U.
S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
10-Q
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Quarterly
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
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For
the quarterly period ended March 31,
2009
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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 registrant 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)
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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)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.
Yes þ No o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes o No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.
Large
accelerated filer
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o
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Accelerated
filer
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o
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Non-accelerated
filer (Do not check if a smaller reporting company)
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o
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Smaller
reporting company
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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
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
The
Company is authorized to issue 10,000,000 shares of common stock, without par
value per share, and 1,000,000 shares of preferred stock, without par value per
share. As of the date of this report, the Company has 2,953,632 issued and
outstanding shares of common stock and no shares of preferred
stock.
SINO-GLOBAL
SHIPPING AMERICA, LTD.
FORM
10-Q
INDEX
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3
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PART
I.
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FINANCIAL
INFORMATION
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4
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Item
1.
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Financial
Statements.
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4
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Item
2.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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4
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Item
3.
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Quantitative
and Qualitative Disclosures About Market Risk.
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16
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Item
4/4T.
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Controls
and Procedures
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16
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PART
II.
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OTHER
INFORMATION
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17
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Item
1.
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Legal
Proceedings
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17
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Item
1A.
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Risk
Factors.
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17
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Item
2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
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17
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Item
3.
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Defaults
Upon Senior Securities
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18
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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18
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Other
Information
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18
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Item
6.
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Exhibits
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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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its
dependence on a limited number of larger customers;
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political
and economic factors in the Peoples’ Republic of China
(“PRC”);
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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 the need for the Company’s
services;
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·
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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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·
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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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·
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the
acceptance in the marketplace of the Company’s new lines of
services;
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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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the
Company’s ability to identify and successfully execute cost control
initiatives;
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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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other
risks outlined above and in the Company’s other filings made periodically
by the Company.
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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. FINANCIAL INFORMATION
Item
1. Financial Statements.
See the
financial statements following the signature page of this report, which are
incorporated herein by reference.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations
The
following discussion and analysis of our company’s financial condition and
results of operations should be read in conjunction with our unaudited condensed
consolidated financial statements and the related notes included elsewhere in
the report. This discussion contains forward-looking statements that involve
risks and uncertainties. Actual results and the timing of selected events could
differ materially from those anticipated in these forward-looking statements as
a result of various factors.
Overview
We are a
shipping agency service provider for 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
Articles 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-Global Shipping Agency, Ltd.
(“Sino-China”), a PRC limited liability company wholly owned by our founder and
Chief Executive Officer, Cao Lei, and Chief Financial Officer, Zhang Mingwei,
both of whom are PRC citizens. Sino-China holds the licenses and permits
necessary to provide shipping services in the PRC. Headquartered in Beijing with
eight branches in Ningbo, Qingdao, Tianjin, Qinhuangdao, Fangchenggang, Yantai,
Yingkou and Zhoushan, we provide general shipping agency services in 76 ports in
China.
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 a $7.75 offering price. Our shares started trading on the NASDAQ Capital
Market the next day.
We formed
a wholly-owned subsidiary, Sino-Global Shipping Australia Pty Ltd. (“Sino-Global
AUS”) in Perth, Australia on July 3, 2008 in order to serve the needs of
customers shipping into and out of Western Australia. We also signed an
agreement with Monson Agencies Australia (“Monson”), one of the largest
shipping agency service providers in Australia. Through Monson, we are able to
provide general shipping agency services to all ports in Australia. On February
20, 2009, we signed a joint-venture agreement with Australia-based Rocklands
Richfield Limited (“Rocklands Richfield” or “RCI”), which we expect will
(i) provide us with new opportunities to serve coal-carrying ships from
Australia to China and (ii) allow Rocklands Richfield to leverage
Sino-Global’s established non-state-owned shipping agency services network in
China to distribute goods domestically. As of the date of this report, the
joint-venture company has not yet been formed.
We
established another wholly-owned subsidiary, Sino-Global Shipping (HK) Limited
(“Sino-Global HK”) on September 22, 2008. We expect that Sino-Global HK will
become our control and management center for southern Chinese ports and will
enable our company to extend its offering of comprehensive shipping agency
services to vessels going to and from one of the world’s busiest
ports.
Following
the initial public offering, our Board authorized a stock repurchase program
under which we may repurchase up to 10% of our outstanding common stock for a
period of 12 months, which began October 9, 2008. As of March 31, 2009, we
repurchased 69,400 shares of our common stock from the open market at an average
price of $2.74 per share including trading expenses. After March 31,
2009, we repurchased an additional 6,000 shares.
Revenues
Due to
the worldwide financial crisis, the third quarter, from January 1 to March 31,
2009, was the most difficult quarter so far for Sino-Global. Along with the
decrease in China’s iron ore imports, which affected our largest customer, our
revenues from other major customers also significantly declined. Nevertheless,
our total revenues amounted to approximately $12.86 million and $3.29 million,
representing growth of 15.06% and 8.37% for the nine and three month periods
ended March 31, 2009 respectively, over the same periods in 2008. The growth
results largely from a new customer that exports automobiles from China to
countries in North America, Asia, Europe, the Middle East and
Africa.
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 revenues. We deduct these amounts from
our gross revenues to arrive at our total revenues.
We charge
the shipping agency fees in two ways: (1) the fixed fees are predetermined
with a customer, and (2) the cost-plus fees are calculated based on the
actual costs incurred plus a mark up. We generally require payments in advance
from customers and bill them the balances within 30 days after the transactions
are completed.
We
believe the most significant factors that directly or indirectly affect our
shipping agency service revenues are:
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the
number of ships to which we provide port loading/discharging
services;
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the
size and types of ships we serve;
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the
rate of service fees we charge;
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the
number of ports at which we provide services;
and
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the
number of customers we serve.
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Historically,
our services have primarily been driven by the increase in the number of ships
and customers, provided that the rate of service fees is determined by market
competition. We believe that an increase in the number of ports served generally
leads to an increase in the number of ships and customers. We expect that we
will continue to earn a substantial majority of our revenues from our shipping
agency services. As a result, we plan to continue to focus most of our resources
on expanding our business to cover more ports in the PRC. In addition, we will
allocate our resources in marketing our brand to customers, including ship
owners and charters, which transport goods from all ports around the world to
China.
Operating
Costs and Expenses
Our
operating costs and expenses consist of cost of revenues, general and
administrative expenses, selling expenses and other expenses. Our company’s
total operating costs and expenses increased as a percentage of total revenues
for the nine and three month periods ended March 31, 2009 mainly due to the
increased value of the Chinese RMB against the U.S. dollar. However, operating
costs decreased as a percentage of total revenues for the three month period
because of a higher gross margin contributed by our new customer and owners’
affair activities. Our general and administrative expenses also increased
significantly during the nine and three month periods ended March 31, 2009,
compared to those expenses for the same periods in 2008. This is largely due to
increased personnel expenses, public company listing expenses and business
expansion. Due to our staff and budget cuts, we were able to reduce general and
administrative expenses in the quarter ended March 31, 2009 by approximately
24.32% compared to the quarter ended December 31, 2008. The following table sets
forth the components of our company’s costs and expenses for the periods
indicated.
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For
the nine months ended March 31,
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2009
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2008
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Change
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US$
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%
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US$
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%
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US$
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%
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Revenues
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12,858,734 |
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100.00 |
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11,175,961 |
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100.00 |
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1,682,773 |
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15.06 |
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Costs
and expenses
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Costs
of revenues
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11,053,105 |
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85.96 |
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9,192,061 |
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82.25 |
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1,861,044 |
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20.25 |
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General
and administrative
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3,048,188 |
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23.71 |
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1,536,585 |
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13.75 |
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1,511,603 |
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98.37 |
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Selling
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337,977 |
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2.63 |
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139,544 |
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1.25 |
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198,433 |
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142.20 |
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Other
expense (income)
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66,132 |
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0.51 |
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(17,192 |
) |
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(0.15 |
) |
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83,324 |
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484.67 |
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Total
costs and expenses
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14,505,402 |
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112.81 |
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10,850,998 |
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97.10 |
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3,654,404 |
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33.68 |
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For
the three months ended March 31,
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2009
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2008
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Change
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US$
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%
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US$
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%
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US$
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%
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Revenues
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3,285,539 |
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100.00 |
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3,031,772 |
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100.00 |
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253,767 |
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8.37 |
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Costs
and expenses
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Costs
of revenues
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2,490,591 |
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75.80 |
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2,657,890 |
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87.67 |
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(167,299 |
) |
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(6.29 |
) |
General
and administrative
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874,732 |
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26.62 |
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628,074 |
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20.72 |
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246,658 |
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39.27 |
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Selling
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101,289 |
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3.08 |
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45,302 |
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1.49 |
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55,987 |
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123.59 |
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Other
expense (income)
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64,872 |
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1.97 |
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(17,714 |
) |
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(0.58 |
) |
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82,586 |
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466.22 |
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Total
costs and expenses
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3,531,484 |
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107.47 |
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3,313,552 |
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109.30 |
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217,932 |
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6.58 |
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Costs of Revenues. Costs of
revenues represent the expenses incurred in the periods when a ship docks in a
harbor to load and unload cargo. We typically pay the costs of revenues on
behalf of our customers. We receive revenues from our clients in U.S. dollars
and pay the costs of revenues to the Chinese local port agents in RMB. As such,
the costs of services will change if the foreign currency exchange rates change.
Our costs of revenues could also increase if the ports were to raise their
charges, particularly in the case of overtime payments during the public
holidays. Our costs of revenues as a percentage of our total revenues, increased
from 82.25% to 85.96% for the nine months ended March 31, 2008 and 2009, in line
with the devaluation of U.S. dollars against the Chinese RMB in the same
periods. Nevertheless, our costs of revenues, as a percentage of our total
revenues decreased from 87.67% to 75.80% for the three months ended March 31,
2008 and 2009, respectively, because of higher gross margins contributed by our
new customer and owners’ affair activities.
General and Administrative Expenses.
Our general and administrative expenses primarily consist of salaries and
benefits for our staff, both operating and administrative personnel,
depreciation expenses, office rental expenses and expenses for legal, accounting
and other professional services. Our general and administrative expenses
increased in the nine months of the 2009 fiscal year due to expenses spent on
setting up Sino-Global HK and a new branch in Zhoushan for Sino-China,
recruitment of new personnel, spending on travel and publicity. We have incurred
additional general and administrative expenses as we have expanded our
operations and begun to operate as 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 at which we provide services. Our selling expenses
increased in both absolute amount and as a percentage of our total net revenues
for the nine and three months ended March 31, 2009, mainly due to the increase
in the number of ports we served in China and overseas.
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 the 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 that 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
prepare the condensed consolidated financial statements in accordance with
accounting principles generally accepted in the United States of America (“US
GAAP”). These accounting principles require us to make judgments, estimates and
assumptions on the reported amounts of assets and liabilities at the end of each
fiscal period, and the reported amounts of revenues and expenses during each
fiscal period. We continually evaluate these judgments and estimates based on
our own historical experience, knowledge and assessment of current business and
other conditions, our expectations regarding the future based on available
information and assumptions that we believe to be reasonable.
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 condensed consolidated financial statements. We believe the
following accounting policies involve the most significant judgments and
estimates used in the preparation of our condensed consolidated financial
statements.
Revenue
Recognition
Revenue
comprises the value of charges for the services in the ordinary course of our
company’s activities and disbursements made on behalf of customers. Revenues are
recognized from shipping agency services upon completion of the services, which
generally coincides with the date of departure of the relevant vessel from port.
Advance payments and deposits received from customers prior to the provision of
services and recognition of the related revenues are presented as current
liabilities.
Some
contracts 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 for
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.”
Consolidation
of Variable Interest Entities
Sino-China
is considered to be a VIE and we are the primary beneficiary. On November 14,
2007, our company entered into agreements with Sino-China, pursuant to which we
receive 90% of Sino-China’s net income. We do not receive any payment from
Sino-China unless Sino-China recognizes net income during its fiscal year. 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 condensed
consolidated 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 (loss) from operations is consolidated
with our company’s, and our net income (loss) before non-controlling interest in
income (loss) includes all of Sino-China’s net income (loss). Our
non-controlling interest in its income (loss) is then subtracted in calculating
the net income (loss) attributable to our company. Because of the contractual
arrangements, our company had a pecuniary interest in Sino-China that requires
consolidation of our and Sino-China’s financial statements.
Mr. Cao
Lei owned 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,
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 at net realizable value. We maintain allowances for
doubtful accounts for estimated losses resulting from the failure of customers
to make required payments in the relevant time period. We review the accounts
receivable on a periodic basis and record general and specific allowances when
there is doubt as to the collectability of individual balances. In evaluating
the collectability of individual receivable balances, we consider many factors,
including the age of the balance, the customer’s historical payment history, its
current credit-worthiness and current economic trends. Receivables are
considered past due after 365 days. Accounts are written off only after
exhaustive collection efforts. We have determined that an allowance of $2,893
was required at March 31, 2009. For the nine months ended March 31, 2009,
management wrote off uncollected accounts of $96,674.
When a
client requests our shipping agency services, we communicate with port officials
and our service partners rely on our prior experience for similar vessels with
similar needs in the same ports to obtain an estimate for the cost of services.
We then calculate our shipping agency fees in two ways: (1) the fixed fees
are predetermined with a customer, and (2) the cost-plus fees are
calculated based on the actual costs incurred plus a mark up.
We
generally obtain advance payment of our shipping agency fees prior to providing
service to our clients. This significantly reduces the amount of accounts
receivable when the shipping agency fees are recognized. To the extent our
estimates are insufficient; we bill our clients for the balance to be paid
within 30 days.
We use
advance payments to pay a number of fees on behalf of our clients before their
ships arrive in port, including harbor, berthing, mooring/unmooring, tonnage,
immigration, quarantine and tug hire fees. We record the amounts we receive as
Advances from Customers and the amounts we pay as Advances to Suppliers. We
recognize revenues and expenses once the client’s ship leaves the harbor and the
client pays any outstanding amounts. In some cases, a delay in receiving bills
will require us to estimate the Service Revenues and Costs of Services in
accordance with the rate and formulas approved by the Ministry of
Communications. When this happens, we record the difference between Service
Revenues (as recognized) and Advances from Customers as Accounts Receivable and
the difference between Cost of Services and Advances to Suppliers as Accounts
Payable. To the extent we recognize revenues and costs in this way, our Accounts
Receivable and Accounts Payable will reflect this estimation until we receive
the bills and information we require to adjust revenues and expenses to reflect
our actual Service Revenues and Cost of Services. Any adjustment to actual from
the estimated Revenues and Cost of Services recorded has been and is expected to
be immaterial.
Property
and Equipment
We state
property and equipment at historical cost less accumulated depreciation and
amortization. Historical cost consists of its purchase price and any directly
attributable costs of bringing the asset 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:
Buildings
|
|
20
years
|
Motor
vehicles
|
|
5-10
years
|
Furniture
and office equipment
|
|
3-5
years
|
We
calculate gains and losses on disposals by comparing proceeds with the carrying
amount of the related assets and include these gains and losses in the
consolidated statements of operations. We consider the carrying value of a
long-lived asset to be impaired when the anticipated undiscounted cash flow from
such asset is less than its carrying value. If impairment is identified, a loss
is recognized based on the amount by which the carrying value exceeds the fair
value of the long-lived asset. Fair value is determined primarily using the
anticipated cash flows discounted at a rate commensurate with the risk involved
or based on independent appraisals. Management has determined that no impairment
existed as of March 31, 2009.
Translation
of Foreign Currency
The
accounts of our 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”). Our functional currency is the U.S.
dollar, while Sino-China reports its financial position and results of
operations in Renminbi. The accompanying condensed consolidated financial
statements are presented in U.S. dollars. Foreign currency transactions are
translated into U.S. dollars using the fixed exchange rates in effect at the
time of the transaction. Generally foreign exchange gains and losses resulting
from the settlement of such transactions are recognized in the consolidated
statements of operations. We translate foreign currency financial statements of
Sino-China, Trans Pacific, Sino-Global HK and Sino-Global AUS in accordance with
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 periods. Resulting translation adjustments are
recorded as other comprehensive income (loss) and accumulated as a separate
component of equity included in non-controlling interest.
2009
Growth and Earning Expectations
We
expected that our 2009 revenues would increase about 50% to 65% from the 2008
fiscal year, reaching total revenues ranging from $22.64 million to $24.89
million for the 2009 fiscal year. For the nine months ended March 31, 2009, we
achieved total revenues of $12.86 million, about 56.80% of our 2009 fiscal year
target.
The
financial crisis has harmed the world economy in general and China’s economy in
particular. We began to experience significant economic decline starting in
October 2008, due to a reduction in the amount of goods from overseas imported
by Chinese companies. Although we have endeavored to promote our business to
current and new clients, the world wide financial crisis has affected our growth
and earnings expectations for fiscal 2009. As a result, we are revising our
annual growth expectation downward, which may result in net losses during
2009.
Results
of Operations
The
following table sets forth a summary of our condensed consolidated results of
operations for the periods indicated. Due to the economic uncertainties
associated with the world wide financial crisis, it is difficult for us to
predict future operating results. We believe that period-to-period comparisons
of operating results should not be relied upon as indicative of future
performance.
|
|
For
the nine months ended March 31,
|
|
|
For
the three months ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
12,858,734 |
|
|
|
11,175,961 |
|
|
|
3,285,539 |
|
|
|
3,031,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
of revenues
|
|
|
11,053,105 |
|
|
|
9,192,061 |
|
|
|
2,490,591 |
|
|
|
2,657,890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative expense
|
|
|
3,048,188 |
|
|
|
1,536,585 |
|
|
|
874,732 |
|
|
|
628,074 |
|
Selling
expense
|
|
|
337,977 |
|
|
|
139,544 |
|
|
|
101,289 |
|
|
|
45,302 |
|
Other
income (expense)
|
|
|
66,132 |
|
|
|
(17,192 |
) |
|
|
64,872 |
|
|
|
(17,714 |
) |
|
|
|
14,505,402 |
|
|
|
10,850,998 |
|
|
|
3,531,484 |
|
|
|
3,313,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Income (loss)
|
|
|
(1,646,668 |
) |
|
|
324,963 |
|
|
|
(245,945 |
) |
|
|
(281,780 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
income (expense), net
|
|
|
(83,679 |
) |
|
|
122,450 |
|
|
|
(9,126 |
) |
|
|
79,876 |
|
|
|
|
(83,679 |
) |
|
|
122,450 |
|
|
|
(9,126 |
) |
|
|
79,876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) before taxes (benefit)
|
|
|
(1,730,347 |
) |
|
|
447,413 |
|
|
|
(255,071 |
) |
|
|
(201,904 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
(227,768 |
) |
|
|
(50,647 |
) |
|
|
(1,472 |
) |
|
|
(19,906 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) before non-controlling interest in income
(loss)
|
|
|
(1,958,115 |
) |
|
|
396,766 |
|
|
|
(256,543 |
) |
|
|
(221,810 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling
interest in income (loss)
|
|
|
(527,497 |
) |
|
|
135,141 |
|
|
|
(157,504 |
) |
|
|
75,104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
|
(1,430,618 |
) |
|
|
261,625 |
|
|
|
(99,039 |
) |
|
|
(296,914 |
) |
Three
Months Ended March 31, 2009 Compared to Three Months Ended March 31,
2008
Revenues. Our total
revenues increased by 8.37% from $3,031,772 for the three months ended March 31,
2008 to $3,285,539 for the comparable three months in 2009. The number of ships
that generated revenues for us decreased from 52 to 47 for the comparable three
months in 2008 and 2009, respectively. Following the onset of the worldwide
financial crisis, the number of ships carrying imported goods to China declined
significantly. However, despite the financial crisis, we were able to achieve a
slight increase in total revenues for the period, due primarily to revenues from
a new client that exports automobiles overseas from China.
Total Operating Costs and
Expenses. Our total operating costs and expenses increased by 6.58%
from $3,313,552 for the three months ended March 31, 2008 to $3,531,484 for the
three months ended March 31, 2009. This increase was primarily due to increases
in our general and administrative expenses and other expenses.
|
|
Cost of Revenues. Our
cost of revenues decreased by 6.29% from $2,657,890 for the three months
ended March 31, 2008 to $2,490,591 for the three months ended March 31,
2009. Costs of revenues decreased compared to the increased revenues,
resulting in a 96.19% increase in gross margin from 12.33% up to 24.19%
for the three months comparative periods ended March 31, 2008 and 2009,
respectively. During the period, the average foreign exchange rate
increased by 4.52%, from RMB7.1597 to $1.00 for the three months ended
March 31, 2008 to RMB6.8363 to $1.00 for the three months ended March 31,
2009. The decrease in costs of revenues as a percentage of revenues is
attributable to revenues from a new client and the higher margin of
owners’ affair activities.
|
|
|
General and Administrative
Expenses. Our general and administrative expenses increased by
39.27% from $ 628,074 for the three months ended March 31, 2008 to
$874,732 for the comparable three months in 2009. This change was
primarily due to (1) $62,650 in expenses associated with moving our
Beijing office, (2) an increase of $63,168 spent on legal fees, audit
fees, investor relations and other expenses for our company’s public
listing, (3) an increase of $99,674 in professional services such as
capital verification, accounting and tax advice and legal advice for our
business expansion in China and overseas, and (4) $47,837 in writing off
uncollected debts.
|
|
|
We
expect that our general and administrative expenses will increase in the
near term as a result of Sarbanes-Oxley Section 404(b) compliance and
business expansion. Meanwhile, we continue to focus on tightening our
budget and reducing non-operating expenses.
|
|
|
|
|
|
Selling Expenses. Our
selling expenses increased by 123.59% from $45,302 for the three months
ended March 31, 2008 to $101,289 for the three months ended March 31,
2009, due to the increase of business promotion and travel expenses, and
the expenses for our Hong Kong and Australian
offices.
|
Operating Loss. We had an
operating loss of $245,945 for the three months ended March 31, 2009, compared
to an operating loss of $281,780 in the same three month period in 2008. Our
operating loss decreased 12.72%, due to our increased control over costs of
revenues and general and administrative expenses.
Financial Income (Expense),
Net. Our net financial expense was $9,126 for the three months ended
March 31, 2009, compared to our net financial income of $79,876 for the three
months ended March 31, 2008. The net financial income comes largely from
interest income from the money deposits in banks, mitigated by the foreign
exchange losses recognized in financial statement consolidation. As described in
the above “Translation of
Foreign Currency”, foreign exchange gains and losses resulting from the
settlement of such transactions are recognized in the consolidated statements of
operations. Our funds deposited in Australian dollars contributed in large part
to the foreign currency exchange losses.
Net Loss. As a result of the
foregoing, we had a net loss before non-controlling interest in loss of $256,543
for the three months ended March 31, 2009, compared to net loss before
non-controlling interest in loss of $221,810 for the three months ended March
31, 2008. After deduction of non-controlling interest in loss and income taxes
(benefit), net loss was $99,039 for the three months ended March 31, 2009,
compared to net loss of $296,914 for the three months ended March 31,
2008.
Nine
Months Ended March 31, 2008 Compared to Nine Months Ende March 31,
2008
Revenues. Our total
revenues increased by 15.06% from $11,175,961 for the nine months ended March
31, 2008 to $12,858,734 for the comparable nine months in 2009. The number of
ships that generated revenues for us decreased from 175 to 155 for the
comparable nine months in 2008 and 2009, respectively. Since the onset of the
financial crisis, the number of ships carrying imported goods to China declined
significantly, from 61 vessels in the first quarter down to 47 vessels in the
second quarter and 47 vessels in the third quarter of the 2009 fiscal
year.
Total Operating Costs and
Expenses. Our total operating costs and expenses increased by 33.68%
from $10,850,998 for the nine months ended March 31, 2008 to $14,505,402 for the
nine months ended March 31, 2009. This increase was primarily due to increases
in our costs of services and in our general and administrative
expenses.
|
|
Cost of Revenues. Our
cost of revenues increased by 20.25% from $9,192,061 for the nine months
ended March 31, 2008 to $11,053,105 for the nine months ended March 31,
2009. Costs of revenues increased faster than revenues, resulting in a
3.71% decrease in gross margin from 17.75% down to 14.04% for the nine
months comparative periods ended March 31, 2008 and 2009, respectively.
This is largely due to the revaluation of Chinese currency against the
U.S. dollar. The average foreign exchange rate increased by 7.34%, from
RMB7.3795 to $1.00 for the nine months ended March 31, 2008 to RMB6.8377
to $1.00 for the nine months ended March 31, 2009. As discussed above, the
higher gross margin in the quarter ended March 31, 2009, partially
mitigates the impact from the Chinese currency revaluation over the nine
month period ended March 31, 2009.
|
|
|
General and Administrative
Expenses. Our general and administrative expenses increased by
98.37% from $1,536,585 for the nine months ended March 31, 2008 to
$3,048,188 for the comparable nine months in 2009. This increase was
primarily due to (1) an increase of $337,300 in salaries and human
resource expenses for our staff, (2) an increase of $501,821 in legal
fees, audit fees, investor relations and other expenses for our company’s
public listing, (3) an increase of $189,989 in renting additional office
space for our offices in China and overseas, (4) an increase of $132,532
in business development, and (5) an increase of $99,674 in professional
services such as capital verification, accounting and tax advice and legal
advice for our business expansion in China and
overseas.
|
|
|
We
expect our general and administrative expenses will increase in the near
term as a result of Sarbanes-Oxley Section 404(b) compliance and business
expansion. Meanwhile, we continue to focus on tightening our budget and
reducing non-operating expenses.
|
|
|
|
|
|
Selling Expenses. Our
selling expenses increased by 142.20% from $139,544 for the nine months
ended March 31, 2008 to $337,977 for the nine months ended March 31, 2009,
due to an increase in business promotion and travel expenses, and the
expenses for our Hong Kong and Australia
offices.
|
Operating Income (Loss). We
had an operating loss of $1,646,668 for the nine months ended March 31, 2009,
compared to operating income of $324,963 for the same nine month period in 2008.
Operating income decreased 606.72% largely due to the increase in costs of
revenues and general and administrative expenses.
Financial Income (Expense),
Net. Our net financial expense was $83,679 for the nine months ended
March 31, 2009, compared to our net financial income of $122,450 for the nine
months ended March 31, 2008. The net financial income comes largely from
interest income from money deposits in banks, mitigated by the foreign exchange
losses recognized in the financial statement consolidation. As described in the
above “Translation of Foreign
Currency”, foreign exchange gains and losses resulting from the
settlement of such transactions are recognized in the consolidated statements of
operations. Our funds deposited in Australian dollars contributed in large part
to foreign currency exchange losses.
Net Income (Loss). As a
result of the foregoing, we had a net loss before non-controlling interest in
loss of $1,958,115 for the nine months ended March 31, 2009, compared to net
income before non-controlling interest in income of $396,766 for the nine months
ended March 31, 2008. After deduction of non-controlling interest in income
(loss) and income taxes, net loss was $1,430,618 for the nine months ended March
31, 2009, compared to net income of $261,625 for the nine months ended March 31,
2008.
Liquidity
and Capital Resources
Cash
Flows and Working Capital
We have
financed our operations primarily through cash flows from operations and cash
derived from our initial public offering. As of March 31, 2009, we had
$7,338,680 in cash and cash equivalents. Our cash and cash equivalents primarily
consist of cash on hand and cash in banks.
The
following table sets forth a summary of our cash flows for the periods
indicated:
|
|
For
the nine months ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
US$
|
|
|
US$
|
|
Net
cash provided by (used in) operating activities
|
|
|
(1,907,605 |
) |
|
|
500,717 |
|
Net
cash used in investing activities
|
|
|
(150,313 |
) |
|
|
(297,706 |
) |
Net
cash used in financing activities
|
|
|
(213,570 |
) |
|
|
(45,791 |
) |
Net
increase (decrease) in cash and cash equivalents
|
|
|
(2,264,570 |
) |
|
|
99,166 |
|
Cash
and cash equivalents at beginning of year
|
|
|
9,603,250 |
|
|
|
526,091 |
|
Cash
and cash equivalents at end of year
|
|
|
7,338,680 |
|
|
|
625,257 |
|
Operating
Activities
Since May
2003, we began to expand our business by setting up additional branches
throughout China. As of March 31, 2009, we had six branch offices conducting our
shipping agency services in China and three operating offices in the USA,
Australia and Hong Kong. Since March 31, 2009, we have established branch
offices in Yantai and Yingkou. Our sales continued to increase for
the nine months ended March 31, 2009 compared to the same period in 2008, but
our gross margin declined, which was mainly attributable to the increased costs
of services that resulted from the RMB revaluation. Net cash used in operating
activities was $1,907,605 for the nine months ended March 31, 2009, compared to
net cash provided by operating activities of $500,717 for the nine months ended
March 31, 2008. The decrease of net cash in operating activities is mainly
attributable to several factors, including (i) a net loss of $1,430,618 and
a non-controlling interest in loss of $527,497, and (ii) an increase in
accounts receivable of $1,745,060. This was mitigated by the increase
in accounts payable of $2,040,178.
Investing
Activities
Net cash
used in investing activities was $150,313 compared to that of $297,706 for the
nine months ended March 31, 2009 and 2008, respectively. We made capital
expenditures of $150,313 and $297,428 for the nine months ended March 31, 2009
and 2008, representing 1.17% and 2.66% of our total revenues, respectively. We
expect that our capital expenditures will increase in the near term as our
business continues to grow and as we improve our financial and accounting
systems and infrastructure.
Financing
Activities
Net cash
provided by financing activities was $213,570 for the nine months ended March
31, 2009, of which $189,966 was used to repurchase 69,400 of our outstanding
shares of common stock from the open market.
We
believe that current cash, cash equivalents, and anticipated cash flow from
operations will be sufficient to meet our anticipated cash needs, including cash
needs for working capital and capital expenditures for at least the next 12
months. We may, however, require additional cash due to changing business
conditions or other future developments, including any investments or
acquisitions we may decide to pursue. If our existing cash is insufficient to
meet our requirements, we may seek to sell additional equity securities or
borrow from banks. 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 operating leases. In December 2007, we
leased additional office premises under two leases which were set to expire
January 13, 2010 for approximately $317,000 per year. These two leases were
terminated in December 2008 and were replaced by a new lease which expires in
January 2010 for approximately $61,000 a year. In October and
November 2008, the Company leased four apartments for its employees which expire
in November 2009 for approximately $16,000 a year. In August 2008, we leased one
apartment and an additional office for operating in Perth, Australia, which
expire August 30, 2009 for $25,675 per year and August 31, 2009 for $27,305 per
year, respectively. We leased one office in Zhoushan, China which expires July
31, 2011 for $27,866 for the total three year lease. In October 2008, the
Company leased one office for operating in Hong Kong, which expires September
30, 2010 for $9,288 per year; In November 2008, the Company leased one apartment
in Hong Kong, which expires November 14, 2009 for $12,075 per year.
Below is
a summary of our company’s contractual obligations and commitments as of March
31, 2009:
|
|
Payment
Due by Period
|
|
|
|
Total
|
|
|
Less
than 1 year
|
|
|
1-3
years
|
|
|
More
than 3 years
|
|
Contractual
Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
leases
|
|
$ |
471,016 |
|
|
$ |
313,360 |
|
|
$ |
157,656 |
|
|
$ |
— |
|
Long-term
debt
|
|
$ |
43,830 |
|
|
$ |
30,346 |
|
|
$ |
13,484 |
|
|
$ |
— |
|
Total
Obligations
|
|
$ |
514,846 |
|
|
$ |
343,706 |
|
|
$ |
171,140 |
|
|
$ |
— |
|
The Labor
Contract Law of the PRC, effective as of January 1, 2008, requires employers to
assure the liability of severance payments if employees are terminated and have
been working for their employers for at least two years prior to January 1,
2008. The employers will be liable for one month of severance pay for each year
of service provided by the employees. As of March 31, 2009, our company has
estimated its severance payments to be approximately $84,000, which has not been
reflected in our condensed consolidated financial statements.
Company
Structure
We
conduct our operations primarily through our wholly-owned subsidiaries, Trans
Pacific, Sino-AUS and Sino-HK and our variable interest entity, Sino-China. As a
result, our ability to pay dividends and to finance any debt we may incur
depends upon dividends paid by 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 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, with Board approval, we applied to
SAFE to increase Trans Pacific’s registered capital to $10 million. Our
application for an increase in registered capital was approved in August 2008.
In accordance with the requirements of the China’s Company Law, a company could
invest 20% of its registered capital within three months after the government’s
approval date and the balance of the registered capital in two years.
Accordingly, we injected $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
shareholders’ equity or that are not reflected in our condensed consolidated
financial statements. Furthermore, we do not have any retained or contingent
interest in assets transferred to an unconsolidated entity that serve as credit,
liquidity or market risk support to such entity. We do not have any variable
interest in any unconsolidated entity that provides financing, liquidity, market
risk or credit support to us or engages in leasing, hedging or research and
development services with us.
Recent
Accounting Pronouncements
In
April 2009, the Securities and Exchange Commission issued Staff Accounting
Bulletin (“SAB”) No. 111 (“SAB 111”). SAB 111 amends Topic 5.M. in the SAB
series entitled “Other Than Temporary Impairment of Certain Investments Debt and
Equity Securities”. On April 9, 2009, the FASB issued FASB Staff Position
(“FSP”) No. FAS 115-2 and FAS 124-2, “Recognition and Presentation of
Other-Than-Temporary Impairments”. SAB 111 maintains the previous views related
to equity securities and amends Topic 5.M. to exclude debt securities from its
scope. SAB 111 was effective for the Company as of March 31, 2009. There
was no material impact on our condensed consolidated financial position or
results of operations upon adoption.
In
April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, “Interim
Disclosures about Fair Value of Financial Instruments”. This FASB staff position
amends FASB Statement No. 107 to require disclosures about fair values of
financial instruments for interim reporting periods as well as in annual
financial statements. The staff position also amends APB Opinion No. 28 to
require those disclosures in summarized financial information at interim
reporting periods. This FASB staff position becomes effective for interim
reporting periods ending after June 15, 2009, with early adoption permitted
for periods ending after March 15, 2009. There was no material impact on
our condensed consolidated financial position or results of operations upon
adoption on April 1, 2009.
In
April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2,
“Recognition and Presentation of Other-Than-Temporary Impairments”. This FSP
amends the other-than-temporary impairment guidance in GAAP for debt securities.
If an entity determines that it has an other-than-temporary impairment on a
security, it must recognize the credit loss on the security in the income
statement. The credit loss is defined as the difference between the present
value of the cash flows expected to be collected and the amortized cost basis.
The staff position expands disclosures about other-than-temporary impairment and
requires that the annual disclosures in FASB Statement No. 115 and FSP FAS
115-1 and FAS 124-1 be made for interim reporting periods. This FSP becomes
effective for interim reporting periods ending after June 15, 2009, with
early adoption permitted for periods ending after March 15, 2009. There was
no material impact on our condensed consolidated financial position or results
of operations upon adoption on April 1, 2009.
In April
2009, the Financial Accounting Standards Board (“FASB”) issued three Staff
Positions (“FSPs”) that are intended to provide additional application guidance
and enhance disclosures about fair value measurements and impairments of
securities. FSP FAS 157-4 clarifies the objective and method of fair value
measurement even when there has been a significant decrease in market activity
for the asset being measured. FSP FAS 115-2 and FAS 124-2 establish a new model
for measuring other-than-temporary impairments for debt securities, including
establishing criteria for when to recognize a write-down through earnings versus
other comprehensive income. FSP FAS 107-1 and APB 28-1 expand the fair value
disclosures required for all financial instruments within the scope of SFAS No.
107, “Disclosures about Fair Value of Financial Instruments”, to interim periods. All
of these FSPs are effective for us beginning April 1, 2009. We are assessing the
potential impact that the adoption of FSP FAS 157-4 and FSP FAS 115-2 and FAS
124-2 may have on the Company’s condensed consolidated financial statements. FSP
FAS 107-1 and APB 28-1 will result in increased disclosures in our interim
periods.
On
January 1, 2009, SFAS No. 161, “Disclosures and Derivatives Instruments and
Hedging Activities, an amendment of FASB Statements No. 133.” SFAS No. 161
requires additional disclosures about the Company’s objectives in using the
derivative instruments and hedging activities, the method of accounting for such
instruments under SFAS No. 133, “Accounting for Derivatives Instruments and
Hedging Activities,” and its related
interpretations. The Company is currently evaluating SFAS No. 161 to determine
the impact, if any, on its condensed consolidated financial
statements.
In
December 2007, the FASB issued SFAS 160, “Non-controlling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51”, which is
effective for annual periods beginning after December 15, 2008. Early adoption
is prohibited, and, accordingly, the Company has not yet adopted SFAS 160. The
objective of this Statement is to improve the relevance, comparability, and
transparency of the financial information that a reporting entity provides in
its consolidated financial statements by establishing accounting and reporting
standards for the non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. The Company is currently assessing the impact
of SFAS 160; the Company believes the adoption of this standard will have a
material effect on its consolidated shareholders’ equity. The Company’s
shareholders’ equity will increase or decrease by the amount of the
non-controlling interest currently reported outside of equity. However, the
adoption of SFAS 160 is not expected to have a material impact on the Company’s
net income or loss.
Item
3. Quantitative and Qualitative Disclosures about Market
Risk.
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 have to deposit a portion of the funds from the initial public offering
in the United States, China and other countries where we have certificates of
deposit with original maturities more than three months. The cash has been
deposited in banks in different countries. In so doing, we are trying to control
the risk of loss.
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 flotation of the RMB resulting in appreciation of the RMB
against the U.S. dollar from RMB7.0190 to $1.00 up to RMB6.8359 to $1.00 on
March 31, 2008 and 2009, respectively. The continued increase of the exchange
rate of the RMB against the U.S. dollar has had a severe impact on our
inter-company transactions and balances. We had a foreign currency translation
gain of $130,666 but a foreign currency translation loss of $177,623 for the
nine month periods ended March 31, 2008 and 2009 respectively. Our future gain
or loss on foreign currency translation depends on the trend of RMB revaluation,
the proportion of cash and cash equivalents deposited in Sino-China and the
volume of inter-company transactions.
As we
have large cash deposits, we will balance the 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 our cash from operations and any unused
funds in the United States.
Item
4/4T. Controls and Procedures
Disclosure
Controls and Procedures
For the
purpose of improving our management efficiency and effectiveness, we started the
implementation of a new accounting and management information system using SAP
Business One software.
As of
March 31, 2009, our company carried out an evaluation, under the supervision of
and with the participation of management, including our company’s chief
executive officer and chief financial officer, of the effectiveness of the
design and operation of our company’s disclosure controls and procedures. Based
on the foregoing, the chief executive officer and chief financial officer
concluded that our company’s disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were
effective.
Changes
in Internal Control over Financial Reporting.
There
were no changes in our company’s internal control over financial reporting (as
defined in Rule 13a-15(f) of the Securities Exchange Act of 1934) during the
quarter ended March 31, 2009 or the first nine months of the 2009 fiscal year
that have materially affected, or are reasonably likely to materially affect,
our company’s internal control over financial reporting.
PART
II. OTHER INFORMATION
Item
1. Legal Proceedings
None.
Item
1A. Risk Factors.
We have
experienced the following material changes to our previously disclosed risk
factors.
Economic
conditions and the continued weakening of the global and Chinese economies could
materially adversely affect our company.
Our
operation and performance depend significantly on worldwide economic conditions
and their impact on Chinese and international shipping companies that seek to
ship materials to and from China. General economic indicators both
globally and in China have deteriorated significantly, including declining
consumer sentiment, increased unemployment and declining economic growth and
uncertainty about corporate earnings. These conditions may remain depressed for
the foreseeable future. In addition to this general economic
deterioration, fluctuations in fuel and other energy costs, access to credit,
and other macroeconomic conditions could harm demand for our shipping agency
services as our customers forego shipping agency services by attempting to
provide such services in-house. These and other economic conditions
could have a material adverse affect on our financial condition and operating
results.
Current
levels of market volatility are unprecedented and deteriorating conditions in
the global credit markets could materially adversely affect our
company.
The
capital and credit markets have been experiencing extreme volatility and
disruption for more than 12 months. In recent months, the volatility
and disruption have reached unprecedented levels. Notwithstanding
various actions by the U.S., Chinese, and other foreign governments, concerns
about the general condition of the capital markets, financial instruments,
banks, investments banks, insurers and other financial institutions have caused
the broader credit markets to continue to deteriorate. In some cases,
the markets have exerted downward pressure on stock prices and credit capacity
for certain issuers. Moreover, significant deterioration in the
financial condition of large financial institutions has resulted in a severe
loss of liquidity and availability in both Chinese and global credit markets and
in higher borrowing costs and more stringent borrowing
terms. Recessionary conditions in both the Chinese and global
economies threaten to cause further tightening of the credit markets, more
stringent lending standards and terms and higher volatility in interest
rates. Persistence of these conditions could have a material adverse
effect on our access to debt and the terms and cost of that debt.
Item
2. Unregistered
Sales of Equity Securities and Use of Proceeds
|
(b)
|
The
annual report filed on September 29, 2008 for the fiscal year ended June
30, 2008 (SEC Accession No. 0001144204-08-055056) is incorporated herein
by reference, subject to the replacement of the table under Item 5 thereof
with the following table showing the use of proceeds from our initial
public offering.
|
Description of Use
|
|
Proposed
Expenditure
Amount
|
|
|
Actual Expenditures
through
March 31, 2009
|
|
Organization
of our company and creation of contractual arrangements among our company,
Sino-China and Trans Pacific
|
|
$
|
100,000
|
|
|
$
|
103,526
|
|
Business
expansion in 15 to 35 main ports in China
|
|
|
5,930,941
|
|
|
|
372,621
|
|
Sarbanes-Oxley
compliance
|
|
|
500,000
|
|
|
|
—
|
|
Marketing
of company across China, United States and internationally
|
|
|
244,621
|
|
|
|
218,534
|
|
Develop
information exchange system
|
|
|
400,000
|
|
|
|
42,105
|
|
Train
staff
|
|
|
163,081
|
|
|
|
—
|
|
Fixed
asset purchase
|
|
|
407,702
|
|
|
|
336,007
|
|
Miscellaneous
expenses
|
|
|
407,702
|
|
|
|
233,845
|
|
Stock
repurchases
|
|
|
—
|
|
|
|
233,845
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,154,048
|
|
|
$
|
1,496,604
|
|
|
(c)
|
Our
company repurchased 14,300 shares of our common stock during the period
ended March 31, 2008 and has repurchased 75,400 shares in the aggregate
from October 9, 2008 through present, including 6,000 shares repurchased
after March 31, 2009.
|
Item
3. Defaults
Upon Senior Securities
None.
Item
4. Submission
of Matters to a Vote of Security Holders
None.
Item
5. Other
Information
None.
The
following exhibits 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 Registrant 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 Registrant, 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 Registrant and Beijing Shou Rong Forwarding
Service Co., Ltd.*
|
|
|
|
13.1
|
|
Annual
report of our company on Form 10-KSB for the year ended June 30,
2008.**
|
|
|
|
14.1
|
|
Code
of Ethics of our company.**
|
|
|
|
21.1
|
|
List
of subsidiaries of our 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 No. 333-148611.
|
|
|
**
|
Incorporated
by reference to our company’s Form 10-KSB filed on September 29, 2008,
File No. 001-34024.
|
|
|
***
|
Incorporated
by reference to our company’s Form 10-Q filed on November 4, 2008, File
No. 001-34024.
|
|
|
****
|
Filed
herewith.
|
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
SINO-GLOBAL
SHIPPING AMERICA, LTD.
|
|
|
|
|
|
|
By:
|
/s/
Zhang Mingwei
|
|
|
|
Zhang
Mingwei
|
|
|
|
Chief
Financial Officer
|
|
|
|
(Principal
Financial and Accounting Officer)
|
|
SINO-GLOBAL
SHIPPING AMERICA, LTD. AND AFFILIATE
|
|
PAGE
|
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS:
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets as of March 31, 2009 (unaudited) and June 30,
2008
|
|
F-2
|
|
|
|
Condensed
Consolidated Statements of Operations for the Nine Months Ended March 31,
2009 (unaudited) and 2008 (unaudited), and for the Three Months Ended
March 31, 2009 (unaudited) and 2008 (unaudited)
|
|
F-3
|
|
|
|
Condensed
Consolidated Statements of Cash Flows for the Nine months Ended March 31,
2009 (unaudited) and 2008 (unaudited)
|
|
F-4
|
|
|
|
Notes
to the Condensed Consolidated Financial Statements
|
|
F-5
|
SINO-GLOBAL
SHIPPING AMERICA LTD. AND AFFILIATE
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
March
31,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
US$
|
|
|
US$
|
|
|
|
(Unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
7,338,680 |
|
|
|
9,603,250 |
|
Advances
to suppliers
|
|
|
37,999 |
|
|
|
114,570 |
|
Accounts
receivable, less allowance for doubtful accounts of $2,893 as of March 31,
2009 and $48,708 as of June 30, 2008
|
|
|
2,964,554 |
|
|
|
1,265,309 |
|
Other
receivables
|
|
|
89,114 |
|
|
|
213,515 |
|
Prepaid
expenses and other current assets
|
|
|
45,340 |
|
|
|
30,455 |
|
Prepaid
income taxes
|
|
|
45,320 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
10,521,007 |
|
|
|
11,227,099 |
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
1,075,488 |
|
|
|
1,068,527 |
|
Security
deposits
|
|
|
56,853 |
|
|
|
92,188 |
|
Other
assets
|
|
|
760 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
|
11,654,108 |
|
|
|
12,387,814 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders' Equity
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Current
maturities of long-term debt
|
|
|
30,346 |
|
|
|
28,450 |
|
Advances
from customers
|
|
|
488,162 |
|
|
|
955,316 |
|
Accounts
payable
|
|
|
3,093,236 |
|
|
|
1,053,058 |
|
Accrued
expenses
|
|
|
98,027 |
|
|
|
73,023 |
|
Income
taxes payable
|
|
|
360 |
|
|
|
168,011 |
|
Other
current liabilities
|
|
|
109,215 |
|
|
|
108,531 |
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
3,819,346 |
|
|
|
2,386,389 |
|
|
|
|
|
|
|
|
|
|
Long-term
debt less current maturities
|
|
|
13,484 |
|
|
|
38,984 |
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
3,832,830 |
|
|
|
2,425,373 |
|
|
|
|
|
|
|
|
|
|
Non-Controlling
interest
|
|
|
(268,782 |
) |
|
|
260,001 |
|
Commitments
and contingency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity
|
|
|
|
|
|
|
|
|
Capital
stock
|
|
|
7,709,745 |
|
|
|
7,709,745 |
|
Additional
paid-in capital
|
|
|
1,498,033 |
|
|
|
1,498,033 |
|
Treasury
stock, at cost
|
|
|
(189,966 |
) |
|
|
- |
|
Retained
earnings
|
|
|
356,399 |
|
|
|
1,787,017 |
|
Accumulated
other comprehensive loss
|
|
|
(569 |
) |
|
|
(8,773 |
) |
Unearned
Compensation
|
|
|
(1,283,582 |
) |
|
|
(1,283,582 |
) |
|
|
|
8,090,060 |
|
|
|
9,702,440 |
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Shareholders' Equity
|
|
|
11,654,108 |
|
|
|
12,387,814 |
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
SINO-GLOBAL
SHIPPING AMERICA LTD. AND AFFILIATE
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
For
the nine months ended
|
|
|
For
the three months ended
|
|
|
|
March
31,
|
|
|
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
12,858,734 |
|
|
|
11,175,961 |
|
|
|
3,285,539 |
|
|
|
3,031,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
of revenues
|
|
|
(11,053,105 |
) |
|
|
(9,192,061 |
) |
|
|
(2,490,591 |
) |
|
|
(2,657,890 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative expense
|
|
|
(3,048,188 |
) |
|
|
(1,536,585 |
) |
|
|
(874,732 |
) |
|
|
(628,074 |
) |
Selling
expense
|
|
|
(337,977 |
) |
|
|
(139,544 |
) |
|
|
(101,289 |
) |
|
|
(45,302 |
) |
Other
income (expense)
|
|
|
(66,132 |
) |
|
|
17,192 |
|
|
|
(64,872 |
) |
|
|
17,714 |
|
|
|
|
(14,505,402 |
) |
|
|
(10,850,998 |
) |
|
|
(3,531,484 |
) |
|
|
(3,313,552 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Income (loss)
|
|
|
(1,646,668 |
) |
|
|
324,963 |
|
|
|
(245,945 |
) |
|
|
(281,780 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
income (expense), net
|
|
|
(83,679 |
) |
|
|
122,450 |
|
|
|
(9,126 |
) |
|
|
79,876 |
|
|
|
|
(83,679 |
) |
|
|
122,450 |
|
|
|
(9,126 |
) |
|
|
79,876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) before taxes (benefit)
|
|
|
(1,730,347 |
) |
|
|
447,413 |
|
|
|
(255,071 |
) |
|
|
(201,904 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
(227,768 |
) |
|
|
(50,647 |
) |
|
|
(1,472 |
) |
|
|
(19,906 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) before non-controlling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
income (loss)
|
|
|
(1,958,115 |
) |
|
|
396,766 |
|
|
|
(256,543 |
) |
|
|
(221,810 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling
interest in income (loss)
|
|
|
(527,497 |
) |
|
|
135,141 |
|
|
|
(157,504 |
) |
|
|
75,104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
|
(1,430,618 |
) |
|
|
261,625 |
|
|
|
(99,039 |
) |
|
|
(296,914 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Basic
|
|
|
(0.48 |
) |
|
|
0.15 |
|
|
|
(0.03 |
) |
|
|
(0.16 |
) |
-Diluted
|
|
|
(0.48 |
) |
|
|
0.15 |
|
|
|
(0.03 |
) |
|
|
(0.16 |
) |
Weighted
average number of shares used in computation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Basic
|
|
|
2,990,652 |
|
|
|
1,800,000 |
|
|
|
2,970,723 |
|
|
|
1,800,000 |
|
-Diluted
|
|
|
2,990,652 |
|
|
|
1,800,000 |
|
|
|
2,970,723 |
|
|
|
1,800,000 |
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
SINO-GLOBAL
SHIPPING AMERICA LTD. AND AFFILIATE
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
For
the nine months ended
|
|
|
|
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
US$
|
|
|
US$
|
|
|
|
|
|
|
|
|
Operating
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
|
(1,430,618 |
) |
|
|
261,625 |
|
Adjustment
to reconcile net income (loss) to net cash provided by
operating
|
|
|
|
|
|
|
|
|
activities
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
143,352 |
|
|
|
120,907 |
|
Non-controlling
interest in income (loss)
|
|
|
(527,497 |
) |
|
|
135,141 |
|
Provision
for doubtful accounts
|
|
|
96,674 |
|
|
|
- |
|
Changes
in assets and liabilities
|
|
|
|
|
|
|
|
|
Decrease
in advances to suppliers
|
|
|
76,571 |
|
|
|
445,165 |
|
Increase
in accounts receivable
|
|
|
(1,795,919 |
) |
|
|
(21,806 |
) |
Decrease
(Increase) in other receivables
|
|
|
124,401 |
|
|
|
(486,452 |
) |
Increase
in prepaid expense and other current assets
|
|
|
(14,885 |
) |
|
|
(48,784 |
) |
Increase
in prepaid income tax
|
|
|
(45,320 |
) |
|
|
- |
|
Decrease
in security deposits
|
|
|
35,335 |
|
|
|
- |
|
Increase
in other assets
|
|
|
(760 |
) |
|
|
- |
|
Decrease
in advances from customers
|
|
|
(467,154 |
) |
|
|
(78,630 |
) |
Increase
in accounts payable
|
|
|
2,040,178 |
|
|
|
68,254 |
|
Increase
in accrued expenses
|
|
|
25,004 |
|
|
|
1,638 |
|
Decrease
in income taxes payable
|
|
|
(167,651 |
) |
|
|
(10,312 |
) |
Increase
in other current liabilities
|
|
|
684 |
|
|
|
113,971 |
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) operating activities
|
|
|
(1,907,605 |
) |
|
|
500,717 |
|
|
|
|
|
|
|
|
|
|
Investing
Activities
|
|
|
|
|
|
|
|
|
Capital
expenditures and other additions
|
|
|
(150,313 |
) |
|
|
(297,428 |
) |
Payments
from related party
|
|
|
- |
|
|
|
1,249,722 |
|
Cash
escrow
|
|
|
- |
|
|
|
(1,250,000 |
) |
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(150,313 |
) |
|
|
(297,706 |
) |
|
|
|
|
|
|
|
|
|
Financing
Activities
|
|
|
|
|
|
|
|
|
Payments
of bank loans
|
|
|
- |
|
|
|
(45,791 |
) |
Payments
of long-term debt
|
|
|
(23,604 |
) |
|
|
- |
|
Purchase
of treasury stock
|
|
|
(189,966 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
Net
cash used in financing activities
|
|
|
(213,570 |
) |
|
|
(45,791 |
) |
|
|
|
|
|
|
|
|
|
Effect
of exchange rate fluctuations on cash and cash equivalents
|
|
|
6,918 |
|
|
|
(58,054 |
) |
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(2,264,570 |
) |
|
|
99,166 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
9,603,250 |
|
|
|
526,091 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
|
7,338,680 |
|
|
|
625,257 |
|
|
|
|
|
|
|
|
|
|
Supplemental
information
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
|
5 |
|
|
|
739 |
|
Income
taxes paid
|
|
|
392,969 |
|
|
|
79,124 |
|
The
accompanying notes are an integral part of these condensed 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 20, 2008.
The
Company formed a wholly-owned subsidiary, Sino-Global Shipping Australia Pty
Ltd. (“Sino-Global AUS”) in Perth, Australia on July 3, 2008 in order to
serve the needs of customers shipping into and out of Western Australia. The
Company established another wholly-owned subsidiary, Sino-Global Shipping (HK)
Limited ("Sino-Global HK") on September 22, 2008. Sino-Global HK will become
Sino-Global's control and management center for southern Chinese ports and will
enable the Company to extend its offering of comprehensive shipping agency
services to vessels going to and from one of the world's busiest
ports.
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, Zhoushan
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. Subsequent to March 31, 2009, the Company formed two additional
branches in Yantain and Yingkou in China. The Company provides
general shipping agency services in 76 ports in China and one port in Hong Kong.
On August 11, 2008, the Company signed an agreement with Monson Agencies
Australia (“Monson”), one of the largest shipping agency service providers in
Australia. Through Monson, the Company is able to provide general shipping
agency services to all ports in Australia. On February 20, 2009, the
Company signed a joint-venture agreement with Australia-based Rocklands
Richfield Limited ("Rocklands Richfield" or "RCI"), which provides the Company
with new opportunities to serve coal-carrying ships from Australia to China and
allows Rocklands Richfield to leverage Sino-Global's established non-state-owned
shipping agency services network in China to distribute goods domestically. As
of the date of this report, the joint-venture Company has not yet been
formed.
2. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
(a)
Basis of presentation
The
accompanying condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America (“US GAAP”). The agency relationship between the Company and Sino-China
and its branches is governed by a series of contractual arrangements pursuant to
which the Company has substantial control over Sino-China.
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 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 (loss) from operations is consolidated with the Company’s, and
the Company’s net income (loss) from continuing operations before
non-controlling interest in income (loss) 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 (loss) 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 condensed 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 as prescribed by FASB
Statement of Financial Accounting Standards 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.
(c)
Use of Estimates
The
preparation of the condensed consolidated financial statements in conformity
with US GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the dates of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Estimates
are adjusted to reflect actual experience when necessary. Significant accounting
estimates reflected in the Company’s condensed consolidated financial statements
include revenue recognition, allowance for doubtful accounts, the useful lives
of property and equipment and unearned compensation.
Since the
use of estimates is an integral component of the financial reporting process,
actual results could differ from those estimates.
(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 condensed consolidated
financial statements are presented in US dollars. Foreign currency
transactions are translated into US dollars using the fixed exchange rates in
effect at the time of the transaction. Generally foreign exchange gains and
losses resulting from the settlement of such transactions are recognized in the
consolidated statements of operations. The Company translates foreign currency
financial statements of Sino-China, Sino-Global AUS, Sino-Global HK and
Trans Pacific in accordance with Statement of Financial Accounting Standard
(“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 periods. 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, Australia,
Hong Kong and the United States. Cash balances in the United States are insured
by the Federal Deposit Insurance Corporation subject to certain
limitations.
(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:
Buildings
|
|
20
years
|
Motor
vehicles
|
|
5-10
years
|
Furniture
and office equipment
|
|
3-5
years
|
The
carrying value of a long-lived asset is considered impaired by the Company when
the anticipated undiscounted cash flows from such asset is less than its
carrying value. If impairment is identified, a loss is recognized based on the
amount by which the carrying value exceeds the fair value of the long-lived
asset. Fair value is determined primarily using the anticipated cash flows
discounted at a rate commensurate with the risk involved or based on independent
appraisals. Management has determined that there were no impairments at the
balance sheet dates.
(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 bills them on the balance within 30 days
after the transactions are completed. Revenues are recognized from shipping
agency services upon completion of services, which coincides with the date of
departure of the relevant vessel from port. Advance payments and deposits
received from customers prior to the provision of services and recognition of
the related revenues are presented as current liabilities.
Some
contracts 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. 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 December 31, 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 three months ended December 31, 2008, the Company
did not incur any interest or penalties.
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 were subject to an
enterprise income tax rate of 33% until December 31, 2007. The 5th Session of
the 10th National People’s Congress amended the Enterprise Income Tax Law of the
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.
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 additional surcharges of 0.5%. Business tax and
surcharges are paid on gross revenues generated from our shipping services minus
the costs of services which are paid on behalf of our customers.
In
addition, under the PRC regulations, Sino-China is required to pay the city
construction tax (7%) and education surcharges (3%) based on the calculated
business tax payments.
Sino-China
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.
(j)
Earnings (loss) per share
Earnings
(loss) 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.
Earnings
per share data has been retroactively adjusted for all periods presented to
reflect the recapitalization of the Company further discussed in Note
9.
(k)
Recent Accounting Pronouncements
In
April 2009, the Securities and Exchange Commission issued Staff Accounting
Bulletin (“SAB”) No. 111 (“SAB 111”). SAB 111 amends Topic 5.M. in the SAB
series entitled “Other Than Temporary Impairment of Certain Investments Debt and
Equity Securities”. On April 9, 2009, the FASB issued FASB Staff Position
(“FSP”) No. FAS 115-2 and FAS 124-2, “Recognition and Presentation of
Other-Than-Temporary Impairments”. SAB 111 maintains the previous views related
to equity securities and amends Topic 5.M. to exclude debt securities from its
scope. SAB 111 was effective for the Company as of March 31, 2009. There
was no material impact on the condensed consolidated financial position or
results of operations upon adoption.
In
April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, “Interim
Disclosures about Fair Value of Financial Instruments”. This FASB staff position
amends FASB Statement No. 107 to require disclosures about fair values of
financial instruments for interim reporting periods as well as in annual
financial statements. The staff position also amends APB Opinion No. 28 to
require those disclosures in summarized financial information at interim
reporting periods. This FASB staff position becomes effective for interim
reporting periods ending after June 15, 2009, with early adoption permitted
for periods ending after March 15, 2009. There was no material impact on
the condensed consolidated financial position or results of operations upon
adoption on April 1, 2009.
In
April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2,
“Recognition and Presentation of Other-Than-Temporary Impairments”. This FSP
amends the other-than-temporary impairment guidance in GAAP for debt securities.
If an entity determines that it has an other-than-temporary impairment on a
security, it must recognize the credit loss on the security in the income
statement. The credit loss is defined as the difference between the present
value of the cash flows expected to be collected and the amortized cost basis.
The staff position expands disclosures about other-than-temporary impairment and
requires that the annual disclosures in FASB Statement No. 115 and FSP FAS
115-1 and FAS 124-1 be made for interim reporting periods. This FSP becomes
effective for interim reporting periods ending after June 15, 2009, with
early adoption permitted for periods ending after March 15, 2009. There was
no material impact on the condensed consolidated financial position or results
of operations upon adoption on April 1, 2009.
In April
2009, the Financial Accounting Standards Board (“FASB”) issued three Staff
Positions (“FSPs”) that are intended to provide additional application guidance
and enhance disclosures about fair value measurements and impairments of
securities. FSP FAS 157-4 clarifies the objective and method of fair value
measurement even when there has been a significant decrease in market activity
for the asset being measured. FSP FAS 115-2 and FAS 124-2 establishes a new
model for measuring other-than-temporary impairments for debt securities,
including establishing criteria for when to recognize a write-down through
earnings versus other comprehensive income. FSP FAS 107-1 and APB 28-1 expands
the fair value disclosures required for all financial instruments within the
scope of SFAS No. 107, Disclosures about Fair Value of
Financial Instruments, to interim periods. All of these FSPs are
effective for us beginning April 1, 2009. We are assessing the potential impact
that the adoption of FSP FAS 157-4 and FSP FAS 115-2 and FAS 124-2 may have on
the Company’s condensed consolidated financial statements. FSP FAS 107-1 and APB
28-1 will result in increased disclosures in our interim periods.
On
January 1, 2009, SFAS No. 161, Disclosures and Derivatives
Instruments and Hedging Activities, an amendments of FASB Statements No.
133. SFAS No. 161 requires additional disclosures about the Company’s
objectives in using the derivative instruments and hedging activities, the
method of accounting for such instruments under SFAS No. 133, Accounting for Derivatives
Instruments and Hedging Activities, and its related interpretations. The
Company is currently evaluating SFAS No. 161 to determine the impact, if any, on
its condensed consolidated financial statements.
In
December 2007, the FASB issued SFAS 160, “Non-controlling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51”, which is
effective for annual periods beginning after December 15, 2008. Early adoption
is prohibited, and, accordingly, the Company has not yet adopted SFAS 160. The
objective of this Statement is to improve the relevance, comparability, and
transparency of the financial information that a reporting entity provides in
its consolidated financial statements by establishing accounting and reporting
standards for the non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. The Company is currently assessing the impact
of SFAS 160; the Company believes the adoption of this standard will have a
material effect on its consolidated shareholders’ equity. The Company’s
shareholders’ equity will increase or decrease by the amount of the
non-controlling interest currently reported outside of equity. However, the
adoption of SFAS 160 is not expected to have a material impact on the
Company’s net income or loss.
3.
OTHER RECEIVABLES / OTHER CURRENT LIABILITIES
(a) Other
Receivables
Other
receivables represent mainly amounts to be received from customers for advance
payments made to the port agent for reimbursed charges to be incurred in
connection with the costs of services and 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. 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.
5.
PROPERTY AND EQUIPMENT
Property
and equipment are as follows:
|
|
March
31,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
US$
|
|
|
US$
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Land
and building
|
|
|
72,725 |
|
|
|
72,479 |
|
Motor
vehicles
|
|
|
1,243,621 |
|
|
|
1,085,139 |
|
Computer
equipment
|
|
|
89,499 |
|
|
|
90,990 |
|
Office
equipment
|
|
|
31,188 |
|
|
|
28,188 |
|
Furniture
& Fixtures
|
|
|
19,522 |
|
|
|
19,088 |
|
System
software
|
|
|
17,683 |
|
|
|
17,623 |
|
Leasehold
improvements
|
|
|
70,565 |
|
|
|
80,983 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,544,803 |
|
|
|
1,394,490 |
|
|
|
|
|
|
|
|
|
|
Less
: Accumulated depreciation and amortization
|
|
|
469,315 |
|
|
|
325,963 |
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
1,075,488 |
|
|
|
1,068,527 |
|
Long-term
debt consists of the following:
|
|
March
31,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
US$
|
|
|
US$
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Payable
to bank, collateralized by a Company automobile, payable in
monthly
|
|
|
|
|
|
|
installments
of $2,743, including interest at 8.18% through September
2010
|
|
|
43,830 |
|
|
|
67,434 |
|
|
|
|
43,830 |
|
|
|
67,434 |
|
Less
- Current maturities
|
|
|
30,346 |
|
|
|
28,450 |
|
|
|
|
13,484 |
|
|
|
38,984 |
|
|
|
Amount
|
|
|
|
US$
|
|
|
|
|
|
Year
ending March 31,
|
|
|
|
|
|
|
|
2010
|
|
|
30,346 |
|
2011
|
|
|
13,484 |
|
Thereafter
|
|
|
- |
|
|
|
$ |
43,830 |
|
Interest
expense was approximately $3,579 for the nine months ended March 31,
2009.
7.
NON-CONTROLLING INTEREST
Non-controlling
interest consists of the following:
|
|
March
31,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
US$
|
|
|
US$
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Original
capital contribution
|
|
|
356,400 |
|
|
|
356,400 |
|
Additional
paid-in capital
|
|
|
1,044 |
|
|
|
1,044 |
|
Accumulated
other comprehensive loss
|
|
|
(28,860 |
) |
|
|
(27,572 |
) |
Accumulated
deficit
|
|
|
(600,613 |
) |
|
|
(72,688 |
) |
Other
adjustments
|
|
|
3,247 |
|
|
|
2,817 |
|
|
|
|
(268,782 |
) |
|
|
260,001 |
|
8.
COMMITMENTS AND CONTINGENCY
(a)
Office leases
The
Company leases certain office premises under operating leases. In December 2007,
the Company leased additional office premises under two leases which expired
through January 13, 2010 for approximately $317,000 per year. These two leases
were terminated in December 2008 and were replaced by a new lease which expires
in January 2010 for approximately $61,000 a year. In October and November 2008,
the Company leased four apartments for its employees which expire in November
2009 for approximately $16,000 a year. In August 2008, the Company
leased one apartment and additional office space for operating in Perth,
Australia, which expires through August 30, 2009 for $25,675 per year and August
31, 2009 for $27, 305 per year, respectively. The Company leased one office in
Zhoushan, China which expires through July 31, 2011 for $27,866 for the total
three years. In October 2008, the Company leased one office for operating in
Hong Kong, which expires through September 30, 2010 for $9,288 per year. In
November 2008, the Company leased one apartment in Hong Kong, which expires
through November 14, 2009 for $12,075 per year. Future minimum lease payments
under operating leases agreements were as follows:
|
|
Amount
|
|
|
|
US$
|
|
Year
ending March 31,
|
|
|
|
|
|
|
|
2010
|
|
|
313,360 |
|
2011
|
|
|
152,109 |
|
2012
|
|
|
5,547 |
|
Thereafter
|
|
|
- |
|
|
|
|
471,016 |
|
(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
March 31, 2009, the Company has estimated its severance payments of
approximately $84,000, which has not been reflected in its condensed
consolidated financial statements.
9.
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 consisted 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 (“IPO”) of
1,229,032 ordinary shares at $7.75 offering price and realized gross
proceeds of $10,775,000 before cash offering costs of $1,602,684. Following
the IPO, the Company announced it would repurchase up to 10% of its
outstanding common shares for a period of 12 months beginning in October 2008.
As of March 31, 2009, the Company repurchased 69,400 shares from the open market
at an average price of $2.74 per share including trading
expenses.
10.
MAJOR CUSTOMERS
For
the nine months ended March 31, 2009, approximately51% and 17% of
the Company’s revenues were from two customers. For the nine months
ended March 31, 2008, approximately 48% 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.