the last three years, from approximately
$8.92 million in 2006 to approximately $10.09 million in 2007 and to
approximately $15.09 million in 2008. We reported consolidated net income before
non-controlling interest in income of $0.56 million, $1.14 million and $0.16
million in 2006, 2007 and 2008, respectively. The decrease of consolidated
net
income before non-controlling interest in income in 2008 is to large extent
due
to the Chinese currency RMB revaluation against U.S. dollars, and to a lesser
extent due to the significant increase of our general and administrative expense
spending, particularly in the second half of the year, for our Company’s public
listing. On July 13, 2008 the Company formed a wholly owned subsidiary,
Sino-Global Shipping Australia Pty. Ltd in Perth, Australia. On August 11,
2008,
the Company signed an agency agreement with Monson Agencies Australia Pty.
Ltd
in order to enable the Company to provide comprehensive shipping agency services
in Australian ports.
We
expect
the continuing growth in our revenues in 2009 fiscal year. Meanwhile, we will
further control over our costs and expenses.
Revenues
For
the
years ended June 30, 2007 and 2008, our total revenues amounted to approximately
$10.09 million and $15.09 million, respectively. 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.
The
most
significant factors that directly or indirectly affect our shipping agency
service revenues are:
•
the
number of ships 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 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 covering more ports in the PRC. In addition, we will
allocate our resources in marketing our brand to customers, including ship
owners and charters, who transports goods from all ports around the world to
China.
Operating
Costs and Expenses
Our
operating costs and expenses consist of cost of services, general and
administrative expenses, selling expenses and other expenses. Our total
operating costs and expenses have increased as a percentage of our total
revenues from 2007 to 2008 primarily due to the revaluation of RMB against
U.S.
dollars and the increase of general and administrative expenses. The following
table sets forth the components of our costs and expenses both in absolute
amount and as a percentage of total net revenues for the periods
indicated.
Costs
of Services.
Costs
of
services 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 services on
behalf of our customers. We receive revenues from our clients in U.S. dollars
and pay the costs of services to the Chinese local port agents in RMB. For
the
year ended June 30, 2008, the costs of services increased from 74.42% in 2007
to
82.00% in 2008 as a percentage of our total revenues, in line with the
devaluation of U.S. dollars against Chinese currency RMB in the same periods.
Based on the People’s Bank of China, the exchange rates on June 30, 2007 and
2008 are RMB7.6155 to $1.00 and RMB6.8591 to $1.00 respectively, representing
a
9.93% increase of RMB against U.S. dollar. Our costs of services could also
increase if the ports were to raise their charges.
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 renting expenses and expenses for legal, accounting and other
professional services. Our general and administrative expenses increased
approximately $1.18 million in absolute amount, and increased 4.02% as a
percentage of our total revenues from 2007 to 2008. The general and
administrative expenses increased significantly in the second half of our year
due to our public listing, including expenses spent on setting up Trans Pacific,
recruiting more quality personnel, spending on traveling and publicity for
public listing. We expect to incur additional general and administrative
expenses as we expand our operations and remain a publicly listed company in
the
United States.
Selling
Expenses.
Our
selling expenses primarily consist of commissions and traveling expenses for
our
operating staff to the ports. Although our selling expenses increased $36,851
in
2008, it decreased as a percentage of our total revenues from 1.52% in 2007
to
1.26% in 2008.We expect that our selling expenses will increase in absolute
amount and may increase as a percentage of our total net revenues in the near
future, due to the increase in the number of ships to be served and competition
in shipping service charges.
Gross
Margin
Our
revenues increased 49.51% from approximately $10.09 million in 2007 to
approximately $15.09 million in 2008. Our gross profits increased 5.20% from
approximately $0.26 million in 2007 to approximately $0.27 million in 2008.
As
indicated in the table below, however, our gross margin decreased from 25.58%
in
2007 to 18.00% in 2008. As we received agency fees in U.S. dollars but pay
port
charges in RMB, the fluctuation of RMB value against U.S. dollar has
significantly affected our gross margin.
|
For the years ended June 30,
|
|||||||||||||
|
2008
|
2007
|
Change
|
|||||||||||
|
Revenues
|
$
|
15,087,238
|
$
|
10,090,879
|
$
|
4,996,359
|
49.51
|
%
|
|||||
|
Costs
of services
|
$
|
12,371,691
|
$
|
7,509,669
|
$
|
4,862,022
|
64.74
|
%
|
|||||
|
Gross
profits
|
$
|
2,715,547
|
$
|
2,581,210
|
$
|
134,337
|
5.20
|
%
|
|||||
|
Gross
margin
|
18.00
|
%
|
25.58
|
%
|
(7.58
|
)%
|
(25.40
|
)%
|
|||||
Our
revenues continued to increase in the last quarter of our 2008 fiscal year.
As
shown in the tables below, the revenues were approximately $3.91 million for
the
three months ended June 30, 2008, which increased 23.61% compared to the
revenues in the same period in 2007, 28.69% for the previous three months in
2008, and 4.99% for average revenues of the three previous quarters in
2008.
|
For the three
months
ended June
30
, 2008
|
For the three
months
ended June
30, 2007
|
For the three
months
ended
March
31,
2008
|
For the average of the
three months ended
September 30, 2007,
December 31, 2007 and
March 31, 2008
|
||||||||||
|
Revenues
|
$
|
3,911,277
|
$
|
3,165,645
|
$
|
3,031,772
|
$
|
3,725,320
|
|||||
|
Cost
of services
|
$
|
3,179,630
|
$
|
2,303,964
|
$
|
2,657,890
|
$
|
3,064,020
|
|||||
|
Gross
profit
|
$
|
731,647
|
$
|
861,681
|
$
|
373,882
|
$
|
661,300
|
|||||
|
Gross
margin
|
18.71
|
%
|
27.22
|
%
|
12.33
|
%
|
17.75
|
%
|
|||||
|
Exchange
rate (RMB:US$1.00) at period end*
|
6.8591
|
7.6155
|
7.0190
|
7.2781
|
|||||||||
*
Quoted
on the exchange rates published by the People’s Bank of China as at the last day
of the period
We
generally receive revenues in U.S. dollars and pay costs of services in RMB
in
China. Consequently, the exchange rate of the RMB against the U.S. dollar has
a
significant impact on our gross margin. It should be noted that the
gross margin of 18.71% for the three months ended June 30, 2008 is higher than
the gross margin of 12.33% for the three months ended March 31, 2008. New Year
holiday and Chinese New Year holiday are in January and February, respectively.
The holiday pay and over time pay during the public holiday periods result
in
higher costs of services.
The
third
quarter ended March 31 is normally our low season, because it is winter in
China
and the Chinese New Year is in that quarter.
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.
PRC
Enterprise Income Tax
PRC
enterprise income tax is calculated based on taxable income determined under
PRC
GAAP. Sino-China is registered as a PRC domestic company and governed by the
Enterprise Income Tax Laws of the PRC. Its taxable incomes are subject to an
enterprise income tax rate of 33%. The 5th Session of the 10th National People’s
Congress amended the Enterprise Income Tax Law of PRC that became effective
on
January 1, 2008. The newly amended Enterprise Income Tax Law introduces a wide
range of changes which include, but are not limited to, the unification of
the
income tax rate for domestic-invested and foreign-invested enterprises at 25%.
This change has reduced our income tax rate from 33% to 25% since January 1,
2008. In addition, according to the amended detailed implementation and
administrative rules, the new income tax law broadens the tax reductions in
terms of categories and extents for the domestic companies. We expect the new
income tax law will bring with it a positive impact on our company’s net profit
in 2009 and onwards.
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.
Critical
Accounting Policies
We
receive revenues from our clients in U.S. dollars and pay these costs to the
Chinese local port agents in RMB. For the year ended June 30, 2008, the costs
of
services increased from 74.42% in 2007 to 82.00% in 2008 as a percentage of
our
total revenues, in line with the devaluation of U.S. dollars against Chinese
RMB
in the same periods. We prepare 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 uncertainties
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 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 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 are signed with a term 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 expenses based on our previous experience
of
the revenues of the same kind of vessels, port charges on the vessel’s
particulars/movement and costs rate of the port. See “Management’s Discussion
and Analysis of Financial Condition and Results of Operations - Accounts
Receivable.”
Fair
Value of Financial Instruments.
The carrying amounts reported in
the consolidated financial statements for current assets and current liabilities
approximate fair value due to the short-term nature of these financial
instruments. The carrying value of the long-term debt approximates fair value
based on market rates and terms currently available to the Company.
We
decided not to elect the fair value option permitted by Statement of Financial
Accounting Standards (“SFAS”) No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities-Including an Amendment of FASB Statement
No.
115”, for our financial assets and liabilities. We decided not to early adopt
SFAS 157, “Fair Value Measurements,” for non-financial assets and
liabilities.
Consolidation
of Variable Interest Entities
Sino-China
is considered as a VIE and we are the primary beneficiary. On November 14,
2007,
our company entered into agreements with Sino-China, pursuant to which we
receives 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.
These
agreements do not entitle us to any consideration if Sino-China incurs a net
loss during its fiscal year. In accordance with the agreements, Sino-China
pays
consulting and marketing fees equal to 85% and 5%, respectively, of its net
income to our new wholly foreign-owned 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 our
company.
The
accounts of Sino-China are consolidated in the accompanying financial statements
pursuant to Financial Accounting Standards Board Interpretation No. 46
(Revised), “Consolidation of Variable Interest Entities - an Interpretation of
ARB No. 51”. As a VIE, Sino-China’s sales are included in our total sales, its
income from operations is consolidated with our company’s, and our net income
from continuing operations before non-controlling interest in income includes
all of Sino-China’s net income. Our non-controlling interest in its income is
then subtracted in calculating the net income 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.
Mr.
Cao
Lei owns more than 70% of both Sino-China and our company (before completion
of
the offering) and was able to cause our company and Sino-China to enter into
the
2007 agreements at any point in time. Accordingly, for all periods presented,
beginning on July 1, 2005, our company has consolidated Sino-China’s income
because the entities are under common control in accordance with SFAS 141,
“Business Combinations”. For this reason, we have included 90% of Sino-China’s
net income in our net income as discussed above as though the 2007 agreements
were in effect from the inception of Sino-China, and only the 10% of
Sino-China’s net income not paid to our company represents the non-controlling
interest in Sino-China’s income.
Accounts
Receivable
Accounts
receivable are recognized initially at fair value less allowances for doubtful
accounts. 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
makes general and specific allowances when there is doubt as to the
collectibility of individual balances. In evaluating the collectibility of
individual receivable balances, we consider many factors, including the age
of
the balance, customer’s historical payment history, its current
credit-worthiness and current economic trends. The amount of the provision,
if
any is recognized in the consolidated statement of operations within “General
and administrative expenses”. We have determined that an allowance of $48,708
was required at June 30, 2008. Accounts are written off after exhaustive efforts
at collection.
We
have
not historically required an allowance for accounts receivable because our
company does not have any significant bad expense. 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
undertaking to provide 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 so 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
state
property and equipment 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. We provide for depreciation and amortization in amounts
sufficient to expense the related cost of depreciable assets for operations
over
their estimated useful lives. Depreciation and amortization are calculated
on a
straight-line basis to write off the cost of assets to their residual values
over their estimated useful lives as follows:
|
20
years
|
||||
|
5-10
years
|
||||
|
Furniture
and office equipment
|
3-5
years
|
We
calculate gains and losses on disposals by comparing proceeds with 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
market value of the long-lived asset. Fair market value is determined primarily
using the anticipated cash flows discounted at a rate commensurate with the
risk
involved or based on independent appraisals. We have determined that there
were
no impairments for the year ended June 30, 2008. Had we early adopted SFAS
157,
“Fair Value Measurements,” for the Company’s property and equipment, the result
of our assessment of the impairment of these assets may have been different.
Translation
of Foreign Currency
We
receive the costs of services from our clients in U.S. dollars and pay these
costs to the Chinese local port agents in RMB. For the year ended June 30,
2008,
the costs of services increased from 74.42% in 2007 to 82.00% in 2008 as a
percentage of our total revenues, in line with the devaluation of U.S. dollars
against Chinese currency RMB in the same periods. The devaluation of the U.S.
dollar from June 30, 2007 to June 30, 2008 was approximately 10%. Components
included in the consolidated financial statements of Sino-China and each of
its
branches is measured using the currency of the primary economic environment
in
which the entity operates (the “functional currency”). Our functional currency
is US dollars while Sino-China uses the Renminbi as its reporting currency.
The
consolidated financial statements are presented in US dollars. Foreign currency
transactions are translated into the functional currency using the fixed
exchange rates. 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
in
accordance with SFAS No. 52, “Foreign Currency Translation”. Assets and
liabilities are translated at current exchange rates quoted by the People’s Bank
of China on June 30, 2007 and 2008 of RMB7.6155 to $1.00 and RMB6.8591 to $1.00,
respectively and related revenues and expenses are translated at average
exchange rates in effect during the periods. Resulting translation adjustments
are recorded as comprehensive income (loss) which is a separate component
included in Non-controlling interest.
2009
Growth
The
2008
fiscal year saw dramatic changes in the world economy in general and in shipping
industries in particular. Although oil prices and shipping costs do not directly
correlate with shipping service revenues, the fluctuations oil prices and
shipping costs are contributing factors that bring indirect impact on our
revenues. Given the expectation that China’s economy and China’s shipping
industry will continue growth, we are confident in our business growth in
2009.
We
are
one of the major service providers for China’s iron ore shipments. Our 2008
revenues consist of 54% revenues from our largest customer, Beijing Shou Rong.
According to a forecast by the Steel Association of China, China will import
432
million iron ore in 2008, which is 13% increase from that in 2007. Currently,
we
only provide shipping agent services to foreign ships loading iron ore on the
Chinese ports. On July 3, 2008, we established a wholly owned subsidiary in
Perth, Australia, from which we will provide agent services to ships that load
iron ore in Australia and unload it in China. Australia is China’s largest iron
ore supplier, with about 43% of its iron ore products exported to China. We
signed a cooperation agreement with Monson Agency Australia, one of the largest
shipping agency service providers covering 43 ports around Australia. Monson
started to refer services to us in September 2008, and the first ship is
scheduled to come from Perth to China in October 2008.
Shipping
industry is characterized as a service provided to a customer at two ends,
loading goods from one start port and shipping to the destination. By setting
up
our subsidiaries in a country from where China has a large volume of imported
goods, we can attract more customers who ship goods to and from China. In
addition, this also brings us the business opportunities among the countries
where we have branches, for example, from the United States to Australia. With
our experience in the United States and Australia, we will expand our business
in Hong Kong, Japan and other countries. Like what we did with Monson in
Australia, we will seek a local partner to cooperate with. We believe this
is
the most cost effective marketing way and could mitigate the cultural
differences between two countries. We plan to set up subsidiaries in Hong Kong,
Japan and other countries in 2009.
Based
on
the above, we anticipate our revenues will increase about 50% to 65%, which
represents an increase total revenues ranging from $22.64 million to $24.89
million in 2009.
Business
Expansion in China
As
we
indicated in our Registration Statements, we will use about 73% of funds from
the initial public offering to expand our business from 15 to 35 ports in China.
We have started targeting potential acquisition opportunities in the ports
in
which we want to expand. We did not complete any acquisition in the short period
of time between the completion of the initial public offering and June 30,
2008.
As
indicated in our financial statements as of June 30, 2008, we had approximately
$9.6 million in cash and cash equivalents, which is about 98% of our net assets
in balance sheet. The funds will be invested to expand our business, by way
of
merger and acquisition establishing wholly owned subsidiaries, at the Chinese
ports where we have customers to serve. We plan to open about 5 to 10 port
branches in 2009. We may open more branches in China if favorable opportunities
arise.
Results
of Operations
The
following table sets forth a summary of our consolidated results of operations
for the periods indicated. Our business has evolved rapidly since we commenced
operations in 2001. Our limited operating history makes it difficult to predict
future operating results. We believe that period-to-period comparisons of
operating results should not be relied upon as indicative of future performance.
|
For the years ended June 30,
|
|||||||
|
2008
|
2007
|
||||||
|
US$
|
US$
|
||||||
|
Revenues
|
15,087,238
|
10,090,879
|
|||||
|
Costs
and expenses
|
|||||||
|
Costs
of services
|
12,371,691
|
7,509,669
|
|||||
|
General
and administrative
|
2,348,894
|
1,165,332
|
|||||
|
Selling
|
190,648
|
153,797
|
|||||
|
Other
|
1,890
|
1,163
|
|||||
|
14,913,123
|
8,829,961
|
||||||
|
Operating
Income
|
174,115
|
1,260,918
|
|||||
|
Financial
income, net
|
230,331
|
22,125
|
|||||
|
230,331
|
22,125
|
||||||
|
Net
income before income taxes and non-controlling interest in income
|
404,446
|
1,283,043
|
|||||
|
Income
taxes
|
246,667
|
138,291
|
|||||
|
Income
before non-controlling interest in income
|
157,779
|
1,144,752
|
|||||
|
Non-controlling
interest in income
|
24,085
|
104,236
|
|||||
|
Net
income
|
133,694
|
1,040,516
|
|||||
Year
Ended June 30, 2008 Compared to Year Ended June 30,
2007
Revenues.
Our
total revenues increased by 49.51% from $10,090,879 in 2007 to $15,087,238
in
2008. This increase was primarily due to an increase in the number of ships
we
served. The number of ships that generated revenues for us increased from 185
for 2007, to 217 for 2008, representing an increase of 17.30%.
Total
Operating Costs and Expenses.
Our
total operating costs and expenses increased by 68.89% from $8,829,961 in 2007
to $14,913,123 in 2008. This increase was primarily due to increases in our
costs of services and in our general and administrative expenses.
| Ÿ |
Cost
of Services.
Our cost of revenues increased by 64.74% from approximately $7.51
million
in 2007 to approximately $12.38 million in 2008. Costs of services
increased faster than revenues, resulting in the 7.58% decrease in
gross
margin from 25.58% down to 18.00% for the years ended June 30, 2007
and
2008, respectively. This is largely due to the revaluation of Chinese
currency against the US dollar. The average foreign exchange rate
increased by approximately 9.93%, from RMB 7.6155 to $1.00 in 2007
to RMB
6.8591 to $1.00 in 2008.
|
| Ÿ |
General
and Administrative Expenses
.
Our general and administrative expenses increased by 101.56% from
$1,165,332 in 2007 to $2,348,894 in 2008. This change was primarily
due to
(1) increase of $229,056 in travel for business development and public
listing, (2) increase of $138,656 in marketing for new clients, (3)
increase of $168,461 in salaries and human resource expenses for
high
quality staff, and (4) increase of $161,556 in renting more office
space.
|
| Ÿ |
Selling
Expenses
.
Our selling expenses increased by 23.96% from $153,797 in 2007 to
$190,648
in 2008, due to the increase in commission. The increase of our selling
expenses is apparently slower than the 49.51% increase of our revenues,
as
we effectively controlled our operating travel
expenses
|
Operating
Profit.
We
generated an operating profit of $174,115 in 2008, compared to $1,260,918 in
2007. Operating profit decreased 86.19% largely due to the increase in costs
of
services and general and administrative expenses.
Financial
income, net.
Our net
financial income is $230,331 in 2008, compared to $22,125 in 2007, primarily
due
to the foreign exchange gains recognized in financial statement consolidation.
As described in above in Translation of Foreign Currency, foreign exchange
gains
and losses resulting from the settlement of such transactions are recognized
in
the consolidated statements of operations. Details see Note 15 of the
consolidated financial statements
Taxation.
Our
income tax expense was $246,667 in 2008, compared to $138,291 in 2007. We
recorded more tax liabilities on a reduced operating profit because Sino-USA
generated more taxable income as a result of more entertainment expense which
did not qualify for tax deduction in 2008 than in 2007. Comparably, the income
tax rates in the United States are much higher than the income tax in China.
Sino-USA recorded income tax expenses of $196,744 in 2008 fiscal year, compared
to its income tax expenses of $93,039 in 2007. Details see Note 16 of the
consolidated financial statements. Our company had no deferred tax assets in
2007 or 2008.
Net
Income.
As a
result of the foregoing, we had income before non-controlling interest in income
of $157,779 in 2008, compared to $1,144,752 in 2007. After deduction of
non-controlling interest in income, net income was $133,694 million and
$1,040,516 in 2008 and 2007, respectively.
Liquidity
and Capital Resources
Cash
Flows and Working Capital
To
date,
we have financed our operations primarily through cash flows from operations.
As
of June 30, 2008, we had $9,603,250 in cash and cash equivalents, of which
$358,242 was held by Sino-China. Our cash and cash equivalents primarily consist
of cash on hand and cash in banks.
The
following table sets forth a summary of our cash flows for the periods
indicated:
|
For the years ended
|
|||||||
|
2008
|
2007
|
||||||
|
|
US$
|
US$
|
|||||
|
Net
cash provided by operating activities
|
736,352
|
868,058
|
|||||
|
Net
cash provided by (used in) investing activities
|
478,315
|
(911,520
|
)
|
||||
|
Net
cash provided by financing activities
|
7,943,959
|
172,719
|
|||||
|
Net
increase in cash and cash equivalents
|
9,077,159
|
170,065
|
|||||
|
Cash
and cash equivalents at beginning of year
|
526,091
|
356,026
|
|||||
|
Cash
and cash equivalents at end of year
|
9,603,250
|
526,091
|
|||||
Operating
Activities
Since
May
2003, we began to expand our business by setting up additional branches
throughout China. As of June 30, 2008, we had six branch offices conducting
our
shipping agency services in China. Our sales were increased for the year ended
June 30, 2008 compared to June 30, 2007, but our gross margin declined mainly
attributable to the increased costs of services resulted from RMB revaluation.
Net
cash
provided by operating activities decreased to $736,352 in 2008 from $868,058
in
2007. The decrease was mainly attributable to several factors, including
(i) a decrease in net income of $906,822
and
(ii)
an
increase in accounts receivable amounting to $941,039, (iii) an increase in
provision for doubtful accounts of $472,071 and (iv) an increase in income
tax payables.
Investing
Activities
Net
cash
provided by investing activities was $478,315 compared to net cash used in
investing activities of $911,520 was mainly due to cash of $1,251,222 generated
by the repayment of a loan from our Company to Mr. Cao Lei, our chief executive
officer.
We
made
capital expenditures of $342,924 and $771,407 in 2007 and 2008, representing
3.40% and 5.11% of our total revenues, respectively. In the past, our capital
expenditures were used to purchase cars and computers for our business. Our
capital expenditures may increase in the near term as our business continues
to
grow and as we expand and improve our financial and accounting systems and
infrastructure.
Financing
Activities
Net
cash
provided by financing activities was $7,943,959 for the year ended June 30,
2008. On May 20, 2008, our company completed an initial public offering of
1,229,032 ordinary shares at $7.75 per share offering price and realized gross
proceeds of approximately $9,525,000. After deducting the cash offering costs
of
$1,602,684 and adding the funds from the repayment by Mr. Cao Lei of a
$1,251,222 loan from our company, our actual net proceeds from the initial
public offering were approximately $7,922,000. We received proceeds from long
term debt of $67,434 and repaid bank loans of $45,791, resulting in the net
cash
provided by financing activities of $21,643 without considering the funds from
the initial public offering.
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. We cannot assure
you that financing will 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 under non-cancelable leases. In December 2007,
we
leased additional office premises under two non-cancellable leases which expire
through January 13, 2010 for approximately $317,000 per year. In February 2008,
the Company leased additional office space which expires through January 31,
2009 for approximately $10,800 per year. Rent expense under operating leases
for
the years ended June 30, 2008 and 2007 were $233,237 and $93,920, respectively.
Below
is a summary of the Company's contractual
obligations and commitments at June 30, 2008:
|
Payment
Due by Period
|
|||||||||||||
|
Total
|
Less
than 1 year
|
1-3
years
|
More
than 3 years
|
||||||||||
|
Contractual
Obligations
|
|||||||||||||
|
Operating
leases
|
$
|
606,763
|
$
|
392,200
|
$
|
214,563
|
$
|
--
|
|||||
|
Long-term
debt
|
$
|
67,434
|
$
|
28,450
|
$
|
38,984
|
$
|
--
|
|||||
|
Total
Obligations
|
$
|
674,197
|
$
|
420,650
|
$
|
253,547
|
$
|
--
|
|||||
The
Labor
Contract Law of the People’s Republic of China, effective as of January 1, 2008,
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
June 30, 2008, the Company has estimated its severance payments of approximately
$143,000, which has not been reflected in its consolidated financial statements
because the Company has no intention of terminating any employees in the near
future.
Company
Structure
We
conduct our operations primarily through our wholly-owned subsidiary, Trans
Pacific, 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 Trans Pacific and management fees paid by Sino-China. If Trans Pacific
incurs debt on its own behalf in the future, the instruments governing its
debt
may restrict its 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. See “Risk Factor - We may not pay dividends”, “Risk Factor - Changes in
China’s political and economic policies could harm our business” and “Dividend
Policy”.
On
November 13, 2007, we established a wholly foreign-owned enterprise, Trans
Pacific, with a registered capital of $100,000. Under the current regulations
in
China, we can only transfer the funds raised from the initial public offering
into China through Trans Pacific. Therefore, we have applied to SAFE for
increasing Trans Pacific’s registered capital to $10 million under the Board
meeting approval. Our application for registered capital increase was approved
in August 2008. In accordance with the requirements of the China’s Company Law,
a company could invest 20% of registered capital within three months after
the
government’s approval date and the balance of the registered capital in two
years. Accordingly, we will initially inject $2.9 million to Trans Pacific
in
2008, increasing its registered capital from $100,000 to $3 million. The
increased registered capital will be used to implement our strategic plan
specified in our Registration Statement for the initial public offering.
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
shareholder’s equity or that are not reflected in our consolidated financial
statements. Furthermore, we do not have any retained or contingent interest
in
assets transferred to an unconsolidated entity that serves 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.
Quantitative
and Qualitative Disclosure about Market Risk
Interest
Rate Risk
Previously,
our exposure to interest rate risk primarily related to the interest income
generated by excess cash invested in demand deposits and liquid investments
with
original maturities of three months or less. On August 29, 2008, China’s SAFE
imposed a new rule, Hui Zong Fa (2008) No. 142, which further tightens foreign
investments into China and the use of these funds in investment in China. As
such, we required to deposit part of the funds from our initial public offering
in the United States, China and other countries where we have subsidiaries
with
original maturities more than three months. The cash has been deposited in
large
and reputable banks in different countries.
Foreign
Exchange Risk
Our
revenues and costs of services are denominated in both RMB and U.S. dollars.
There has been significant international pressure on the Chinese government
to
permit the free floatation of the RMB resulting in an appreciation of the RMB
against the U.S. dollar increased from RMB7.6155 to $1.00 up to RMB6.8591 to
$1.00 on June 30, 2007 and 2008, respectively. The continuing increase of the
exchange rate of the RMB against the U.S. dollar has severe impact on our
inter-company transactions and balances. We had foreign currency translation
gains of $36,812 and $238,798 for the years ended June 30, 2007 and 2008. Our
future gain or loss on foreign currency translation however depends on the
trend
of RMB revaluation, the of cash and cash equivalents deposited in Sino-China
and
the volume of inter-company transactions.
A
s
we have
a large amount of cash deposits, we will balance our money funds in U.S.
dollars, RMB and Australian dollars. As we are a U.S. company and
our
reporting currency is the U.S. dollar, we will continue to deposit the majority
of our cash from operations and unused funds in the United
States
.
Recent
Accounting Pronouncements
In
September, 2006, the Financial Accounting Standards Board (“FASB”), issued SFAS
No. 157, “Fair Value Measurements,” which defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. This standard applies under other accounting pronouncements that
require or permit fair value measurements but does not require any new fair
value measurements. SFAS No. 157 will become effective for the Company in fiscal
2009. We are currently assessing the impact of SFAS No. 157; however, we do
not
believe the adoption of this standard will have a material effect on the
Company’s consolidated financial statements.
In
May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (“FAS 162”). FAS 162 identifies the sources of accounting
principles and the framework for selecting the principles to be used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles. FAS
162
directs the hierarchy to the entity, rather than the independent auditors,
as
the entity is responsible for selecting accounting principles for financial
statements that are presented in conformity with generally accepted accounting
principles. The Standard is effective 60 days following SEC approval of the
Public Company Accounting Oversight Board (“PCAOB”) amendments to remove the
hierarchy of generally accepted accounting principles from the auditing
standards. FAS 162 is not expected to have an impact on the Company's
consolidated financial statements.
In
June
2008, the FASB issued FSP EITF No. 03-6-1, “Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities.” Under
the FSP, unvested share-based payment awards that contain rights to receive
non-forfeitable dividends (whether paid or unpaid) are participating securities,
and should be included in the two-class method of computing earnings per share.
The FSP is effective for fiscal years beginning after December 15, 2008, and
interim periods within those years. The Company does not expect the adoption
of
FSP EITF No. 03-6-1 to have a material effect on its
consolidated financial statements.
| Item 7. |
Financial
Statements.
|
See
the
financial statements and report of Friedman LLP following the signature page
of
this report, which are incorporated herein by reference.
| Item 8. |
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure.
|
None.
| Item 8A/8A(T). |
Controls
and Procedures
|
Disclosure
Controls and Procedures
As
of
June 30, 2008, the Company carried out an evaluation, under the supervision
and
with the participation of management, including the Company’s chief executive
officer and chief financial officer, of the effectiveness of the design and
operation of the Company’s disclosure controls and procedures. Based on the
foregoing, the chief executive officer and chief financial officer concluded
that the Company’s disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were
effective.
This
annual report does not include a report of management’s assessment regarding
internal control over financial reporting or an attestation report of the
company’s registered public accounting firm due to a transition period
established by rules of the Securities and Exchange Commission for newly public
companies.
Changes
in internal control over financial reporting.
There
were no changes in the Company’s internal control over financial reporting (as
defined in Rule 13a-15(f) of the Securities Exchange Act of 1934) during the
year ended June 30, 2008 that have materially affected, or are reasonably likely
to materially affect, the Company’s internal control over financial reporting.
| Item 8B. |
Other
Information
|
None.
PART
III
| Item 9. |
Directors,
Executive Officers, Promoters, Control Persons and Corporate Governance;
Compliance with Section 16(a) of the Exchange
Act.
|
Regulation
S-B Item 401: The section of the Registration Statements and IPO Prospectus
entitled “Management” is incorporated herein by reference.
Regulation
S-B Item 405: Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company under 17 CFR 240.16a-3(e) during its most recent fiscal
year and Forms 5 and amendments thereto furnished to the Company with respect
to
its most recent fiscal year, and any written representation referred to in
paragraph (b)(1) of this section, the Company is not aware of any director,
officer, beneficial owner of more than ten percent of any class of equity
securities of the Company registered pursuant to Section 12 that failed to
file
on a timely basis, as disclosed in the above Forms, reports required by Section
16(a) during the most recent fiscal year or prior years.
Regulation
S-B Item 406: The Company has adopted a Code of Ethics and has filed a copy
of
the Code of Ethics with the Commission.
Regulation
S-B Item 407(c)(3): None.
Regulation
S-B Item 407(d)(4) and (5): The Company has an audit committee, consisting
solely of the Company’s independent directors, C. Thomas Burke, Wang Jing and
Dennis O. Laing. Mr. Wang qualifies as the audit committee financial
expert.
| Item 10. |
Executive
Compensation.
|
The
following table shows the annual compensation paid by us to Mr. Cao Lei, our
Chief Executive Officer for the years ended June 30, 2008 and 2007. No other
officer had a salary during either of the previous two years of more than
$100,000.
Summary
Compensation Table
|
Name and principal position
|
Year
|
Salary
($)
|
Bonus
($)
|
All Other Compensation
($)
|
Total
($)
|
|||||||||||
|
Mr. Cao Lei,
Principal Executive Officer
|
2008
|
$
|
129,727
|
$
|
5,965
|
—
|
$
|
135,692
|
||||||||
|
|
2007
|
$
|
141,445
|
—
|
—
|
$
|
141,445
|
|||||||||
| Item 11. |
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
|
|
Plan category
|
Number of securities to
be issued upon exercise of
outstanding options,
warrants and rights (a)
|
|
Weighted-average
exercise price of
outstanding options,
warrants and rights (b)
|
|
Number of securities remaining
available for future issuance under
equity compensation plans
(excluding securities reflected in
column (a)) (c)
|
|||||
|
Equity
compensation plans approved by security holders
|
174,000
|
$
|
7.75
|
128,903
|
||||||
|
Name and Address
|
Title of
Class
|
Amount of
Beneficial
Ownership
|
Percentage
Ownership
|
|||||||
|
Mr. Cao
Lei(1)
|
common
|
1,384,040
|
(2)
|
45.69
|
%
|
|||||
|
Mr.
Zhang Mingwei(1)
|
common
|
54,000
|
(2)
|
1.78
|
%
|
|||||
|
Total
|
1,438,040
|
47.48
|
%
|
|||||||
|
(1)
|
The
individual’s address is c/o Sino-Global Shipping America, Ltd., 36-09 Main
Street, Suite 9C-2, Flushing, NY
11354.
|
|
(2)
|
Although
each of the individuals listed has received options to purchase 36,000
shares of the Company’s common stock, and although each of the independent
directors of the Company has received options to purchase 10,000
shares of
the Company’s common stock, the underlying shares are not reflected in
this table because none of the options will vest until May 19, 2009,
more
than 60 days after the date hereof.
|
| Item 12. |
Certain
Relationships and Related Transactions, and Director
Independence.
|
The
section of the Registration Statements and IPO Prospectus entitled “Related
Party Transactions” is incorporated herein by reference. Other than as described
therein, no transactions required to be disclosed under Item 404 of Regulation
S-B have occurred since the beginning of the Company’s last fiscal
year.
| Item 13. |
Exhibits.
|
The
following documents are filed herewith:
|
Number
|
|
Exhibit
|
|
3.1
|
|
Articles
of Incorporation of Sino-Global Shipping America, Ltd.*
|
|
3.2
|
|
Bylaws
of Sino-Global Shipping America, Ltd.*
|
|
4.1
|
|
Specimen
Certificate for Common Stock*
|
|
10.1
|
|
Exclusive
Management Consulting and Technical Services Agreement by and between
Trans Pacific and Sino-China.*
|
|
10.2
|
|
Exclusive
Marketing Agreement by and between Trans Pacific and
Sino-China.*
|
|
10.3
|
|
Proxy
Agreement by and among Cao Lei, Zhang Mingwei, the Company and
Sino-China.*
|
|
10.4
|
|
Equity
Interest Pledge Agreement by and among Trans Pacific, Cao Lei and
Zhang
Mingwei.*
|
|
10.5
|
|
Exclusive
Equity Interest Purchase Agreement by and among the Company, Cao
Lei,
Zhang Mingwei and Sino-China.*
|
|
10.6
|
|
First
Amended and Restated Exclusive Management Consulting and Technical
Services Agreement by and between Trans Pacific and
Sino-China.*
|
|
10.7
|
|
First
Amended and Restated Exclusive Marketing Agreement by and between
Trans
Pacific and Sino-China.*
|
|
10.8
|
|
Agency
Agreement by and between the Company and Beijing Shou Rong Forwarding
Service Co., Ltd.*
|
|
13.1
|
Quarterly
report of the Company on Form 10-QSB for the period ended March 31,
2008.**
|
|
|
14.1
|
Code
of Ethics of the Company.***
|
|
|
21.1
|
List
of subsidiaries of the Company.*
|
|
|
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.** *
|
|
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.***
|
|
32.1
|
|
Certifications
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002.***
|
|
32.2
|
|
Certifications
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002.***
|
|
*
|
Incorporated
by reference to the Company’s Registration Statement on Form S-1,
Registration Nos. 333-150858 and
333-148611.
|
|
**
|
Incorporated
by reference to the Company’s Form 10-QSB filed on May 12, 2008, File
No. 001-34024.
|
| *** |
Filed
herewith.
|
| Item 14. |
Principal
Accountant Fees and
Services.
|
Friedman
LLP was appointed by the Company to serve as its independent registered public
accounting firm for fiscal 2008. Audit services provided by Friedman LLP for
fiscal 2008 included the examination of the consolidated financial statements
of
the Company; and services related to periodic filings made with the SEC. In
addition, Friedman LLP provided review services relating to the Company’s
quarterly reports.
Fees
Paid To Independent Registered Public Accounting Firm
Audit
Fees
During
fiscal 2008 and 2007, Friedman LLP’s fees for the annual audit of our financial
statements and the quarterly reviews of the financial statements included in
Form 10-QSB were $197,000 and $100,000, respectively. Of the 2008 amount, the
Company has paid $112,000 to date and will be billed for the remaining
$85,000.
Audit
Related Fees
During
fiscal 2008 and 2007, the Company paid Friedman LLP $40,500 and $0,
respectively, for audit-related services. These audit-related services were
for
services rendered in connection with responding to comment letters from the
SEC
prior to the Company’s initial public offering of its common stock.
Tax
Fees
The
Company has not paid Friedman LLP for tax services in fiscal 2007 or 2008.
All
Other Fees
The
Company has not paid Friedman LLP for any other services in fiscal 2007 or
2008.
Audit
Committee Pre-Approval Policies
SIGNATURES
In
accordance with the requirements of the Exchange Act, the Company caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
SINO-GLOBAL
SHIPPING AMERICA, LTD.
|
|
|
|
|
|
|
September
29, 2008
|
By:
|
/s/
Zhang Mingwei
|
|
|
|
Zhang
Mingwei
|
|
|
|
Chief
Financial Officer
|
|
|
|
(Principal
Financial and Accounting Officer)
|
Exhibit
Index
|
Number
|
|
Exhibit
|
|
3.1
|
|
Articles
of Incorporation of Sino-Global Shipping America, Ltd.*
|
|
3.2
|
|
Bylaws
of Sino-Global Shipping America, Ltd.*
|
|
4.1
|
|
Specimen
Certificate for Common Stock*
|
|
10.1
|
|
Exclusive
Management Consulting and Technical Services Agreement by and between
Trans Pacific and Sino-China.*
|
|
10.2
|
|
Exclusive
Marketing Agreement by and between Trans Pacific and
Sino-China.*
|
|
10.3
|
|
Proxy
Agreement by and among Cao Lei, Zhang Mingwei, the Company and
Sino-China.*
|
|
10.4
|
|
Equity
Interest Pledge Agreement by and among Trans Pacific, Cao Lei and
Zhang
Mingwei.*
|
|
10.5
|
|
Exclusive
Equity Interest Purchase Agreement by and among the Company, Cao
Lei,
Zhang Mingwei and Sino-China.*
|
|
10.6
|
|
First
Amended and Restated Exclusive Management Consulting and Technical
Services Agreement by and between Trans Pacific and
Sino-China.*
|
|
10.7
|
|
First
Amended and Restated Exclusive Marketing Agreement by and between
Trans
Pacific and Sino-China.*
|
|
10.8
|
|
Agency
Agreement by and between the Company and Beijing Shou Rong Forwarding
Service Co., Ltd.*
|
|
13.1
|
Quarterly
report of the Company on Form 10-QSB for the period ended March 31,
2008.**
|
|
|
14.1
|
Code
of Ethics of the Company.***
|
|
|
21.1
|
List
of subsidiaries of the Company.*
|
|
|
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.** *
|
|
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.***
|
|
32.1
|
|
Certifications
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002.***
|
|
32.2
|
|
Certifications
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002.***
|
|
*
|
Incorporated
by reference to the Company’s Registration Statement on Form S-1,
Registration Nos. 333-150858 and
333-148611.
|
|
**
|
Incorporated
by reference to the Company’s Form 10-QSB filed on May 12, 2008, File
No. 001-34024.
|
| *** |
Filed
herewith.
|
SINO-GLOBAL
SHIPPING AMERICA, LTD. AND AFFILIATE
INDEX
TO F
INANCIAL
STATEMENTS
|
PAGE
|
||||
|
CONSOLIDATED
FINANCIAL STATEMENTS:
|
||||
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|||
|
Consolidated
Balance Sheets as of June 30, 2008 and 2007
|
F-3
|
|||
|
Consolidated
Statements of Operations for the Years Ended June 30, 2008 and
2007
|
F-4
|
|||
|
Consolidated
Statements of Cash Flows for the Years Ended June 30, 2008 and
2007
|
F-5
|
|||
|
F-6
|
||||
|
Notes
to the Consolidated Financial Statements
|
F-7
|
|||
SINO-GLOBAL
SHIPPING AMERICA LTD. AND AFFILIATE
CONSOLIDATED
BALANCE SHEETS
|
June
30,
|
|||||||
|
2008
|
2007
|
||||||
|
US$
|
US$
|
||||||
|
Assets
|
|||||||
|
Current
assets
|
|||||||
|
Cash
and cash equivalents
|
9,603,250
|
526,091
|
|||||
|
Advances
to suppliers
|
114,570
|
586,641
|
|||||
|
Accounts
receivable, less allowance for doubtful accounts of $48,708 as of
June 30,
2008
|
1,265,309
|
739,943
|
|||||
|
Other
receivables
|
213,515
|
169,970
|
|||||
|
Prepaid
expenses and other current assets
|
30,455
|
12,976
|
|||||
|
Due
from related party
|
-
|
1,249,722
|
|||||
|
Total
current assets
|
11,227,099
|
3,285,343
|
|||||
|
Security
deposits
|
92,188
|
-
|
|||||
|
Property
and equipment, net
|
1,068,527
|
467,218
|
|||||
|
Total
Assets
|
12,387,814
|
3,752,561
|
|||||
|
Liabilities
and Shareholders' Equity
|
|||||||
|
Current
liabilities
|
|||||||
|
Loans
payable, bank
|
-
|
45,791
|
|||||
|
Current
maturities of long-term debt
|
28,450
|
-
|
|||||
|
Advances
from customers
|
955,316
|
717,007
|
|||||
|
Accounts
payable
|
1,053,058
|
861,562
|
|||||
|
Accrued
expenses
|
73,023
|
59,490
|
|||||
|
Income
tax payable
|
168,011
|
11,987
|
|||||
|
Other
current liabilities
|
108,531
|
92,911
|
|||||
|
Total
Current Liabilities
|
2,386,389
|
1,788,748
|
|||||
|
|
|||||||
|
Long-term
debt less current maturities
|
38,984
|
-
|
|||||
|
Total
Liabilities
|
2,425,373
|
1,788,748
|
|||||
|
Non-controlling
interest
|
260,001
|
308,610
|
|||||
|
Commitments
and contingency
|
|||||||
|
|
|||||||
|
Shareholders'
equity
|
|||||||
|
Capital
stock
|
7,709,745
|
1,880
|
|||||
|
Additional
paid-in capital
|
1,498,033
|
-
|
|||||
|
Retained
earnings
|
1,787,017
|
1,653,323
|
|||||
|
Accumulated
other comprehensive loss
|
(8,773
|
)
|
-
|
||||
|
Unearned
Compensation
|
(1,283,582
|
)
|
|
||||
|
9,702,440
|
1,655,203
|
||||||
|
|
|||||||
|
Total
Liabilities and Shareholders' Equity
|
12,387,814
|
3,752,561
|
|||||
The
accompanying notes are an integral part of these consolidated financial
statements.
SINO-GLOBAL
SHIPPING AMERICA LTD. AND AFFILIATE
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
For the years ended June 30,
|
|||||||
|
2008
|
2007
|
||||||
|
US$
|
US$
|
||||||
|
Revenues
|
15,087,238
|
10,090,879
|
|||||
|
Costs
and expenses
|
|||||||
|
Costs
of services
|
(12,371,691
|
)
|
(7,509,669
|
)
|
|||
|
General
and administrative
|
(2,348,894
|
)
|
(1,165,332
|
)
|
|||
|
Selling
|
(190,648
|
)
|
(153,797
|
)
|
|||
|
Other
|
(1,890
|
)
|
(1,163
|
)
|
|||
|
(14,913,123
|
)
|
(8,829,961
|
)
|
||||
|
|
|||||||
|
Operating
Income
|
174,115
|
1,260,918
|
|||||
|
|
|||||||
|
Financial
income, net
|
230,331
|
22,125
|
|||||
|
|
230,331
|
22,125
|
|||||
|
Net
income before income taxes and non-controlling interest in income
|
404,446
|
1,283,043
|
|||||
|
Income
taxes
|
(246,667
|
)
|
(138,291
|
)
|
|||
|
Income
before non-controlling interest in income
|
157,779
|
1,144,752
|
|||||
|
Non-controlling
interest in income
|
(24,085
|
)
|
(104,236
|
)
|
|||
|
Net
income
|
133,694
|
1,040,516
|
|||||
|
Earnings
per share
|
|||||||
|
-Basic
|
0.07
|
0.58
|
|||||
|
-Diluted
|
0.07
|
0.58
|
|||||
|
Weighted
average number of common shares
|
|||||||
|
-Basic
|
1,938,056
|
1,800,000
|
|||||
|
-Diluted
|
1,973,218
|
1,800,000
|
|||||
The
accompanying notes are an integral part of these consolidated financial
statements.
SINO-GLOBAL
SHIPPING AMERICA LTD. AND AFFILIATE
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
For the years ended June 30,
|
|||||||
|
2008
|
2007
|
||||||
|
US$
|
US$
|
||||||
|
Operating
Activities
|
|||||||
|
Net
income
|
133,694
|
1,040,516
|
|||||
|
Adjustment
to reconcile net income to net cash provided by operating activities
|
|||||||
|
Depreciation
|
170,098
|
90,602
|
|||||
|
Non-controlling
interest in income
|
24,085
|
104,236
|
|||||
|
Provision
for doubtful accounts
|
415,673
|
-
|
|||||
|
Changes
in assets and liabilities
|
|||||||
|
Increase
(decrease) in advances to supplier
|
472,071
|
(307,684
|
)
|
||||
|
Increase
in accounts receivable
|
(941,039
|
)
|
(609,939
|
)
|
|||
|
Increase
in other receivables
|
(43,545
|
)
|
(35,219
|
)
|
|||
|
Increase
in prepaid expense and other current assets
|
(17,479
|
)
|
(3,063
|
)
|
|||
|
Increase
in security deposits
|
(92,188
|
)
|
-
|
||||
|
Increase
in advances from customers
|
238,309
|
222,805
|
|||||
|
Increase
in accounts payable
|
191,496
|
649,394
|
|||||
|
Increase
in accrued expenses
|
13,533
|
24,177
|
|||||
|
Increase
in income taxes payable
|
156,024
|
11,303
|
|||||
|
(Decrease)
increase in other current liabilities
|
15,620
|
(322,070
|
)
|
||||
|
|
|
|
|||||
|
Net
cash provided by operating activities
|
736,352
|
865,058
|
|||||
|
|
|||||||
|
Investing
Activities
|
|||||||
|
Capital
expenditures and other additions
|
(771,407
|
)
|
(342,924
|
)
|
|||
|
Proceeds
from (payments to ) related party
|
1,249,722
|
(568,596
|
)
|
||||
|
|
|
|
|||||
|
Net
cash provided by (used in) investing activities
|
478,315
|
(911,520
|
)
|
||||
|
|
|||||||
|
Financing
Activities
|
|||||||
|
Payments
of bank loans
|
(45,791
|
)
|
(54,209
|
)
|
|||
|
Proceeds
from long-term debt
|
67,434
|
-
|
|||||
|
Capital
contribution of non-controlling interest
|
-
|
226,928
|
|||||
|
Issuance
of common stock
|
7,922,316
|
-
|
|||||
|
|
|
|
|||||
|
Net
cash provided by financing activities
|
7,943,959
|
172,719
|
|||||
|
|
|||||||
|
Effect
of exchange rate fluctuations on cash and cash equivalents
|
(81,467
|
)
|
43,808
|
||||
|
|
|||||||
|
Net
increase in cash and cash equivalents
|
9,077,159
|
170,065
|
|||||
|
|
|||||||
|
Cash
and cash equivalents at beginning of year
|
526,091
|
356,026
|
|||||
|
|
|
|
|||||
|
Cash
and cash equivalents at end of year
|
9,603,250
|
526,091
|
|||||
|
|
|||||||
|
Supplemental
information
|
|||||||
|
Interest
paid
|
5,711
|
10,019
|
|||||
|
Income
taxes paid
|
83,624
|
134,870
|
|||||
|
|
|||||||
|
Supplemental
disclosures of non-cash financing activities
|
|||||||
|
Fair
value of warrants issued in connection with the initial public
offering
|
214,451
|
-
|
|||||
|
Fair
value of stock options granted to employees and members of the audit
committee
|
1,283,582
|
-
|
|||||
The
accompanying notes are an integral part of these consolidated financial
statements.
SINO-GLOBAL
SHIPPING AMERICA LTD. AND AFFILIATE
CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
|
Common
stock
|
Additional
paid-in
capital
|
Retained
earnings
|
Accumulated
other
comprehensive
loss
|
Unearned
Compensation
|
Total
|
||||||||||||||
|
US$
|
US$
|
US$
|
US$
|
US$
|
US$
|
||||||||||||||
|
Balance
as of June 30, 2006
|
1,880
|
-
|
612,807
|
614,687
|
|||||||||||||||
|
Share
issued, net:
|
|||||||||||||||||||
|
Net
income
|
-
|
-
|
1,040,516
|
1,040,516
|
|||||||||||||||
|
Balance
as of June 30, 2007
|
1,880
|
-
|
1,653,323
|
1,655,203
|
|||||||||||||||
|
|
|||||||||||||||||||
|
Net
proceeds from initial public offering of stock
|
7,707,865
|
7,707,865
|
|||||||||||||||||
|
Fair
value of warrants issued in connecting with the initial public
offering
|
214,451
|
214,451
|
|||||||||||||||||
|
Fair
value of stock options granted to employees and members of the audit
committee
|
1,283,582
|
(1,283,582
|
)
|
-
|
|||||||||||||||
|
Foreign
currency translation
|
(8,773
|
)
|
(8,773
|
)
|
|||||||||||||||
|
Net
income
|
133,694
|
133,694
|
|||||||||||||||||
|
Comprehensive
income
|
124,921
|
||||||||||||||||||
|
Balance
as of June 30, 2008
|
7,709,745
|
1,498,033
|
1,787,017
|
(8,773
|
)
|
(1,283,582
|
)
|
9,702,440
|
|||||||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
SINO-GLOBAL
SHIPPING AMERICA, LTD. AND AFFILIATE
1.
ORGANIZATION AND NATURE OF BUSINESS
Sino-Global
Shipping America, Ltd. (the “Company”), previously known as Sino-Global-Shipping
(America) Ltd., was incorporated under section 402 of the Business Corporation
Laws of the United States of America in New York on February 2, 2001.
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 formed a wholly foreign-owned enterprise, Trans Pacific Shipping Limited
(“Trans Pacific”), in Beijing on November 13, 2007. Trans Pacific and Sino-China
do not have a parent-subsidiary relationship. Instead, Trans Pacific operates
with Sino-China through a variety of contractual agreements as described in
Note
2(a).
The
Company is listed on the NASDAQ Capital Market as a result of its Initial Public
Offering (IPO) on May 21, 2008.
The
Company’s principal geographic market is in the People’s Republic of China
(“PRC”). As PRC laws and regulations prohibit or 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 and has branches in Ningbo, Qingdao,
Tianjin, Qinhuangdao and Fangchenggang. Sino-China holds four local shipping
service licenses in China to serve as a local shipping agent in Ningbo, Qingdao,
Tianjin, and Fangchenggang. Sino-China has applied for a local shipping agent
license in Qinhuangdao. The Company provides general shipping agency services
in
76 ports in China.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a)
Basis of presentation
The
accompanying 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.
Sino-China
is considered a variable interest entity (“VIE”), and the Company is the primary
beneficiary. On November 14, 2007, 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 new 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 financial statements
pursuant to Financial Accounting Standards Board Interpretation No. 46
(Revised), “Consolidation of Variable Interest Entities - an Interpretation of
ARB No. 51”. As a VIE, Sino-China’s sales are included in the Company’s total
sales, its income from operations is consolidated with the Company’s, and the
Company’s net income from continuing operations before non-controlling interest
in income includes all of Sino-China’s net income. The Company’s non-controlling
interest in its income is then subtracted in calculating the net income
attributable to the Company. 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 SFAS 141, “Business Combinations”. For this
reason, the Company has included 90% of Sino-China’s net income in the Company’s
net income as discussed above as though the 2007 agreements were in effect
from
the inception of Sino-China, 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.
(b)
Fair Value of Financial Instruments
The
carrying amounts reported in the consolidated financial statements for current
assets and current liabilities approximate fair value due to the short-term
nature of these financial instruments. The carrying value of the long-term
debt
approximates fair value based on market rates and terms currently available
to
the Company.
The
Company decided not to elect the fair value option permitted by SFAS No. 159,
“The Fair Value Option for Financial Assets and Financial Liabilities-Including
an Amendment of FASB Statement No. 115”, for its financial assets and
liabilities. The Company decided not to early adopt SFAS 157, “Fair Value
Measurements,” for non-financial assets and liabilities.
(c)
Use of Estimates
The
preparation of the consolidated financial statements in conformity with US
GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements and the reported amounts
of
revenues and expenses during the reporting periods. Estimates are adjusted
to reflect actual experience when necessary. Significant accounting estimates
reflected in the Company’s consolidated financial statements include revenue
recognition, allowance for doubtful accounts, and useful lives of property
and
equipment.
Since
the
use of estimates is an integral component of the financial reporting process,
our actual results could differ from those estimates. Some of our accounting
policies require a higher degree of judgment than others in their
application.
(d)
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 US
dollars (“$”) while Sino-China reports its financial position and results of
operations in Renminbi (“RMB”). The accompanying 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 consolidated
statements of operations. The Company translates foreign currency financial
statements of Sino-China and Trans Pacific in accordance with SFAS No. 52,
“Foreign Currency Translation”. 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 years. Resulting translation adjustments are recorded as other
comprehensive income (loss) and accumulated as a separate component of equity
included in Non-controlling interest.
(e)
Cash and Cash Equivalents
Cash
and
cash equivalents comprise 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 and the United
States. Balances in the United States are insured up to $100,000 at each
bank.
(f)
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:
|
20
years
|
||||
|
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 market value of the
long-lived asset. Fair market 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 date.
(g)
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 bill them on the balances 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 contain a provision stating that revenues are recognized for actual
expenses incurred plus a profit margin. When 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 expenses based on our previous experience
with
similar vessels and port charges.
In
accordance with EITF 99-19, 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.
(h)
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 collectibility of individual balances.
In evaluating the collectibility 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. Management has determined
that an allowance of $48,708 was required at June 30, 2008. Accounts are written
off after exhaustive efforts at collection.
(i)
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
consolidated financial statements.
Effective
July 1, 2007, the Company adopted Financial Accounting Standards Board (“FASB”)
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes (“FIN 48”). —
an interpretation of SFAS No. 109, “Accounting for Income Taxes.” The
Interpretation 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 FIN 48, we 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. FIN 48 also provides guidance on derecognition, classification,
interest and penalties on income taxes, accounting in interim periods and
requires increased disclosures.
The
implementation of FIN 48 resulted in no material liability for unrecognized
tax
benefits and no material change to the beginning retained earnings of the
Company. As of and during the year ended June 30, 2008, the Company did not
have
a liability for any unrecognized tax benefits. The Company recognizes interest
and penalties, if any, related to unrecognized tax benefits as income tax
expense in the Statement of Operations. During the year, the Company did not
incur any interest or penalties.
PRC
Enterprise Income Tax
PRC
domestic companies are governed by the Enterprise Income Tax Laws of the PRC
and
profits are generally subject to an enterprise income tax rate of 25%.
Sino-China’s income tax is accrued at the end of every quarter based on taxes
payable for the current period and paid in the following month.
PRC
Business Tax and Surcharges
Revenues
from services provided by Sino-China and its branches are subject to the PRC
business tax of 5% and some surcharges. Business tax and surcharges are paid
on
gross revenues generated from our shipping services.
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
has complied with EITF 06-3 and reports its revenues net of PRC’s business tax
and surcharges for all the periods presented in the consolidated statements
of
operations.
New
Corporate Income Tax Law
The
5th
Session of the 10th National People’s Congress amended the PRC Corporate Income
Tax Law that became effective on January 1, 2008. The newly amended Corporate
Income Tax Law introduces a wide range of changes which include, but are not
limited to, the unification of the income tax rate for domestic-invested and
foreign-invested enterprises at 25%, which reduces the Company’s income tax rate
from 33% to 25% in 2008. In addition, according to the amended detailed
implementation and administrative rules, the new PRC Corporate Income Tax Law
will broaden the tax restrictions in terms of categories and extents for
domestic companies.
(j)
Leases
Leases
have been classified as operating leases. Capital leases that transfer
substantially all the benefits and risks incidental to the ownership of assets
are accounted for as if there was an acquisition of an asset and incurrence
of
an obligation at the inception of the lease. All other leases are accounted
for
as operating leases wherein rental payments are expensed as incurred.
(k)
Earnings per share
Earnings
per share is calculated in accordance with SFAS No. 128, “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
preference 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-dilutive.
Earnings
per share data has been retroactively adjusted for all periods presented to
reflect the recapitalization of the Company further discussed in Note
13.
SFAS
No.
128 requires the presentation of both Basic EPS and Diluted EPS on the face
of
the Company’s Consolidated Statements of Operations.
The
following table sets forth the computation of basic and diluted per share
information:
|
Numerator:
|
2008
|
2007
|
|||||
|
Net
income
|
$
|
133,694
|
$
|
1,040,516
|
|||
|
Denominator:
|
|||||||
|
Weighted
average common shares outstanding
|
1,938,056
|
1,800,000
|
|||||
|
Dilutive
effect of stock options and warrants
|
35,162
|
-
|
|||||
|
Weighted
average common shares outstanding, assuming dilution
|
1,973,218
|
1,800,000
|
|||||
(l)
Recent Accounting Pronouncements
In
September, 2006, the Financial Accounting Standards Board (“FASB”), issued SFAS
No. 157, “Fair Value Measurements,” which defines fair value, establishes a
framework for measuring fair value, and expands disclosures about fair value
measurements. This standard applies under other accounting pronouncements that
require or permit fair value measurements, but does not require any new fair
value measurements. SFAS No. 157 will become effective for the Company in fiscal
2009. We are currently assessing the impacts of SFAS No. 157; however, we do
not
believe the adoption of this standard will have a material effect on the
Company’s consolidated financial statements.
In
May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (“FAS 162”). FAS 162 identifies the sources of accounting
principles and the framework for selecting the principles to be used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles. FAS
162
directs the hierarchy to the entity, rather than the independent auditors,
as
the entity is responsible for selecting accounting principles for financial
statements that are presented in conformity with generally accepted accounting
principles. The Standard is effective 60 days following SEC approval of the
Public Company Accounting Oversight Board (“PCAOB”) amendments to remove the
hierarchy of generally accepted accounting principles from the auditing
standards. FAS 162 is not expected to have an impact on the Company's
consolidated financial statements.
In
June
2008, the FASB issued FSP EITF No. 03-6-1, “Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities.” Under
the FSP, unvested share-based payment awards that contain rights to receive
non-forfeitable dividends (whether paid or unpaid) are participating securities,
and should be included in the two-class method of computing earnings per share.
The FSP is effective for fiscal years beginning after December 15, 2008, and
interim periods within those years. The Company does not expect the adoption
of
FSP EITF No. 03-6-1 to have a material effect on its
consolidated financial statements.
(m)
Stock-Based Compensation
The
Company follows the provisions of Financial Accounting Standards Board Statement
No. 123 (revised 2004), “Share Based Payments” (“SFAS No. 123(R)”). SFAS
No.123(R) supersedes SFAS 123 and Accounting Principles Board (“APB”) Opinion
No. 25,”Accounting for Stock Issued to Employees,” and amends SFAS No. 95,
“Statement of Cash Flows.” The Company’s Board of Directors and shareholders
have approved the creation of a stock option plan to issue up to 10% of the
number of shares outstanding after the Company has completed its public
offering.
The
fair
value of each stock option granted is calculated on the grant date using the
Black-Scholes option pricing model. For the year ended June 30, 2008, the
Company granted 174,000 shares of options to its employees, directors and
members of the audit committee. Each stock option has the right to purchase
one
share of common stock. The Company recognizes the relevant share-based
compensation expenses over the prescribed vesting periods.
3.
OTHER RECEIVABLES / OTHER CURRENT LIABILITIES
(a)
Other
Receivable
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 temporary 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.
PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid
expenses and other current assets are as follows:
|
June
30,
|
|||||||
|
2008
|
2007
|
||||||
|
US$
|
US$
|
||||||
|
Rent
|
12,975
|
6,653
|
|||||
|
Communication
|
3,201
|
2,298
|
|||||
|
Other
prepaid expenses
|
14,279
|
4,025
|
|||||
|
30,455
|
12,976
|
||||||
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.
DUE FROM RELATED PARTY
On
December 31, 2007, Mr. Cao repaid $1,251,222 to the Company, primarily with
funds generated from the sale of an aggregate of 217,960 shares of his common
stock in the Company to two third-party investors for $1,250,000 (the “Private
Sale”). In connection with the Private Sale, the investors were granted a right
to sell the acquired shares of common stock to the Company in the event that
such shares are not registered in accordance with federal and applicable state
securities laws within 12 months of the Private Sale. During the term of this
put right, the Company agreed to place $1,250,000 in an escrow account. Since
the Company completed the registration of the shares within 12 months of the
Private Sale, the escrow agent released the funds to the Company’s account upon
closing of the initial public offering of the Company’s common stock. On May 20,
2008, the Company completed the initial public offering of its common stock
and
$1,250,000 was released by the agent and deposited into the Company’s bank
account.
7.
PROPERTY AND EQUIPMENT
Property
and equipment are as follows:
|
June
30,
|
|||||||
|
2008
|
2007
|
||||||
|
US$
|
US$
|
||||||
|
Land
and building
|
72,479
|
65,280
|
|||||
|
Motor
vehicles
|
1,085,139
|
445,488
|
|||||
|
Computer
equipment
|
90,990
|
53,175
|
|||||
|
Office
equipment
|
28,188
|
15,147
|
|||||
|
Furniture
& Fixtures
|
19,088
|
11,601
|
|||||
|
System
software
|
17,623
|
15,321
|
|||||
|
Leasehold
improvement
|
80,983
|
17,071
|
|||||
|
Total
|
1,394,490
|
623,083
|
|||||
|
Less
: Accumulated depreciation and amortization
|
325,963
|
155,865
|
|||||
|
Property
and equipment, net
|
1,068,527
|
467,218
|
|||||
8.
STOCK-BASED COMPENSATION
On
May
20, 2008, the Company issued 174,000 stock options (“Options”) to its officers,
employees and members in the audit committee to purchase the Company’s common
stock, without par value per share. The Options were all issued pursuant to
the
Company’s 2008 Stock Incentive Plan.
The
Options are nonstatutory options and have been granted to the following
individuals in the corresponding amounts, effective as of the closing of the
initial public offering of the Company’s Common Stock on May 20,
2008.
|
Name
|
Number of Options
|
|||
|
Cao
Lei
|
36,000
|
|||
|
Zhang
Mingwei
|
36,000
|
|||
|
Cao
Jing Bo
|
36,000
|
|||
|
Cao
Xin Qing
|
36,000
|
|||
|
Dennis
O. Laing
|
10,000
|
|||
|
C.
Thomas Burke
|
10,000
|
|||
|
Wang
Jing
|
10,000
|
|||
|
Total
|
174,000
|
|||
The
Compensation Committee of the Company approved the issuance of Options to Cao
Lei, Zhang Mingwei, Cao Jing Bo and Cao Xin Qing. The Board of Directors
approved the issuance of Options to Dennis O. Laing, C. Thomas Burke and Wang
Jing, all of whom are on the Compensation Committee and Audit
Committee.
The
issuance of the Options is exempted from registration under of the Securities
Act of 1933, as amended (the “Act”). The Options will vest at a rate of 20% per
year, with 20% vesting initially on May 19, 2009. The Common Stock underlying
the Options granted may be sold in compliance with Rule 144 under the Act.
The
term of the Options is for 10 years and the exercise price of the Options is
$7.75. Each Option may be exercised to purchase one share of Common Stock.
Payment for the Options may be made in cash or by exchanging shares of Common
Stock at their Fair Market Value. Provided the Common Stock is then traded
on
the NASDAQ Capital Market, the Fair Market Value will be equal to the average
of
the highest and lowest registered sales prices of Company Stock on the date
of
exercise.
The
fair
value of stock options granted was calculated at the grant date using the
Black-Scholes option-pricing model with the following assumptions:
|
Black-Scholes
Option Pricing Model
|
||||
|
Assumptions:
|
||||
|
Stock
Price (S)
|
$
|
7.75
|
||
|
Strike
Price (X)
|
$
|
7.75
|
||
|
Volatility
(σ)
|
173.84
|
%
|
||
|
Risk-free
Rate
|
3.02
|
%
|
||
|
Time
to expiration (T)
|
5
yrs
|
|||
|
Dividend
Yield
|
0.00
|
%
|
||
|
Marginal
Tax Rate
|
0.00
|
%
|
||
|
Number
of Options
|
174,000
|
|||
Volatility
of our stock is computed based on the daily closing price from May 21, 2008
to
June 30, 2008. Because the Company does not have historical share option
exercise experience to estimate future exercise patterns, the expected life
was
determined using the simplified method as these awards meet the definition
of
"plain-vanilla" options under the rules prescribed by Staff Accounting Bulletin
No. 107.
The
174,000 Options issued during the year ended June 30, 2008 was estimated to
have
an aggregate fair value of $1,283,582, presented as “Unearned Compensation”.
In
connection with the initial public offering of the Company’s common stock on May
20, 2008, 139,032 warrants were issued to the underwriter as part of their
compensation. Each warrant has the right to purchase one share of common stock
for an exercise price of $9.30 per share with a term of 10 years. The fair
value
of these warrants which was netted against the proceeds from the initial public
offering, totaled, $214,451. This estimate was based on the NASD Rule 2710
“Valuation of Non-cash Compensation ”.
9.
ACCRUED EXPENSES
Under
the
PRC regulations, Sino-Global China is required to accrue welfare benefits
calculated as 14% of the total salaries. It is also required for Sino-Global
China to pay the city construction tax (7%) and education surcharges (3%) based
on the calculated business tax payments.
Accrued
expenses are as follow:
|
June
30,
|
|||||||
|
2008
|
2007
|
||||||
|
US$
|
US$
|
||||||
|
Accrued
welfare benefits
|
63,005
|
53,419
|
|||||
|
Other
surchage and taxes payable
|
7,266
|
6,071
|
|||||
|
Other
|
2,752
|
-
|
|||||
|
73,023
|
59,490
|
||||||
10.
LONG-TERM DEBT
Long-term
debt at June 30, 2008 consists of the following:
|
US$
|
||||
|
Loans
payable to bank, collateralized by a Company automobile, payable
in
monthly installments of $2,743, including interest at 8.18% through
September 2010
|
67,434
|
|||
|
67,434
|
||||
|
Less
- Current maturities
|
28,450
|
|||
|
38,984
|
||||
Future
annual maturites are as follows:
Interest
expense on long-term debt w as approximately $4,820 for the year ended June
30,
2008.
11.
NON-CONTROLLING INTEREST
Non-controlling
interest consists of the following:
|
June
30,
|
|||||||
|
2008
|
2007
|
||||||
|
US$
|
US$
|
||||||
|
Paid-in
capital
|
356,400
|
356,400
|
|||||
|
Additional
paid-in capital
|
1,044
|
1,044
|
|||||
|
Accumulated
other comprehensive income (loss)
|
(27,572
|
)
|
45,121
|
||||
|
Accumulated
deficit
|
(72,688
|
)
|
(96,772
|
)
|
|||
|
Other
adjustments
|
2,817
|
2,817
|
|||||
|
260,001
|
308,610
|
||||||
12.
COMMITMENTS AND CONTINGENCY
(a)
Office leases
The
Company leases certain office premises under non-cancelable leases. In December
2007, the Company leased additional office premises under two non-cancelable
leases which expire through January 13, 2010 for approximately $317,000 per
year. In February 2008, the Company leased additional office space which expires
through January 31, 2009 for approximately $10,800 per year. Rent expense under
operating leases for the years ended June 30, 2008 and June 30, 2007 were
$233,237 and $93,920, respectively. Future minimum lease payments under
non-cancelable operating leases agreements were as follows:
(b)
Contingency
The
Labor
Contract Law of the People’s Republic of China, effective as of January 1, 2008,
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
June 30, 2008, the Company has estimated its severance payments of approximately
$143,000, which has not been reflected in its consolidated financial statements
because the Company has no intention of terminating any employees in the near
future.
13.
CAPITAL STOCK
The
predecessor of the Company incorporated in New York State had 200 shares of
common stock issued and outstanding, without par value. Upon the merger into
a
Virginia shell corporation on September 18, 2007, each share of common stock
in
the predecessor company was exchanged for 9,000 shares of common stock in the
Company. The New York State company ceased to exist after the merger. As of
December 31, 2007, the authorized capital stock of the Company consists of
10,000,000 shares of common stock, no par value, 1,800,000 of which are issued
and outstanding, and 1,000,000 shares of preferred stock, without par value,
none of which are issued and outstanding.
On
May
20, 2008, the Company completed its initial public offering of 1,229,032
ordinary shares at $7.75 offering price and realized gross proceeds of
$9,524,998 before cash offering costs of $1,602,684.
14.
ADDITIONAL PAID-IN CAPITAL
The
additional paid-in capital consists of the following at June 30, 2008:
|
US$
|
||||
|
Fair
value of stock options issued to officers, employees and members
of the
audit committee
|
1,283,582
|
|||
|
Fair
value of warrants issued to underw riter in connection with initial
public
offering
|
214,451
|
|||
|
1,498,033
|
||||
15.
FINANCIAL
INCOME (EXPENSES), NET
Financial
income (expenses) for the years ended June 30, 2008 and June 30, 2007 are as
follows:
|
June
30,
|
|||||||
|
2008
|
2007
|
||||||
|
US$
|
US$
|
||||||
|
Interest
income
|
1,759
|
3,861
|
|||||
|
Interest
expense
|
(739
|
)
|
(11,623
|
)
|
|||
|
Bank
charge
|
(9,487
|
)
|
(6,925
|
)
|
|||
|
Foreign
currency translation
|
238,798
|
36,812
|
|||||
|
230,331
|
22,125
|
||||||
16.
INCOME TAXES
The
income tax provisions for years ended June 30, 2008 and June 30, 2007 are as
follows:
|
June
30,
|
|||||||
|
2008
|
2007
|
||||||
|
US$
|
US$
|
||||||
|
Current
|
|||||||
|
USA
|
196,744
|
63,039
|
|||||
|
China
|
49,923
|
75,252
|
|||||
|
246,667
|
138,291
|
||||||
|
Deferred
|
|||||||
|
Allowance
for doubtful accounts
|
12,000
|
-
|
|||||
|
Valuation
allow ance
|
(12,000
|
)
|
-
|
||||
|
Net
deferred
|
-
|
-
|
|||||
|
Total
|
246,667
|
138,291
|
|||||
17.
MAJOR CUSTOMER
For
the
years ended June 30, 2008 and June 30, 2007, approximately 54% and 52%
respectively, of the Company’s revenues were from one customer. The Company
provides services to this customer under an exclusive agency agreement that
is
terminable on three months’ notice and that expires on December 31, 2009. Any
termination of this agency services agreement would materially harm the
Company’s operations. As of June 30, 2008 and 2007, approximately 78% and 25% of
the Company’s accounts receivable were from one customer.
18.
SUBSEQUENT EVENTS
On
July
3, 2008, the Company formed a wholly-owned subsidiary, Sino-Global Shipping
Australia Pty Ltd in Perth, Australia.
On
August
11, 2008, the Company signed an agency agreement with Monson Agencies Australia
Pty. Ltd in order to enable the Company to provide comprehensive shipping agency
services in Australian ports.
F-16