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EX-31.1 - Sino-Global Shipping America, Ltd.v197600_ex31-1.htm
EX-32.2 - Sino-Global Shipping America, Ltd.v197600_ex32-2.htm
EX-31.2 - Sino-Global Shipping America, Ltd.v197600_ex31-2.htm
EX-32.1 - Sino-Global Shipping America, Ltd.v197600_ex32-1.htm
 
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-K

 
x
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
     
   
For the fiscal year ended June 30, 2010
 
Commission File Number 001-34024

Sino-Global Shipping America, Ltd.
 
(Exact name of registrant as specified in its charter)

Virginia
11-3588546
(State or other jurisdiction of
(I.R.S. employer
incorporation or organization)
identification number)

136-56 39th Avenue,
Room #305
Flushing, NY 11354
(Address of principal executive offices and zip code)
 
(718) 888-1814
(Registrant’s telephone number, including area code)

Securities registered under Section 12(b) of the Exchange Act:

Title of each class
Name of each exchange on which registered
Common Stock, without par value per share
NASDAQ Capital Market

Securities registered under Section 12(g) of the Exchange Act:
None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes ¨ No x

Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x   No ¨

Indicate by check mark if there is disclosure of delinquent filers in response to Item 405 of Regulation S-K contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
 
¨
  
Accelerated filer
 
¨
       
Non-accelerated filer
 
¨  (Do not check if a smaller reporting company)
  
Smaller reporting company
 
x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ¨    No  x

Indicate 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 (§232.45 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  ¨    No  ¨    N/A  x  The registrant is a smaller reporting company.

The aggregate market value of the shares of common stock, without par value (“Common Stock”), of the registrant held by non-affiliates on December 31, 2009 was approximately $5,027,864, based on the closing sales price of $3.31 per share, as reported on the NASDAQ Capital Market, multiplied by the number of outstanding shares held by non-affiliates on that date (1,518,992 shares).

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

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the following document are incorporated by reference into Parts I, II and III of this Form 10-K:  the Definitive Proxy Statement for the Registrant’s 2010 Annual Meeting of Stockholders which will be filed with the Securities and Exchange Commission within 120 days after the end of the Registrant’s fiscal year (the “Proxy”); and the registration statements filed with the Commission on January 11 and May 12, 2008, as amended (file nos. 333-150858 and 333-148611) (the “Registration Statements”) and prospectus filed pursuant to Rule 424(b)(3) of the Securities Act of 1933 (the “Securities Act”) on May 21, 2008 (the “IPO Prospectus”).

 
 

 

SINO-GLOBAL SHIPPING AMERICA, LTD.
FORM 10-K

INDEX

PART I   1
Item 1.
Business.
1
Item 1A.
Risk Factors.
6
Item 1B.
Unresolved Staff Comments.
6
Item 2.
Properties.
6
Item 3.
Legal Proceedings.
7
PART II
 
8
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
8
Item 6.
Selected Financial Data
9
Item 7.
Management’s Discussion and Analysis or Plan of Operation.
9
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk.
18
Item 8.
Financial Statements and Supplementary Data.
18
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
18
Item 9A.
Controls and Procedures
18
Item 9B.
Other Information.
19
PART III     
 
20
Item 10.
Directors, Executive Officers and Corporate Governance.
20
Item 11.
Executive Compensation.
20
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
21
Item 13.
Certain Relationships and Related Transactions, and Director Independence.
21
Item 14.
Principal Accountant Fees and Services.
21
Item 15.
Exhibits, Financial Statement Schedules.
22
 
 
i

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This document contains certain statements of a forward-looking nature. Such forward-looking statements, including but not limited to projected growth, trends and strategies, future operating and financial results, financial expectations and current business indicators are based upon current information and expectations and are subject to change based on factors beyond the control of the Company. Forward-looking statements typically are identified by the use of terms such as “look,” “may,” “will,” “should,” “might,” “believe,” “plan,” “expect,” “anticipate,” “estimate” and similar words, although some forward-looking statements are expressed differently. The accuracy of such statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, including but not limited to the following:

·
the ability to timely and accurately provide shipping agency services;
·
its dependence on a limited number of larger customers;
·
political and economic factors in the People’s Republic of China (“PRC”);
·
the Company’s ability to expand and grow its lines of business;
·
unanticipated changes in general market conditions or other factors, which may result in cancellations or reductions in need for the Company’s services;
·
a weakening of economic conditions which would reduce demand for services provided by the Company and could adversely affect profitability;
·
the effect of terrorist acts, or the threat thereof, on consumer confidence and spending, or the production and distribution of product and raw materials which could, as a result, adversely affect the Company’s shipping agency services, operations and financial performance;
·
the acceptance in the marketplace of the Company’s new lines of services;
·
foreign currency exchange rate fluctuations;
·
hurricanes or other natural disasters;
·
the Company’s ability to identify and successfully execute cost control initiatives;
·
the impact of quotas, tariffs, or safeguards on the importation or exportation of the Company’s customer’s products; or
·
other risks outlined above and in the Company’s other filings made periodically by the Company.
·
the Company’s ability to attract, retain and motivate skilled personnel to serve the Company.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to update this forward-looking information. Nonetheless, the Company reserves the right to make such updates from time to time by press release, periodic report or other method of public disclosure without the need for specific reference to this Report. No such update shall be deemed to indicate that other statements not addressed by such update remain correct or create an obligation to provide any other updates.

 
ii

 
 
PART I
 
Item 1.
Business.
 
General

We are a major shipping agency service provider in China, with operating headquarters in Beijing and branches in Ningbo, Qingdao, Tianjin, Qinhuangdao, Fangchenggang, Yantai, Yingkou and Zhoushan, China. We also have offices in the United States in Flushing, New York, Perth, Australia and Hong Kong. Through these offices, we are able to coordinate our clients’ shipping needs, including preparing documents, husbanding vessels, working through customs issues, coordinating matters with port authorities, overseeing and settling cargo claims, tracking shipments, recommending trucking, warehousing and complementary services.

We act as a local agent and attend vessels directly in each of the ports in which we have branch offices. In addition to these ports, we have contracting offices at all other commercial ports in China as a professional general/protecting agency. In the ports in which we do not yet have an office, we appoint a local agent to attend the vessels directly.

We have designed our services to simplify the shipping process for our clients and to keep our clients fully informed about the status of their shipments. To that end, we analyze the information about prospective shipments provided by our clients to determine the most economical and efficient transportation solutions and then leverage our position as a shipping agency to negotiate competitive shipping rates. We also give our clients daily disbursement reports to empower them to monitor and dispute all questionable charges. In addition to allowing clients to monitor disbursements, our Disbursement Department audits all bills provided by ports for unreasonable charges that violate the guidelines issued by China’s Ministry of Communications.

We provide shipping agency services to a variety of vessel sizes and types, including Handysize, Panamax, Capesize, Handysize, Roll-On/Roll-Off RORO, and VLCC class vessels. We have assisted clients with a variety of shipping requirements, including bulk and break-bulk general cargo, vehicle transport and raw materials such as crude oil and oil products and iron, manganese and other metal ores.

Market Background

Since China adopted its open door trade policy in 1978, inviting foreign investment in China, China’s economy has steadily developed, both from new investments in China and from increased international trade. As international trade between China and other countries has expanded, the shipping industry in China has also grown.

The evolution of the shipping agency industry has followed that of the shipping industry in general. Prior to the 1980s, China’s shipping agency industry was dominated by a single state-owned shipping agency, Penavico. In 1985, a second shipping agency, Sinoagent, was permitted to provide shipping agency services in China.

Since 1985, the PRC has taken a number of steps to open China’s shipping agency industry to private companies. In 1990, the PRC adopted the International Ship Agency Management and Stipulation, which allowed state-owned companies to compete in the shipping agency industry. In 2002, the PRC further relaxed the restrictions on shipping agencies by promulgating the People’s Republic of China International Marine Transportation Rule, which permitted Chinese private entities and joint ventures between Chinese and foreign entities to compete in the shipping agency industry. The Chinese and American Marine Transportation Agreement in 2003 and the New Round Chinese and European Union Marine Transportation Agreement in 2002 allowed shipping transportation enterprises that were wholly owned by American and European Union businesses, respectively, to provide shipping agency service for their parent companies.

We believe that there are approximately 1,400 licensed shipping agencies in China. At present, Penavico and Sinoagent still dominate China’s shipping agency industry, combining to generate approximately 85% of the revenues in the industry. The remaining approved shipping agencies in operation share the remaining 15% of revenues in the industry.

 
1

 

China’s Economic Development

China’s population of approximately 1.3 billion people is expected to grow by roughly 15 million people per year. The country’s gross national product has grown at a rate of approximately 10 percent for 25 years, making it the fastest growth rate for a major economy in recorded history. In the same 25-year period, China has moved more than 300 million people out of poverty and quadrupled the average Chinese person’s income. The tremendous potential of this market is noted by the fact that 400 of the world’s largest 500 companies are investing in China.

These development factors have produced a burgeoning consumer goods market, as the spending power and aspirations of consumers rise. In response, industries are consolidating and modern retailers are penetrating second-tier and even some third-tier Chinese cities. The increased availability of and demand for products throughout China has fueled a corresponding growth in the industries that transport goods within China and between China and other countries.

Our Strategy

Our goals are to increase our market share in the PRC shipping agency market and to expand our business to related service areas. We believe we can meet these goals by continuing to focus on the high quality of our personnel, the positive relationships we enjoy with local ports, businesses and agencies and the breadth of services we offer to clients. Key elements of our strategy include the following:

•   Increase our market share. We believe we have advantages over smaller shipping agencies in terms of infrastructure, administration and services we can offer to clients. As a result, we believe we are able to compete on the basis of service with these smaller agencies. In order to continue to increase our market share in China, we will focus on demonstrating to potential clients that typically use the larger shipping agents that we are able to provide a high level of service. Potential customers in the shipping industry are strongly influenced by formal and informal references. We believe that we have the opportunity to expand our market share by providing high levels of customer satisfaction with our current customers so that they continue to use our services and recommend our shipping agency services to other potential customers that wish to ship to China. We have obtained ISO9000 and UKAS certifications from the International Organization for Standardization and the United Kingdom Accreditation Service, respectively, in recognition of the quality of services we provide. Each of these organizations assesses the effectiveness of quality management systems implemented by companies. The International Organization for Standardization consists of a worldwide federation of national standards bodies for approximately 130 countries, and the ISO9000 certification represents an international consensus of these standards bodies, with the aim of creating global standards of product and service quality. UKAS is the sole national body in the United Kingdom recognized by the government to provide accreditation of conformity assessment bodies. UKAS and ISO9000 certifications address the quality of systems only and do not certify the quality of products or services themselves.

•   Establish local branches in additional ports in China. We currently maintain branch offices in eight cities in China: Ningbo, Qingdao, Tianjin, Qinhuangdao, Fangchenggang, Yantai, Yingkou and Zhoushan. By having offices in each of these cities, we are able to provide local agency services to our customers who use the commercial ports in these cities. We have found a number of benefits of being able to serve as local agents, including the following advantages:

 
o
We can avoid appointing local agents, which allows us to control the high level of service provided to our customers;
 
o
We can develop strong relationships with local authorities, which allows us to stay abreast of developments in local ports and to make sure our customers have as many advantages possible in working through any complications;
 
o
We can maximize profit for our company by not needing to pay third party shipping agents to serve as local agents for our customers;
 
o
We avoid losing customers to the companies we appoint as local agents or to other competitors that may be able to provide local agent services; and
 
o
We may save our customers money by avoiding duplicative layers of administration.

    React quickly to opportunities to offer new services to our clients. We believe that our company is currently small enough to have close working relationships with our customers. As a result, we believe we encourage our customers to raise any concerns, comments or recommendations for additional services that they would like to see provided with our shipping agency services. We also believe that we are large enough to implement many of these recommendations and strive to offer new services when we feel that the services will benefit our customers.
 
2

 
•   Maintain working relationships with third parties in port cities. We currently enjoy good working relationships with a variety of entities that operate in commercial ports, including port authorities, tugboat companies, pilot stations, stevedore companies, customs agencies, shipping agency associations and local government authorities. By increasing the number of ports at which we have branch offices, we believe we can develop positive working relationships in additional port cities for the benefit of our customers. Because success in shepherding shipments through China’s ports may be affected by personal relationships with local personnel, we believe that strong personal relationships in local ports may enable us to enjoy higher loading and discharging rates and decreased port stay periods than if we did not have positive personal relationships in those ports.

•   Increase profile of United States operations. Our office in New York currently handles our accounting and marketing. We plan to leverage our presence in the United States to increase the services we are able to offer to our customers, including shipments to and from the United States and English-language customer services from native speakers.

Customers

We currently provide shipping agency services to a variety of international vessels. The majority of our customers are international shipping companies that wish to ship goods to and from China. While one customer accounts for the majority of our revenues, we provide services to a variety of shipping companies.

Our largest customer is Beijing Shou-Rong Forwarding Service Co., Ltd, an affiliate of Capital Steel, a steel company in China. We provide shipping agency services for all vessels carrying iron ore for Capital Steel. Revenues from this company accounted for approximately 64% of our revenues in 2010 and 55% of our revenues in 2009.

In addition to these companies, we provide shipping agency services to a variety of shipping companies from Greece, Italy, Hong Kong, Australia, Switzerland, the United States, Thailand and South Korea. We have provided shipping agencies services for vessels carrying bulk and break-bulk cargoes, raw materials, consumer goods, and vehicles.

Our Strengths

We believe that the following strengths differentiate us from our competitors in China’s shipping agency industry:

•   Presence in all of Chinas commercial ports. China currently has 76 commercial ports. Currently, Penavico and Sinoagent are the only shipping agencies that have agents in all of China’s ports. We have set up branches in eight ports and have contractual agents in the rest and aim at establishing our network in all China ports to compete with the two giants.

•   Strength of personnel and administration. Most of our employees have marine business working experience, and all of our managers/chief operators once served in either Penavico or Sinoagent prior to joining our company. With these professionals and experienced staff, we believe that we can provide competitive services to our customers.

•   Reputation for reliability and responsiveness to customer requests. Our operators are constantly on duty so that we can respond quickly to any customer’s inquiries regardless of any time difference between our customers and us. Our marketing staff also pays regular visits to customers so that we can continually improve our services in response to customer feedback.

•   Reputation for financial responsibility. In order to engage in business in China as a shipping agency, we must demonstrate financial responsibility to customers, our business partners, ports and local governmental agencies. We believe our ability to meet our financial obligations has encouraged customers to choose to do business with us and has resulted in the growth of a strong network of service partners in the 76 ports in which we provide shipping agency services.

•   Strength of information management system. We consistently collect and update port information from local ports so that we can share current and accurate port information with our clients through our network.

 
3

 

•   Quality of services provided to customers. Unlike agencies that provide local agent services in one particular port, we provide our customers with both general agent and local agent services in all of China’s commercial ports. Our general agent services provide our customers with accurate port information, which helps our customers make their way smoothly through loading and discharging cargo. Our local agent services have generally resulted in shorter port stays and faster working rates for our customers’ ships, reducing their overall port charges.

•   Positive relationships with third parties in local ports. In local ports, we maintain positive relationships with stevedore companies, pilot stations, towage companies and other local service providers, which helps our customers enjoy faster loading and discharging rates and a smoother berthing and unberthing process.

•   Strong network of local shipping agents in ports without branch offices. In addition to having branch offices in five major Chinese commercial ports, we also have a strong network of other shipping agents. Using feedback from customers and our knowledge of the Chinese shipping agency industry, we can compare and select the most competitive agents as our local agents.

Our Challenges

The successful execution of our strategies is subject to certain risks and uncertainties, including those relating to:

•   our limited operating history in general and our recent uncertain profitability;

•   limited funds with which to build a nationwide port network in China, to recruit and retain quality personnel, to advertise our services and to develop new information technology for use in providing shipping agency services;

•   the growth of the shipping agency industry in China and the entrance of new Chinese and foreign competitors into the market;

•   our ability to respond to competitive pressures; and

•   regulatory environment in China.

Competition

Our ability to be successful in our industry depends on our ability to compete effectively with companies that may be more well-capitalized than we are or may provide shipping agency services we do not or cannot provide to our customers. While China’s shipping agency industry has a variety of small shipping agencies, our two primary competitors are Penavico and Sinoagent. Both of these companies are state-owned in part and much larger than we are and derive significantly more revenue from shipping agency services in China.

•   Penavico. Penavico was formed in 1953, as a state-owned shipping agency affiliated with COSCO. Beginning in 1955, Penavico took over China’s shipping agency business from the foreign agents that previously did business in China and, until 1985, Penavico was the only shipping agency operating in China. Penavico now has more than 80 local agencies and 300 business networks across China. Penavico maintains offices in America, Europe, Japan, Korea, Singapore and Hong Kong. Penavico’s shipping agency business, bulk ships and container ships currently account for approximately 64.5% of China’s market.

•   Sinoagent. Sinoagent was formed in 1985 as a specialized subsidiary of Sinotrans Limited Company (“Sinotrans”), a company that provides integrated ocean transportation, land transport, airfreight, warehousing, express services, shipping agency and freight forwarding services. Due to its relationship with Sinotrans, Sinoagent is able to provide a seamless, integrated set of services to its customers.

We believe that Penavico’s and Sinoagent’s primary strengths include the following:

•   the establishment of a complete port network in mainland China;

•   the presence of a large base of clients; and

•   the availability of funding and financial support from state-owned financial institutions.

 
4

 

Regulations on Foreign Exchange

Foreign Currency Exchange. Pursuant to the Foreign Currency Administration Rules promulgated in 1996 and amended in 1997 and various regulations issued by State Administration of Foreign Exchange (“SAFE”), and other relevant PRC government authorities, RMB is freely convertible only to the extent of current account items, such as trade related receipts and payments, interests and dividends. Capital account items, such as direct equity investments, loans and repatriation of investment, require prior approval from SAFE or its provincial branch for conversion of RMB into a foreign currency, such as U.S. dollars, and remittance of the foreign currency outside the PRC. Payments for transactions that take place within the PRC must be made in RMB. Unless otherwise approved, PRC companies must repatriate foreign currency payments received from abroad. Foreign-invested enterprises may retain foreign exchange in accounts with designated foreign exchange banks subject to a cap set by SAFE or its local counterpart. Unless otherwise approved, domestic enterprises must convert all of their foreign currency receipts into RMB.

Dividend Distribution. The principal regulations governing divided distributions by wholly foreign-owned enterprises and Sino-foreign equity joint ventures include:

•   Wholly Foreign-Owned Enterprise Law (1986), as amended;

•   Wholly Foreign-Owned Enterprise Law Implementing Rules (1990), as amended;

•   Sino-Foreign Equity Joint Venture Enterprise Law (1979), as amended; and

•   Sino-Foreign Equity Joint Venture Enterprise Law Implementing Rules (1983), as amended.

Under these regulations, wholly foreign-owned enterprises and Sino-foreign equity joint ventures in the PRC may pay dividends only out of their accumulated profits, if any, as determined in accordance with PRC accounting standards and regulations. Additionally, these foreign-invested enterprises are required to set aside certain amounts of their accumulated profits each year, if any, to fund certain reserve funds. These reserves are not distributable as cash dividends.

Regulation of foreign exchange in certain onshore and offshore transactions. Under recent notices issued by SAFE, PRC residents are required to register with and receive approvals from SAFE in connection with offshore investment activities. SAFE has stated that the purpose of these notices is to ensure the proper balance of foreign exchange and the standardization of cross-border flow of funds.

In January 2005, SAFE issued a notice stating that SAFE approval is required for any sale or transfer by PRC residents of a PRC company’s assets or equity interests to foreign entities in exchange for the equity interests or assets of the foreign entities. The notice also states that, when registering with the foreign exchange authorities, a PRC company acquired by an offshore company must clarify whether the offshore company is controlled or owned by PRC residents and whether there is any share or asset link between or among the parties to the acquisition transaction.

In April 2005, SAFE issued another notice further explaining and expanding upon the January notice. The April notice clarified that, where a PRC company is acquired by an offshore company in which PRC residents directly or indirectly hold shares, such PRC residents must (i) register with the local SAFE branch regarding their respective ownership interests in the offshore company, even if the transaction occurred prior to the January notice, and (ii) file amendments to such registration concerning any material events of the offshore company, such as changes in share capital and share transfers. The April notice also expanded the statutory definition of the term “foreign acquisition,” making the notices applicable to any transaction that results in PRC residents directly or indirectly holding shares in the offshore company that has an ownership interest in a PRC company. The April notice also provided that failure to comply with the registration procedures set forth therein may result in the imposition of restrictions on the PRC company’s foreign exchange activities and its ability to distribute profits to its offshore parent company.

On October 21, 2005, SAFE issued a new public notice concerning PRC residents’ investments through offshore investment vehicles. This notice took effect on November 1, 2005 and replaces prior SAFE notices on this topic. According to the November 2005 notice:

 
5

 

•   any PRC resident that created an off-shore holding company structure prior to the effective date of the November notice must submit a registration form to a local SAFE branch to register his or her ownership interest in the offshore company on or before May 31, 2006;

•   any PRC resident that purchases shares in a public offering of a foreign company would also be required to register such shares an notify SAFE of any change of their ownership interest; and

•   following the completion of an off-shore financing, any PRC shareholder may transfer proceeds from the financing into China for use within China.

In accordance with the October 2005 notice, on December 12, 2007, Mr. Cao Lei and Mr. Zhang Mingwei obtained appropriate registration from their local SAFE offices.

Employees

As of the date of filing of this report, we have 38 employees, 32 of whom are based in China. Of the total, 5 are in management, 1 is in technical support, 2 are in sales and marketing, 13 are in financial affairs and administration, and 17 are in operation and disbursement. We believe that our relations with our employees are good. We have never had a work stoppage, and our employees are not subject to a collective bargaining agreement.
 
Item 1A.
Risk Factors.
 
The Company is not required to provide the information required by this Item because the Company is a smaller reporting company.
 
Item 1B.
Unresolved Staff Comments.

The Company is not required to provide the information required by this Item because the Company is a smaller reporting company.
 
Item 2.
Properties.

We currently rent six (6) facilities throughout China and the United States. Our headquarters are located in Beijing.

Office
 
Address
 
Rental Term
 
Space
Beijing, PRC
 
Room 705, Tower B
Boya International Center
No. 1, Lizezhongyi Road
Chaoyang District
Beijing, PRC 100102
 
Expires 12/31/2010
 
845 m2
             
Fangchenggang, PRC
 
2nd Floor, Duty-Free Store Building
South Gate of Fangcheng Port
Fangcheng, PRC 538001
 
Long term
 
200 m2
             
Flushing, NY
 
136-56 39th Avenue,
Room #305, Flushing, New York
11354
 
Expires 12/31/2011
 
150m2
             
Ningbo, PRC
 
Room 1611, Hai Guang Plaza
No. 298 Zhong Shan West Road
Hai Shu District
Ningbo, PRC 315011
 
Expires 11/01/2010
 
45 m2
             
Qingdao, PRC
 
Room 2101 Building A, No. 10
Xiang Gang (Middle) Road,
Qingdao, PRC 266071
 
Expires 11/30/2010
 
186 m2
             
Qinhuangdao, PRC
 
Room B01, 18th Floor
Jin Yuan International Commercial Building
No. 146 He Bei Street, Hai Gang District
Qinhuangdao, PRC 0066000
 
Expires 07/16/2011
 
30 m2
 
 
6

 
 
Item 3.
Legal Proceedings.
 
From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse affect on our business, financial condition or operating results.

 
7

 
 
PART II
 
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
 
Market for Our Common Stock

Our common stock is traded on the NASDAQ Stock Market under the symbol SINO. As of June 30, 2010, there were four holders of record of our common stock and approximately 700 total shareholders. This number excludes our common stock owned by shareholders holding common stock under nominee security position listings. The high and low common stock sales prices per share during the periods indicated were as follows:
 
Quarter Ended
 
Sep. 30
   
Dec. 31
   
Mar. 31
   
June 30
   
Year
 
                               
Fiscal year 2010
                             
Common stock price per share:
                             
High
  $ 5.00     $ 4.00     $ 4.95     $ 3.99     $ 5.00  
Low
  $ 2.50     $ 3.12     $ 2.56     $ 2.11     $ 2.11  
                                         
Fiscal year 2009
                                       
Common stock price per share:
                                       
High
  $ 9.21     $ 6.20     $ 4.33     $ 3.80     $ 9.21  
Low
  $ 3.31     $ 1.77     $ 1.60     $ 2.17     $ 1.60  

Approximate Number of Holders of Our Common Stock

As of the date of this report there are four holders of record of our common stock and approximately 700 total shareholders.

Dividend Policy

We have never declared or paid any cash dividends on our common stock. We anticipate that we will retain any earnings to support operations and to finance the growth and development of our business. Therefore, we do not expect to pay cash dividends in the foreseeable future. Any future determination relating to our dividend policy will be made at the discretion of our Board of Directors and will depend on a number of factors, including future earnings, capital requirements, financial conditions and future prospects and other factors the Board of Directors may deem relevant. Payments of dividends by Trans Pacific to our company are subject to restrictions including primarily the restriction that foreign invested enterprises may only buy, sell and/or remit foreign currencies at those banks authorized to conduct foreign exchange business after providing valid commercial documents.

IPO Proceeds

The section of the Registration Statements and IPO Prospectus entitled “Use of Proceeds” is incorporated herein by reference. The effective date of the Securities Act registration statement for which the use of proceeds information is being disclosed is May 21, 2008, and the Commission file numbers assigned to the registration statement are 333-150858 and 333-148611.

The offering closed on May 20, 2008. All of the common shares, without par value per share, registered in the offering were placed by the placement agent, Anderson & Strudwick, Incorporated. The Registration Statements registered the initial public offering of up to 1,229,032 shares of the Company’s common stock and the resale of up to 217,960 shares of the Company’s common stock. All of the initial public offering shares were placed at a price of $7.75 per share, and all such shares were sold in the offering, with an aggregate price of $9,524,998. The Company did not receive any proceeds from the sale of any shares by the selling shareholders.

The net proceeds of the offering, including the private placement of securities related to the selling shareholders, were $9,172,314. Expenses included placement agent commissions, legal fees, escrow agent fees and fees payable in connection with the private placement. All of these fees were payable to parties other than directors, officers, general partners of the Company or their associates; to persons owning ten percent (10%) or more of any class of equity securities of the Company; and to affiliates of the Company.

 
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The Company has used offering proceeds for the following purposes from completion of the IPO through June 30, 2010.

Description of Use
 
Proposed
Expenditure Amount
   
Actual Expenditures
through June 30, 2010
 
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         1,242,621  
Sarbanes-Oxley compliance
    500,000         291,179  
Marketing of company across China, United States and internationally
    244,621         581,178  
Develop information exchange system
    400,000         108,854  
Staff training
    163,081         174,343  
Fixed asset purchase
    407,702         436,995  
Miscellaneous expenses
    407,702         393,470  
Stock repurchases
              372,527  
                 
Total
  $ 8,154,047     $ 3,704,693  
 
Item 6.
Selected Financial Data
 
The Company is not required to provide the information required by this Item because the Company is a smaller reporting company.
 
Item 7.
Management’s Discussion and Analysis or Plan of Operation.
 
The following discussion and analysis of our company’s financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the related notes included elsewhere in the Annual 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 People’s Republic of China (“PRC”). As PRC laws and regulations restrict foreign ownership of shipping agency service businesses, we operate our business in the PRC through Sino-Global Shipping Agency, Ltd. (“Sino-China”), a PRC limited liability company wholly owned by our founder and Chief Executive Officer, Cao Lei, and Chief Financial Officer, Zhang Mingwei, both of whom are PRC citizens. Sino-China holds the licenses and permits necessary to provide shipping services in the PRC. Headquartered in Beijing with branches in Ningbo, Qingdao, Tianjin, Qinhuangdao and Fangchenggang, we provide general shipping agency services in all commercial ports in China.

On November 13, 2007, we formed our wholly foreign-owned enterprise, Trans Pacific Shipping Limited (“Trans Pacific”), in Beijing, which established a subsidiary, Trans Pacific Logistics Shanghai, Limited (“Trans Pacific Shanghai”), in Shanghai on May 31, 2009. This increases our presence to nine ports in mainland China and will enable us to provide a full range of shipping agency services as well as freight forwarder services. Trans Pacific acquired a 40% interest in Sino-Global Shipping Agency Development Co., Limited, in Beijing on November 6, 2009 in order to develop additional business opportunities for the company.
 
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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 over Sino-China.

On May 20, 2008, we completed an initial public offering of 1,229,032 common shares at a $7.75 offering price. Our shares started trading on the NASDAQ Capital Market the next day.

With a purpose of building up an international shipping agency service network, we formed a wholly-owned subsidiary, Sino-Global Shipping Australia Pty Ltd. (“Sino-Global AUS”) in Perth, Australia on July 3, 2008 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.

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. On July 27, 2009, Sino-Global HK signed an exclusive partnership agreement with Forbes & Company Limited (“Forbes”), which is a listed company on the Bombay Stock Exchange (BOM: 502865) and one of the largest shipping and logistic service providers in India. Through Forbes, the Company is able to provide general shipping agency services to all ports in India.

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. In September 2009, our Board approved to extend the stock repurchase program for another six months ended April 2010. The stock repurchase program has now expired. As of June 30, 2010, we repurchased 125,191 shares of our common stock from the open market at an average price of $2.98 per share including trading expenses. The total cost of stock repurchase through June 30, 2010 was $372,528.
 
Revenues

The worldwide financial crisis started from September 2008 has brought it with significant negative impact on our 2009 operations. However, in 2010, we have continued to achieve remarkable top line growth. For the year ended June 30, 2010, our total revenues amounted to approximately $26.84 million, representing a 46.40% increase from our total revenues of $18.33 million for the year ended June 30, 2009.
 
Year
 
Revenue
   
Growth
 
   
US$
   
%
 
2010
    26,841,336      
46.40
 
2009
    18,334,359      
21.52
 
2008
    15,087,238      
49.51
 
2007
    10,090,879      
13.07
 
2006
    8,924,786      
31.69
 

Our total revenues are net of PRC business taxes and related surcharges. Sino-China’s revenues are subject to a 5% business tax as well as an additional 0.5% surcharge after deducting the costs of services. We deduct these amounts from our gross revenues to arrive at our total revenues.
 
We charge the shipping agency fees in two ways: (1) the fixed fees are predetermined with a customer, and (2) the cost-plus fees are calculated based on the actual costs incurred plus a mark up. We generally require payments in advance from customers and bill them the balances within 30 days after the transactions are completed.

 
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We believe the most significant factors that directly or indirectly affect our shipping agency service revenues are:
 
• the number of ships to which we provide port loading/discharging services;• the size and types of ships we serve;
• the rate of service fees we charge;
• the number of ports at which we provide services; and
• the number of customers we serve.

Historically, our services have primarily been driven by the increase in the number of ships and customers, provided that the rate of service fees is determined by market competition. We believe that an increase in the number of ports served generally leads to an increase in the number of ships and customers. We expect that we will continue to earn a substantial majority of our revenues from our shipping agency services. As a result, we plan to continue to focus most of our resources on expanding our business to cover more ports in the PRC. 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 costs 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 year ended June 30, 2010 mainly due to the increase of the costs paid to Chinese local ports. Our general and administrative expenses decreased significantly during the year ended June 30, 2010, compared to those expenses for the same periods in 2009. This is largely due to our tightened budget control over the expenses. The following table sets forth the components of our company’s costs and expenses for the periods indicated.

   
For the years ended June 30,
 
   
2010
   
2009
 
   
US$
   
%
   
US$
   
%
 
                         
Revenues
    26,841,336       100.00       18,334,359       100.00  
                                 
Costs and expenses
                               
Costs of revenues
    23,668,070       88.18       15,767,390       86.00  
                                 
General and administrative
    4,102,864       15.29       4,859,116       26.50  
Selling expense
    272,829       1.02       380,362       2.07  
Other expense
    135,557       0.51       61,648       0.34  
Total costs and expenses
    28,179,320       104.98       21,068,516       114.91  

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 86.00% to 88.18% for the year ended June 30, 2010, because the port charges for the larger vessels we served were much higher but the agent fees we received from our customers remained unchanged. The exchange rate of U.S. dollars against the Chinese RMB was relatively stable during the period.

 
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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 as a percentage of our total revenues decreased from 26.50% to 15.29% for the year ended June 30, 2010. Although we have incurred additional expenses, such as compliance costs of SOX404 and auditing expenses, as we have operated as a publicly listed company in the United States, our general and administrative expenses decreased in the 2010 fiscal year based on our efforts to tighten budget controls.
 
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 as a percentage of our total revenues, decreased from 2.07% to 1.02% for the year ended June 30, 2010. Our efforts on controlling the selling expenses appear to have been effective during the year.

Critical Accounting Policies

We prepare the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). These accounting principles require us to make judgments, estimates and assumptions on the reported amounts of assets and liabilities at the end of each fiscal period, and the reported amounts of revenues and expenses during each fiscal period. We continually evaluate these judgments and estimates based on our own historical experience, knowledge and assessment of current business and other conditions, our expectations regarding the future based on available information and assumptions that we believe to be reasonable.

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

Revenue Recognition

Revenue comprises the value of charges for the services in the ordinary course of our company’s activities and disbursements made on behalf of customers. Revenues are recognized from shipping agency services upon completion of 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 through Trans Pacific entered into agreements with Sino-China, pursuant to which we receive 90% of Sino-China’s net income. We do not receive any payment from Sino-China unless Sino-China recognizes net income during its fiscal year. Sino-China pays consulting and marketing fees equal to 85% and 5%, respectively, of its net income to our 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 consolidated financial statements pursuant to Accounting Standard Codification (“ASC”) 810-10, “Consolidation”. As a VIE, Sino-China’s sales are included in our total sales, its income (loss) from operations is consolidated with our company’s, and our net income (loss) from continuing operations before non-controlling interest in income (loss) includes all of Sino-China’s net income (loss). Our non-controlling interest in its income (loss) is then 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.

 
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Equity Investment

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

Accounts receivable are recognized at net realizable value. We maintain allowances for doubtful accounts for estimated losses resulting from the failure of customers to make required payments in the relevant time period. We review the accounts receivable on a periodic basis and record general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, we consider many factors, including the age of the balance, the customer’s historical payment history, its current credit-worthiness and current economic trends. Receivables are considered past due after 365 days. Accounts are written off only after exhaustive collection efforts. Because of the worldwide financial crisis, we have experienced difficulties in collecting cash from some of our customers.
 
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 revenues. 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 Revenues 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 Revenues. Any adjustment to actual from the estimated Revenues and Cost of Revenues recorded has been and is expected to be immaterial.

Property and Equipment

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

The accounts of our company and Sino-China are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). Our functional currency is the U.S. dollar, while Trans Pacific and Sino-China report their financial position and results of operations in Renminbi. The accompanying condensed consolidated financial statements are presented in U.S. dollars. Foreign currency transactions are translated into U.S. dollars using the fixed exchange rates in effect at the time of the transaction. Generally foreign exchange gains and losses resulting from the settlement of such transactions are recognized in the consolidated statements of operations. We translate foreign currency financial statements of Sino-China, Trans Pacific, Sino-Global HK and Sino-Global AUS in accordance with ASC 830-10, “Foreign Currency Matters”. Assets and liabilities are translated at current exchange rates quoted by the People’s Bank of China at the balance sheet dates and revenues and expenses are translated at average exchange rates in effect during the periods.
 
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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.

We use 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. 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.
 
PRC Enterprise Income Tax

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

Revenues from services provided by Sino-China are subject to PRC business tax of 5% and additional surcharges of 0.5%. We pay business tax on gross revenues generated from our shipping agency services minus the costs of services, which are paid on behalf of our customers.
 
2011 Trends

Our revenues increased 46.40% for the year ended June 30, 2010, including growth rates of 22.48% for the first quarter ended September 30, 2009, 48.22% for the second quarter ended December 31, 2009, 83.26% for the third quarter ended March 31, 2010 and 44.83% for the last quarter ended June 30, 2010, compared to the same periods in 2009. We renewed the agency service agreement with Beijing Shou Rong, our largest customer, which accounted for 64% of our revenues for the fiscal year of 2010. The agency service agreement is renewable and will expire on December 31, 2011. We expect that this renewed agreement is likely to enable our revenues to continue to grow in line with the increased demand for iron ore in China. We have been marketing our business to other potential clients and looking for opportunities in other areas in shipping and logistic industries.

We have incurred losses for the last nine quarters. The world financial crisis has negatively affected our operations particularly because, in addition to the fact that fewer shipments have occurred during the crisis, we receive most of our revenues in U.S. dollars and pay most of our expenses in Chinese Renminbi (“RMB”). As a result, we have faced increased costs of revenues, due to the devaluation of U.S. dollars against RMB over the last several years. Although this devaluation had slowed in 2010 fiscal year, we expect the U.S. dollar will devaluate about 2% to 5% against the RMB in 2011. As a result, the gross margin will stay depressed. While our general and administrative expenses are significantly higher than their pre-IPO levels as a result of our business expansion and our company’s public listing, we have reduced these amounts for the year ended June 30, 2010 compared to the same period in 2009. In the 2011 fiscal year, we will continue our combined effort in budget controls and business promotion.
 
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Results of Operations

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.

Year Ended June 30, 2010 Compared to Year Ended June 30, 2009

Revenues. Our total revenues increased by 46.40% from $18,334,359 for the year ended June 30, 2009 to $26,841,336 for the year ended June 30, 2010. The number of ships that generated revenues for us increased from 241 to 358 for the comparable years in 2009 and 2010 respectively, representing an increase of 48.55%. Along with the economy recovery, there have been more vessels transporting iron ore and other imported goods to Chinese ports, promoting our business growth in 2010.
 
Total Operating Costs and Expenses. Our total operating costs and expenses increased by 33.75% from $21,068,516 for the year ended June 30, 2009 to $28,179,320 for the year ended June 30, 2010. This increase was primarily due to increases in our costs of revenues.
 
Cost of Revenues. Our cost of revenues increased by 50.11% from $15,767,390 for the 2009 fiscal year to $23,668,070 for the 2010 fiscal year. Costs of revenues increased faster than revenues, resulting in the decrease of gross margins from 14.00% down to 11.82% for the comparative years ended June 30, 2009 and 2010, respectively. Because of the prices of iron ore increased, importers used larger size of vessels to save freight costs. This resulted in increased fees charges at Chinese local ports. The foreign exchange rate of Chinese currency against the U.S. dollar was relatively stable during the period. The average foreign exchange rate was RMB6.8275 to $1.00 for fiscal 2010 compared to RMB6.8358 to $1.00 for fiscal 2009.

General and Administrative Expenses. Our general and administrative expenses decreased by 15.56% from $4,859,116 for the 2009 fiscal year to $4,102,864 for the 2010 fiscal year. This decrease was primarily due to the decreases of (1) $426,965 in provision for doubtful accounts due to less difficulties in collecting cash from some of our customers, (2) $251,697 in office renting and supplies and (3) $109,386 in automobile and transportation expenses.
 
We have spent approximately $0.29 million on Sarbanes-Oxley Section 404 compliance. On July 21, 2010, US President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into law, with an exemption from Section 404(b) of the Sarbanes-Oxley Act for non-accelerated and smaller reporting companies. Although our Company still has to comply with Section 404(a), we expect we will significantly reduce our costs in complying with Sarbanes-Oxley.
 
Selling Expenses. Our selling expenses decreased by 28.27% from $380,362 for the year ended June 30, 2009 to $272,829 for the year ended June 30, 2010, due to our efforts to tighten our budget for business promotion and travel expenses.

Operating Profit (Loss). We had an operating loss of $1,337,984 for the year ended June 30, 2010, compared to operating loss of $2,734,157 for the year ended June 30, 2009. Our company was particularly adversely affected by the global economic crisis in 2009, and we began to recover in 2010. The operating loss for the 2010 fiscal year was primarily due to the increase in costs of services and general and administrative expenses associated with our public listing expenses and provision for doubtful accounts caused by the difficulties in collecting cash due to our customers’ struggles during the economic downturn.
 
Net Financial Income. Our net financial income was $150,632 for the year ended June 30, 2010, compared to our net financial income of $25,010 for the year ended June 30, 2009. The net financial income comes largely from interest income from money deposits in banks and is decreased 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.
 
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Taxation Our income tax benefits were $8,370 in 2010, compared to tax expenses $126,234 in 2009. As we offset a net deferred tax asset of $95,000 (consisting of $240,000 for allowance for doubtful accounts claimed last year and $145,000 for net operating loss carry forward), the income tax expense of 2010 fiscal year was $86,630. Management has determined that no valuation allowance for deferred tax assets should be provided as of June 30, 2010 because we are expected to generate taxable income in the near future.
 
Net Income. As a result of the foregoing, we had a net loss of $1,303,415 for the year ended June 30, 2010, compared to net loss of $2,476,381 for the year ended June 30, 2009. After deduction of non-controlling interest in loss, net loss attributable to Sino-Global Shipping America, Ltd. was $536,772 for the year ended June 30, 2009, compared to net loss of $1,675,691 for the year ended June 30, 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 June 30, 2010, we had $5,926,153 in cash and cash equivalents, of which $298,219 was held by Sino-China. Our cash and cash equivalents primarily consist of cash on hand and cash in banks.
 
The following table sets forth a summary of our cash flows for the periods indicated:

   
For the years ended June 30,
 
   
2010
   
2009
 
   
US$
   
US$
 
Net cash used in operating activities
    (1,020,794 )     (1,721,287 )
Net cash used in investing activities
    (331,642 )     (225,554 )
Net cash used in financing activities
    (20,716 )     (353,336 )
Net decrease in cash and cash equivalents
    (1,333,501 )     (2,343,596 )
Cash and cash equivalents at beginning of year
    7,259,654       9,603,250  
Cash and cash equivalents at end of year
    5,926,153       7,259,654  

Operating Activities

Our sales continued to increase for the year ended June 30, 2010 compared to the year of 2009, but our gross margin declined, which was mainly attributable to the increased costs of services. Net cash used in operating activities was $1,020,793 for the year ended June 30, 2010, compared to net cash used in operating activities of $1,721,287 for the year ended June 30, 2009. The decrease of net cash in operating activities is mainly attributable to (1) a net loss of $1,303,415, (2) an adjustment for provision of doubtful accounts of $346,647, (3) an increase of prepaid taxes, (4) a decrease of advance from customers, and (5) the decrease in other liabilities of $330,652. This is decreased by the decrease of accounts receivable of $659,137. It should be noted that we had net cash used in operating activities of $1,887,237 for the nine months ended March 31, 2010, implying that we had net cash provided by operating activities of $811,741 for the three months ended June 30, 2010.
 
Investing Activities

Net cash used in investing activities was $331,643 compared to net cash used in investing activities of $225,554 for the years ended June 30, 2010 and 2009, respectively. We made capital expenditures of $40,371 and $396,624 for the fiscal years of 2010 and 2009, representing 0.39% and 3.3% of our total assets, respectively. In addition, our wholly owned subsidiary, Trans Pacific, invested $236,569 in obtaining a 40% interest of Sino-Global Shipping Agency Development Co., Limited, in Beijing.
 
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Financing Activities

Net cash used in financing activities was $20,716 for the year ended June 30, 2010, of which $86,625 was used to repurchase our outstanding shares of common stock from the open market, offset by $65,909 from the increase of non-controlling interest in majority-owned subsidiary.
 
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 and apartments for employees under operating leases expiring through July 31, 2011. Below is a summary of our company’s contractual obligations and commitments as of June 30, 2010:

   
Payment Due by Period
 
   
Total
   
Less than 1 year
   
1-3 years
   
More than 3 years
 
Contractual Obligations
                       
Operating leases
  $ 212,233     $ 182,719     $ 29,514     $  

The Labor Contract Law of the PRC requires employers to assure the liability of severance payments if employees are terminated and have been working for their employers for at least two years prior to January 1, 2008. The employers will be liable for one month of severance pay for each year of service provided by the employees. As of June 30, 2010, our company has estimated its severance payments to be approximately $102,460, which has not been reflected in our 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 our subsidiaries and management fees paid by Sino-China. If our subsidiaries incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us. In addition, Trans Pacific is permitted to pay dividends to us only out of its retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Under PRC law, wholly foreign-owned enterprises like Trans Pacific are required to set aside at least 10% of their after-tax profit each year to fund a statutory reserve until the amount of the reserve reaches 50% of such entity’s registered capital.
 
To the extent Trans Pacific does not generate sufficient after-tax profits to fund this statutory reserve, its ability to pay dividends to us may be limited. Although these statutory reserves can be used, among other ways, to increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies, these reserve funds are not distributable as cash dividends except in the event of a solvent liquidation of the companies. Other than as described in the previous sentences, China’s State Administration of Foreign Exchange (“SAFE”) has approved the company structure between our company and Trans Pacific, and Trans Pacific is permitted to pay dividends to our company.
 
17

 
Off-Balance Sheet Commitments and Arrangements

We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholders’ equity or that are not reflected in our condensed consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serve as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.
 
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk.
 
The Company is not required to provide the information required by this Item because the Company is a smaller reporting company.
 
Item 8.
Financial Statements and Supplementary Data.
 
The Company’s financial statements and the related notes, together with the report of Friedman LLP, are set forth following the signature pages of this report.
 
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
 
None.
 
Item 9A.
Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures

Our Company maintains a system of controls and procedures designed to provide reasonable assurance as to the reliability of the financial statements and other disclosures included in this report, as well as to safeguard assets from unauthorized use or disposition. For the purpose of improving management efficiency and effectiveness, the Company has completed the implementation of a new accounting and management information system using SAP Business One software. Our company is currently utilizing the new system.

As of June 30, 2010, our company carried out an evaluation, under the supervision of and with the participation of management, including our company’s chief executive officer and chief financial officer, of the effectiveness of the design and operation of our company’s disclosure controls and procedures. Based on the foregoing, the chief executive officer and chief financial officer concluded that our company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were effective in timely alerting them to information required to be included in the Company’s periodic Securities and Exchange Commission filings.

Changes in Internal Control over Financial Reporting.

There were no changes in our company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934) during the year ended June 30, 2010 that have materially affected, or are reasonably likely to materially affect, our company’s internal control over financial reporting.

Management’s Annual Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities and Exchange Act of 1934, as amended. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that:

 
18

 

(1)              pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets;

(2)              provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that the Company’s receipts and expenditures are being made only in accordance with the authorization of its management and directors; and

(3)              provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

The Company’s management assessed the effectiveness of its internal control over financial reporting as of June 30, 2010. In making this assessment, management used the framework set forth in the report entitled Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. The COSO framework summarizes each of the components of a company’s internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring. Based on this assessment, the Company’s management believes that, as of June 30, 2010, its internal control over financing reporting is effective based on those criteria.
 
Item 9B.
Other Information.
 
The Company has previously reported all information required to be disclosed during the fourth quarter of fiscal 2010 in a report on Form 8-K.

 
19

 
 
PART III
 
Item 10.
Directors, Executive Officers and Corporate Governance.
 
Regulation S-K Item 401: The section of the Proxy entitled “Management” is incorporated herein by reference.

Regulation S-K Item 405: Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to the Company under 17 CFR 240.16a-3(e) during its most recent fiscal year and Forms 5 and amendments thereto furnished to the Company with respect to its most recent fiscal year, and any written representation referred to in paragraph (b)(1) of this section, the Company is not aware of any director, officer, beneficial owner of more than ten percent of any class of equity securities of the Company registered pursuant to Section 12 that failed to file on a timely basis, as disclosed in the above Forms, reports required by Section 16(a) during the most recent fiscal year or prior years.

Regulation S-K Item 406: The Company has adopted a Code of Ethics and has filed a copy of the Code of Ethics with the Commission.

Regulation S-K Item 407(c)(3): None.

Regulation S-K Item 407(d)(4) and (5): The Company has an audit committee, consisting solely of the Company’s independent directors, Joseph Jhu, Wang Jing and Dennis O. Laing. Mr. Wang qualifies as the audit committee financial expert. The Company’s audit committee charter is available on the Company’s website (www.sino-global.com) or directly at the following link: http://media.corporate-ir.net/media_files/irol/22/221375/corpgov/AuditCommCharte09272008.pdf.
 
Item 11.
Executive Compensation.
 
The following table shows the annual compensation paid by us to Mr. Cao Lei, our Principal Executive Officer, and Mr. Zhang Mingwei, our Principal Accounting and Financial Officer, for the years ended June 30, 2010 and 2009. No other officer had a salary during either of the previous two years of more than $100,000.
 
Summary Compensation Table

Name
 
Year
 
Salary
   
Bonus
   
Securities-based
compensation
   
All other
compensation
   
Total
 
       
US$
   
US$
   
US$
   
US$
   
US$
 
Cao Lei, Principal Executive Officer
 
2010
      163,857       -       -
(1)
    -         163,857  
   
2009
    106,840       -       -
(1)
    -       106,840  
                                             
Zhang Mingwei, Principal Accounting and Financial Officer
 
2010
     101,344       -       -
(1)
    -        101,344  
   
2009
     65,323       -       -
(1)
    -        65,323  

(1)
We granted each of Mr. Cao and Mr. Zhang options to purchase 36,000 shares of our common stock for $7.75 per share. We granted these options on May 20, 2008. Although we recognize $53,114 in compensation expense for these options as 7,200 options vested for each of Mr. Cao and Mr. Zhang in each of fiscal 2009 and 2010, changes in SEC disclosure requirements require us to disclose the grant date fair value of these shares. As the grant was made in fiscal 2008, the amount is not reflected in this summary compensation table.
 
20

 
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Plan category
 
Number of securities to
be issued upon exercise of
outstanding options,
warrants and rights (a)
   
Weighted-average
exercise price of
outstanding options,
warrants and rights (b)
   
Number of securities remaining
available for future issuance under
equity compensation plans
(excluding securities reflected in
column (a)) (c)
 
Equity compensation plans approved by security holders
   
128,000
    $
7.75
     
174,903
 
 
Name and Address
 
Title of
Class
 
Amount of
Beneficial
Ownership
   
Percentage
Ownership
 
Mr. Cao Lei(1)
 
common
    1,398,440 (2)     47.52 %
Mr. Zhang Mingwei(1)
 
common
    68,400 (2)     2.32 %
Mr. Wang Jing (1)
 
common
    4,000 (3)     0.14 %
Mr. Dennis O. Laing (1)
 
common
    4,000 (3)     0.14 %
Mr. Joseph Jhu (1)
 
common
    2,000 (4)     0.07 %
Mr. Daniel E. Kern(5)
 
common
    389,100 (6)     13.22 %
Total
        1,865,940       63.41 %

(1)
The individual’s address is c/o Sino-Global Shipping America, Ltd., 136-56 39th Avenue, Room #305, Flushing, NY 11354.
(2)
Mr. Cao and Mr. Zhang each has received options to purchase 36,000 shares of the Company’s common stock, of which 14,400 underlying shares are reflected in this table because they have vested. The remaining 21,600 options will vest more than 60 days after the date hereof.
(3)
Mr. Wang and Mr. Laing each has received options to purchase 10,000 shares of the Company’s common stock, of which 4,000 underlying shares are reflected in this table because they have vested. The remaining 6,000 options will vest more than 60 days after the date hereof.
(4)
Mr. Jhu has received options to purchase 10,000 shares of the Company’s common stock, of which 2,000 underlying shares are reflected in this table because they have vested. The remaining 8,000 options will vest more than 60 days after the date hereof.
(5)
Mr. Kern’s address is 1027 Goldenrod Ave., Corona Del Mar, CA 92625.
(6)
Mr. Kern owns 176,200 shares in his individual name, 187,900 shares in the Daniel E. Kern ROTH IRA, and 25,000 shares through Kern Asset Management. Mr. Kern maintains sole voting and dispositive power as to these shares.
 
Item 13.
Certain Relationships and Related Transactions, and Director Independence.
 
The Board of Directors maintains a majority of independent directors who are deemed to be independent under the definition of independence provided by NASDAQ Stock Market Rule 4200(a)(15). The sections of the Registration Statements and IPO Prospectus entitled “Related Party Transactions” and of the Proxy entitled “Election of Directors and Director Biographies” are incorporated herein by reference. Other than as described therein, no transactions required to be disclosed under Item 404 of Regulation S-K have occurred since the beginning of the Company’s last fiscal year.
 
Item 14.
Principal Accountant Fees and Services.
 
Friedman LLP was appointed by the Company to serve as its independent registered public accounting firm for fiscal 2010. Audit services provided by Friedman LLP for fiscal 2010 included the examination of the consolidated financial statements of the Company; and services related to periodic filings made with the SEC. In addition, Friedman LLP provided review services relating to the Company’s quarterly reports.

 
21

 
 
Fees Paid To Independent Registered Public Accounting Firm
 
Audit Fees

During fiscal 2010 and 2009, Friedman LLP’s fees for the annual audit of our financial statements and the quarterly reviews of the financial statements included in Forms 10-Q were $243,750 and $248,329, respectively.

Audit-Related Fees

During fiscal 2010 and 2009, the Company paid Friedman LLP $0 and $0, respectively, for audit-related services.
 
Tax Fees

The Company has not paid Friedman LLP for tax services in fiscal 2010 and 2009.

All Other Fees

The Company has not paid Friedman LLP for any other services in fiscal 2010 and 2009.

Audit Committee Pre-Approval Policies

Before Friedman LLP was engaged by the Company to render audit or non-audit services, the engagement was approved by the Company’s audit committee. All services rendered by Friedman LLP have been so approved.
 
Item 15.
Exhibits, Financial Statement Schedules.
 
The following documents are filed herewith:

Number
 
Exhibit
3.1
 
Articles of Incorporation of Sino-Global Shipping America, Ltd.(1)
3.2
 
Bylaws of Sino-Global Shipping America, Ltd. (1)
4.1
 
Specimen Certificate for Common Stock (1)
10.1
 
Exclusive Management Consulting and Technical Services Agreement by and between Trans Pacific and Sino-China. (1)
10.2
 
Exclusive Marketing Agreement by and between Trans Pacific and Sino-China. (1)
10.3
 
Proxy Agreement by and among Cao Lei, Zhang Mingwei, the Company and Sino-China. (1)
10.4
 
Equity Interest Pledge Agreement by and among Trans Pacific, Cao Lei and Zhang Mingwei. (1)
10.5
 
Exclusive Equity Interest Purchase Agreement by and among the Company, Cao Lei, Zhang Mingwei and Sino-China. (1)
10.6
 
First Amended and Restated Exclusive Management Consulting and Technical Services Agreement by and between Trans Pacific and Sino-China. (1)
10.7
 
First Amended and Restated Exclusive Marketing Agreement by and between Trans Pacific and Sino-China. (1)
10.8
 
Agency Agreement by and between the Company and Beijing Shou Rong Forwarding Service Co., Ltd. (1)
13.1
 
Quarterly report of the Company on Form 10-Q for the period ended September 30, 2009.(2)
13.2
 
Quarterly report of the Company on Form 10-Q for the period ended December 31, 2009.(3)
13.3
 
Quarterly report of the Company on Form 10-Q for the period ended March 31, 2010.(4)
14.1
 
Code of Ethics of the Company.(5)
21.1
 
List of subsidiaries of the Company.(6)
31.1
 
Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(7)
31.2
 
Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(7)
32.1
 
Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(7)
32.2
 
Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(7)
 
 
22

 
 

(1)
Incorporated by reference to the Company’s Registration Statement on Form S-1, Registration Nos. 333-150858 and 333-148611.
(2)
Incorporated by reference to the Company’s Form 10-Q filed on November 13, 2009, File No. 001-34024.
(3)
Incorporated by reference to the Company’s Form 10-Q filed on February 12, 2010 and Form 10-Q/A filed on March 16, 2010, File No. 001-34024.
(4)
Incorporated by reference to the Company’s Form 10-Q filed on May 14, 2010, File No. 001-34024.
(5)
Incorporated by reference to the Company’s Form 10-KSB filed on September 29, 2008, File No. 001-34024.
(6)
Incorporated by reference to the Company’s Form 10-K filed on September 22, 2009, File No. 001-34024.
(7)
Filed herewith.
 
 
23

 

SIGNATURES

In accordance with the requirements of the Exchange Act, the Company caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
SINO-GLOBAL SHIPPING AMERICA, LTD.
     
September 28, 2010
By:
/s/ Zhang Mingwei
   
Zhang Mingwei
   
Chief Financial Officer
   
(Principal Financial and Accounting Officer)
     
September 28, 2010
By:
/s/ Cao Lei
   
Cao Lei
   
Chief Executive Officer
   
(Principal Executive Officer)
     
September 28, 2010
By:
/s/ Wang Jing
   
Wang Jing
   
Independent Director
     
September 28, 2010
By:
/s/ Dennis Laing
   
Dennis Laing
   
Independent Director
     
September 28, 2010
By:
/s/ Joseph Jhu
   
Joseph Jhu
   
Independent Director
 
 
24

 
 
SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATE
 
INDEX TO FINANCIAL STATEMENTS
 
 
PAGE
CONSOLIDATED FINANCIAL STATEMENTS:
 
   
Report of Independent Registered Public Accounting Firm
F-2
   
Consolidated Balance Sheets as of June 30, 2010 and 2009
F-3
   
Consolidated Statements of Operations for the Years Ended June 30, 2010 and 2009
F-4
   
Consolidated Statements of Cash Flows for the Years Ended June 30, 2010 and 2009
F-5
   
Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended June 30, 2010 and 2009
F-6
   
Notes to the Consolidated Financial Statements
F-7
   
 
F-1

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Shareholders
Sino-Global Shipping America, Ltd.


We have audited the accompanying consolidated balance sheets of Sino-Global Shipping America, Ltd. and Affiliate as of June 30, 2010 and 2009, and the consolidated related statements of operations, cash flows and shareholders' equity for the years then ended.  Sino-Global Shipping America, Ltd.'s management is responsible for these consolidated financial statements.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sino-Global Shipping America, Ltd. and Affiliate as of June 30, 2010 and 2009, and the consolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.


/s/ Friedman LLP

New York, New York
September 28, 2010
 
 
F-2


SINO-GLOBAL SHIPPING AMERICA LTD. AND AFFILIATE

CONSOLIDATED  BALANCE SHEETS

   
June 30,
 
   
2010
   
2009
 
   
US$
   
US$
 
             
Assets
           
Current assets
           
Cash and cash equivalents
    5,926,153       7,259,654  
Advances to suppliers
    103,336       8,825  
Accounts receivable, less allowance for doubtful accounts of $137,982 and $723,640 as of June 30, 2010 and June 30, 2009
    1,888,965       2,894,750  
Other receivables, less allowance for doubtful accounts of $40,000 as of June 30, 2010
    319,899       22,085  
Prepaid expenses and other current assets
    118,112       58,516  
Prepaid taxes
    477,598       35,305  
Employee loans receivable
    16,727       16,627  
Income tax receivable
    123,387       105,092  
Deferred tax assets
    93,000       333,000  
                 
Total current assets
    9,067,177       10,733,854  
                 
Property and equipment, net
    754,027       972,931  
Security deposits
    -       56,885  
Employee loans receivable less current portion
    52,190       68,504  
Deferred tax assets
    171,000       26,000  
Equity investment
    236,569       -  
Other assets
    -       766  
                 
Total Assets
    10,280,963       11,858,940  
                 
Liabilities and Shareholders' Equity
               
Current liabilities
               
Advances from customers
    355,936       686,588  
Accounts payable
    3,482,273       3,024,104  
Accrued expenses
    75,771       145,857  
Other current liabilities
    104,641       619,801  
                 
Total Current Liabilities
    4,018,621       4,476,350  
                 
Total Liabilities
    4,018,621       4,476,350  
                 
Shareholders' equity
               
Preferred stock, 1,000,000 shares authorized, no par value
    -       -  
Common stock, 10,000,000 shares authorized, no par value; 3,029,032 shares issued
    7,709,745       7,709,745  
Additional paid-in capital
    1,191,796       1,158,696  
Treasury stock, at cost
    (372,527 )     (285,902 )
Retained earnings (accumulated deficit)
    (425,446 )     111,326  
Accumulated other comprehensive loss
    (4,624 )     (13,399 )
Unearned Compensation
    (593,027 )     (755,396 )
                 
Total Sino-Global Shipping America Ltd. Shareholders' equity
    7,505,917       7,925,070  
                 
Non-Controlling interest
    (1,243,575 )     (542,480 )
                 
Total shareholders' equity
    6,262,342       7,382,590  
                 
Total Liabilities and Shareholders' Equity
    10,280,963       11,858,940  

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

 
F-3

 

SINO-GLOBAL SHIPPING AMERICA LTD. AND AFFILIATE

CONSOLIDATED  STATEMENTS OF OPERATIONS

   
For the years ended June 30,
 
   
2010
   
2009
 
   
US$
   
US$
 
             
Revenues
    26,841,336       18,334,359  
                 
Costs and expenses
               
Cost of revenues
    (23,668,070 )     (15,767,390 )
                 
General and administrative expense
    (4,102,864 )     (4,859,116 )
Selling expense
    (272,829 )     (380,362 )
Other
    (135,557 )     (61,648 )
      (28,179,320 )     (21,068,516 )
                 
Operating Loss
    (1,337,984 )     (2,734,157 )
                 
Financial income, net
    150,632       25,010  
Non-operating revenue
    28,776       -  
Non-operating costs
    (3,507 )     -  
Loss from equity investment
    (54,702 )     -  
      121,199       25,010  
                 
Net loss before provision for income taxes
    (1,216,785 )     (2,709,147 )
                 
Income taxes
    (86,630 )     232,766  
                 
Net loss
    (1,303,415 )     (2,476,381 )
                 
Non-controlling interest in loss
    (766,643 )     (800,690 )
                 
Net loss attributable to Sino-Global Shipping America Ltd.
    (536,772 )     (1,675,691 )
                 
Earnings (loss) per share
               
-Basic
    (0.18 )     (0.56 )
-Diluted
    (0.18 )     (0.56 )
Weighted average number of common shares
               
-Basic
    2,915,879       2,987,297  
-Diluted
    2,915,879       2,987,297  

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

 
F-4

 

SINO-GLOBAL SHIPPING AMERICA LTD. AND AFFILIATE

CONSOLIDATED STATEMENTS OF CASH FLOWS

   
For the years ended June 30,
 
   
2010
   
2009
 
   
US$
   
US$
 
             
Operating Activities
           
             
Net loss
    (1,303,415 )     (2,476,381 )
Adjustment to reconcile net loss to net cash used in operating activities
               
   Loss on disposal of equipment
    11,041       22,571  
   Stock option expense
    195,469       188,849  
   Depreciation
    216,997       250,450  
   Provision for doubtful accounts
    346,648       773,612  
   Deferred tax expense (benefit)
    95,000       (359,000 )
   Loss from equity investment
    54,702       -  
Changes in assets and liabilities
               
   Decrease (Increase) in advances to supplier
    (94,511 )     105,745  
   Decrease (Increase) in accounts receivable
    659,137       (2,403,053 )
   Decrease (Increase) in other receivables
    (297,814 )     191,430  
   Increase in prepaid expense and other current assets
    (59,596 )     (28,061 )
   Increase in prepaid tax
    (442,293 )     (35,305 )
   Decrease in employee loan receivables
    16,214       -  
   Increase in income tax receivables
    (18,295 )     (105,092 )
   Decrease Increase in security deposits
    56,885       35,303  
   Decrease (Increase) in long-term prepaid expenses
    766       (766 )
   Decrease in advances from customers
    (330,652 )     (268,728 )
   Increase in accounts payable
    458,169       1,971,046  
   Increase (Decrease) in accrued expenses
    (70,086 )     72,834  
   Decrease in income taxes payable
    -       (168,011 )
   Increase (Decrease) in other current liabilities
    (515,160 )     511,270  
                 
Net cash used in operating activities
    (1,020,794 )     (1,721,287 )
                 
Investing Activities
               
Proceeds from sale of equipment
    -       171,070  
Capital expenditures and other additions
    (40,371 )     (396,624 )
Equity investment
    (291,271 )     -  
                 
Net cash used in investing activities
    (331,642 )     (225,554 )
                 
Financing Activities
               
Payments of long-term debt
    -       (67,434 )
Payments for treasury stock
    (86,625 )     (285,902 )
Increase in noncontrolling interest in majority-owned susidiary
    65,909       -  
                 
Net cash used in financing activities
    (20,716 )     (353,336 )
                 
Effect of exchange rate fluctuations on cash and cash equivalents
    39,651       (43,419 )
                 
Net decrease in cash and cash equivalents
    (1,333,501 )     (2,343,596 )
                 
Cash  and cash equivalents at beginning of year
    7,259,654       9,603,250  
                 
Cash and cash equivalents at end of year
    5,926,153       7,259,654  
                 
Supplemental information
               
Interest paid
    -       10,023  
Income taxes paid
    340,500       392,969  
                 
Supplemental disclosure of non-cash investing activities
               
Employee loans receivable for the sale of equipment
    -       85,131  

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

 
F-5

 

SINO-GLOBAL SHIPPING AMERICA LTD. AND AFFILIATE

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

   
Common
stock
   
Additional
paid-in
capital
   
Treasury
stock
   
Retained
earnings
(accumulated
deficit)
   
Accumulated
other
comprehensive
loss
   
Unearned
compensation
   
Total
 
   
US$
   
US$
   
US$
   
US$
   
US$
   
US$
   
US$
 
                                           
Balance as of June 30, 2009
    7,709,745       1,158,696       (285,902 )     111,326       (13,399 )     (755,396 )     7,925,070  
                                                         
Shares repurchased
                    (86,625 )                             (86,625 )
Fair value of stock options granted to member of the audit committee
            33,100                               (33,100 )     -  
Amortization of stock options granted to employees and members of audit committee
                                            195,469       195,469  
Foreign currency translation
                                    8,775               8,775  
Net loss
                            (536,772 )                     (536,772 )
Comprehensive loss
                                                    (527,997 )
Balance as of June 30, 2010
    7,709,745       1,191,796       (372,527 )     (425,446 )     (4,624 )     (593,027 )     7,505,917  

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

 
F-6

 

SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATE

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
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’s principal geographic market is in the People’s Republic of China (“PRC”). As PRC laws and regulations restrict foreign ownership of shipping agency service businesses, the Company provides its services in the PRC through Sino-Global Shipping Agency Ltd. (“Sino-China”), a Chinese legal entity, which holds the licenses and permits necessary to operate shipping services in the PRC. Sino-China is located in Beijing with branches in Ningbo, Qingdao, Tianjin, Qinhuangdao and Fangchenggang and cooperation with all other ports in PRC. On November 13, 2007, the Company formed a wholly owned foreign-owned enterprise, Trans Pacific Shipping Limited (“Trans Pacific”), in Beijing, which established a subsidiary in Shanghai, which provides freight forwarder services.
 
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).
 
With a purpose of building up an international shipping agency service network, the Company formed a wholly-owned subsidiary, Sino-Global Shipping Australia Pty Ltd. (“Sino-Global AUS”) in Australia on July 3, 2008, which 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.
 
The Company established a wholly-owned subsidiary, Sino-Global Shipping (HK) Limited ("Sino-Global HK") on September 22, 2008. Sino-Global HK becomes 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. On July 27, 2009, Sino-Global HK signed an exclusive partnership agreement with Forbes & Company Limited (“Forbes”), which is a listed company on the Bombay Stock Exchange and one of the largest shipping and logistic service providers in India. Through Forbes, the Company is able to provide general shipping agency services to all ports in India.
 
The Company through Trans Pacific acquired a 90% interest in Trans Pacific Logistics Shanghai, Ltd., which provides freight forwarder services in Shanghai. On November 6, 2009, the Company through Trans Pacific acquired a 40% interest in Sino-Global Shipping Agency Development Co., Ltd. in Beijing.
 
 
F-7

 

The Company is listed on the Nasdaq Capital Market as a result of its Initial Public Offering (IPO) on May 20, 2008.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
(a) Basis of presentation
 
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The agency relationship between the Company and Sino-China and its branches is governed by a series of contractual arrangements pursuant to which the Company has substantial control over Sino-China.
 
            Sino-China is considered a variable interest entity (“VIE”), and the Company is the primary beneficiary. On November 14, 2007, the Company through Trans Pacific entered into agreements with Sino-China, pursuant to which the Company receives 90% of Sino-China’s net income. The Company does not receive any payment from Sino-China unless Sino-China recognizes net income during its fiscal year. These agreements do not entitle the Company to any consideration if Sino-China incurs a net loss during its fiscal year. In accordance with these agreements, Sino-China pays consulting and marketing fees equal to 85% and 5%, respectively, of its net income to the Company’s 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 condensed consolidated financial statements pursuant to Accounting Standards Codification (“ASC”) 810-10, “Consolidation”. As a VIE, Sino-China’s sales are included in the Company’s total sales, and its income (loss) from operations is consolidated with the Company’s. Because of the contractual arrangements, the Company had a pecuniary interest in Sino-China that requires consolidation of the Company’s and Sino-China’s financial statements.
 
The Company has consolidated Sino-China’s income because the entities are under common control in accordance with ASC 805-10, “Business Combinations”. For this reason, the Company has included 90% of Sino-China’s net income in the Company’s net income as discussed above as though the 2007 agreements were in effect from the inception of Sino-China, and only the 10% of Sino-China’s net income not paid to the Company represents the non-controlling interest in Sino-China’s income.
 
(b) Fair Value of Financial Instruments
 
The carrying amounts reported in the consolidated financial statements for current assets and current liabilities approximate fair value due to the short-term nature of these financial instruments.
 
(c) Use of Estimates
 
The preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Estimates are adjusted to reflect actual experience when necessary. Significant accounting estimates reflected in the Company’s consolidated financial statements include revenue recognition, allowance for doubtful accounts, the useful lives of property and equipment and unearned compensation.

 
F-8

 
 
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 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 ASC 830-10, “Foreign Currency Matters”. Assets and liabilities are translated at current exchange rates quoted by the People’s Bank of China at the balance sheet dates and revenues and expenses are translated at average exchange rates in effect during the periods. Resulting translation adjustments are recorded as other comprehensive income (loss) and accumulated as a separate component of equity of the Company and also included in Non-controlling interest.
 
(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-9

 
(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) Equity Investment
 
Investments in companies that are owned 20% to 50% for which the Company has significant influence but not control are accounted for by the equity method. Under the equity method, the Company recognizes in earnings its proportionate share of the income or loss of the investee. The Company has an investment of 40% in Sino-Global Shipping Agency Development Co., Ltd. (“Development Co.”) The Company recognized its proportionate share of loss of $54,703 for the year ended June 30, 2010.
 
Summarized financial information for Development Co is as follows:
 
   
As of June 30, 2010
 
   
US$
 
Current Assets
    100,190  
Noncurrent Assets
    70,579  
Total Assets
    170,769  
         
Current liabilities
    13,751  
Noncurrent liabilities
    -  
Total Liabilities
    13,751  
Shareholders' equity
    157,018  
Total Liabilities and shareholders' equity
    170,769  
         
   
For the year ended
 
Results of Operations
 
June 30, 2010
 
Net Sales
    -  
Costs of goods sold
    -  
Gross profit
    -  
Operating loss
  $ (136,757 )
Net loss
  $ (136,757 )
         
 
 (h) 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.

 
F-10

 
 
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 ASC 405-45, 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.
 
(i) 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. Because of the worldwide financial crisis, the Company has difficulties in collecting cash from some of its customers. In accordance with the accounting policies, management has determined that an allowance of $137,982 was required at June 30, 2010, and $723,640 at June 30, 2009. Accounts are written off after exhaustive efforts at collection.
 
(j) 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.
 
The Company follows the provisions of ASC 740-10, “Accounting for Income Taxes”, which addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740-10, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position would be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. ASC 740-10 also provides guidance on derecognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.
 
The implementation of ASC 740-10 resulted in no material liability for unrecognized tax benefits and no material change to the beginning retained earnings of the Company. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statement of Operations. For the year ended June 30, 2009, the Company incurred approximately  $11,000 of interest and penalties. Most of these interest and penalties incurred were due to the Company changed its tax year end from January 31 to June 30.

 
F-11

 
 
Income tax returns for the year prior to 2006 are no longer subject to examination by tax authorities.
 
PRC Enterprise Income Tax
 
 PRC enterprise income tax is calculated based on taxable income determined under PRC GAAP. Sino-China and Trans Pacific are registered in PRC and governed by the Enterprise Income Tax Laws of the PRC. Their taxable incomes were subject to an enterprise income tax rate of 25% in accordance with the amendment of the Enterprise Income Tax Law of the PRC that became effective on January 1, 2008.
 
PRC Business Tax and Surcharges
 
Revenues from services provided by Sino-China and Trans Pacific are subject to the PRC business tax of 5%. Business tax and surcharges are paid on gross revenues generated from shipping agency services minus the costs of services which are paid on behalf of the customers.
 
In addition, under the PRC regulations, Sino-China is required to pay the city construction tax (7%) and education surcharges (3%) based on the calculated business tax payments.
 
Sino-China has complied with ASC 405-50 and reports its revenues net of PRC’s business tax and surcharges for all the periods presented in the consolidated statements of operations.
 
(k) Earnings (loss) per share
 
Earnings (loss) per share is calculated in accordance with ASC 260-10, “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 if applicable are included in the computation of diluted earnings per share on an “if-converted” basis, when the impact is dilutive. Contingent exercise price resets are accounted for in a manner similar to contingently issuable shares. Common share equivalents are excluded from the computation of diluted earnings per share if their effects would be anti-diluted.
 
ASC 260-10 requires the presentation of both Basic EPS and Diluted EPS on the face of the Company’s Consolidated Statements of Operations.
 
The following table sets forth the computation of basic and diluted per share information:
 
 
 
2010
   
2009
 
Numerator:                 
Net income (loss)
  $ (536,772 )   $ (1,675,691 )
                 
 Denominator:
               
Weighted average common shares outstanding
    2,915,879       2,987,297  
Dilutive effect of stock options and warrants
    -       -  
Weighted average common shares outstanding, assuming dilution
    2,915,879       2,987,297  
 
 
F-12

 
 
The effect of 138,000 stock options and 139,032 warrants for all periods presented were not included in the calculation of diluted EPS because they would be anti-dilutive.
 
3. OTHER RECEIVABLES / OTHER CURRENT LIABILITIES
 
(a) Other Receivables
 
Other receivables represent mainly amounts to be received from customers for advance payments made to the port agent for reimbursed charges to be incurred in connection with the costs of services and 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. EMPLOYEE LOANS RECEIVABLE
 
The employee loans receivable represent receivables from employees other than executive officers for three automobiles sold to these employees during the fiscal year ended June 30, 2009. These receivables are secured by the automobiles and the personal assets of the employees. The Company has not imputed any interest on these receivables due to immateriality.

Employee loans receivable consist of the following:

   
June 30,
 
   
2010
   
2009
 
   
US$
   
US$
 
             
 Loans from employees, secured by their personal assets, receivable in monthly installments of approximately $1,386 bearing no interest through August 2014
    68,917       85,131  
 Less : Current maturities
    (16,727 )     (16,627 )
      52,190       68,504  
 
5. ADVANCES TO SUPPLIERS/ADVANCES FROM CUSTOMERS.
 
(a) Advances to Suppliers
 
Advances to suppliers represent costs of services and fees paid to suppliers in advance in connection with the agency services fees income to be recognized.
 
(b) Advances from Customers
 
Advances from customers represent money received from customers in advance in connection with the agency services fees income to be recognized.

 
F-13

 
 
6. PROPERTY AND EQUIPMENT
 
Property and equipment are as follows:
 
   
June 30,
 
   
2010
   
2009
 
   
US$
   
US$
 
             
Land and building
    73,207       72,768  
Motor vehicles
    869,081       863,866  
Computer equipment
    102,048       113,556  
Office equipment
    35,714       30,419  
Furniture & Fixtures
    37,119       22,545  
System software
    112,268       120,347  
Leasehold improvement
    62,763       70,606  
                 
Total
    1,292,200       1,294,107  
                 
Less : Accumulated depreciation and amortization
    538,173       321,176  
                 
Property and equipment, net
    754,027       972,931  
 
7. STOCK-BASED COMPENSATION
 
On May 20, 2008, the Company issued 174,000 stock options (“Options”) to its officers, employees and members of the audit committee to purchase the Company’s common stock. The Options were all issued pursuant to the Company’s 2008 Stock Incentive Plan. On December 15, 2009, the Company issued 10,000 stock options to Joseph Jhu, member of the audit committee, to purchase the Company’s common stock without par value per share.
 
The Options are non-statutory options and have been granted by the Compensation Committee to Cao Lei, Zhang Mingwei, Cao Jing Bo and Cao Xin Qing. The Board of Directors approved the issuance of options to Dennis O. Laing, C. Thomas Burke and Wang Jing, all of whom are members of both the Compensation Committee and Audit Committee. During the year ended June 30, 2009, Cao Xin Qing and C. Thomas Burke left the Company and their options expired unexercised.
 
A summary of the options issued under the Plan is presented in the table below:
 
   
2010
   
2009
 
   
Shares
   
Weighted
Average
Exercise
Price
   
Shares
   
Weighted
Average
Exercise
Price
 
                         
Options outstanding, beginning of year
    128,000     $ 7.75       174,000     $ 7.75  
Granted
    10,000     $ 3.37       -     $ -  
Canceled, forfeited or expired
    -     $ 7.75       (46,000 )   $ 7.75  
                                 
Options outstanding, end of year
    138,000     $ 7.43       128,000     $ 7.75  
                                 
Options exercisable, end of year
    27,600     $ 7.75       25,600     $ 7.75  
 
 
F-14

 
 
The issuance of the Options is exempted from registration under of the Securities Act of 1933, as amended (the “Act”). The Options will vest at a rate of 20% per year, with 20% vesting initially on May 19, 2010. The Common Stock underlying the Options granted may be sold in compliance with Rule 144 under the Act. The term of the Options is 10 years and the exercise price of the Options are $7.75 (174,000 options) and $3.37 (10,000 options) separately. Each Option may be exercised to purchase one share of Common Stock. Payment for the Options may be made in cash or by exchanging shares of Common Stock at their Fair Market Value. Provided the Common Stock is then traded on the NASDAQ Capital Market, the Fair Market Value will be equal to the average of the highest and lowest registered sales prices of Company Stock on the date of exercise.
 
The fair value of 10,000 stock options granted in 2010 was calculated at the grant date using the Black-Scholes option-pricing model with the following assumptions:
 
Black-Scholes Option Pricing Model
     
Assumptions:
     
Stock Price
  $ 3.31  
Strike Price
  $ 3.37  
Volatility
    408.84 %
Risk-free Rate
    2.35 %
Expected life