Item 1. Business
SINORAMA CORPORATION (“Sinorama”, the “Company” “we” or “us”) was incorporated in the State of Florida on June 30, 2016. The Company’s principal corporate address is La Plaza Swatow, Office 518, P.O. Box 008, 998 Blvd, Saint-Laurent, Montreal, QC H2Z 9Y9. Our telephone number is 514-866-6888. Our website address is www.sinoramacorporation.com.
We are a travel operator company. Our revenues are generated from the sale of self-developed products, including Bus Tour Products and Asian Tour Products. We also sell Third Party Products (air tickets, hotel, etc.). Revenues have grown rapidly since 2013, primarily driven by sale of our self-developed Asian Tours Products. Every year, over 10,000 tourists from North America, Europe, Australia and New Zealand have traveled to Asia with Sinorama, while tens of thousands of tourists from China and around the world traveled with Sinorama in Canada, the United States and Europe.
Reorganization
The Company’s subsidiaries include Sinorama Tours Co., Ltd., Simon Qian Voyages, Inc., Vacances Sinorama Inc., and Sinorama Voyages:
Sinorama Tours Co., Ltd. ("Sinorama Tours") is a privately held Limited Company registered in Samoa on June 3, 2015.
Simon Qian Voyages Inc. (“Simon Qian Voyages”) was established on October 12, 2012 under the laws of Canada. Until June 9, 2016, Ms. Jing Wenjia was the sole shareholder of Simon Qian Voyages.
Vacances Sinorama Inc. (“Vacances Sinorama”) is a privately held, for-profit travel producer and seller, incorporated in Quebec, Canada in December 2004. Initially, Mr. Qian Hong owned all the outstanding shares of Vacances Sinorama. In December 2014 Mr. Qian Hong transferred 66.67% of the outstanding shares of Vacances Sinorama to Simon Qian Voyages.
Sinorama Voyages (“Sinorama Voyages”) is a privately held, for-profit travel producer and seller, incorporated in France in February 2012. Until May 9, 2016, Mr. Qian Hong owned 51% of Sinorama Voyages.
On June 30, 2016, the Company engaged in a corporate reorganization to roll several controlled entities (now referred to as the “subsidiaries”) into Sinorama Corporation. The specific transactions related to this reorganization are as follows:
·On May 9, 2016, Mr. Qian Hong transferred his 51% interest in Sinorama Voyages to Sinorama Tours.
·On June 9, 2016, Ms. Jing Wenjia transferred sole ownership of Simon Qian Voyages to Sinorama Tours, which then owned 100% of Simon Qian Voyages and, indirectly, 66.67% of Vacances Sinorama, as well as 51% of Sinorama Voyages.
·On June 30, 2016, Sinorama Corporation issued a total of 11,000,000 shares of its common stock to the shareholders of Sinorama Tours in exchange for 100% of the outstanding shares of Sinorama Tours.
The control of the entities was not changed by the reorganization, as all five entities remained under the control of Mr. Qian Hong and/or his wife, Ms. Jing Wenjia. Accordingly, we have treated the combination, for accounting purposes, as a corporate restructuring (reorganization) of entities under common control. Thus, the current capital structure has been presented retroactively in prior periods as if such structure existed at that time, and, in accordance with ASC 805-50-45-5, the entities under common control are presented on a combined basis for all periods during which such entities were under common control. Non-controlling interests in the subsidiaries are related parties and therefore were not adjusted to fair value as a result of the reorganization.
Our Operations
Sinorama Corporation is an integrated travel producer and seller which enjoys a good reputation within the tourism industry, with a team of 167 full time professionals and experienced employees. The Company provides Bus Tours, Asian Tours, as well as sales of third-party products such as air tickets, hotels and other travel products. Sinorama Corporation has achieved a combination of traditional tourism industry and E-commerce, while covering a wide range of business. We offer travel products and services primarily through the following distribution methods: the agency methods, online retail methods and offline store sales methods.
Under the agency methods, another travel agency acts as the agent in the transaction. It provides real-time search, pricing, booking, change and payment for travelers, Sinorama provides integrated itinerary creation for travelers, who use the services of agency methods for both leisure and business travel.
Under the online and offline sales methods, we provide real-time search, pricing, booking, change, payment and integrated itinerary creation for travelers, who use the services of online and offline travel methods for both leisure and business travel.
Bus Tour Services
Bus Tour Services are provided mostly by local tour operators. Sinorama conducts a rigorous process in designing travel products and services before selling these products to our customers, and we participate in the design of bus tours. We independently determine the prices charged to customers for bus tours, as well as the prices paid to suppliers and subcontractors, because we are the primary obligor in the arrangement as we are responsible for the ultimate customer acceptance for all products and services rendered. Such commitment is also made in the contracts we enter into with our customers. We are the party retained by and paid by our customers. In situations of customer disputes, where the customer files a complaint or demands a refund, we assume risks and responsibilities for the delivery of bus tours and we are responsible for refunding the customers their payments. Bus Tour revenues are recognized when customers depart from the trips. Revenues from bus tour services are recognized on gross basis, which represent amounts charged to and received from customers, as we are the primary obligor in the arrangement and bear the risks and rewards, including the customers’ acceptance of products and services delivered.
Asian Tour Services
Asian Tour Services are provided mostly by cross-border travel operators. Sinorama conducts a rigorous process in designing travel products and services before selling these products to our customers, and participates in the design of Asian tours. We independently determine the prices charged to customers for Asian tours, as well as the prices paid to suppliers and subcontractors, because we are primary obligor in the arrangement as we are responsible for the ultimate customer acceptance for all products and services rendered. Such commitment is also made in the contracts we enter into with our customers. We are the party retained by and paid by our customers. In situations of customer disputes, where the customer files a complaint or demands a refund, we assume risks and responsibilities for the delivery of Asian tours and we are responsible for refunding the customers their payments. The Company recognizes Asian tour services revenues and other travel-related services such as visa processing services on the date that tours or the flights departure, provided that evidence of an arrangement exists, the fees are fixed and determinable, no significant obligations remain at the end of the period, and collection of the resulting receivable is deemed probable. Customers are required to pay in full before flights departure.
Third Party Products Sales
The Company conducts a rigorous review in selecting travel products and services before selling these products to our customers. We independently determine the prices charged to customers for Third Party Products Sales, because we are the primary obligor in the arrangement as we are responsible for the ultimate customer acceptance for all products and services rendered. Such commitment is also made in the contracts we enter into with our customers. We are the party retained by and paid by our customers. In situations of customer disputes, where the customer files a complaint or demands a refund, we assume risks and responsibilities for the delivery of products and we are responsible for refunding the customers their payments. Revenue for third party products reservations is recognized at the time of the booking of the reservation. The third-party products are normally derived from air ticket, hotel reservation, cruise, and insurance.
Revenues have grown rapidly since 2013, primarily driven by sale of our self-developed Asian Tours products. Every year, over 10,000 tourists from North America, Europe, Australia and New Zealand traveled to Asia with Sinorama, while tens of thousands of tourists from China and around the world traveled with Sinorama in Canada, the United States and Europe. Sinorama is currently engaged in all facets of E-commerce development in the field of tourism, and has now established a strategic position for North American-European-Asian.
Our operating subsidiaries are Vacances Sinorama Inc. and Sinorama Voyages:
·Vacances Sinorama Inc. (“Vacances Sinorama”), is a privately held, for-profit travel producer and seller, incorporated in Quebec, Canada in December 2004. Vacances Sinorama is a large integrated tour company providing Bus Tours, Asian Tours, air tickets, hotel reservations, cruises and other travel services to its customers worldwide. Vacances Sinorama facilitates travel commerce with online and offline travel businesses, targeting both the business to customer (“B2C”) and the business to business (“B2B”) travel marketplace. The office address is La Plaza Swatow, Office 518, P.O. Box 008, 998 Blvd, Saint-Laurent, Montreal, QC H2Z 9Y9. We have 149 full time professional and experienced employees.
·Sinorama Voyages (“Sinorama Voyages”) is a privately held, for-profit travel producer and seller, incorporated in France in February 2012, Sinorama Voyages is an integrated travel company providing Bus Tours, Asian Tours, air tickets and other services to its customers worldwide. Sinorama Voyages facilitates travel commerce with online and offline travel businesses. Sinorama Voyages is providing both the B2C and B2B travel marketplace. The office address is 23-25 Road Berri, 75008 Paris. We have 18 full time professional and experienced employees.
Sourcing Product
We aggregate our tours from a wide variety of sources. Our principal Asian Tours, however, which accounted for 77% of our revenue in 2017, are primarily aggregated from a number of significant vendors. During 2017, our payments to each of the following vendors represented 5% or more of our cost of goods sold for the year: Flash Travel, Sinorama International Travel, Hubei Sinorama, Chongqing Yangtze Gold Cruise Co., Ltd. and Chongqing New Century. Each of those vendors is located in either the PRC or Hong Kong. None of those vendors is a related party to the Company.
Seasonality
Our quarterly results are likely to fluctuate because of seasonality in the leisure travel industry all over the world. Our business experiences fluctuations, reflecting seasonal variations in demand for leisure travel services. Sales of leisure travel products and services will increase in respect of holiday periods and decrease in respect of off-peak times and prices of leisure travel products and services are subject to fluctuation between peak seasons and low seasons. For example, we have historically experienced higher revenue from Bus Tours between May to October of the year, and lower revenue between November to April of the following year. We also have historically experienced higher revenue from Asian Tours between April to June and between September to November of the year, and lower revenue for the rest of the year, because many of our customers tend to travel during summer holidays. Consequently, our results of operations may fluctuate from quarter to quarter. Our rapid growth has tended to mask the seasonality of our business.
Marketing
We advertise our services through a multi-channel marketing program, which includes newspaper advertisements, email and online marketing, promotional shows on cable travel networks, and inclusion in travel-oriented websites. We frequently utilize large-size pop-up LED advertisements (e.g. on the facade of the NASDAQ building in Manhattan) to associate our brand with the aesthetic intrigue of Asian travel.)
Wholesale Distribution
Most of our marketing is direct to travelers. However, we also market to other travel agencies and aggregators. Several of these are related parties. See: "Related Transactions" later in this prospectus. Our sales to related parties are made on the same terms as we offer to unrelated third parties.
Plan of Operations
We plan to continue to expand our operations, until we achieve the critical mass necessary for profitable operations. Over the next twelve months, we will concentrate on the following four areas to grow our operations:
●Design new products- Seek to design some more new tour products to compete with competitors.
●Advertising and Marketing - Work with several marketing companies to develop brand identity, marketing materials, and update our web site. Utilize all available marketing venues and public relations opportunities to promote the Company and its tour services.
●Offer tours all over the world - We are committed to becoming the best Chinese tourism brand across the world. In the next year we plan to: (1) serve 35,000 customers worldwide with our Asia tours; (2) organize 10,000 Americans to visit China; (3) launch our Chinese outbound tourism business in North America and Europe.
●Language skills training-The Company plans to engage and train over 200 tour leaders in the European, American and Chinese markets, covering such languages as English, French, German, Spanish, Japanese and Korean.
Our Industry
The Statistical Annex of the United Nations World Tourism Organization World Tourism Barometer (UNWTO World Tourism Barometer) presented full year results for international tourism in 2015, based on preliminary data for international overnight visitors reported by destinations around the world.
The number of international tourists (overnight visitors) reached 1,184 million in 2015, 50 million more than in 2014. With a 4.4% increase, 2015 marks the sixth consecutive year of robust growth above the long-term average since the financial crisis of 2009. As of 2015, international tourism had gained 256 million arrivals since the pre-crisis year of 2008.
Europe (+5%) led growth in absolute and relative terms supported by a weaker euro vis-à-vis the US dollar and other main currencies. Arrivals reached 609 million, or 29 million more than in 2014. Central and Eastern Europe (+6%) rebounded from last year’s decrease in arrivals. Northern Europe (+7%) and Southern Mediterranean Europe (+5%) also recorded sound results while Western Europe (+3%) was below average.
Asia and the Pacific (+5%) recorded 14 million more international tourist arrivals last year to reach 278 million, with uneven results across destinations. Oceania (+7%) and South-East Asia (+6%) led growth, while South Asia and North-East Asia recorded an increase of 4%.
Therefore, over the past years, tourism has proven to be a surprisingly strong and resilient economic activity and a fundamental contributor to the economic recovery by generating billions of dollars in exports and creating millions of jobs. This has been true for destinations all around the world, but particularly for Europe, as the region struggles to consolidate its way out of one of the worst economic periods in its history.
Our Strengths
Management believes the following strengths have contributed to our success:
· multiple language service offerings;
· advanced and scalable proprietary technology;
· large and diversified customer base;
· trusted brand powered by compelling customer experience;
· comprehensive product offerings; and
· extensive supplier network and strong supply chain management expertise.
Our Strategies
Our goal is to become a worldwide consumers’ destination for leisure travel products and services. We aim to further expand our online leisure travel market share by pursuing the following strategies:
· expand product designation and offerings;
· expand languages services offerings;
· further grow user base and increase user engagement;
· strengthen supply chain management;
· enhance online platform;
· continue to invest in technology and product development capabilities; and
· pursue strategic acquisitions.
Our Challenges
The successful execution of our business plan is subject to risks and uncertainties related to our business and industry, including those relating to our ability to:
· continue to provide competitive travel products and services;
· continue to provide competitive languages services;
· maintain the quality of customer services;
· adequately control and ensure the quality of travel products and services sourced from the Company itself and travel suppliers;
· achieve and maintain profitability given our history of net losses;
· adapt to the more stringent regulations on tour operators under the newly promulgated Tourism Law;
· compete successfully against existing and new competitors;
· enhance the Company brand recognition;
· manage the proceedings or claims arising from travel-related accidents or customer misconducts;
· maintain the satisfactory performance of the Company online platform and management systems; and
· attract, train and retain qualified personnel.
Competition
The travel company industry is fragmented and highly competitive throughout the world. Our competitors in the market can be grouped into several broad categories based on size, business model, product offerings, target customers and geographic scope of operations. These include international products suppliers and travel companies with significant competitive services. Our many and powerful competitors will be an obstacle to our ability to achieve profitable operations.
The Company's corporate structure
Our primary business operations are conducted through our Canadian and French operating subsidiaries, Vacances Sinorama and Sinorama Voyages. For ease of reference, below is a chart that presents our current corporate structure.
Employees
As of December 31, 2017, we had 167 employees. None of our employees is represented by a labor union or similar collective bargaining organization.
Item 1A.
Item 1A. Risk Factors.
An investment in our common stock involves a high degree of risk. You should carefully consider the following risk factors and other information in this 10K before deciding to invest in our Company. If any of the following risks actually occur, our business, financial condition and results of operations for growth could be seriously harmed. As a result, the trading price of our common stock could decline and you could lose all or part of your investment.
Risks Related to Our Business
If we do not continue to provide competitive travel products and services, we may not be able to attract new customers or to retain existing customers, and our business, financial condition and results of operations could suffer.
Our success depends on our ability to attract new customers or to retain existing customers, which in turn requires our continuous provision of a wide array of competitive travel products and services. Participants in the travel industry are continuously developing new travel products and services. We strive to stay abreast of emerging and rapidly changing customer preferences and be able to anticipate trends that will appeal to existing and potential customers. We will also continue to invest in research and development in order to continuously improve the speed, accuracy and comprehensiveness of our online platform and offline sales. If we fail to continuously improve our travel products and services and platform at a competitive pace, we may lose customers to our competitors and may not attract new customers. In addition to Asia tours, we provide other travel-related services, such as sales of tourist attraction tickets and visa processing services. We intend to further broaden our product selection by extending our coverage of departing cities and travel destinations as well as offering more departure time selections. If we fail to continue to design quality travel products and services tailored to accommodate our customers’ changing needs and preferences, we may not be able to sell additional products and services to our current customers, retain our current customers or attract new customers, and our business, financial condition and results of operations will be materially and adversely affected.
We may not be able to compete against companies with substantially greater resources.
The travel industry is intensely competitive and we expect competition to intensify further in the future. Companies with greater resources may have advantages that make our model weaker in comparison.
We have operated at a loss and we may not be profitable in the near future.
Our operations to date have not been profitable. We may not be able to achieve profitability or avoid net losses in the future. Although our revenues have grown significantly in recent periods, such growth rates may not be sustainable and may decrease in the future. In addition, our ability to become profitable depends on various factors, including our ability to control our costs and expenses, which we expect will increase as we expand our business and invest more in product developments and sales and marketing. If our revenues fail to increase at the rate we anticipate, or if our costs and expenses increase at a more rapid rate than our revenues, we may not be able to achieve profitability and may incur greater losses.
We cannot assure that we will earn a profit or that our products will be accepted by consumers.
Our business is speculative and reliant on acceptance of our brand name by local communities, travelers and advertisers. Our operating performance is also heavily dependent on our ability to earn a profit from our services. We cannot assure that we will be successful or earn any revenue or profit, or that investors will not lose their entire investment.
We may incur cost overruns in the distribution of our various services.
We may incur substantial cost overruns in the distribution of our services. Unanticipated costs may force us to obtain additional capital or financing from other sources, or may cause us to lose our entire investment if we are unable to obtain the additional funds necessary to implement our business plan. We cannot assure that we will be able to obtain sufficient capital to successfully continue the implementation of our business plan. If a greater investment in the business is required due to cost overruns, the probability of earning a profit or a return of the shareholders’ investment in us diminishes.
If our estimates related to future expenditures are erroneous or inaccurate, our business will fail and you could lose your entire investment.
Our success is dependent in part upon the accuracy of our management’s estimates of our future cost expenditures for legal and accounting services (including those we expect to incur as a publicly reporting company), for research and development, construction, marketing, and for administrative expenses. If such estimates are erroneous or inaccurate, or if we encounter unforeseen costs, we may not be able to carry out our business plan, which could result in the failure of our business and the loss of your entire investment.
The loss of the services of any of our officers or our failure to timely identify and retain competent personnel could negatively impact our ability to develop our products and sales.
The development of our business will continue to place a significant strain on our limited personnel, management, and other resources. Our future success depends upon the continued services of our executive officers, QIAN Hong, our Chairman and Director, JING Wenjia, our Chief Executive Officer and Director, ZHAO Hongxi, our Chief Financial Officer and Director. They are developing our business, and our ability to identify and retain competent employees with the skills required to execute our business objectives. The loss of the services of any of our officers or our failure to timely identify and retain competent personnel could negatively impact our ability to develop our products and sales, which could adversely affect our financial results and impair our growth
Our Chief Executive Officer beneficially owns and controls a substantial portion of our outstanding common stock, which may limit your ability and the ability of our other stockholders, whether acting alone or together, to propose or direct the management or overall direction of our Company.
Ms. JING Wenjia acts as our Chief Executive Officer and one of our Directors, and through her control of approximately 54.33% of our outstanding common stock, controls the Company and important matters relating to us. As a result of her positions and her control of our common stock, Ms. Wenjia controls the outcome of all matters submitted to our shareholders for approval, including the election of our directors. In addition, Ms. Wenjia’s ownership of our common stock and control of the Company could discourage the acquisition of our common stock by potential investors and could have an anti-takeover effect, preventing a change in control of the Company and possibly depressing the trading price of our common stock. There can be no assurance that conflicts of interest will not arise with respect to Ms. Wenjia’s ownership and control of the Company or that any conflicts will be resolved in a manner favorable to the other shareholders of the Company.
Our internal controls over financial reporting may not be effective and our independent registered public accounting firm may not be able to certify as to their effectiveness, which could have a significant and adverse effect on our business and reputation.
As a newly public reporting company, we will be in a continuing process of developing, establishing, and maintaining internal controls and procedures that will allow our management to report on, and our independent registered public accounting firm to attest to, our internal controls over financial reporting if and when required to do so under Section 404 of the Sarbanes-Oxley Act of 2002. Our independent registered public accounting firm is not required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act until the date we are no longer an emerging growth company. Until then, our management will be required to report on our internal controls over financial reporting under Section 404. If we fail to achieve and maintain the adequacy of our internal controls, we would not be able to conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating. Moreover, our testing, or the subsequent testing by our independent registered public accounting firm that must be performed, may reveal other material weaknesses or that our material weaknesses have not been fully remediated. If we do not remediate our material weaknesses, or if other material weaknesses are identified or we are not able to comply with the requirements of Section 404 in a timely manner, our reported financial results could be materially misstated or could subsequently require restatement, we could receive an adverse opinion regarding our internal controls over financial reporting from our independent registered public accounting firm and we could be subject to investigations or sanctions by regulatory authorities, which would require additional financial and management resources, and the market price of our stock could decline.
If we are unable to hire, retain or motivate qualified personnel, consultants, independent contractors, and advisors, we may not be able to grow effectively.
Our performance will be largely dependent on the talents and efforts of highly skilled individuals. Future success depends on our continuing ability to identify, hire, develop, motivate and retain highly qualified personnel for all areas of our organization. Competition for such qualified employees is intense. If we do not succeed in attracting excellent personnel or in retaining or motivating them, we may be unable to grow effectively. In addition, all future success depends largely on our ability to retain key consultants and advisors. We cannot assure that any skilled individual will agree to become an employee, consultant, or independent contractor of Sinorama. Our inability to retain their services could negatively impact our business and our ability to execute our business strategy.
Our lack of an independent audit committee and audit committee financial expert at this time may hinder our board of directors’ effectiveness in monitoring the Company's compliance with its disclosure and accounting obligations. Until we establish such committee, we will be unable to obtain a listing on a national securities exchange.
Although our common stock is not listed on any national securities exchange, for purposes of independence we use the definition of independence applied by NASDAQ. Currently, we have no independent audit committee. Our full board of directors functions as our audit committee and is comprised of three directors. An independent audit committee would play a crucial role in the corporate governance process, assessing our Company's processes relating to our risks and control environment, overseeing financial reporting, and evaluating internal and independent audit processes. The lack of an independent audit committee may prevent the board of directors from being independent from management in its judgments and decisions and its ability to pursue the responsibilities of an audit committee without undue influence. We may have difficulty attracting and retaining directors with the requisite qualifications. If we are unable to attract and retain qualified, independent directors, the management of our business could be compromised. An independent audit committee is required for listing on any national securities exchange. Therefore until such time as we meet the audit committee independence requirements of a national securities exchange, we will be ineligible for listing on any national securities exchange.
Our board of directors acts as our compensation committee, which presents the risk that compensation and benefits paid to those executive officers who are board members and other officers may not be commensurate with our financial performance.
A compensation committee consisting of independent directors is a safeguard against self-dealing by company executives. Our board of directors acts as the compensation committee and determines the compensation and benefits of our executive officers, administers our employee benefit plans, and reviews policies relating to the compensation and benefits of our employees. Our lack of an independent compensation committee presents the risk that an executive officer on the board may have influence over his or her personal compensation, and benefits levels that may not be commensurate with our financial performance.
Limitations on director and officer liability and indemnification of our Company’s officers and directors by us may discourage stockholders from bringing a lawsuit against an officer or director.
Our Company’s certificate of incorporation and bylaws provide, with certain exceptions as required by governing state law, that a director or officer shall not be personally liable to us or our stockholders for breach of fiduciary duty as a director or officer, except for acts or omissions which involve intentional misconduct, fraud or knowing violation of law, or unlawful payments of dividends. These provisions may discourage stockholders from bringing a lawsuit against a director or officer for breach of fiduciary duty and may reduce the likelihood of derivative litigation brought by stockholders on the Company's behalf against a director or officer.
We are responsible for the indemnification of our officers and directors.
Should our officers and/or directors require us to contribute to their defense, we may be required to spend significant amounts of our capital. Our certificate of incorporation and bylaws provide for the indemnification of our directors, officers, employees, and agents, under certain circumstances, against attorney's fees and other expenses incurred by them in any litigation to which they become a party arising from their association with or activities on behalf of our Company. This indemnification policy could result in substantial expenditures, which we may be unable to recoup. If these expenditures are significant, or involve issues which result in significant liability for our key personnel, we may be unable to continue operating as a going concern.
Our management has limited experience managing a public company.
At the present time, none of our management has experience in managing a public company. This may hinder our ability to establish effective controls and systems and comply with all applicable requirements attendant to being a public company. If compliance problems result, these problems could have a material adverse effect on our business, financial condition or results of operations. As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act of 2010, as well as rules subsequently implemented by the SEC, have imposed various new requirements on public companies, including requiring changes in corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to our new compliance requirements. Moreover, these requirements will increase our legal, accounting and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect it will be difficult and more expensive for us to obtain director and officer liability insurance. These requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.
The new technologies of the internet market make it much easier for individuals to plan the details of their own trips.
The new technologies of the Internet make it much easier for affluent individuals and others to plan the details of their own trips, thereby eliminating the fees we hope to collect. Such self-managed trips have caused many travel operators to go out of business in recent years and may continue to cause travel agencies to go out of business.
Uncertainty and adverse changes in the general economic conditions of the markets in which we will participate may negatively affect our business.
Current and future conditions in the economy have an inherent degree of uncertainty. It is even more difficult to estimate growth or contraction in various parts, sectors and regions of the economy, including the markets in which we will participate. As a result, it is difficult to estimate the level of growth or contraction for the economy as a whole. Adverse changes may occur as a result of soft global economic conditions, rising oil prices, wavering consumer confidence, unemployment, declines in stock markets, contraction of credit availability, or other factors affecting economic conditions in general. These changes may negatively affect our sales or increase our exposure to losses. These possible changes may also affect the ability of a company like us to raise sufficient capital in the US equity market in the future.
Risks Related to Regulation
As a result of our becoming a public company, we will become subject to additional reporting and corporate governance requirements that will require management time, resources and expense.
Since the Company's initial public offering commenced in January 2017, we have been obligated to file with the U.S. Securities and Exchange Commission annual and quarterly information and other reports that are specified in the U.S. Securities Exchange Act of 1934. We are also subject to other reporting and corporate governance requirements under the Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations promulgated thereunder, all of which will impose significant compliance and reporting obligations upon us.
Our processing, storage, use and disclosure of personal data could give rise to liabilities as a result of governmental regulation, conflicting legal requirements, evolving security standards, differing views of personal privacy rights or security breaches.
In the processing of our travel transactions, we receive and store a large volume of personally identifiable information. This information is increasingly subject to legislation and regulations in numerous jurisdictions around the world, typically intended to protect the privacy and security of personal information. It is also subject to evolving security standards for credit card information that is collected, processed and transmitted. We could be adversely affected if legislation or regulations are expanded to require changes in our business practices or if governing jurisdictions interpret or implement their legislation or regulations in ways that negatively affect our business. Travel businesses have also been subjected to investigations, lawsuits and adverse publicity due to allegedly improper disclosure of passenger information. As privacy and data protection have become more sensitive and politicized issues, we may also become exposed to potential liabilities in relation to our handling, use and disclosure of travel related data, as it pertains to individuals, as a result of differing views on the privacy of such data. Other privacy concerns, including security breaches, could adversely impact our business, financial condition and results of operations.
Our business is regulated, and any failure to comply with such regulations or any changes in such regulations could adversely affect us.
We operate in a regulated industry. Our business, financial condition and results of operations could be adversely affected by unfavorable changes in or the enactment of new laws, rules and/or regulations applicable to us, which could decrease demand for products and services, increase costs or subject us to additional liabilities. Moreover, regulatory authorities have relatively broad discretion to grant, renew and revoke licenses and approvals and to implement regulations. Accordingly, such regulatory authorities could prevent or temporarily suspend us from carrying on some or all of our activities or otherwise penalize us if our practices were found not to comply with the then current regulatory or licensing requirements or any interpretation of such requirements by the regulatory authority. Our failure to comply with any of these requirements or interpretations could have a material adverse effect on our operations.
A slowdown or other adverse developments in the Canadian or the French economy may materially and adversely affect our customers, demand for our products and our business.
We are a holding company and our operations are entirely conducted in Canada and France. In addition, most of our revenues are currently generated from sales in Canada and France. Although the Canadian and French economies have grown in recent years, we cannot assure you that such growth will continue. A slowdown in overall economic growth, an economic downturn or recession or other adverse economic developments in Canada or in France may materially reduce the demand for our products and have a materially adverse effect on the results of our operations.
Risks Relating to Our Common Stock
We are an emerging growth company and, as a result of the reduced disclosure and governance requirements applicable to emerging growth companies, our common stock may be less attractive to investors.
We are an emerging growth company, as defined in the JOBS Act, and we are eligible to take advantage of certain exemptions from various reporting requirements applicable to other public companies, but not to emerging growth companies, including, but not limited to, a requirement to present only two years of audited financial statements, an exemption from the auditor attestation requirement of Section 404 of the Sarbanes-Oxley Act, reduced disclosure about executive compensation arrangements pursuant to the rules applicable to smaller reporting companies, and no requirement to seek non-binding advisory votes on executive compensation or golden parachute arrangements. Some of these exemptions are also available to us as a smaller reporting company (i.e. a company with less than $75 million of its voting equity held by non-affiliates). We have elected to adopt these reduced disclosure requirements. We cannot predict if investors will find our common stock less attractive as a result of our taking advantage of these exemptions. If some investors find our common stock less attractive as a result of our choices, there may be a less active trading market for our common stock and our stock price may be more volatile.
Pursuant to Section 107(b) of the JOBS Act, we have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(2) of The JOBS Act. This election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result, our financial statements may not be comparable to companies that comply with public company effective dates.
Because the worldwide market value of our common stock held by non-affiliates, or public float, was below $75 million on the last day of our second fiscal quarter, we are also a “smaller reporting company” as defined under the Exchange Act. Some of the foregoing reduced disclosure and other requirements are also available to us because we are a smaller reporting company and may continue to be available to us even after we are no longer an emerging growth company under the JOBS Act but remain a smaller reporting company under the Exchange Act. As a smaller reporting company we are not required to:
·have an auditor report on our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;
·present more than two years of audited financial statements in our registration statements and annual reports on Form 10-K; or
·present any selected financial data in such registration statements and annual reports filings made by the Company.
Because we are subject to “penny stock” rules, the level of trading activity in our stock may be reduced.
Broker-dealer practices in connection with transactions in “penny stocks” are regulated by penny stock rules adopted by the Securities and Exchange Commission. Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on some national securities exchanges). The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and, if the broker-dealer is the sole market maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market, and monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, broker-dealers who sell these securities to persons other than established customers and “accredited investors” must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. Consequently, these requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security subject to the penny stock rules. If a trading market does develop for our common stock, these regulations will likely be applicable, and investors in our common stock may find it difficult to sell their shares.
FINRA sales practice requirements may limit a stockholder’s ability to buy and sell our stock.
FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may have the effect of reducing the level of trading activity in our common stock. As a result, fewer broker-dealers may be willing to make a market in our common stock, reducing a stockholder’s ability to resell shares of our common stock.
State securities laws may limit secondary trading, which may restrict the states in which you can sell the shares offered by this prospectus.
If you purchase shares of our common stock sold pursuant to this Offering, you may not be able to resell the shares in a certain state unless and until the shares of our common stock are qualified for secondary trading under the applicable securities laws of such state or there is confirmation that an exemption, such as listing in certain recognized securities manuals, is available for secondary trading in such state. There can be no assurance that we will be successful in registering or qualifying our common stock for secondary trading, or identifying an available exemption for secondary trading in our common stock in every state. If we fail to register or qualify, or to obtain or verify an exemption for the secondary trading of, our common stock in any particular state, the shares of common stock could not be offered or sold to, or purchased by, a resident of that state. In the event that a significant number of states refuse to permit secondary trading in our common stock, the market for the common stock will be limited which could drive down the market price of our common stock and reduce the liquidity of the shares of our common stock and a stockholder’s ability to resell shares of our common stock at all or at current market prices, which could increase a stockholder’s risk of losing some or all of his investment.
Shareholders do not have pre-emptive rights, which will cause them to experience dilution if we issue additional securities.
We are authorized to issue up to 100,000,000 shares of common stock, of which 15,186,000 shares are issued and outstanding. Our Board of Directors has the authority to cause us to issue additional shares of common stock, without consent of any of our stockholders. At any time or times, we may issue and sell additional shares of our authorized but previously unissued shares of common stock, preferred stock, or common stock warrants on such terms and conditions as our Board of Directors, in its sole discretion, may determine without consent of our shareholders. Our shareholders do not have pre-emptive rights to acquire additional shares should we in the future issue or sell additional securities. Thus, we are not required to offer any existing shareholder the right to purchase his or her pro rata portion of any future issuance of securities and, therefore, upon the issuance of any additional securities by us hereafter, our shareholders will not be able to maintain their then existing pro rata ownership in our outstanding shares of common stock, preferred stock, or common stock warrants without additional purchases of securities at the price then set internally by us.
Because we do not intend to pay any dividends on our common stock, holders of our common stock must rely on stock appreciation for any return on their investment.
There are no restrictions in our Articles of Incorporation or Bylaws that prevent us from declaring dividends. However, we do not anticipate paying any such dividends for the foreseeable future. Accordingly, holders of our common stock will have to rely on capital appreciation, if any, to earn a return on their investment in our common stock.
We may not be able to attract the attention of major brokerage firms, which could have a material adverse impact on the market value of our common stock.
The trading market for our common stock will rely in part on the research and reports that equity research analysts publish about us and our business. We do not control these analysts. However, security analysts of major brokerage firms may not provide coverage of our common stock since there is no incentive to brokerage firms to recommend the purchase of our common stock, which may adversely affect the market price of our common stock. If equity research analysts do provide research coverage of our common stock, the price of our common stock could decline if one or more of these analysts downgrade our common stock or if they issue other unfavorable commentary about us or our business. If one or more of these analysts ceases coverage of our company, we could lose visibility in the market, which in turn could cause our stock price to decline.
Because our officers and directors live outside of the United States, you may have no effective recourse against them for misconduct and may not be able to receive compensation for damages to the value of their investment caused by wrongful actions by our directors and officers.
Our officers and directors live outside the U.S. As a result, it may be difficult for investors to enforce within the U.S. any judgments obtained against those officers and directors, or obtain judgments against them outside of the U.S. that are predicated upon the civil liability provisions of the securities laws of the U.S. or any state thereof. Investors may not be able to receive compensation for damages to the value of their investment caused by wrongful actions by our directors and officers.
Item 2.
Item 2. Properties.
In June, 2016 Vacances Sinorama leased office space under non-cancellable operating lease agreements. Under the terms of the lease, Vacances Sinorama paid approximately $61,669 in lease deposits, and made lease payments of approximately $290,734 per year. Under terms of the lease agreement, from June, 2017, Vacances Sinorama is committed to lease payments for 120 months.
The office address is full 4th floor of the La Plaza Swatow, 998 Blvd, Saint-Laurent, Montreal, QC H2Z 9Y9. We use it primarily for our information technology, e-commerce operations and marketing.
Vacances Sinorama leases office space under non-cancellable operating lease agreements that expire in December 2021. Under the terms of those leases, Vacances Sinorama paid approximately $22,061 in lease deposits and committed to lease and management fee payments of approximately $15,515 per month for 60 months from March 2016. The office address is La Plaza Swatow, Office 518, P.O. Box 008, 998 Blvd, Saint-Laurent, Montreal, QC H2Z 9Y9. We use it primarily for our airline ticket operations and our Asia Tour Department
In July 2015, Vacances Sinorama entered into a new lease agreement for the premises of its bus tour operations. Under the terms of the lease, Vacances Sinorama paid approximately $15,194 in lease deposits, and is committed to lease and management fee payments of approximately $5,134 per month for 60 months. The office address is 988 Clark Street, Montreal, QC H2Z 1J9.
In February, 2015, Sinorama Voyages leased office space under a non-cancellable operating lease agreement. Under the terms of the lease, Sinorama Voyages paid approximately $13,894 in lease deposits, and lease expense payments of approximately $4,869 per month. Under the terms of the lease agreement, from February, 2016, Sinorama Voyages was committed to lease expense payments of approximately $4,857 per month for 96 months. The office address is 23-25 Road Berri, 75008 Paris, France.
The Company does not own any real property. We believe the premises now under lease will be adequate for our operations for the foreseeable future.
Item 3.
Item 3. Legal Proceedings.
From time to time, we may become involved in lawsuits and legal proceedings which arise in the ordinary course of business. 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 involved in any such legal proceedings nor are we aware of any claims that we believe will have a material adverse effect on our business, financial condition or operating results
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
None
PART II
Item 5.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuers Purchases of Equity Securities.
Market Information
Our common stock has been listed for quotation on the OTC Pink Market since April 12, 2017. It is currently listed under the symbol “SNNN.” The following table sets forth for the respective periods indicated the prices of the common stock, as reported by the OTC Pink Market. Such prices are based on inter-dealer bid and asked prices, without markup, markdown, commissions, or adjustments and may not represent actual transactions.
Holders of Securities
As of April 17, 2018, we had 132 shareholders of record and 15,186,000 outstanding shares of common stock, par value $0.001.
Dividends
We have not declared or paid any cash dividends on our common stock since our inception, and our board of directors currently intends to retain all earnings for use in the business for the foreseeable future. Any future payment of dividends will depend upon our results of operations, financial condition, cash requirements and other factors deemed relevant by our board of directors. There are currently no restrictions that limit our ability to declare cash dividends on its common stock and we do not believe that there are any that are likely to do so in the future.
Recent Sales of Unregistered Securities
The Company did not effect any unregistered sale of securities during the fourth quarter of 2017.
Item 6.
Item 6. Selected Financial Data.
Smaller reporting companies are not required to provide information required under this item.
Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of such financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate these estimates, including those related to useful lives of bad debts, impairment, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. There can be no assurance that actual results will not differ from those estimates. See “Cautionary Statement Regarding Forward Looking Statements” above.
Restatement of Prior Financial Information
In this Annual Report on Form 10-K, the Company restated its Consolidated Balance Sheet as of December 31, 2016 and the related Statements of Operations and Comprehensive (Loss) Income, Consolidated Statements of Changes in Shareholders’ Equity and Consolidated Statements of Cash flows for the fiscal year ended December 31, 2016.
The effects of the accounting adjustments made as a part of the restatement of our consolidated financial statements are more fully discussed in Note 2 - “Restatement of Previously Issued Consolidated Financial Statements” to our consolidated financial statements contained in this Annual Report on Form 10-K. For a description of the material weaknesses identified as a result of the audit and our internal reviews, see Item 9A "Controls and Procedures" contained in this Annual Report on Form 10-K. Our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 has not been amended. These activities are referred to in this Management’s Discussion and Analysis as the “Restatement.”
Results of Operations for the Years Ended December 31, 2017 and 2016
The following table shows key components of the results of operations during the year ended December 31, 2017 and 2016:
Our revenue increased by 27% (or $20,621,674) in 2017 compared to 2016. The overall growth rate was much lower than we experienced during 2016, primarily due to a significant fall-off in revenue from our French operations. Whereas net sales by our Canadian operations increased 39% from 2016 to 2017, net sales by our French operations fell 22% year-to-year. The significant fall-off in revenue from our French operations was mainly due to events that dampened interest in tourism: a series of terrorist attacks in Europe and the French election of 2017 being held in the peak period for customer reservation.
Although Bus Tours reported the largest percentage of revenue growth, 48% (or $4,587,125) from 2016 to 2017, Bus Tours remained only a modest portion of our business: 14% in 2017. Our Asian Tours remained the largest component of our business - Asian Tours accounted for 77% of our sales during 2017, and produced a 24% increase in sales during 2017. The much higher growth for Asian Tours compared with Bus Tours and Third-Party Products reflects our decision to focus capital resources on our Asian Tours products. During 2017 37,281 customers purchased an Asian Tour, an increase of 9,011 customers, or 32%, from the number of customers for our Asian Tours in 2016. The 5.6% reduction in revenue-per-customer reported for Asian Tours in 2017 reflected our efforts to expand volume by offering very competitive prices. These reductions in price were the result of a calculated decision to promote the Sinorama brand as a location for better service and lower prices than that offered by competitive travel agencies. We plan to continue to price our products aggressively until we reach a level of market share at which we can operate profitably even with a small gross margin but can also reduce the pressure on our prices without losing our competitive advantage.
Despite the 27% increase in revenue from 2016 to 2017, our gross profit increased 119%, as gross margin increased from 7.8% in 2016 to 13.5% in 2017. This increase was the result of margin expansion in all three segments: Asian Tour, Bus Tour and Third Party Products.
Our operating expenses increased by 23% from 2016 to 2017, due to our decision to devote capital resources to the expansion of our operations. We added 13 employees, which caused salaries and employee benefits to increase by $1,026,561, or 28%. That increase in employee head-count, however, allowed us to promote the benefits of our customer service, particularly our expansive ability to provide customer service in multiple languages, which we look to as the foundation for our acquisition of market share.
The most significant increase in operating expenses, however, was the 26% increase in advertising and promotion expense from 2016 to 2017. While the 27% increase in our revenue from 2016 to 2017 can be, in large part, attributed to the increase in marketing efforts, we expect to see benefits from 2017 advertising expenses accruing in coming years, as we are aggressively planting an awareness of our brand in the public consciousness. Since travel is more often a planned expenditure than an impetuous one, much of the goal of our advertising expenditures has been to cause potential customers to remember us when the time comes for their travel decision. This process requires, therefore, that we make investments today in brand promotion that will only fully flower in future years.
Among the other significant additions to our operating costs and expenses in 2017 was a 23% increase in bank charge and interest, to $1,736,173, most of which is attributable to credit card fees, which increased as our sales increased
After deducting our total operating expenses ($14,083,514 in 2017 and $11,489,140 in 2016), adjusting for a relatively minor amount of other income (expense), and taking into account a small amount of income tax expense/benefit, we recorded a net loss of $571,447 in 2017 and a net loss of $5,583,348 in 2016. However, Sinorama Corporation owns, indirectly, only 66.7% of Vacances Sinorama and only 51% of Sinorama Voyages. As a result, the share of the losses incurred by those subsidiaries that is allocable to the minority interest is deducted from our loss as a net loss attributable to non-controlling interest. The remainder, the net gain (loss) attributable to the Company, was a net loss of $712,547 for 2017 and a net loss of $3,455,486 for 2016. If and when our operating subsidiaries again become profitable, we will deduct from those profits on our Statements of Operations the portion of the profits attributable to the minority interests.
Our reporting currency is the U.S. dollar. The local currencies of our operating subsidiaries, the Canadian dollar and the Euro, are our functional currencies. Results of operations and cash flow are translated at average exchange rates during the period being reported upon, and assets and liabilities are translated at the unified exchange rate quoted by the Bank of Canada on the balance sheet date. Translation adjustments resulting from this process are included in other comprehensive income. For 2017 and 2016, foreign currency translation adjustments of $4,261 and $(141,674), respectively, have been reported as other comprehensive loss attributable to the Company in the consolidated statement of operations and comprehensive loss.
Liquidity and Capital Resources
The following table sets forth a summary of our cash flows for the periods indicated:
As of December 31, 2017, the Company had $7,749,802 in cash and cash equivalents (include $3,162,969 in cash restricted by Canadian laws that require travel agents to maintain certain deposits relative to their unfulfilled sales). At the same time, we had a working capital deficit of $5,694,466, which had decreased by $553,223 during 2017, primarily due to the $571,447 net loss recorded in 2017. The primary factors determining our working capital deficit at December 31, 2017 were customer deposits of $30,129,523, representing prepayment by customers of tours they have booked, partially offset by our prepayment and deferred expense asset totaling $13,728,133, most of which represents our prepayment to vendors for those tours. Customer deposits exceed our prepayments because we generally require customers to deposit the full cost of a trip some time in advance of departure, but our vendors do not require us to pay in full until the customer disembarks from the tour. The difference of $16,401,390 between customer deposits and Company prepayments will have to be funded by cash flow from future operations, at least to the extent of the $8,651,588 by which it exceeds our December 31, 2017 cash resources.
Our operations used $1,554,098 in cash during 2017. The use of cash reflects our strategic decision to utilize our cash resources to fund promotion of our brand and improvements in customer service, so as to achieve a significant position in the travel market. The primary use of cash was an increase of $ $5,455,032 in amounts due from related parties, which was only partially offset by the $2,208,847 decrease in amounts that we owe to related parties. These related party transactions reflect our practice of doing business with travel business owned by our Chairman and/or our CEO in order to obtain the benefits of their contacts within the international travel industry.
During 2016, the use of $1,575,812 in cash for operations was the result of the $5,583,348 net loss that we incurred in that year. The use of cash was less than the net loss primarily because we increased our customer deposits by $9,351,963 while reducing prepayments by $548,169.
The Company's operations require very little in fixed assets - at December 31, 2017 the total net value of our fixed assets was $329,013. This enables the Company to devote its cash resources to operations, with cash used in purchase of property and equipment being only $125,189 in 2017 and $120,042 in 2016.
We anticipate that our future liquidity requirements will arise from the need to fund our growth and pay current obligations. For the near term, we expect our operations to continue to use cash. Therefore, the primary sources of funding for our cash requirements are expected to be funds obtained from equity offerings and/or debt financing. During 2016 we obtained the cash used in operations by issuing common stock for aggregate payments of $3,700,000. This was supplemented during the first half of 2017 by sales of common stock for $729,000. However, we have no commitments at this time for such financing, and we can provide no assurances that we will be able to generate sufficient cash flow from operations and/or obtain additional financing on terms satisfactory to us, if at all, so as to remain a going concern.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet items reasonably likely to have a material effect on our financial condition.
Recent Accounting Pronouncements
Recent accounting pronouncements issued by the FASB, the AICPA and the SEC did not, or are not believed by management to, have a material effect on the Company’s present or future consolidated financial statements.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.
Item 8.
Item 8. Financial Statements and Supplementary Data.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017 AND 2016
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the board of directors of
Sinorama Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Sinorama Corporation and its subsidiaries (collectively the “Company”) as of December 31, 2017 and 2016, and the related consolidated statements of operations and comprehensive loss, Changes in stockholders’ deficits, and cash flows for each of the years in the two-years period ended December 31, 2017, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, 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.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Restate of Previously Issued Consolidated Financial Statements
As discussed in Note 2 to the consolidated financial statements, the 2016 consolidated financial statements have been restated to correct a misstatement.
/s/ ZH CPA LLP
We have served as the Company’s auditor since 2018.
Vancouver, Canada
April 17, 2018
SINORAMA CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2017 AND 2016
(EXPRESSED IN US DOLLARS)
The accompanying notes are an integral part of these consolidated financial statements.
SINORAMA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE YEAR ENDED DECEMBER 31, 2017 AND
(EXPRESSED IN US DOLLARS, EXCEPT SHARES DATA)
The accompanying notes are an integral part of these consolidated financial statements.
SINORAMA CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ DEFICITS
FOR THE YEAR ENDED DECEMBER 31, 2017 AND
(EXPRESSED IN US DOLLARS, EXCEPT SHARES DATA)
The accompanying notes are an integral part of these consolidated financial statements.
SINORAMA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2017 AND
(EXPRESSED IN US DOLLARS)
The accompanying notes are an integral part of these consolidated financial statements.
SINORAMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2017 AND 2016
(EXPRESSED IN US DOLLARS)
NOTE 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Sinorama Corporation (the “Company” or “Sinorama”) was incorporated on June 30, 2016, under the laws of the State of Florida. On the same date, Sinorama issued 11,000,000 shares of its common stock in exchange for all of the outstanding shares of Sinorama Tours Co., Ltd., a Samoan corporation organized in June 2015 ("Sinorama Tours"). Sinorama Tours is a holding company with two operating subsidiaries:
·Vacances Sinorama Inc. (“Vacances Sinorama”), an integrated tour company incorporated in Quebec, Canada in December 2004. Vacances Sinorama provides Bus Tours, Asian Tours, Airline Tickets, Hotel Reservations, Cruises and other travel services to its customers worldwide. Vacances Sinorama facilitates travel commerce with online and offline travel businesses. Vacances Sinorama is servicing both business to customer (B2C) and business to business (“B2B”) in the travel marketplace.
·Sinorama Voyages (“Sinorama Voyages”), an integrated tour company incorporated in France in February 2012. Sinorama Voyages also provides Bus Tours, Asian Tours, Airline Tickets and other travel services to its customers worldwide. Sinorama Voyages facilitates travel commerce with online and offline travel businesses. Sinorama Voyages services both business to customer (B2C) and business to business (“B2B”) in the travel marketplace.
Sinorama Tours owns 66⅔% of Vacances Sinorama through Simon Qian Voyages, Inc., a wholly-owned subsidiary, and owns 51% of Sinorama Voyages directly. The other 33⅓% of Vacances Sinorama is owned by Qian Hong, the Chairman of Sinorama. The other 49% of Sinorama Voyages is owned by Yang Ming (39%) and Zhao Hongxi (10%). Zhao Hongxi is the Chief Financial Officer of Sinorama.
Reorganization on June 30, 2016
The control of the entities was not changed by the acquisition on June 30, 2016, as all of the entities remained under the control of Qian Hong and his wife, Jing Wenjia. Accordingly, we have treated the combination, for accounting purposes, as a corporate restructuring (reorganization) of entities under common control, and thus the current capital structure has been retroactively presented in prior periods as if such structure existed at that time and in accordance with ASC 805-50-45-5, the entities under common control are presented on a combined basis for all periods to which such entities were under common control. Since all of the subsidiaries were under common control for the entirely of the years ended December 31, 2017 and 2016, the results of these subsidiaries are included in the financial statements for both periods. Non-controlling interests in the subsidiaries are related parties and thus were not adjusted to fair value as a result of the reorganization.
Basis of presentation
The accompanying financial data have been prepared by us pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC) and are presented in conformity with U.S. generally accepted accounting principles (U.S. GAAP). Our fiscal year end is December 31. Unless otherwise stated, all years and dates refer to our fiscal year..
SINORAMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2017 AND 2016
(EXPRESSED IN US DOLLARS)
NOTE 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION (Continued)
Principles of consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries. All inter-company transactions and balances have been eliminated in consolidation. Non-controlling interests represent the equity interest in Vacances Sinorama and Sinorama Voyages that are not attributable to the Company. Non-controlling interest is reported in the consolidated financial position within equity, separately from the Company’s equity, and net income or loss and comprehensive income or loss that are attributable to the Company and to the non-controlling interest are separately reported on the Statement of Operations.
Note 2 - RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENT
During the preparation of our Annual Report on Form 10-K for the fiscal year of 2017, the Company has discovered errors in cost and expense cutoff procedures, which resulted in misstatements in our previously issued consolidated financial statements for the year ended December 31, 2016. The consolidated financial statements for the year ended December 31,2016 have been restated to reflect the correction of the misstatements. The Company has also corrected certain disclosures related to the consolidated financial statements. The Company’s management discussed the circumstances surrounding the misstatements with the Board of Directors. In connection with the accounting review, the Company identified material weaknesses in its internal control over financial reporting, described in further detail in Item 9A, “Controls and Procedures,” contained in this Annual Report on Form 10-K. As a result of these misstatements, the Company has restated its consolidated financial statements in accordance with ASC 250, Accounting Changes and Error Corrections (the “restated consolidated financial statements”).
The impact of these restatements on the consolidated financial statements as previously reported is summarized below:
SINORAMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2017 AND 2016
(EXPRESSED IN US DOLLARS)
Note 2 - RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENT (continued)
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of estimates
The preparation of audited consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ from those estimates. Significant items subject to such estimates and assumptions include valuation allowances for receivables and recoverability of carrying amount and the estimated useful lives of long-lived assets. These estimates are often based on complex judgments and assumptions that management believes to be reasonable but are inherently uncertain and unpredictable. Actual results could differ from these estimates.
Reclassification
The comparative figures have been reclassified to conform to current year presentation.
SINORAMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2017 AND 2016
(EXPRESSED IN US DOLLARS)
NOTE 3. SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue recognition
The Company's revenues are primarily derived from sale of our self-developed products, including Bus Tour Products and Asian Tour Products. The Company also sells Third Party Products (airline tickets, hotels, etc.). Revenue is recognized only when persuasive evidence of an arrangement exists, the service has been performed, the price is fixed or determinable, and the collectability of the related fee is reasonably assured, in accordance with ASC 605, Revenue Recognition, ("ASC 605"). Specifically, contracts are signed to establish significant terms such as the price and specific services to be provided. The Company assesses the creditworthiness of our customers prior to signing the contracts to ensure collectability is reasonably assured. Non-refundable payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as customer advances and deposits.
Bus Tour Products Sales
Revenues from Bus Tours are recognized when customers depart from the trips. Revenues from Bus Tour services are recognized on a gross basis, which represent amounts charged to and received from customers. The Company is the primary obligor in the arrangement and bear the risks and rewards, including the customers’ acceptance of products and services delivered.
Asian Tour Products Sales
The Company recognize Asian Tour services revenues and other travel-related services such as visa processing services on the date that the tours or the flights depart, provided that evidence of an arrangement exists, the fees are fixed and determinable, no significant obligations remain at the end of the period, and collection of the resulting receivable is reasonably assured. We require that full payment be made before flights depart.
Revenues from Asian Tour services are recognized on a gross basis, which represent amounts charged to and received from customers. The Company is the primary obligor in the arrangement and bear the risks and rewards, including the customers’ acceptance of products and services delivered.
Third Party Products Sales
Revenue from sales of the Third-Party Products reservations is recognized at the time of the booking of the reservation. Third-Party Products sales are non-refundable. Third-Party Products revenue is normally derived from airline tickets, hotel reservations, cruises, insurance, etc. The revenue from Third Party Products is recognized on a gross basis. The Company conducts a rigorous process in selecting travel products and services before selling these products to customers and independently determines the prices charged to customers for Third Party Products. The Company is the primary obligor in the arrangement and is responsible for the ultimate customer acceptance for all products and services rendered. Such commitment is also made in the contracts entered into with customers. The Company is the party retained and paid by customers. In situations of customer disputes, where the customer files a complaint or demands a refund, the Company assumes risks and responsibilities for the delivery of products and is responsible for refunding the customers their payments.
SINORAMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2017 AND 2016
(EXPRESSED IN US DOLLARS)
NOTE 3. SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and bank deposits and other liquid investments, which are unrestricted as to withdrawal and use. All highly liquid investments with original stated maturity of three months or less are classified as cash equivalents. Cash and cash equivalents approximates or equals fair value due to their short term nature. The Group’s cash and cash equivalents consist of cash on hand and cash in bank, including bank term deposits. As of December 31, 2017 and 2016, the cash on hand and cash in bank were $3,895,910 and $5,126,409, respectively. As of December 31, 2017 and 2016, the term deposits for IATA were $90,896 and $nil, respectively, the interest rate was between 0.95%, maturity was three months or less. As of December 31, 2017 and 2016, the short term deposits were $600,027 and $1,055,376, respectively, the interest rate was 0.2% to 0.50%, maturity was three months or less. Therefore, the total cash and cash equivalents, as of December 31, 2017 and 2016, were $4,586,833 and $6,181,785, respectively.
Restricted cash
In accordance with the Quebec Consumer Protection Act and the Travel Agents Act, the Company is required to deposit into trust certain customer deposits until suppliers are paid for their services. The company can access the trust account only to administer it as trustee, cannot use funds from this account for personal or corporate purposes until the supplier is paid. As of December 31, 2017 and 2016, the restricted cash in the trust account was $3,162,969 and $2,371,212, respectively.
Short term investments
Short-term investments are comprised of investments in financial products issued by banks or other financial institutions, which contain a fixed or variable interest rate and a term to maturity of greater than 3 months but less than 12 months. Such investments are generally not permitted to be redeemed early or are subject to non interest for redemption prior to maturity. The Company classifies these investments as held-to-maturity as it has both the positive intent and ability to hold them until maturity. These investments are classified as short-term investments based on the maturity date. The short term investments maturities are exceeding three months. As of December 31, 2017 and 2016, the short term investments were $1,679,560 and $210,148, respectively, the interest rates were between 0.65% to 1.5%, and the maturity was exceeding three months but less than twelve months.
Fair Value Measurement
The Company applies the provisions of ASC Subtopic 820-10, Fair Value Measurements, for fair value measurements of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the financial statements. ASC 820 also establishes a framework for measuring fair value and expands disclosures about fair value measurements.
Fair value is defined as the price that would be received when selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining the fair value for the assets and liabilities required or permitted to be recorded, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.
SINORAMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2017 AND 2016
(EXPRESSED IN US DOLLARS)
NOTE 3. SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Value Measurement (continued)
ASC 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes three levels of inputs that may be used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets that are not active, or inputs that is observable, either directly or indirectly, for substantially the full term of the asset or liability;
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
There were no transfers between level 1, level 2 or level 3 measurements for the years ended December 31, 2017 and 2016.
Financial assets and liabilities of the Company primarily comprise of cash and cash equivalents, restricted cash, Short term investment, accounts receivable, amount due from related parties, other receivable, accounts payable, payroll payable, amount due to related party and other payable. As at December 31, 2017 and 2016, the carrying values of these financial instruments approximated to their fair values due to the short-term maturity of these instruments.
Accounts receivable
Accounts receivable are recognized and carried at original invoiced amount less an allowance for any potential uncollectible amounts. An estimate for doubtful debts is made when the collection of the full amount is no longer probable. Bad debts are written off as incurred.
The Company maintains allowances for doubtful accounts for estimated losses resulting from the failure of customers to make payments on time. The Company reviews the accounts receivable on a periodic basis and makes allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, the customer’s historical payment history, its current credit-worthiness and current economic trends.
The Company experienced nil and nil bad debts during the year ended December 31, 2017 and 2016, respectively.
SINORAMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2017 AND 2016
(EXPRESSED IN US DOLLARS)
NOTE 3. SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Property and equipment
Property and equipment are stated at cost. Computer Equipment, Furniture & Fixtures and Office Equipment are depreciated using the declining balance depreciation method basis reflective of the useful lives of the assets. Leasehold Improvement are stated at cost and are depreciated using the straight-line method over the shorter of the estimated useful lives of the asset or the term of the related lease, as follows:
Computer Equipment
Declining Balance Method at rate 30% per year
Furniture & Fixtures
Declining Balance Method at rate 20% per year
Office Equipment
Declining Balance Method at rate 20% per year
Leasehold Improvement
10 years
Repair and maintenance costs are charged to expenses as incurred, whereas the cost of renewals and betterment that extends the useful lives of property and equipment is capitalized as additions to the related assets. Retirements, sales and disposals of assets are recorded by removing the cost and accumulated depreciation from the assets and accumulated depreciation accounts with any resulting gain or loss reflected in the statements of operations and comprehensive loss.
Functional currency and foreign currency translation
As of and for the years ended December 31, 2017 and 2016, all foreign subsidiaries use the local currency of their respective countries as their functional currency, which is the U.S. Dollars for Sinorama and Sinorama Tours, and the Canadian dollar (“Canada dollar”) for Simon Qian Voyages and Vacances Sinorama and the Euro (“€”) for Sinorama Voyages.
The Company’s reporting currency is U.S. dollars. Assets and liabilities of Simon Qian Voyages, Vacances Sinorama and Sinorama Voyages are translated into U.S. dollars at the exchange rates set forth in the Bank of Canada at the balance sheet dates, revenues and expenses are translated into U.S. dollars at average exchange rates set forth in the Bank of Canada for the reporting periods, and shareholders' equity is translated at historical exchange rates. Gains and losses resulting from translation are recorded as a component of accumulated other comprehensive income (loss).
Realized gains and losses from foreign currency transactions are recognized as gain or loss on foreign currency in the consolidated statements of operations, unrealized gains and losses from foreign currency transactions are recognized as other comprehensive income in the consolidated statements of operations.
SINORAMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2017 AND 2016
(EXPRESSED IN US DOLLARS)
NOTE 3. SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Functional currency and foreign currency translation (continued)
The exchange rates used for foreign currency translation are as follows:
Income taxes
The Company adopts FASB ASC Topic 740, “Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
In July 2006, the FASB issued FIN 48(ASC 740-10), Accounting for Uncertainty in Income Taxes-An Interpretation of FASB Statement No. 109 (ASC 740), which requires income tax positions to meet a more-likely-than-not recognition threshold to be recognized in the financial statements. Under FIN 48(ASC 740-10), tax positions that previously failed to meet the more-likely-than-not threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met.
The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Therefore, the actual liability may be materially different from our estimates, which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities or deferred tax asset valuation allowance.
The Company income tax expenses (recovery) was $nil and (56,954) for the years ended December 31, 2017 and 2016, respectively.
Earnings per share
The Company computes earnings per share (“EPS”) in accordance with ASC 260, Earnings Per Share. ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as net income divided by the weighted average common shares outstanding during the period.
Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of contracts to issue ordinary common shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. The computation of diluted EPS includes the estimated impact of the exercise of contracts to purchase common stocks using the treasury stock method and the potential shares of converted common stock associated with the convertible debt using the if-converted method. Potential common shares that have an anti-dilutive effect (i.e., those that increase earnings per share or decrease loss per share) are excluded from the calculation of diluted EPS.
SINORAMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2017 AND 2016
(EXPRESSED IN US DOLLARS)
NOTE 3. SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains or losses resulting from translating Simon Qian Voyages, Vacances Sinorama and Sinorama Voyages’ functional currency, the Canadian dollar and the Euro, to its reporting currency, U.S. dollar.
Segment Information and Geographic Data
The Company reports segment information based on the “management” approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company’s reportable operating segments.
The Company manages its business primarily on a geographic basis. The Company’s reportable operating segments consist of the Vacances Sinorama (Canada) and Sinorama Voyages (France). Although each reportable operating segment provides similar travel products and similar services, they are managed separately to better align with the location of the Company’s customers and distribution partners and the unique market dynamics of each geographic region. The accounting policies of the various segments are the same as those described in Note 2, “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements in this report.
The Company evaluates the performance of its reportable operating segments based on net sales and operating income. Net sales for geographic segments are generally based on the location of customers and sales through the Company’s office located in those geographic locations. Operating income for each segment includes net sales to third parties, related cost of sales and operating expenses directly attributable to the segment. Advertising expenses and salaries and employee benefits are generally included in the geographic segment in which the expenditures are incurred. Operating income for each segment excludes other income and expense and certain expenses managed outside the reportable operating segments. Costs excluded from segment operating income include income taxes and foreign currency translation adjustment. The Company does not include intercompany transfers between segments for management reporting purposes.
Summarized financial information by segment is as follows:
SINORAMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2017 AND 2016
(EXPRESSED IN US DOLLARS)
NOTE 3. SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Segment Information and Geographic Data (continued)
A reconciliation of the Company’s segment operating income to the Consolidated Statements of Operations for the year ended December 31, 2017 and December 31, 2016:
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk are cash and cash equivalents, restricted cash, Short term investment, accounts receivable, amount due from related parties, other receivables, Long term deposits and arising from its normal business activities. The carrying amounts of these financial instruments represent the maximum amount of loss due to credit risk. The deposits placed with financial institutions are not protected by statutory or commercial insurance. In the event of bankruptcy of one of these financial institutions, the Company may be unlikely to claim its deposits back in full. Management believes that these financial institutions are of high credit quality and continually monitors the credit worthiness of these financial institutions. The Company places its cash in what it believes to be credit-worthy financial institutions. The Company has a diversified customer base. The majority of sales are cash receipt in advance. For those credit sales, the Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited.
Exchange Rate Risks
The Company operates in Canada and France, which may give rise to significant foreign currency risks from fluctuations and the degree of volatility of foreign exchange rates between the US$ and the CAD, Euro. In 2017, foreign exchange gain (losses) of $(86,674) is included in Operating costs and expenses (2016 - $1,167,624). As at December 31, 2017, cash and cash equivalents of $3,068,275 (CAD3,849,298) is denominated in CAD and are held in Canada (December 31, 2016 - $2,111,443 (CAD2,834,912), cash and cash equivalent of $1,456,257 (Euro1,213,749) is denominated in Euro and are held in France (December 31, 2016 - $ 2,297,734 (Euro2,177,313).
Recently accounting pronouncements
In January 2016, the FASB issued ASU 2016-01 Financial Instruments Overall (Subtopic 825-10) Recognition and Measurement of Financial Assets and Liabilities. ASU 2016-01 amends the guidance in US GAAP on classification, measurement and disclosure of financial instruments. It revises an entity’s accounting related to: 1) classification and measurement of investments in equity securities; 2) presentation of certain fair value changes for financial liabilities measured at fair value; and, 3) amends disclosure requirements associated with the fair value of financial instruments. ASU 2016-01 is effective for years beginning after December 15, 2017 and early adoption is permitted. The adoption of ASU 2016-01 is not expected to have a material effect on the Company's consolidated financial statements.
SINORAMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2017 AND 2016
(EXPRESSED IN US DOLLARS)
NOTE 3. SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recently accounting pronouncements (continued)
In February 2016, the FASB issued ASU 2016-02 Leases (Topic 842). ASU 2016-02 establishes new guidance for the recording and disclosure of assets and liabilities that arise from leasing activity. ASU 2016-02 will require most lessees to record lease assets and lease liabilities that arise from leases on the statement of financial condition and disclose qualitative and quantitative information related to lease transactions such as variable lease payments and options to renew and terminate leases. ASU 2016-02 is effective for years beginning after December 18, 2018 and early adoption is permitted. The Company is evaluating ASU 2016-02 to determine its impact, if any, on the consolidated financial statements.
In October 2016, the FASB issued Accounting Standards Update No. 2016-16, Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory (ASU 2016-16). The standard is intended to address diversity in practice and complexity in financial reporting, particularly for intra-entity transfers of intellectual property. ASU 2016-16 will be effective for the Company beginning with the interim periods of fiscal 2018 and requires the modified retrospective method of adoption. Early adoption is permitted. The Company is in the process of determining timing of adoption and assessing the impact of ASU 2016-16 on its consolidated financial statements.
In January 2017, the FASB issued Accounting Standards Board Update No. 2017-01: Business Combinations (Topic 805) - Clarifying the Definition of a Business (“ASU 2017-01”). The ASU clarifies the definition of business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 will be effective for the Company’s fiscal year beginning January 1, 2018 and subsequent interim periods with prospective application with impacts on the Company’s consolidated financial statements that may vary depending on each specific acquisition. Early adoption is conditionally permitted.
In March 2017, the FASB issued ASU No. 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities. Under current GAAP, entities normally amortize the premium as an adjustment of yield over the contractual life of the instrument. This guidance shortens the amortization period for certain callable debt securities held at a premium to the earliest call date. This update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The adoption of ASU No. 2017-08 is not expected to have a material impact on the Company’s consolidated financial statements.
As of the date of filing of this report, except for the above, there are no recently issued accounting standards not yet adopted that would have a material effect on the Company’s financial statements.
In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net). The amendment in this update affect entities with transactions included within the scope of Topic 606, The scope of that Topic includes entities that enter into contracts with customers to transfer goods or services (that are an output of the entity’s ordinary activities) in exchange for consideration. The amendments are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU No. 2016-10, the amendments in ASU 2016-10 provide more detailed guidance, including additional implementation guidance and examples in the following key areas: 1) identifying performance obligations and 2) licenses of intellectual property. In May 2016, the FASB issued ASU No. 2016-12 a proposed Update, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. The amendments do not change the core principles of the standard, but clarify the guidance on assessing collectability, presenting sales taxes, measuring noncash consideration and certain transition matters. This update becomes effective concurrently with ASU No. 2014-09. The Company adopted ASU 2016-12 effective January 1, 2018. The impact on our consolidated financial statements and related disclosures was not material.
SINORAMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2017 AND 2016
(EXPRESSED IN US DOLLARS)
NOTE 3. SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recently accounting pronouncements (continued)
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU No. 2016-18”). ASU No. 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, restricted cash and restricted cash equivalents. Therefore, amounts generally described as restricted cash should be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows. ASU No. 2016-18 is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. The Company elected to early adopt ASU No. 2016-18 for the reporting period ending December 31, 2017. As a result of adoption of ASU No. 2016-18, the Company no longer presents the changes within restricted cash in the consolidated statements of cash flows.
NOTE 4. PREPAYMENTS & DEFERRED EXPENSES
Our travel suppliers require prepayments for reserving tour availabilities. The prepayment is record in prepayments and deferred expenses on the consolidated balance sheets. Deferred expenses include prepaid insurance, advertising fee. The Company prepayments and deferred expenses for reserving tour availabilities were $13,728,133 and $9, 052,700 for the years ended December 31, 2017 and 2016, respectively.
SINORAMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2017 AND 2016
(EXPRESSED IN US DOLLARS)
NOTE 5. OTHER RECEIVABLE
At December 31, 2017 and 2016, other receivable consists of the following:
The amount from Air Canada, Eva Airway Cor, China Eastern Airlines, United, Air China Ltd, JL Travel Marketing and others is pre-authorization holds for air tickets.
NOTE 6. LONG TERM DEPOSITS
Long term deposits are the deposits made by the Company held at third institutions for operation purposes. As of December 31, 2017 and December 31, 2016, the Company has $1,199,800 and $1,055,307, respectively, in air ticket security deposit with CAGEP SARL, which is a member of the International Air Transport Association (IATA) and has the license to sale the air ticket to Sinorama Voyages. As of December 31, 2017 and 2016, the Company has $nil and $738,555 in security deposits with JP Morgan Chase, which is the security deposit for credit card usage and does not bear any interest. As of December 31, 2017 and 2016, the Company has $179,348 and $167,580 in deposit with OPC (Office of Consumer Protection) as travel company bankruptcy guarantee. The deposit does not bear any interest.
SINORAMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2017 AND 2016
(EXPRESSED IN US DOLLARS)
NOTE 7. PROPERTY AND EQUIPMENT
At December 31, 2017 and 2016, property and equipment, at cost, consist of:
Depreciation expense was $50,766 and $37,820 for the years ended December 31, 2017 and 2016, respectively.
NOTE 8. CUSTOMER DEPOSITS
Customer deposits are the deposits made by all customers for reservation or the full payment must be paid by either check, debit card, credit card or cash before it can be confirmed. Customers must settle the total of all sums (due three months before departure). Otherwise, The Company reserves the right to cancel the reservation and retain the full amount of the initial deposit. Cancellation of a reservation can only be made through the Company as the following conditions will apply: more than 90 days prior to the departure date: 50% refund of the balance per-person, including taxes and service charge. If its marked “Final Sale”, which is non-refundable, nor changeable, nor transferable, whenever the purchase is made. Customer deposits are recognized as revenue on departure date, when services are provided to the customers. Customer deposits from all customers were $30,129,523 and $22,772,259 at December 31, 2017 and 2016, respectively, and were recorded as a current liability in the consolidated balance sheets.
NOTE 9. NON-CONTROLLING INTERESTS
Vacances Sinorama Inc. and Sinorama Voyages are the Company’s majority-owned subsidiary which is consolidated in the Company’s financial statements with a non-controlling interest recognized.
The 33.33% of Vacances Sinorama interest held by QIAN Hong is a non-controlling interest. ASC810-10-45 provides that the ownership interest in the subsidiary that are held by owners other than the parent is a non-controlling interest. 66.67% of Vacances Sinorama is owned by Simon Qian Voyages Inc., a wholly-owned subsidiary of Sinorama Tours.
The 39% of Sinorama Voyages equity held by YANG Ming and the 10% of Sinorama Voyages interest held by ZHAO Hongxi are also non-controlling interest, 51% of Sinorama Voyages interest held by Sinorama Tours.
ASC 810-10-50 requires that the company separately disclosed amounts attributable to shareholders’ equity and NCIs in the financial statements. For the year ended December 31, 2017, the comprehensive income attributable to shareholders’ equity and NCIs is $(122,472) and $ (468,638), respectively. For the year ended December 31, 2016, the comprehensive income attributable to shareholders’ equity and non-controlling interest is $(2,009,734) and $(3,313,812). As of December 31, 2017 and 2016 the NCIs were $(3.492,174) and $(3,369,702).
SINORAMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2017 AND 2016
(EXPRESSED IN US DOLLARS)
NOTE 10. INCOME TAX
The Company accounts for income taxes in accordance with ASC 740, Income Taxes, which requires that the Company recognize deferred tax liabilities and assets based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse. Deferred income tax benefit (expense) results from the change in net deferred tax assets or deferred tax liabilities. A valuation allowance is recorded when, in the opinion of management, it is more likely than not that some or all of any deferred tax assets will not be realized.
United States
Sinorama Corporation is subject to the United States of America tax law at tax rate of 34%. No provision for the US federal income taxes has been made as the Company had no US taxable income for the periods presented, and its earnings are permanently invested in Canada and Paris.
Samoa
Sinorama Tours Co., Ltd was incorporated in the Samoa and, under the current laws of the Samoa, it is not subject to income tax.
Canada
Simon Qian Voyages Inc. and Vacances Sinorama Inc. were incorporated in Canada and is subject to Canadian income tax. Simon Qian Voyages Inc. and Vacances Sinorama Inc. are subject to Canadian taxation on its activities conducted in Canada and income arising in or derived from Canada. The applicable statutory tax rate is 26.8%.
France
Sinorama Voyages was incorporated in France and is subject to France profit tax. Sinorama Voyages are subject to France taxation on its activities conducted in France and income arising in or derived from France. The applicable statutory tax is 33.33 %.
The provision (benefit) for income taxes consists of the following for the years ended December 31, 2017 and 2016:
SINORAMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2017 AND 2016
(EXPRESSED IN US DOLLARS)
NOTE 10. INCOME TAX (Continued)
The reconciliation of the income tax provision (benefit) to the amount computed by applying the statutory income tax rates to income before income taxes is as follows:
Based upon an assessment of the level of taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible or can be utilized, the Company provided valuation allowance of $100,675 as of December 31, 2017.
The Company evaluates its valuation allowance requirements at end of each reporting period by reviewing all available evidence, both positive and negative, and considering whether, based on the weight of that evidence, a valuation allowance is needed. When circumstances cause a change in management’s judgement about the realizability of deferred tax assets, the impact of the change on the valuation allowance is generally reflected in income from operations. The future realization of the tax benefit of an existing deductible temporary difference ultimately depends on the existence of sufficient taxable income of the appropriate character within the carryforward period available under applicable tax law.
At December 31, 2017, Sinorama Corporation had net operating loss carryforwards of approximately $580,254, Vacances Sinorama Inc. had net operating loss carryforwards of approximately $2,192,367, Sinorama Voyages had net operating loss carryforwards of approximately $3,019,784, the company had a total net operating loss carryforwards of approximately $5,792,405.
NOTE 11. RELATED PARTY TRANSACTIONS
Amount due from related parties
Amount due from related parties consisted of the following as of the periods indicated:
SINORAMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2017 AND 2016
(EXPRESSED IN US DOLLARS)
NOTE 11. RELATED PARTY TRANSACTIONS (continued)
Amount due from related parties (continued)
As of December 31, 2017 and 2016, the Company had a balance due from Sinorama Reisen GmbH, which is 65% owned by the Chief Executive Officer (JING Wenjia), of $4,243,746 and $1,469,472, respectively. The amount was paid to suppliers for Sinorama Reisen GmbH to get favorable price in Group-buying, in order to reserve tour availabilities. The prepayment was non-interest bearing, payable on demand.
As of December 31, 2017 and 2016, the Company had a balance due from Sinorama Group LLC., which is 100% owned by the Chairman (QIAN Hong) of the Company, of $nil and $1,453, respectively.
As of December 31, 2017 and 2016, the Company has a balance due from Sinorama Holiday Inc., which is 40% owned by the Chairman (QIAN Hong) of the Company and 20% owned by the Chief Executive Officer (JING Wenjia), of $2,790,843 and $1,154,894, respectively. The balance due, which arose from the purchase by Sinorama Holiday Inc. of travel products from Vacances Sinorama Inc., is non-interest bearing and due on demand.
As of December 31, 2017 and 2016, the Company had a balance due from Sinorama Holiday Limited, which is 51% owned by the Chairman (QIAN Hong) of the Company, of $2,388,881 and $935,418, respectively. The balance due, which arose from the purchase by Sinorama Holiday Limited of travel products from Vacances Sinorama Inc, is non-interest bearing and due on demand.
As of December 31, 2017 and 2016, the Company had a balance due from Sinorama Travel Inc., which is 51% owned by the Chairman (QIAN Hong), of $302,835 and $nil, respectively. The balance due, which arose from the purchase by Sinorama Travel Inc. of travel products from Vacances Sinorama Inc, is non-interest bearing and due on demand.
Amount due to related parties
Amount due to related parties consisted of the following as of the periods indicated:
As of December 31, 2017 and 2016, the Company had a balance due to Sinorama Travel Inc., which is 51% owned by the Chairman (QIAN Hong), of $nil and $1,423,231, respectively. Such payments were required by suppliers in China to be made in advance, in order to book tour availabilities. The amount was non-interest bearing and was due on demand.
SINORAMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2017 AND 2016
(EXPRESSED IN US DOLLARS)
NOTE 11. RELATED PARTY TRANSACTIONS (Continued)
As of December 31, 2017 and 2016, the Company had a balance due to Simon Qian, the Chairman of the Company, and JING Wenjia, who is the Chief Executive Officer of the Company and owns 54.33% ownership of the Company. The Company had a balance due to Simon Qian and Jing Wenjia on those dates of $7,656 and $12,202, respectively. The debt was non-interest bearing and due on demand.
Related parties’ transactions
Sales of travel product to related parties consisted of the following for the periods indicated:
NOTE 12. CONTINGENCIES AND COMMITMENT
Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. There was no contingency of this type as of December 31, 2017 and 2016.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed. There was no contingency of this type as of December 31, 2017 and 2016.
Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.
In June, 2016 Vacances Sinorama leased office space under non-cancellable operating lease agreements. Under the terms of the lease, Vacances Sinorama paid approximately $61,669 in lease deposits, and made lease payments of approximately $290,734 per year. Under terms of the lease agreement, from June, 2017, Vacances Sinorama is committed to lease payments for 120 months.
SINORAMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2017 AND 2016
(EXPRESSED IN US DOLLARS)
NOTE 12. CONTINGENCIES AND COMMITMENT (Continued)
This office is used for the Information Technology Department, Electronic Commerce Department and Market Department and other departments.
Vacances Sinorama leases office space under non-cancellable operating lease agreements, to be used for the Airline Ticket Department, Asia Tour Department and others departments. The initial leases expired on various dates through 2016. Under the terms of those leases, Vacances Sinorama paid approximately $22,061 in lease deposits and committed to lease and management fee payments of approximately $12,080 per month for 60 months. In March 2016, Vacances Sinorama entered into a renewed lease agreement, which replaced its expired operating lease agreements. Under the current terms of the lease, Vacances Sinorama is committed to lease and management fee payments of approximately $15,515 per month for 60 months.
In July 2015, Vacances Sinorama entered into a new lease agreement for the Bus Tour Department office. Under the terms of the lease, Vacances Sinorama paid approximately $15,194 in lease deposits, and is committed to lease and management fee payments of approximately $5,134 per month for 60 months.
In February, 2015, Sinorama Voyages leased office space under a non-cancellable operating lease agreement. Under the terms of the lease, Sinorama Voyages paid approximately $13,894 in lease deposits, and lease expense payments of approximately $4,869 per month. Under the terms of the lease agreement, from February, 2016, Sinorama Voyages was committed to lease expense payments of approximately $4,857 per month for 96 months.
Future annual minimum lease payments, for non-cancellable operating leases are as follows:
SINORAMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2017 AND 2016
(EXPRESSED IN US DOLLARS)
NOTE 13. BASIC AND DILUTED EARNINGS PER SHARE
Basic net income per share is computed using the weighted average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares comprise shares issuable upon the exercise of share based awards, using the treasury stock method. The reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for income from continuing operations is shown as follows:
NOTE 14. SUBSEQUENT EVENT
The Management of the Company evaluated subsequent events through the date these financial statements are available for issuance determined that there were no other reportable subsequent events to be disclosed.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management maintains disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to provide reasonable assurance that the material information required to be disclosed by us in our periodic reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
As of December 31, 2017, our management, under the supervision of and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as required by Rules 13a-15(b) and 15d-15(b) under the Exchange Act. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2017 as a result of the material weaknesses identified in our internal control over financial reporting. These material weaknesses are discussed in “Management’s Report on Internal Control over Financial Reporting” below. Our management considers our internal control over financial reporting to be an integral part of our disclosure controls and procedures.
Management’s Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over our financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act. The Company’s management is also required to assess and report on the effectiveness of the Company’s internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”). Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of the Company’s financial reporting for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes policies and procedures that: (i) pertain to maintaining records that in reasonable detail accurately and fairly reflect the Company’s transactions; (ii) provide reasonable assurance that transactions are recorded as necessary for preparation of the Company’s financial statements and that receipts and expenditures of company assets are made in accordance with management authorization; and (iii) provide reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis.
The management considered that material weaknesses identified in our internal controls and procedures over financial reporting were: (1) lack of a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (2) inadequate segregation of duties consistent with control objectives; and (3) ineffective controls over period end financial disclosure and reporting processes.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
As of December 31, 2017, our management, under the supervision of and with the participation of the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of our internal control over financial reporting as required by Rules 13a-15(c) and 15d-15(c) under the Exchange Act. In making this assessment, Management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework, including the following five framework components: i) control environment, ii) risk assessment, iii) control activities, iv) information and communications, and v) monitoring.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm as we are a smaller reporting company and not required to provide the report.
Our management will continue to monitor and evaluate the effectiveness of its disclosure controls and procedures, as well as its internal control over financial reporting, on an ongoing basis, and is committed to taking further action and implementing additional improvements, as necessary and as funds allow. However, our management cannot guarantee that the measures taken or any future measures will remediate the material weaknesses identified or that any additional material weaknesses or significant deficiencies will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting. Notwithstanding the material weaknesses described above, our management believes that there are no material inaccuracies or omissions of material fact and, to the best of its knowledge, believes that the consolidated financial statements included in this annual report present fairly, in all material respects, our financial position, results of operations, and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States.
Changes in Internal Control over Financial Reporting
No changes in the Company's internal control over financial reporting has come to management's attention during the Company's last quarter that have materially affected, or are likely to materially affect, the Company's internal control over financial reporting.
Item 9B.
Item 9B. Other Information.
None.
PART III
Item 10.
Item 10. Directors, Executive Officers and Corporate Governance.
The following table sets forth certain information concerning our directors and executive officers:
Directors and Executive Officers*
Age
Position/Title
QIAN Hong
President, Chairman of the Board and Director
JING Wenjia
Chief Executive Officer and Director
ZHAO Hongxi
Chief Financial Officer and Director
* The business address for QIAN Hong and JING Wenjia are La Plaza Swatow: Office 518, P.O.Box 008, 998 Boulevard Saint-Laurent, Montreal, Quebec. H2Z 9Y9.
The business address for ZHAO Hongxi is 23-25 Rue de Berri, 75008 Paris.
QIAN Hong, age 46, President/Director
Mr. QIAN is our founder and has served as our president and director since we were organized in June 2016. Mr. QIAN was one of the co-founders of Vacances Sinorama Inc., and served as President of that entity since 2005. From 2000 to 2005, Mr. QIAN served as Tour Leader of Huamin Company France, a travel company. Mr. QIAN served as Travel Managing Operator of Xi’an Holiday Travel Agency from 1994 to 1999. Mr. QIAN provides hands-on leadership, strategic direction and operations management with a focus on business development, exceptional quality services and fiscal accountability. Mr. QIAN studied French Language and Literature in Collège Jean Mennais, studied French Language and Literature in Xi’an International Studies University, and obtained a College Diploma of Commerce and Economics from Henan University of Finance and Economics. Mr. QIAN can speak Mandarin, French and English. Mr. QIAN was appointed to the Board of Directors in order to contribute his knowledge of the travel industry and the operations of the Company's subsidiaries.
Ms. JING Wenjia, age 46, Chief Executive Officer/Director
Ms. JING has served as our Chief Executive Officer and Director since we were organized in June 2016. Ms. JING is one of the cofounders of Vacances Sinorama Inc., and served as chief executive officer of that entity since 2005. She was responsible for travel operations, budget development, analysis and oversight; marketing including volume growth/program development; expense control; policy and procedure development and implementation; and process development to facilitate regulatory compliance. Ms. JING has more than 20 years in the travel industry. Formerly, Ms. JING was the Travel Managing Operator of Sino-France Economic and Cultural Center, served as a part-time Tour Guide for a travel agency in Shaanxi, China and an employee of Shaanxi Local Product Import and Export Cooperative. Ms. JING studied French and English Language and Literature in Xi'an International Studies University, and attended training for a Certificate in Consecutive and Simultaneous Conference Interpreting in the European Commission Joint Interpreting and Conference Service. Ms. JING’s can speak Mandarin, Cantonese, French and English. Ms JING was appointed to the Board of Directors in order to contribute her knowledge of the travel industry and the operations of the Company's subsidiaries.
Mr. ZHAO Hongxi, age-52, Chief Financial Officer/Director
Mr. ZHAO has served as our Chief Financial Officer and Director since we were organized in 2016. Since 2012, Mr. ZHAO served as general director of Sinorama Voyages. From 1999 to 2011, he served as director of Office of Consultation and management, CGSA, Paris. Previously he was employed as an Economic Assistant and interpreter by the Economic Department of the Chinese Embassy in Dakar, Senegal. He also served as an interpreter and translator in French for the Institute of Information Studies and Research of the National Automotive Technical Research Centre in Tianjin, China. Mr. ZHAO earned a Masters degree in Operational Marketing from Private High School of Computer Science and Management in Paris, France. He obtained a Masters degree in French letters and civilization from Guangdong University of Foreign Studies in Guangzhou City, China. While services as the Company's chief financial officer. Mr. ZHAO has been trained by a local accounting firm regarding the preparation of financial statements under U.S. GAAP Mr. ZHAO can speak Mandarin, French and English. Mr. ZHAO was appointed to the Board of Directors in order to contribute his international business experience and his training in US GAAP and SEC regulations..
Our Chief Executive Officer and Director, JING Wenjia, is the wife of QIAN Hong, our President and Director.
Our directors hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until resignation or removal by the board.
Legal Proceedings Involving Officers and Directors
To our knowledge, during the last ten years, none of our directors and executive officers (including those of our subsidiaries) has:
¨Had a bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time.
¨ Been convicted in a criminal proceeding or been subject to a pending criminal proceeding, excluding traffic violations and other minor offenses.
¨ Been subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities.
¨ Been found by a court of competent jurisdiction (in a civil action), the SEC, or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.
¨ Been the subject to, or a party to, any sanction or order, not subsequently reverse, suspended or vacated, of any self-regulatory organization, any registered entity, or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
During the 2017 fiscal year, our Board of Directors had four meetings, including meetings that were held by means of a conference telephone call, but excluding actions taken by unanimous written consent.
Board Committees
Audit Committee
We have not yet appointed an audit committee. At the present time, we believe that the members of Board of Directors are collectively capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting. We do, however, recognize the importance of good corporate governance and intend to appoint an audit committee comprised entirely of independent directors, including at least one financial expert, in the near future.
Compensation Committee
We do not presently have a compensation committee. Our board of directors currently acts as our compensation committee.
Nominating Committee
We do not presently have a nominating committee. Our board of directors currently acts as our nominating committee.
Code of Ethics
We do not presently have a code of ethics. However, we intend to adopt such a code of ethics in the future.
Board Leadership Structure and Role in Risk Oversight
QIAN Hong is our President and Chairman. We do not have any independent directors. The Board believes that the Company’s Chairman is best situated to serve as Chairman of the Board because he is the director most familiar with our business and industry and the director most capable of identifying strategic priorities and executing our business strategy. In addition, having a single leader eliminates the potential for confusion and provides clear leadership for the Company. We believe that this leadership structure has served the Company well.
Our Board of Directors is primarily responsible for overseeing our risk management processes. The Board of Directors receives and reviews periodic reports from management, auditors, legal counsel, and others, as considered appropriate regarding the Company’s assessment of risks. The Board of Directors focuses on the most significant risks facing us and our general risk management strategy, and also ensures that risks undertaken by us are consistent with the Board of Directors’ appetite for risk. While the Board of Directors oversees the Company, our management is responsible for day-to-day risk management processes. We believe this division of responsibilities is the most effective approach for addressing the risks facing the Company and that our board leadership structure supports this approach.
Item 11.
Item 11. Executive Compensation.
The following table sets forth information with respect to compensation paid by Sinorama Corporation or its subsidiaries to our officers from the fiscal years ended 2016 and 2017, respectively.
Amounts of compensation for 2017 and 2016, reported in the table above, represent accrued compensation. The manner and timing of payments of the accrued compensation will depend on the future financial conditions of the Company.
Outstanding Equity Awards
No individual grants of stock options or other equity incentive awards have been made to any executive officer or any director since our inception.
Employment Contracts, Termination of Employment, Change-in-Control Arrangements
We have not entered into any employment or other contracts or arrangements with our executive officers. There are no compensation plans or arrangements, including payments to be made by us, with respect to our officers, directors or consultants that would result from the resignation, retirement or any other termination of such directors, officers or consultants from us. There are no arrangements for directors, officers, employees or consultants that would result in a change-in-control.
Compensation of Directors
We have no formal plan for compensating our directors for their services in their capacity as directors. Directors are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of our Board of Directors. The Board of Directors may award special remuneration to any director undertaking any special services on behalf of Sinorama Corporation other than services ordinarily required of a director.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth certain information regarding our shares of common stock beneficially owned as of the date hereof for (i) each stockholder known to be the beneficial owner of 5% or more of our outstanding shares of common stock, (ii) each named executive officer and director, and (iii) all executive officers and directors as a group. A person is considered to beneficially own any shares: (i) over which such person, directly or indirectly, exercises sole or shared voting or investment power, or (ii) of which such person has the right to acquire beneficial ownership at any time within 60 days through an exercise of stock options or warrants or otherwise. Unless otherwise indicated, voting and investment power relating to the shares shown in the table for our directors and executive officers is exercised solely by the beneficial owner or shared by the owner and the owner’s spouse or children.
For purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares of common stock that such person has the right to acquire within 60 days as of the date hereof. For purposes of computing the percentage of outstanding shares of our common stock held by each person or group of persons named above, any shares that such person or persons has the right to acquire within 60 days of the Closing Date is deemed to be outstanding, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. The inclusion herein of any shares listed as beneficially owned does not constitute an admission of beneficial ownership.
The percentage ownership information shown in the table below is calculated based on 15,186,000 shares of our common stock issued and outstanding as of April 17, 2018. We do not have any outstanding options, warrants or other securities exercisable for or convertible into shares of our common stock.
(1)Ownership is of record and beneficial, unless otherwise indicated
(2)Includes 8,250,000 shares owned of record by JING Wenjia, his spouse.
As a result of ownership of a majority of the outstanding shares, our executive officers, directors and affiliated persons will have significant influence to:
·Elect or defeat the election of our directors;
·Amend or prevent amendment of our articles of incorporation or bylaws;
·Effect or prevent a merger, sale of assets or other corporate transaction; and
·Affect the outcome of any other matter submitted to the stockholders for vote.
Moreover, because of the significant ownership position held by our insiders, new investors will not be able to effect a change in the Company’s business or management, and therefore, shareholders would be subject to decisions made by management and the majority shareholders.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
As of December 31, 2017 and 2016, the Company had a balance due from Sinorama Reisen GmbH, which is 65% owned by the Chief Executive Officer (JING Wenjia), of $4,243,746 and $1,469,472, respectively. The amount was paid to suppliers for Sinorama Reisen GmbH to get favorable price in Group-buying, in order to reserve tour availabilities. The prepayment was non-interest bearing, payable on demand.
As of December 31, 2017 and 2016, the Company had a balance due from Sinorama Group LLC., which is 100% owned by the Chairman (QIAN Hong), of $nil and $1,453, respectively.
As of December 31, 2017 and 2016, the Company had a balance due from Sinorama Holiday Inc., which is 40% owned by the Chairman (QIAN Hong) and 20% owned by the Chief Executive Officer (JING Wenjia) of the Company, of $2,790,843 and $1,154,894, respectively. The balance due, which arose from the purchase by Sinorama Holiday Inc. of travel products from Sinorama Vacances, is non-interest bearing and due on demand.
As of December 31, 2017 and 2016, the Company had a balance due from Sinorama Holiday Limited, which is 51% owned by the Chairman (QIAN Hong), of $2,388,881 and $935,418, respectively. The balance due, which arose from the purchase by Sinorama Holiday Limited of travel products from Sinorama Vacances, is non-interest bearing and due on demand
As of December 31, 2017 and 2016, the Company had a balance due from Sinorama Travel Inc., which is 51% owned by the Chairman (QIAN Hong), of $302,834 and $nil, respectively. The balance due, which arose from the purchase by Sinorama Travel Inc. of travel products from Sinorama Vacances, is non-interest bearing and due on demand.
As of December 31, 2017 and 2016, the Company had a balance due to Sinorama Travel Inc., which is 51% owned by the Chairman (QIAN Hong), of $nil and $1,423,231, respectively. Such payments were required by suppliers in China to be made in advance, in order to book tour availabilities. The amount was non-interest bearing and was due on demand.
As of December 31, 2017 and 2016, the Company had a balance due to Simon Qian, who is the Chairman of the Company, and JING Wenjia, who is the Chief Executive Officer of the Company and owns 51% of the outstanding shares. The Company has a balance due to Simon Qian & Jing Wenjia as of those dates of $7,656 and $12,202, respectively. The debt is non-interest bearing and due on demand.
For the year ended December 31, 2017 and 2016, Sales to Sinorama Reisen GmbH is $7,789 and $378, sales to Sinorama Holiday Limited is $3,714,825 and $3,767,725, sales to Sinorama Holiday Inc. is $14,667,058 and $ 11,990,715, and sales to Sinorama Travel Vancouver Inc. is $984,494 and $10,523,376. For the year ended December 31, 2017 and 2016, the company has total related parties’ sales of $19,374,166 and $26,282,194, respectively.
Except as set forth above, there have been no transactions since the beginning of the 2017 fiscal year, or any currently proposed transaction, in which we were or are to be a participant and the amount involved exceeded or exceeds the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two completed fiscal years, and in which any related person had or will have a direct or indirect material interest (other than compensation described under "Executive Compensation").
Independent Directors
None of our Board of Directors is an independent director, as such term is defined by the rules of NASDAQ Stock Market,
Item 14.
Item 14. Principal Accounting Fees and Services.
Until January 4, 2018 Anton & Chia, LLP was engaged as our independent certified public accounting firm. On and after January 4, 2018 ZH CPA LLP has been engaged as our independent certified public accounting firm. We were billed by our independent public accounting firms, ZH CPA LLP and Anton & Chia, LLP, for the following professional services they performed for us during the years ended December 31, 2017 and 2016 as set forth in the table below.
Our Board of Directors pre-approves all audit and non-audit services performed by the Company's auditor and the fees to be paid in connection with such services.
PART IV
Item 15.
Item 15. Exhibits and Financial Statement Schedules
Exhibit
Number
Description
3.1
Articles of Incorporation of Registrant (1)
3.2
Bylaws of the Registrant (1)
10.1
Share Exchange Agreement (1)
10.2
Office leasing contracts- Montreal Main Operation Office (1)
10.3
Office leasing contracts-Bus Tour Office (1)
10.4
Office leasing contracts-France Office (1)
10.5
Agreements with Sinorama Travel Vancouver Inc. (1)
10.6
Agreements with Sinorama Holiday Inc. (1)
21.1
List of Company Subsidiaries (1)
31.1
Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
31.2
Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
32.1
Certification of the Principal Executive Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
32.2
Certification of the Principal Financial Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
101.INS
XBRL Instance Document*
101.SCH
XBRL Taxonomy Extension Scheme Document*
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB
XBRL Taxonomy Extension Label Linkbase Document*
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document*
(1) Incorporated by reference to the same exhibit filed with our registration statement on Form S1, as amended (File No. 333-214546).
*Filed herewith.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ QIAN Hong
Chairman of the Board, Director
April 17, 2018
QIAN Hong
/s/ ZHAO Hongxi
Chief Financial and Accounting Officer and Director
April 17, 2018
ZHAO Hongxi
(Principal Financial Officer; Principal Accounting Officer)
/s/ JING Wenjia
Chief Executive Officer and Director
April 17, 2018
JING Wenjia
(Principal Executive Officer)