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SINO > SEC Filings for SINO > Form 10-Q on 13-Feb-2013All Recent SEC Filings

Show all filings for SINO-GLOBAL SHIPPING AMERICA, LTD. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for SINO-GLOBAL SHIPPING AMERICA, LTD.


13-Feb-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our company's financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes included elsewhere in this report. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors.

Overview

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

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

On November 13, 2007, the Company formed a wholly owned foreign-owned enterprise, Trans Pacific Shipping Limited ("Trans Pacific Beijing"), which invested in one 90%-owned subsidiary on May 31, 2009, Trans Pacific Logistics Shanghai Limited ("Trans Pacific Shanghai". Trans Pacific Beijing and Trans Pacific Shanghai are referred to collectively as "Trans Pacific").

Trans Pacific Beijing and Sino-China do not have a parent-subsidiary relationship. Trans Pacific Beijing has contractual arrangements with Sino-China and its shareholders that enable the Company to substantially control Sino-China.

For the 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, which serves the needs of customers shipping into and out of Western Australia. The Company also signed an agreement with Monson Agencies Australia ("Monson"), one of the largest shipping agency service providers in Australia. Through the Company's relationship with Monson, the Company is able to provide general shipping agency services to all ports in Australia.

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

The Company established a new wholly-owned subsidiary, Sino-Global Shipping Canada Inc. (Sino-Global Canada) at the end of 2012, to provide services for ships loading commodities at Canadian ports. Sino-Global Canada has already commenced to provide services to Baosteel's vessels in Canada.

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

Revenues

China's economy slowed down in 2012 resulting in reduced volume of iron ore import. Although the number of ships we served increased from 222 to 223 for the six months, it decreased from 116 to 99 for three months ended December 31, 2011 and 2012. Of the total number of ships we served, the number of ships we provided loading/discharging services were significantly decreased. By contrast, our strategic partner, Monson Australia, referred an increased number of ships to us for which we provided protective services. As protective services generate much less agency revenue per ship, our total revenues decreased from $16.62 million down to $14.31 million for the six months and from $8.02 million down to $6.43 million for the three months ended December 31, 2011 and 2012, respectively.

                                       For the six months ended December 31,                      For the three months ended December 31,
                                 2012            2011            Diff.          %           2012            2011            Diff.            %
Number of ships served               223             222               1         0.45            99             116             -17         -14.66
Loading/discharging                  132             189             -57       -30.16            59              93             -34         -36.56
Protective                            91              33              58       175.76            40              23              17          73.91

We recognized more than 99% of our revenues in our locations in the United States, Australia and Hong Kong. The revenues recorded in Sino-China are subject to a 5% business tax as well as an additional 0.5% surcharge after deducting the costs of services. We deduct these business taxes and related surcharges from our gross revenues to arrive at our total revenues.

The Chinese Ministry of Finance and the State Administration of Taxation jointly set out the Value Added Tax (VAT) reform plan, which will see the business taxes replaced by VAT commencing from Shanghai on January 1, 2012, and then be extended to all other provinces and autonomies in mainland China. As we recorded most of our revenues outside of China, there is little effect of ongoing VAT reform to our operating results.

We charge shipping agency fees in two ways: (1) the fixed fees are predetermined with a customer, and (2) the cost-plus fees are calculated based on the actual costs incurred plus a mark up. We generally require payments in advance from customers and bill them the balances within 30 days after the transactions are completed.

We believe the most significant factors that directly or indirectly affect our shipping agency service revenues are:

the number of ships to which we provide port loading/discharging services;

the size and types of ships we serve;

the type of services we provide, for example loading/discharging, protective, owner's affairs and so on;

the rate of service fees we charge;

the number of ports at which we provide services; and

the number of customers we serve.

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

Operating Costs and Expenses

Our operating costs and expenses consist of costs of revenues, general and administrative expenses, selling expenses. Our total operating costs and expenses decreased in absolute amount and as a percentage of total revenues for the six and three months ended December 31, 2012 compared to the same periods ended December 31, 2011 mainly due to our budget control efforts on general and administrative expenses. The following table sets forth the components of our Company's costs and expenses for the periods indicated.

For the six months ended December 31, 2012 2011 Change US$ % US$ % US$ %

Revenues                        14,311,829       100.00       16,615,305       100.00       (2,303,476 )     (13.86 )

Costs and expenses
Cost of revenues                13,124,226        91.70       15,206,693        91.52       (2,082,467 )     (13.69 )

General and administrative
expense                          2,004,611        14.01        2,826,615        17.01         (822,004 )     (29.08 )
Selling expense                    183,426         1.28          212,806         1.28          (29,380 )     (13.81 )
Total costs and expenses        15,312,263       106.99       18,246,114       109.82       (2,933,851 )     (16.08 )

For the three months ended December 31, 2012 2011 Change US$ % US$ % US$ %

Revenues                        6,429,761       100.00       8,022,598       100.00       (1,592,837 )     (19.85 )

Costs and expenses
Cost of revenues                6,006,063        93.41       7,452,475        92.89       (1,446,412 )     (19.41 )

General and administrative
expense                         1,008,338        15.68       1,444,702        18.01         (436,364 )     (30.20 )
Selling expense                    96,918         1.51         108,224         1.35          (11,306 )     (10.45 )
Total costs and expenses        7,111,319       110.60       9,005,401       112.25       (1,894,082 )     (21.03 )

Costs of Revenues. Costs of revenues represent the expenses incurred in the periods when a ship docks in a harbor to load and discharge cargo. We believe the most significant factors that directly or indirectly affect our costs of revenues are:

the number of ships to which we provide port loading/discharging services;

the size of ships we serve, as large ship requires more towboats to park at harbor;

the nationality of ships we serve, as a foreign ship pays different tonnage taxes;

the complexity of service processing;

the operating condition of a particular port for ships loading or discharging;

the number of days a ship loading or discharging; and

the number of days ships loading or discharging during overtime period and public holidays.

We typically pay the costs of revenues on behalf of our customers. Except for Australia and Canada where our revenues and costs are settled in the local currencies, we receive most revenues from our clients in U.S. dollars and pay most costs of revenues to the local port agents in local currency, for example RMB in China. As such, the costs of revenues will change if the foreign currency exchange rates change.

Our costs of revenues as a percentage of our total revenues increased slightly from 91.52% to 91.70% for the six months and from 92.89% to 93.41% for the three months ended December 31, 2012 and 2011, respectively. The increase was due primarily to the devaluation of the U.S. dollars against Chinese RMB by 1.34% and 1.67% for the six and three months ended December 31, 2012 and 2011, respectively. Because the U.S. government imposed a third round of quantitative easing (QE3), we expect that the U.S. dollar's devaluation against the Chinese RMB will continue in fiscal 2013. Consequently, we expect that our costs of revenues as a percentage of our total revenues will continue to increase and our gross margin will continue to decrease.

General and Administrative Expenses. Our general and administrative expenses primarily consist of salaries and benefits for our staff (both operating and administrative personnel), business promotion, depreciation expenses, office rental expenses and expenses for legal, accounting and other professional services. For the six and three months ended December 31, 2012, our general and administrative expenses as a percentage of our total revenues decreased from 17.01% to 14.01% and from 18.01% to 15.68% over the same periods in 2011, mainly due to our expense cuts in business expansion, office expenditures and travel expenses. In particular, the general and administrative expenses of our Australian and Hong Kong offices constituted about 8.89% of our total general and administrative expenses for the period ended December 31, 2012, compared to that of 10.33% for the period ended December 31, 2011.

Selling Expenses. Our selling expenses primarily consist of commissions and traveling expenses for our operating staff to the ports at which we provide services. In line with the decrease in our revenues, our selling expenses decreased in absolute amount and kept same as a percentage of our total net revenues for the six months ended December 31, 2012 Selling expenses decreased in absolute amount and slightly increased as a percentage of our total net revenues for the three months ended December 31, 2012.

Critical Accounting Policies

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

There have been no material changes during 2013 in the Company's significant accounting policies to those previously disclosed in the 2012 annual report.

2013 Trends

Because our principal operating market is based in the PRC, our business strategies are heavily influenced by the development of Chinese economy and political environments. Since the end of 2011, the Chinese government has exercised significant control to slow the pace of growth of the Chinese economy. Our revenues decreased 13.86% for the six months and 19.85% for the three months ended December 31, 2012. This is largely attributed to the reduced number of ships we served for Beijing Shourong Forwarding Service Co., Ltd. ("Shourong"), our major customer from which we have generated more than 60% of total revenues. Although it is difficult for us to predict future trends given current economic uncertainties, we still believe that growth is key for a small company like us to survive and develop. As such, we will continue setting top line growth as our first priority. We are trying to maintain our revenues in fiscal 2013 equal to or slightly less than that in fiscal 2012. To fulfill the objective, we will leverage our efforts in maintaining our current clients and attracting new clients, particularly increasing revenues from our agency services to vessels coming to Chinese ports as well as expanding business activities at the loading ports in Australia, Canada, South Africa, Brazil and other countries to which China has major trading activities..

In addition to revenue challenges, we have experienced significant difficulties in managing our foreign exchange risks. Because we receive most of our revenues in U.S. dollars and pay most of our expenses in Chinese RMB, we have faced increased costs of revenues due to the devaluation of the U.S. dollar against the RMB over the last few years. Although the U.S. dollar devaluation appears to be slowing down, we anticipate the trend will continue in fiscal 2013 and our gross margin will continue to be negatively affected by the devalued U.S. dollar.

In accordance with our budget control efforts, our general and administrative expenses decreased significantly for the six and three months ended December 31, 2012. In the 2013 fiscal year, we will continue our combined effort to control our budget and promote business growth.

Compliance with Listing Rule 5550((b)(1)

We received a notification letter from NASDAQ dated November 21, 2012, regarding noncompliance with the NASDAQ Capital Market Listing Rule 5550(b)(1), by virtue of our company maintaining less than $2,500,000 in shareholders' equity. In accordance with the instructions provided in the notification letter, we responded to NASDAQ, applying for a full extension together with a plan to regain compliance with Listing Rule 5550(b)(1). The application for the full 180-day extension was granted by NASDAQ on January 24, 2013, requiring us to implement our plan and return to compliance with NASDAQ Capital Market Listing Rule 5550(b)(1) on or before May 20, 2013.

Results of Operations

Six Months Ended December 31, 2012 Compared to Six Months Ended December 31, 2011

Revenues. Our total revenues decreased by 13.86% from $16,615,305 for the six months ended December 31, 2011 to $14,311,829 in the comparable six months in 2012. The number of ships that generated revenues for us increased from 222 for the six-month period of fiscal 2012 to 223 for the comparable period of fiscal 2013. Despite the increased numbers of ships we served, our revenues decreased. This is because we provided protective services for more ships, which generated significantly lower revenues per ship. For the six months ended December 31, 2012, we provided protective services to 91 ships, compared to 33 ships for the 2011 six month period. In contrast, we provided loading/discharging service to 132 and 189 ships for the six months ended December 31, 2012 and 2011, respectively.

Total Operating Costs and Expenses. Our total operating costs and expenses decreased by 16.08% from $18,246,114 for the six months ended December 31, 2011 to $15,312,263 for the six months ended December 31, 2012. This decrease was primarily due to decreases in our costs of revenues and general and administrative expenses, as discussed below.

Costs of Revenues. Our cost of revenues decreased by 13.69% from $15,206,693 for the six months ended December 31, 2011 to $13,124,226 for the six months ended December 31, 2012. The revenues decreased more quickly than costs of revenues and the gross margins decreased from 8.48% down to 8.30% for the comparative six months ended December 31, 2011 and 2012, respectively. The 0.11% decrease in gross margin was largely due to the devaluation of the U.S. dollar against the Chinese RMB. The average foreign exchange rate was $1.00 to RMB6.3009 for the six months ended December 31, 2012 compared to $1.00 to RMB6.3865 for the six months ended December 31, 2011, a 1.34% increase during the period.

General and Administrative Expenses. Our general and administrative expenses decreased by 29.08% from $2,826,615 for the six months ended December 31, 2011 to $2,004,611 for the six months ended December 31, 2012. This mainly due to (1) decreased bad debts provision of $67,827,(2) a decrease of $409,140 in business promotion, (3) decreased listing expense of $108,527, (4) decreased salaries and benefits for our staff of $40,656. We will continue our budget control efforts to reduce the general and administrative expenses as a percentage of total revenues.

Selling Expenses. Our selling expenses decreased by 13.81% from $212,806 for the six months ended December 31, 2011 to $183,426 for the period ended December 31, 2012. Most selling expenses are commissions paid to business partners who refer shipping agency business to us.

Operating Loss. We had an operating loss of $1,000,434 for the six months ended December 31, 2012, compared to operating loss of $1,630,809 for the comparable six months in 2011. The operating loss for the six-month period of fiscal 2013 was decreased primarily due to the reduced general and administrative expenses.

Financial Income, Net. Our net financial income was $29,734 for the six months ended December 31, 2012, compared to our net financial income of $100,857 for the six months ended December 31, 2011. The net financial income was derived largely from the foreign exchange income recognized in the financial statement consolidation. Foreign exchange losses resulting from the settlement of foreign exchange transactions are recognized in the condensed consolidated statements of operations.

Taxation. Our income tax expense was $79,100 for the six months ended December 31, 2012, compared to income tax benefits of $24,121 for the six months ended December 31, 2011. As we made a tax provision of $24,100 and deferred tax provision of $55,000, the income tax expense of the six month period ended December 31, 2012 was $79,100.

Net Loss. As a result of the foregoing, we had a net loss of $1,008,011 for the six months ended December 31, 2012, compared to net loss of $1,654,325 for the six months ended December 31, 2011. After deduction of non-controlling interest in loss, net loss attributable to Sino-Global Shipping America, Ltd. was $481,819 for the six months ended December 31, 2012, compared to net loss of $1,060,788 for the six months ended December 31, 2011. With other comprehensive loss foreign currency translation, comprehensive loss was $484,267 for the six months ended December 31, 2012, compared to comprehensive loss of $1,048,982 for the six months ended December 31, 2011.

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

Revenues. Our total revenues decreased by 19.85% from $8,022,598 for the three months ended December 31, 2011 to $6,429,761 in the comparable three months in 2012. The number of ships that generated revenues for us decreased from 116 for the three months ended December 31, 2011 to 99 for the comparable quarter of fiscal 2013. Accordingly, our revenues decreased. In addition, we provided protective services for more ships which generated significantly lower revenues per ship. For the three months ended December 31, 2012, we provided protective services to 40 ships, compared to 23 ships for the same quarter of 2011. We provided loading/discharging service to 59 and 93 ships for the three months ended December 31, 2012 and 2011, respectively.

Total Operating Costs and Expenses. Our total operating costs and expenses decreased by 21.03% from $9,005,401 for the three months ended December 31, 2011 to $7,111,319 for the three months ended December 31, 2012. This decrease was primarily due to decreases in our costs of revenues and general and administrative expenses, as discussed below.

Costs of Revenues. Our cost of revenues decreased by 19.41% from $7,452,475 for the three months ended December 31, 2011 to $6,006,063 for the three months ended December 31, 2012. The revenues decreased faster than costs of revenues, and the gross margins decreased from 7.11% down to 6.59% for the comparative three months ended December 31, 2011 and 2012, respectively. The 0.11% decrease in gross margin was largely due to the devaluation of the U.S. dollar against the Chinese currency. The average foreign exchange rate was $1.00 to RMB6.2494 for the three months ended December 31, 2012 compared to $1.00 to RMB6.3524 for the three months ended December 31, 2011, a 1.67% increase during the period.

General and Administrative Expenses. Our general and administrative expenses decreased by 30.20% from $1,444,702 for the three months ended December 31, 2011 to $1,008,338 for the three months ended December 31, 2012. This decrease was mainly due to (1) decreased salaries and benefits for our staff of $48,845, (2) a decrease of $137,178 in business promotion, (3) decreased listing expense of $94,271. We will continue our budget control efforts to reduce the general and administrative expenses as a percentage of total revenues.

Selling Expenses. Our selling expenses decreased by 10.45% from $108,224 for the three months ended December 31, 2011 to $96,918 for the three months ended December 31, 2012, mainly due to lower commission payments related to the sales decrease.

Operating Loss. We had an operating loss of $681,558 for the three months ended December 31, 2012, compared to operating loss of $982,803 for the comparable three months in 2011. The operating loss for the second quarter of fiscal 2012 was primarily due to the decrease in costs of revenues and general and administrative expenses.

Financial Income, Net. Our net financial income was $32,302 for the three months ended December 31, 2012, compared to our net financial income of $144,860 for the three months ended December 31, 2011. The net financial income was derived largely from the foreign exchange gains recognized in the financial statement consolidation. Foreign exchange losses resulting from the settlement of foreign exchange transactions are recognized in the condensed consolidated statements of operations.

Taxation. Our income tax benefits were $78,100 for the three months ended December 31, 2012, compared to income tax benefits of $1,000 for the three months ended December 31, 2011.As we provided for tax benefits of $100 and deferred tax benefits of $78,000, the income tax benefits of the three months ended December 31, 2012 was $78,100.

Net Loss. As a result of the foregoing, we had a net loss of $565,854 for the three months ended December 31, 2012, compared to net loss of $827,385 for the three months ended December 31, 2011. After deduction of non-controlling interest in loss, net loss attributable to Sino-Global Shipping America, Ltd. was $291,586 for the three months ended December 31, 2012, compared to net loss of $395,001 for the three months ended December 31, 2011. With other comprehensive loss foreign currency translation, comprehensive loss was $285,251 for the three months ended December 31, 2012, compared to comprehensive loss of $423,625 for the three months ended December 31, 2011.

Liquidity and Capital Resources

Cash Flows and Working Capital

We have financed our operations primarily through cash flows from operations. As of December 31, 2012, we had $885,806 in cash and cash equivalents. Our cash and cash equivalents primarily consist of cash on hand and cash in banks. We deposited approximately 91.53% of our cash in banks in the USA, Australia and Hong Kong.

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

                                                                 For the six months ended December 31,
                                                                     2012                      2011

Net cash provided by (used in) operating activities          $         (3,492,864 )     $          640,217
Net cash provided by (used in) investing activities                       (50,066 )                (37,212 )
Net cash provided by (used in) financing activities                        (4,776 )                (15,151 )
Net increase (decrease) in cash and cash equivalents                   (3,547,527 )                530,146
Cash and cash equivalents at beginning of Period                        4,433,333                4,878,828
Cash and cash equivalents at end of Period                                885,806                5,408,974

Operating Activities

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