| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Presentation The accompanying unaudited
condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the
United States of America ("US GAAP") for interim financial information pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"). The unaudited condensed consolidated financial statements include the accounts
of all directly, indirectly owned subsidiaries and variable interest entity. All intercompany transactions and balances have been
eliminated in consolidation. Interim results are not necessarily indicative of results to be expected for the full year. The information
included in this Form 10-Q should be read in conjunction with information included in the annual report on Form 10-K for the fiscal
year ended June 30, 2019 filed on September 30, 2019. (b) Basis of Consolidation The unaudited condensed
consolidated financial statements include the accounts of the Company, its subsidiaries, and its affiliates. All significant intercompany
transactions and balances are eliminated in consolidation. Sino-Global Shipping Agency Ltd., a PRC corporation ("Sino-China"),
is considered a variable interest entity ("VIE"), with the Company as the primary beneficiary. The Company, through
Trans Pacific Shipping Ltd., entered into certain agreements with Sino-China, pursuant to which the Company receives 90% of Sino-China's
net income. The Company does not receive any payments from Sino-China unless Sino-China recognizes net income during its fiscal
year. These agreements do not entitle the Company to any consideration if Sino-China incurs a net loss during its fiscal year. As a VIE, Sino-China's
revenues are included in the Company's total revenues, and any loss from operations is consolidated with that of the Company.
Because of contractual arrangements between the Company and Sino-China, the Company has a pecuniary interest in Sino-China that
requires consolidation of the financial statements of the Company and Sino-China. The Company has consolidated
Sino-China's operating results because the entities are under common control in accordance with Accounting Standards Codification ("ASC")
805-10, "Business Combinations". The agency relationship between the Company and Sino-China and its branches is governed
by a series of contractual arrangements pursuant to which the Company has substantial control over Sino-China. Management makes
ongoing reassessments of whether the Company remains the primary beneficiary of Sino-China. The carrying amount
and classification of Sino-China's assets and liabilities included in the Company's unaudited condensed consolidated
balance sheets were as follows:
September 30, June 30,
2019 2019
Current assets $ 45,828 $ 16,474
Deposits 1,589 1,655
Property and equipment, net 50,708 95,765
Total assets $ 98,125 $ 113,894
Current liabilities:
Other payables and accrued liabilities $ 29,908 $ 30,175
Total liabilities $ 29,908 $ 30,175 (c) Fair Value of Financial Instruments The Company follows
the provisions of ASC 820, Fair Value Measurements and Disclosures, which clarifies the definition of fair value, prescribes methods
for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows: Level 1 — Observable
inputs such as unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date. Level 2 — Inputs
other than quoted prices that are observable for the asset or liability in active markets, quoted prices for identical or similar
assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived
from or corroborated by observable market data. Level 3 — Unobservable
inputs that reflect management's assumptions based on the best available information. The carrying value
of accounts receivable, other receivables, other current assets, and current liabilities approximate their fair values because
of the short-term nature of these instruments. (d) Use of Estimates and Assumptions The preparation of
the Company's unaudited condensed consolidated financial statements in conformity with US GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Estimates
are adjusted to reflect actual experience when necessary. Significant accounting estimates reflected in the Company's unaudited
condensed consolidated financial statements include revenue recognition, fair value of stock based compensation, cost of revenues,
allowance for doubtful accounts, impairment loss, deferred income taxes, income tax expense and the useful lives of property and
equipment. Since the use of estimates is an integral component of the financial reporting process, actual results could differ
from those estimates. (e) Translation of Foreign Currency The accounts of the
Company and its subsidiaries, including Sino-China and each of its branches are measured using the currency of the primary economic
environment in which the entity operates (the "functional currency"). The Company's functional currency is the
U.S. dollar ("USD") while its subsidiaries in the PRC, including Sino-China, report their financial positions and results
of operations in Renminbi ("RMB"). The accompanying unaudited condensed consolidated financial statements are presented
in USD. Foreign currency transactions are translated into USD using the fixed exchange rates in effect at the time of the transaction.
Generally, foreign exchange gains and losses resulting from the settlement of such transactions are recognized in the consolidated
statements of operations. The Company translates the foreign currency financial statements of Sino-China, Sino-Global Shipping
Australia Pty Ltd. The exchange rates
as of September 30, 2019 and June 30, 2019 and for the three months ended September 30, 2019 and 2018 are as follows:
September 30, June 30, Three Months ended
Foreign currency Balance Balance 2019 Profits/Loss 2018 Profits/Loss
RMB:1USD 7.1489 6.8657 7.0146 6.8027
AUD:1USD 1.4823 1.4238 1.4592 1.3678
HKD:1USD 7.8402 7.8130 7.8300 7.8452
CAD:1USD 1.3242 1.3092 1.3200 1.3069 (f) Cash Cash consists of cash
on hand and other highly liquid investments which are unrestricted as to withdrawal or use, and which have an original maturity
of three months or less when purchased. The Company maintains cash with various financial institutions mainly in the PRC, Australia,
Hong Kong, Canada and the U.S. As of September 30, 2019 and June 30, 2019, cash balances of $97,219 and $2,993,913, respectively,
were maintained at financial institutions in the PRC. $27,278 and $2,923,972 of these balances are not covered by insurance as
the deposit insurance system in China only insured each depositor at one bank for a maximum of approximately $70,000 (RMB 500,000).
As of September 30, 2019 and June 30, 2019, a cash balance of $40,746 and $122,017, respectively, were maintained at U.S. financial
institutions, and were insured by the Federal Deposit Insurance Corporation or other programs subject to certain limitations. The
Hong Kong Deposit Protection Board pays compensation up to a limit of HKD $500,000 (approximately $64,000) if the bank with which
an individual/a company holds its eligible deposit fails. As of September 30, 2019 and June 30, 2019, a cash balance of $1,111
and $4,384, respectively, were maintained at financial institutions in Hong Kong and were insured by the Hong Kong Deposit Protection
Board. (g) Notes receivable Notes receivable represents
trade accounts receivable due from various customers where the customers' banks have guaranteed the payment. The notes are
non-interest bearing and normally paid within three to six months. The Company has the ability to submit request for payment to
the customer's bank earlier than the scheduled payment date, but will incur an interest charge and a processing fee. (h) Receivables and Allowance for Doubtful
Accounts Accounts receivable
are presented at net realizable value. The Company maintains allowances for doubtful accounts and for estimated losses. The Company
reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability
of individual receivable balances. In evaluating the collectability of individual receivable balances, the Company considers many
factors, including the age of the balances, customers' historical payment history, their current credit-worthiness and current
economic trends. Receivables are generally considered past due after 180 days. The Company reserves 25%-50% of the customers balance
aged between 181 days to 1 year, 50%-100% of the customers balance over 1 year and 100% of the customers balance over 2 years.
Accounts receivable are written off against the allowances only after exhaustive collection efforts or over three years whichever
comes earlier. Other receivables represent
mainly customer advances, prepaid employee insurance and welfare benefits, which will be subsequently deducted from the employee
payroll, guarantee deposits on behalf of ship owners as well as office lease deposits. Management reviews its receivables on a
regular basis to determine if the bad debt allowance is adequate, and adjusts the allowance when necessary. Delinquent account
balances are written-off against allowance for doubtful accounts after management has determined that the likelihood of collection
is not probable. Other receivables are written off against the allowances only after exhaustive collection efforts. For the three
months ended September 30, 2019 and 2018, the Company wrote off $1,763 and nil of other receivables, respectively. (i) Property and Equipment, net Net property and equipment
are stated at historical cost less accumulated depreciation. Historical cost comprises its purchase price and any directly attributable
costs of bringing the assets to its working condition and location for its intended use. Depreciation is calculated on a straight-line
basis over the following estimated useful lives:
Buildings 20 years
Motor vehicles 3-10 years
Computer and office equipment 1-5 years
Furniture and fixtures 3-5 years
System software 5 years
Leasehold improvements Shorter of lease term or useful lives The carrying value
of a long-lived asset is considered impaired by the Company when the anticipated undiscounted cash flows from such asset is less
than its carrying value. If impairment is identified, a loss is recognized based on the amount by which the carrying value exceeds
the fair value of the long-lived asset. Fair value is determined primarily using the anticipated cash flows discounted at a rate
commensurate with the risk involved or based on independent appraisals. For the three months ended September 30, 2019 and 2018,
an impairment of $127,177 and nil were recorded, respectively. (j) Intangible Assets, net Intangible assets are
recorded at cost less accumulated amortization. Amortization is calculated on a straight-line basis over the following estimated
useful lives:
Logistics platform 3 years The Company evaluates
intangible assets for impairment whenever events or changes in circumstances indicate that the assets might be impaired. For
the three months ended September 30, 2019 and 2018, an impairment of $200,455 and nil were recorded, respectively. (k) Revenue Recognition The Company recognizes
revenue which represents the transfer of goods and services to customers in an amount that reflects the consideration to which
the Company expects to be entitled in such exchange. The Company identifies contractual performance obligations and determines
whether revenue should be recognized at a point in time or over time, based on when control of goods and services transfers to
a customer. The Company's revenue streams are recognized at a point in time. The Company uses a
five-step model to recognize revenue from customer contracts. The five-step model requires that the Company (i) identify the contract
with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including
variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction
price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the
performance obligation. The Company continues
to derive its revenues from sales contracts with its customers with revenues being recognized upon performance of services. Persuasive
evidence of an arrangement is demonstrated via sales contract and invoice; and the sales price to the customer is fixed upon acceptance
of the sales contract and there is no separate sales rebate, discount, or other incentive. The Company's revenues are
recognized at a point in time after all performance obligations are satisfied. As of September 30,
2019, the Company had outstanding contracts amounting to approximately $2.4 million, all of which is expected to be completed within
9 months from September 30, 2019. Revenues by segments:
For the Three Months Ended
September 30, September 30,
2019 2018
Shipping and management agency services $ 500,000 $ -
Inland transportation management services - 920,000
Freight logistics services 1,242,142 5,487,553
Container trucking services 44,084 91,980
Total $ 1,786,226 $ 6,499,533
●
Revenues from shipping and management agency
services are recognized upon completion of services, which coincides with the date of departure of the relevant vessel from port.
Advance payments and deposits received from customers prior to the provision of services and recognition of the related revenues
are presented as advances from customers.
● Revenues from inland transportation management services are recognized when commodities are being released from the customers' warehouse.
●
Revenues from freight logistics services
are recognized when the related contractual services are rendered. For certain freight logistic contracts
that the Company entered into with customer in first quarter of fiscal year 2020, the Company (i) acts as an agent in arranging
the relationship between the customer and the third-party service provider and (ii) does not control the services rendered to the
customers, revenues related to this contracts are presented net of related costs. Gross revenue and gross cost of revenue related
to these contracts amounted to approximately $9.1 million and $8.5 million, respectively.
● Revenues from container trucking services are recognized when the related contractual services are rendered. (l) Taxation Because the Company
and its subsidiaries and Sino-China were incorporated in different jurisdictions, they file separate income tax returns. The Company
uses the asset and 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. A valuation allowance is provided against deferred tax assets if it is more likely than
not that the asset will not be utilized in the future. The Company recognizes
the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination
by the taxing authorities, based on the technical merits of the position. The Company recognizes interest and penalties, if any,
related to unrecognized tax benefits as income tax expense. The Company had no uncertain tax positions as of September 30, 2019
and June 30, 2019, respectively. Income tax returns
for the years prior to 2015 are no longer subject to examination by US tax authorities. PRC Enterprise Income Tax PRC enterprise income
tax is calculated based on taxable income determined under the PRC Generally Accepted Accounting Principles ("PRC GAAP")
at 25%. Sino-China and Trans Pacific are registered in PRC and governed by the Enterprise Income Tax Laws of the PRC. PRC Business Tax and Surcharges Revenues from services
provided by the Company's PRC subsidiaries and affiliates, including Sino-China and Trans Pacific are subject to the PRC
business tax of 5%. Business tax and surcharges are paid on gross revenues generated from shipping agency services minus the costs
of services which are paid on behalf of the customers. In addition, under
the PRC regulations, the Company's PRC subsidiaries and affiliates are required to pay the city construction tax (7%) and
education surcharges (3%) based on the calculated business tax payments. The Company's
PRC subsidiaries and affiliates report revenues net of PRC's business tax and surcharges for all the periods presented in
the accompanying condensed consolidated statements of operations. (m) Earnings (loss) per Share Basic earnings (loss)
per share is computed by dividing net income (loss) attributable to holders of common shares of the Company by the weighted average
number of common shares of the Company outstanding during the applicable period. Diluted earnings (loss) per share reflect the
potential dilution that could occur if securities or other contracts to issue common shares of the Company were exercised or converted
into common shares of the Company. Common share equivalents are excluded from the computation of diluted earnings per share if
their effects would be anti-dilutive. For the three months
ended September 30, 2019 and 2018 there was no dilutive effect of potential shares of common stock of the Company because the Company
generated a net loss. (n) Comprehensive Income (Loss) The Company reports
comprehensive income (loss) in accordance with the authoritative guidance issued by Financial Accounting Standards Board (the "FASB")
which establishes standards for reporting comprehensive income (loss) and its component in financial statements. Other comprehensive
income (loss) refers to revenue, expenses, gains and losses that under US GAAP are recorded as an element of Stockholders'
equity but are excluded from net income. Other comprehensive income (loss) consists of a foreign currency translation adjustment
resulting from the Company not using the U.S. dollar as its functional currencies. (o) Stock-based Compensation The Company accounts
for stock-based compensation awards to employees in accordance with FASB ASC Topic 718, "Compensation – Stock Compensation",
which requires that stock-based payment transactions with employees be measured based on the grant-date fair value of the equity
instrument issued and recognized as compensation expense over the requisite service period. The Company records stock-based compensation
expense at fair value on the grant date and recognizes the expense over the employee's requisite service period. The Company accounts
for stock-based compensation awards to non-employees in accordance with FASB ASC Topic 718 and FASB ASC Subtopic 505-50, "Equity-Based
Payments to Non-employees". Under FASB ASC Topic 718 and FASB ASC Subtopic 505-50, stock compensation granted to non-employees
has been determined as the fair value of the consideration received or the fair value of equity instrument issued, whichever is
more reliably measured and is recognized as an expense as the goods or services are received. Valuations of stock
based compensation are based upon highly subjective assumptions about the future, including stock price volatility and exercise
patterns. The fair value of share-based payment awards was estimated using the Black-Scholes option pricing model. Expected volatilities
are based on the historical volatility of the Company's stock. The Company uses historical data to estimate option exercise
and employee terminations. The expected term of options granted represents the period of time that options granted are expected
to be outstanding. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve
in effect at the time of the grant. (p) Risks and Uncertainties The Company's
business, financial position and results of operations may be influenced by the political, economic, and legal environments in
the PRC, as well as by the general state of the PRC economy. The Company's operations in the PRC are subject to special considerations
and significant risks not typically associated with companies in North America and Western Europe. These include risks associated
with, among others, the political, economic and legal environments and foreign currency exchange. The Company's results may
be adversely affected by changes in the political, regulatory and social conditions in the PRC, and by changes in governmental
policies or interpretations with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances
abroad, and rates and methods of taxation, among other things. (q) Liquidity In assessing the Company's
liquidity, the Company monitors and analyzes its cash on-hand and its operating and capital expenditure commitments. The Company's
liquidity needs are to meet its working capital requirements, operating expenses and capital expenditure obligations. As of September
30, 2019, the Company's working capital was approximately $9.4 million and the Company had cash of approximately $0.1 million.
The Company plans to fund continuing operations through identifying new prospective joint venture partners and strategic alliance
opportunities for new revenue sources, and by reducing costs to improve profitability and replenish working capital. Although the
Company believes that it can realize its current assets in the normal course of business, the Company's ability to fulfill
its current obligations will depend on the future realization of its current assets and the future revenues generated from its
operations. The Company expects
to realize the balance of its current assets within the normal operating cycle of a twelve month period. If the Company is unable
to realize its current assets within the normal operating cycle of a twelve month period, the Company may have to consider supplementing
its available sources of funds through the following sources:
● the Company will continuously seek
equity financing to support its working capital; On November 13, 2019, the Company entered into a cooperation agreement with
Shanming Liang, a director of Guangxi Jinqiao Industrial Group Co., Ltd., to cooperate and expand the bulk cargo container
services business. Shanming Liang agreed to purchase 1,000,000 shares of the Company's common stock at a purchase price
of $1.00 per share for aggregate proceeds of $1.0 million. The Company and Mr. Liang further entered into a Share Purchase Agreement on November 14, 2019 to
lay out the details of the transaction aforementioned.
● other available sources of financing from PRC banks and other financial institutions; and
● financial support and credit guarantee commitments from the Company's shareholders and directors. Based on the above
considerations, the Company's management is of the opinion that it has sufficient funds to meet the Company's working
capital requirements and current liabilities as they become due one year from issuance of these financial statements. However,
there is no assurance that management will be successful in their plans. There are a number of factors that could potentially arise
that could undermine the Company's plans, such as changes in the PRC government policy, economic conditions, and competitive
pricing in the industries that the Company operates in. If management is unable to execute this plan, there would likely be a material
adverse effect on the Company's business. All of these factors raise substantial doubt about the ability of the Company to
continue as a going concern. (r) Recent Accounting Pronouncements Pronouncements adopted In February
2016, the FASB issued Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842), to increase the transparency
and comparability about leases among entities. The new guidance requires lessees to recognize a lease liability and a corresponding
lease asset for virtually all lease contracts. It also requires additional disclosures about leasing arrangements. ASU 2016-02
is effective for interim and annual periods beginning after December 15, 2018, and requires a modified retrospective approach
to adoption assuming the Company will remain an emerging growth company at that date. Early adoption is permitted. In September
2017, the FASB issued ASU No. 2017-13, which to clarify effective dates that public business entities and other entities were
required to adopt ASC Topic 842 for annual reporting. A public business entity that otherwise would not meet the definition of
a public business entity except for a requirement to include or the inclusion of its financial statements or financial information
in another entity's filing with the SEC adopting ASC Topic 842 for annual reporting periods beginning after December 15,
2019, and interim reporting periods within annual reporting periods beginning after December 15, 2020. ASU No. 2017-13
also amended that all components of a leveraged lease be recalculated from inception of the lease based on the revised after tax
cash flows arising from the change in the tax law, including revised tax rates. The difference between the amounts originally recorded
and the recalculated amounts must be included in income of the year in which the tax law is enacted. The Company adopted this ASU
in the first quarter of fiscal year 2020 using modified retrospective transition approach at the beginning of the period of adoption.
The Company recognized lease labilities of approximately $0.4 million, with corresponding right-of use ("ROU") assets
of approximately the same amount based on the present value of the future minimum rental payments of leases, using a weighted average
discount rate of approximately 8.98%. On July 1, 2019, the
Company adopted ASU 2018-07 where awards to nonemployees are measured by estimating the fair value of the equity instruments to
be issued. The ASU is required to be applied on a prospective basis to all new awards granted after the date of adoption. On July 13, 2017,
the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives
and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features and II. Replacement of the
Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily
Redeemable Noncontrolling Interests with a Scope Exception. Part I applies to entities that issue financial instruments such
as warrants, convertible debt or convertible preferred stock that contain down round features. Part II does not have
accounting impact. The ASU is effective for the Company for annual and interim reporting periods beginning July 1, 2019.
The Company adopted this ASU on July 1, 2019 and determined the adoption of this ASU did not have a material effect on the
Company's unaudited condensed consolidated financial statements. Pronouncements not yet adopted In August 2018, the
FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements
for Fair Value Measurement" ("ASU 2018-13"). ASU 2018-13 removes, modifies and adds certain disclosure requirements
in Topic 820 "Fair Value Measurement". ASU 2018-13 eliminates certain disclosures related to transfers and the valuations
process, modifies disclosures for investments that are valued based on net asset value, clarifies the measurement uncertainty disclosure,
and requires additional disclosures for Level 3 fair value measurements. ASU 2018-13 is effective for the Company for annual and
interim reporting periods beginning July 1, 2020. The Company does not believe the adoption of this ASU will have a material
effect on the Company's unaudited condensed consolidated financial statements. In May 2019, the FASB
issued ASU 2019-05, which is an update to ASU Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement
of Credit Losses on Financial Instruments, which introduced the expected credit losses methodology for the measurement of credit
losses on financial assets measured at amortized cost basis, replacing the previous incurred loss methodology. The amendments in
Update 2016-13 added Topic 326, Financial Instruments—Credit Losses, and made several consequential amendments to the Codification.
Update 2016-13 also modified the accounting for available-for-sale debt securities, which must be individually assessed for credit
losses when fair value is less than the amortized cost basis, in accordance with Subtopic 326-30, Financial Instruments—
Credit Losses—Available-for-Sale Debt Securities. The amendments in this ASU address those stakeholders' concerns by
providing an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost
basis. For those entities, the targeted transition relief will increase comparability of financial statement information by providing
an option to align measurement methodologies for similar financial assets. Furthermore, the targeted transition relief also may
reduce the costs for some entities to comply with the amendments in Update 2016-13 while still providing financial statement users
with decision-useful information. ASU 2019-05 is effective for the Company for annual and interim reporting periods beginning July
1, 2020. The Company is currently evaluating the impact of this new standard on its unaudited condensed consolidated financial
statements and related disclosures. The Company does not
believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on
the Company's unaudited condensed consolidated financial statements. (t) Reclassification Certain prior year
amounts have been reclassified to conform to the current year presentation mainly reclassifying advance to suppliers to other receivables
(see Note 4 and 5). These reclassifications have no effect on the reported revenues, net loss or total assets. |
