See accompanying notes to condensed consolidated financial statements.
7
TRAI THIEN USA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
NOTE 1 – BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been prepared by management in accordance with both accounting principles generally accepted in the United States of America (“GAAP”) and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Certain information and note disclosures normally included in audited financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.
In the opinion of management, the consolidated balance sheet as of March 31, 2010 which has been derived from audited consolidated financial statements and these unaudited condensed consolidated financial statements reflect all normal and recurring adjustments considered necessary to state fairly the results for the periods presented. The results for the period ended March 31, 2010 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2010 or for any future period.
These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the Management’s Discussion and the audited financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2009.
NOTE 2 – ORGANIZATION AND BUSINESS BACKGROUND
Trai Thien USA Inc. (“TRTH” or the “Company”) was incorporated under the laws of the State of Nevada on January 23, 2004. In September 2004, it filed a notice with the Securities and Exchange Commission (File No.: 814-00674) of its intent to elect in good faith to be regulated as a Business Development Company (“BDC”) under the Investment Company Act of 1940 and be subject to Sections 54 through 65 of the said Act. In July 2008, it began steps to withdraw its election and ceased being a BDC. On January 13, 2010, the Company changed its name to “Trai Thien USA Inc.”
In March 2009, the Company entered into a Share Exchange Agreement (the “Agreement”) with Trai Thien Sea Transport Investment and Development Joint Stock Company (“Trai Thien“) among the stockholders of the Company and Trai Thien. Pursuant to the Agreement, the Company agreed to issue an aggregate of 23,400,000 shares of its common stock to Trai Thien’s shareholders in exchange for all of the issued and outstanding shares of Trai Thien, thus causing Trai Thien to become a subsidiary of the Company. The closing of the Agreement is subject to the fulfillment of certain conditions, including, but not limited to the receipt of all requisite consents, waivers and approvals by the Company and Trai Thien.
On July 31, 2009, the Company also entered into Amended Share Exchange Agreement (“Amended Share Exchange Agreement”) and Escrow Agreement (“Escrow Agreement”) among the shareholders of Trai Thien and Trai Thien, as well as its escrow agent. Pursuant to the Amended Share Exchange Agreement and Escrow Agreement, the Company agreed to place 15,903,000 shares of its common stock in escrow and Trai Thien’s shareholders agreed to place their 10,680,930 shares of Trai Thien’s capital stock representing 51% of total issued and outstanding shares in escrow upon the approval and registration of such acquisition in accordance with the applicable Vietnamese laws and regulations.
In connection with the Amended Share Exchange Agreement and Escrow Agreement, the Company concurrently entered into Management Service Agreement (“Management Service Agreement”) with Trai Thien and its stockholders. Pursuant to the Management Service Agreement,
(a)
the Company has the exclusive right to provide to Trai Thien with business consulting and related services in connection with cargo transportation in Vietnam;
(b)
the Company provides guidance and instruction on Trai Thien’s daily operations, investment decision, financial management and employment issues under Trai Thien’s Corporate Charter;
(c)
the Company appoints Mr. Nguyen Quoc Khanh as a legal representative and chairman of the board of directors of Trai Thien;
(d)
Trai Thien, in return agrees to pay the Company a quarterly fee equal to 51% of Trai Thien’s total net income after taxes;
(e)
The agreement is in effect for 3 years starting from September 30, 2009, subject to an automatic renewal for a successive 1 year, unless terminated upon the Company’s acquisition of the remaining 51% interest in Trai Thien under the Amended Share Exchange Agreement and in accordance with all applicable Vietnamese laws and regulations.
8
TRAI THIEN USA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
The stock exchange transaction in concurrent with a series of agreements has been accounted for as a reverse acquisition and recapitalization of the Company whereby Trai Thien is deemed to be the accounting acquirer (legal acquiree) and the Company to be the accounting acquiree (legal acquirer). The Company is deemed to be a continuation of the business of Trai Thien.
Accordingly, the accompanying consolidated financial statements include the following:
(1)
the balance sheet consists of the net assets of the accounting acquirer at historical cost and the net assets of the accounting acquiree at historical cost;
(2)
the financial position, results of operations, and cash flows of the accounting acquirer for all periods presented as if the recapitalization had occurred at the beginning of the earliest period presented and the operations of the accounting acquiree from the date of stock exchange transaction.
The Company has adopted the provisions of Accounting Standards Codification ("ASC") Topic 810-10-5-8, “Variable Interest Entities” (ASC 810-10-5-8), which requires certain variable interest entities to be consolidated by the primary beneficiary of the entity. With the above agreements, the Company’s management evaluated the relationships between the Company and Trai Thien and concluded that the Company is the primary beneficiary of Trai Thien, and Trai Thien is a VIE of the Company. Accordingly, the Company has consolidated Trai Thien’s results of operations, assets and liabilities in the accompanying consolidated financial statements of the Company.
The Company operates its chartered and owned vessels in the ocean transportation in Vietnam, through its variable interest entity (“VIE”), Trai Thien, which is registered as a joint stock company under the Enterprise Law of the Socialist Republic of Vietnam on June 11, 2007, which primarily charters vessels from the ship-owners and operates the vessels in the ocean transportation of a broad range of major and minor bulk cargoes including iron ore, coal, grain, cement and fertilizer, along Asian shipping routes.
The Company and its VIE are hereinafter referred to as (the "Company").
NOTE 3 - GOING CONCERN UNCERTAINTIES
The Company’s condensed consolidated financial statements are presented on a going concern basis, which contemplates the continuity of operations and realization of assets and satisfaction of liabilities and commitments in the normal course of business.
The Company has committed and contracted for the construction of 7 vessels in Vietnam with a combined carrying capacity of 49,900 deadweight tons in the aggregate value of approximately $65.5 million (equivalent to VND1,262,000,000,000), which are expected to be delivered between 2010 and 2011. As of March 31, 2010, the Company has available $16,304 cash and cash equivalents and suffers from negative working capital of $11,045,759, whereas the Company may not have sufficient working capital to meet with these capital commitments. The Company plans to finance the construction of these 7 newly-built vessels through additional capital injection from its shareholders or external financing from banks or a mixed of financing sources. However, there can be no assurance that the Company will be able to obtain sufficient funds to meet with its obligations on a timely basis towards the delivery of the vessels.
These factors raise substantial doubt about the Company’s ability to continue as a going concern. These condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets and liabilities that may result in the Company not being able to continue as a going concern.
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying condensed consolidated financial statements reflect the application of certain significant accounting policies as described in this note and elsewhere in the accompanying condensed consolidated financial statements and notes.
·
Use of estimates
In preparing these financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheets and revenues and expenses during the periods reported. Actual results may differ from these estimates.
9
TRAI THIEN USA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
·
Basis of consolidation
The condensed consolidated financial statements include the financial statements of TRTH and its VIE. All significant inter-company balances and transactions within the Company have been eliminated upon consolidation.
·
Variable interest entity (“VIE”)
The Company operates its chartered vessels in the ocean transportation in Vietnam, through its variable interest entity, Trai Thien, which is registered as a joint stock company under the Enterprise Law of the Socialist Republic of Vietnam on June 11, 2007, which primarily charters vessels from the ship-owners and operates the vessels in the ocean transportation of a broad range of major and minor bulk cargoes including iron ore, coal, grain, cement and fertilizer, along Asian shipping routes.
On March 31, 2010, the Company entered into a series of agreements with Trai Thien. Under such contractual arrangements, the Company was provided with the ability to control Trai Thien, including its financial interest as described below:
1.
Share Exchange Agreement, the Company agreed to issue an aggregate of 23,400,000 shares of its common stock to Trai Thien’s stockholders in exchange for all of the issued and outstanding shares of Trai Thien,
2.
Amended Share Exchange Agreement, the Company agreed to place 15,903,000 shares of its common stock in escrow and Trai Thien’s shareholders agreed to place their 10,680,930 shares of Trai Thien’s capital stock representing 51% of total issued and outstanding shares in escrow,
3.
Escrow Agreement, the Company has the exclusive right to acquire the remaining 51% of the outstanding capital stock of Trai Thien in exchange for 15,903,000 share of the Company’s common stock, which is held in escrow, upon the approval of such acquisition in accordance with all applicable Vietnamese laws and regulations; and
4.
Management Services Agreement, the Company appoints its chairman, Mr. Nguyen Quoc Khanh as a legal representative and chairman of the board of directors of Trai Thien. The Company has exclusive right to provide business consulting services and guidance on Trai Thien’s daily operations, investment decision, financial management and employment issues under Trai Thien’s Corporate Charter. Trai Thien, in return agrees to pay the Company a quarterly fee equal to 51% of Trai Thien’s total net income after taxes.
With the above agreements, the Company has evaluated the relationship between the Company and Trai Thien and concluded that the Company demonstrates its ability to control Trai Thien as the primary beneficiary and Trai Thien is a VIE of the Company, in accordance with ASC 810-10-5-8.
Accordingly, the Company has consolidated Trai Thien’s results of operations, assets and liabilities in the accompanying condensed consolidated financial statements of the Company.
·
Cash and cash equivalents
Cash and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less as of the purchase date of such investments.
·
Accounts receivable and allowance for doubtful accounts
Accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the existing accounts receivable. The Company determines the allowance based on historical write-off experience of the Company. The Company reviews its allowance for doubtful accounts on a regular basis. All other balances are reviewed on a specific basis based on the aging of receivables, payment history, the customer’s current credit worthiness and the economic environment. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers.
As of March 31, 2010 and December 31, 2009, the allowance for doubtful accounts was $9,355 and $9,665, respectively.
10
TRAI THIEN USA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
·
Plant and equipment
Plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which they become fully operational:
| |
| Depreciable life |
Vessels | 15 years |
Office equipment | 3 to 5 years |
Motor vehicles | 10 years |
Expenditure for maintenance and repairs is expensed as incurred. The gain or loss on the disposal of plant and equipment is the difference between the net sales proceeds and the carrying amount of the relevant assets and is recognized in the statement of operations.
·
Vessel construction in progress
Vessel construction in progress represents the cost of contracts to build vessels and other direct costs relating to acquiring and placing the vessels in service. No depreciation is provided for until the vessel is substantially complete and ready for its intended use. No capitalized interest is incurred during the period of vessel construction.
·
Impairment of long-lived assets
Long-lived assets primarily include plant and equipment and vessel construction in progress. In accordance with the provisions of ASC Topic 360-10-5, “Impairment or Disposal of Long-Lived Assets”, the Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. If the total of the expected undiscounted future net cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and carrying amount of the asset. There has been no impairment as of March 31, 2010.
·
Revenue recognition
In accordance with the ASC Topic 605,“Revenue Recognition”, the Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collectibility is reasonably assured.
(a)
Cargo transportation revenue
Recognition of cargo transportation revenue is based upon ASC Topic 605-20-25-13,“Services for Freight-in-Transit at the End of a Reporting Period”. The Company recorded both transportation revenue and its direct costs when the shipment is completed.
Revenue represents the invoiced value of services, net of value-added tax (“VAT”) and brokerage commission payable to unaffiliated shipping agents.
(b)
Interest income
Interest income is recognized on a time apportionment basis, taking into account the principal amounts outstanding and the interest rates applicable.
·
Comprehensive income or loss
ASC Topic 220, “Comprehensive Income”, establishes standards for reporting and display of comprehensive income or loss, its components and accumulated balances. Comprehensive income or loss as defined includes all changes in equity during a period from non-owner sources. Accumulated comprehensive income or loss, as presented in the accompanying condensed statements of stockholders’ equity consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive income or loss is not included in the computation of income tax expense or benefit.
11
TRAI THIEN USA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
·
Income taxes
The Company adopts the ASC Topic 740,“Income Taxes” regarding accounting for uncertainty in income taxes which prescribes the recognition threshold and measurement attributes for financial statement recognition and measurement of tax positions taken or expected to be taken on a tax return. In addition, the guidance requires the determination of whether the benefits of tax positions will be more likely than not sustained upon audit based upon the technical merits of the tax position. For tax positions that are determined to be more likely than not sustained upon audit, a company recognizes the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement in the financial statements. For tax positions that are not determined to be more likely than not sustained upon audit, a company does not recognize any portion of the benefit in the financial statements. The guidance provides for de-recognition, classification, penal ties and interest, accounting in interim periods and disclosure.
For the three months ended March 31, 2010 and 2009, the Company did not have any interest and penalties associated with tax positions. As of March 31, 2010, the Company did not have any significant unrecognized uncertain tax positions.
The Company conducts major businesses in Vietnam and is subject to tax in its own jurisdiction. As a result of its business activities, the Company files separate tax returns that are subject to examination by the foreign tax authority.
·
Foreign currencies translation
Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the statement of operations.
The reporting currency of the Company is United States Dollars ("US$") and the accompanying financial statements have been expressed in US$. In addition, the Company maintains its books and record in a local currency, Vietnamese Dong ("VND"), which is functional currency as being the primary currency of the economic environment in which its operation is conducted. In accordance with ASC Topic 830-30, “Translation of Financial Statement”, assets and liabilities of the Company whose functional currency is not US$ are translated into US$, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses are recorded as a separate component of accumulated other comprehensive income within the statement of stockholders’ equity.
Translation of amounts from VND into US$1 has been made at the following exchange rates for the respective period:
| | | | | | |
| | March 31, 2010 | | March 31, 2009 |
Period-end VND:US$1 exchange rate | | | 19,289 | | | 18,078 |
Average period VND:US$1 exchange rate | | | 18,934 | | | 17,740 |
·
Related parties
Parties, which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Companies are also considered to be related if they are subject to common control or common significant influence.
·
Segment reporting
ASC Topic 280, “Segment Reporting” establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as information about geographical areas, business segments and major customers in financial statements. The Company operates in one reportable operating segment in Vietnam.
12
TRAI THIEN USA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
·
Fair value measurement
ASC Topic 820-10, “Fair Value Measurements and Disclosures” ("ASC 820-10") establishes a new framework for measuring fair value and expands related disclosures. Broadly, ASC 820-10 framework requires fair value to be determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. ASC 820-10 establishes a three-level valuation hierarchy based upon observable and non-observable inputs. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
For financial assets and liabilities, fair value is the price the Company would receive to sell an asset or pay to transfer a liability in an orderly transaction with a market participant at the measurement date. In the absence of active markets for the identical assets or liabilities, such measurements involve developing assumptions based on market observable data and, in the absence of such data, internal information that is consistent with what market participants would use in a hypothetical transaction that occurs at the measurement date.
·
Fair value of financial instruments
The carrying value of the Company’s financial instruments include cash and cash equivalents, accounts receivable, prepayments and other current assets, accounts payable, amounts due to a stockholder, promissory note, income tax payable, accrued liabilities and other payables. Fair values were assumed to approximate carrying values for these financial instruments because they are short term in nature and their carrying amounts approximate fair values. The carrying value of the Company’s short-term and long-term bank borrowings approximated its fair value based on the current market conditions for similar debt instruments.
·
Recent accounting pronouncements
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and do not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.
In June 2009, the Financial Accounting Standards Board (“FASB”) expanded ASC 810-10, to provide guidance for variable interest entities (VIEs). The change modifies our approach for determining the primary beneficiary of a VIE by assessing whether we have control over such entities. This change is effective for us on July 1, 2010. The Company is currently evaluating the requirements of the VIE provisions of ASC 810-10, but does not expect a material impact on its condensed consolidated financial statements.
In October 2009, the FASB issued Accounting Standard Update (ASU) No. 2009-13,“Revenue Recognition” (Topic 605). The accounting standard update addresses the accounting for multiple-deliverable arrangements to enable vendors to account for products or services separately rather than as a combined unit. Specifically, this subtopic addresses how to separate deliverables and how to measure and allocate arrangement consideration to one or more units of accounting. ASU 2009-13 will be effective for us on July 1, 2010. The Company is currently evaluating the requirements of ASU 2009-13, but does not expect a material impact on its condensed consolidated financial statements.
FASB ASC 810, “Consolidation” (“ASC 810”), establishes accounting and reporting standards for minority interests, which are recharacterized as noncontrolling interests. ASC 810 was revised so that noncontrolling interests are classified as a component of equity separate from the parent’s equity; purchases or sales of equity interests that do not result in a change in control are accounted for as equity transactions; net income attributable to the noncontrolling interest are included in consolidated net income in the statement of operations; and upon a loss of control, the interest sold, as well as any interest retained, is recorded at fair value, with any gain or loss recognized in earnings. This revision was effective for the Company as of January 1, 2009. It applies prospectively, except for the presentation and disclosure requirements, for which it applies retroactively. In addition, ASC 810 amends the consolidation guidance applicable to variable interest entities. The amendments will significantly affect the overall consolidation analysis under ASC 810. This phase of ASC 810 became effective for the Company on January 1, 2010 and did not impact the Company’s consolidation conclusions for its variable interest entities.
13
TRAI THIEN USA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
In January 2010, the FASB issued an amendment to the fair value measurement and disclosure standard improving disclosures about fair value measurements. This amended guidance requires separate disclosure of significant transfers in and out of Levels 1 and 2 and the reasons for the transfers. The amended guidance also requires that in the Level 3 reconciliation, the information about purchases, sales, issuances and settlements be disclosed separately on a gross basis rather than as one net number. The guidance for the Level 1 and 2 disclosures was adopted on January 1, 2010, and did not have an impact on our consolidated financial position, results of operations or cash flows. The guidance for the activity in Level 3 disclosures is effective January 1, 2011, and will not have an impact on our consolidated financial position, results of operations or cash flows as the amended guidance provides only disclosure requirements. The Company had no significant transfers between Lev el 1, 2 or 3 inputs during the quarter ended March 31, 2010.
In February 2010, the FASB issued amended guidance on subsequent events. Under this amended guidance, SEC filers are no longer required to disclose the date through which subsequent events have been evaluated in originally issued and revised financial statements. This guidance was effective immediately and the Company adopted these new requirements for the quarter ended March 31, 2010.
In April 2010, the FASB issued ASU No. 2010-18, “Receivables: Effect of a Loan Modification When the Loan is Part of a Pool That Is Accounted for as a Single Asset-a consensus of the FASB Emerging Task Force” (Topic 310). The amendments in this Update are effective for modifications of loans accounted for within pools under ASC Topic 310-30 occurring in the first interim or annual period ending on or after July 15, 2010. The amendments are to be applied prospectively. Early application is permitted. The Company does not expect the provisions of ASU 2010-18 to have a material effect on the financial position, results of operations or cash flows of the Company.
NOTE 5 - VESSEL CONSTRUCTION IN PROGRESS
During 2007, the Company contracted for the construction of 6 vessels in Vietnam with a combined carrying capacity of 45,600 deadweight tons. The total cost of the contracts for 6 vessels under construction at two unaffiliated shipyards in Vietnam is approximately $60,656,000 (equivalent to VND1,170,000,000,000). These vessels are expected to be delivered between 2010 and 2011. The Company will incur additional associated costs relating to the construction of these vessels under the contracts.
During 2009, the Company contracted for the construction of the additional 1 vessel with a carrying capacity of 4,332 deadweight tons. The construction cost of the vessel is approximately $4,819,000 (equivalent to VND 92,953,049,700) at the unaffiliated shipyard in Vietnam. The vessel is expected to be delivered in 2010, subject to the full settlement of outstanding payment.
For the three months ended March 31, 2010, the Company expended the aggregate of $2,651,157 on vessel building and the aggregate vessel construction in progress was amounted to $17,582,093 at period end-date.
NOTE 6 – PREPAYMENTS AND OTHER CURRENT ASSETS
| | | | | | |
| | March 31, 2010 |
| December 31, 2009 |
| | (Unaudited) |
| (Audited) |
| | |
| |
VAT receivable | | $ | 782,055 |
| $ | 311,914 |
Prepaid operating expenses | | | 91,987 |
| | 85,214 |
Prepayment for equipment purchase | | | - |
| | 76,991 |
Deposits paid | | | 17,932 |
| | 18,526 |
Advances to employees | | | 97,244 |
| | 49,278 |
| | $ | 989,218 |
| $ | 541,923 |
14
TRAI THIEN USA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
NOTE 7 – PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consisted of the following:
| | | | | | |
| | March 31, 2010 | | December 31, 2009 |
| | (Unaudited) | | (Audited) |
| | | | |
Vessels | | $ | 9,645,956 | | $ | 4,944,006 |
Office equipments | | | 176,621 | | | 140,401 |
Motor vehicles | | | 240,682 | | | 58,512 |
Foreign translation difference | | | (434,475) | | | (184,810) |
| | | 9,628,784 | | | 4,958,109 |
Less: accumulated depreciation | | | (192,353) | | | (80,064) |
Add: foreign translation difference | | | 7,943 | | | 3,417 |
Property, plant and equipment, net | |
$ | 9,444,374 | |
$ | 4,881,462 |
As of March 31, 2010, two vessels and six motor vehicles with the total net book values of $9,287,079 were pledged as securities in connection with the outstanding long-term borrowings.
Depreciation expenses for the three months ended March 31, 2010 and 2009 were $112,288 and $1,834, respectively
NOTE 8 – PROMISSORY NOTE
On March 30, 2010, the Company entered into a promissory note (“the Note”) with GRM Mal-Sin Shipping (M) Sdn, Bhd, (“GRM”), one of the Company’s major customer, for a principal amount of $1,437,912 (equivalent to VND 28 billion). The Note was unsecured and interest-free. In connection with the Note, the Company agreed to provide its vessel in the first priority to serve GRM and the transportation charges reserved the right of set-off against the Note as repayment.
NOTE 9 – BANK BORROWINGS
Bank borrowings consisted of the following:
(a)
Short-term bank borrowings payable to financial institutions in Vietnam:
| | | | | |
| March 31, 2010 | | December 31, 2009 |
| (Unaudited) | | (Audited) |
| | | |
Secured, equivalent to VND14 billion with interest rate at 12% per annum, payable monthly, due February 5, 2010 | $ | - | | $ | 749,866 |
| | | | | |
Unsecured installment loan, equivalent to VND14 billion with interest rate at 12% per annum, payable monthly, due May 14, 2010 | | 725,802 | | | 749,866 |
| | | | | |
Lines of credit, AgriBank | | 2,903,209 | | | 2,999,465 |
| | | | | |
Revolving credit facility, VID Public Bank | | 3,000,000 | | | 3,000,000 |
| | | | | |
Total short-term borrowings | $ | 6,629,011 | | $ | 7,499,197 |
15
TRAI THIEN USA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
In May 2009, the Company received its lines of credit from AgriBank in a term of 12 months, with a maximum available borrowing up to $3 million (equivalent to VND 56 billion) for working capital purposes. Interest was carried at a rate of 12% per annum, payable monthly and subject to the changes by the State Bank of Vietnam. Weighted average interest rate approximates 12% per annum for the period ended March 31, 2010. The line is collateralized by the real properties including residential house and land use rights with the aggregate carrying values of $3.7 million (equal to VND 71 billion) which are personally owned by the major stockholder and the director of the Company, Mr. Nguyen Quoc Khanh.
In December 2009, the Company receivedits revolving credit facility from VID Public Bank in a term of 12 months, with a maximum available borrowing up to $3 million for working capital purposes. Interest was carried at minimum interest rate of 5% per annum, or subject to floating rates, which equal to the higher of SIBOR plus 2.5% per annum or fixed deposit rate plus 2.5%. The outstanding balance under the credit facility becomes matured in 150 days from the drawdown date and the facility will be extended or renewed subject to an annual review at the option of the bank. Weighted average interest rate approximately 5% per annum for the period ended March 31, 2010, payable monthly. The credit facility is personally guaranteed by the major stockholder and the director of the Company, Mr. Nguyen Quoc Khanh and collateralized by his real properties with the aggregate carrying value of $10.7 million (equal to VND207 billion).
(b)
Long-term bank borrowings payable to a financial institution in Vietnam:
| | | | | | |
| | March 31, 2010 | | December 31, 2009 |
| | (Unaudited) | | (Audited) |
| | | | |
Secured, equivalent to VND 46 billion with interest rate at 12% per annum payable monthly, due December 31, 2014 | | $ | 2,301,104 | | $ | 2,463,846 |
| | | | | | |
Secured, equivalent to VND 2.8 billion with interest rate at 19.2% per annum payable monthly, due March 12, 2013 | | | 144,694 | | | - |
| | | | | | |
Secured, equivalent to VND 60 billion with interest rate at 16.2% per annum payable monthly, due March 30, 2015 | | | 3,110,581 | | | - |
| | | | | | |
Less: current portion of long-term bank borrowings | | (1,214,233) | | | (518,693) |
| | | | | | |
Total long-term bank borrowings, net of current portion | $ | 4,342,146 | | $ | 1,945,153 |
In September 2009, the Company granted with long-term facility of $2.3 million (equal to VND 46 billion) from Trust Bank. These aggregate borrowings were collateralized by the Company’s owned vessel with its net book value of $4,487,208 as of March 31, 2009.
In March 2010, the Company granted with long-term facility of $0.14 million (equal to VND 2.8 billion) and $3.1 million (equal to VND 60 billion) from Kien Long Bank and Trust Bank, respectively. These aggregate borrowings were collateralized by the Company’s owned vessel and motor vehicles with the net book values of $210,099 and $4,589,772 respectively as of March 31, 2010.
16
TRAI THIEN USA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
As of March 31, 2010, the maturities of the long-term bank borrowings for the next five years are as follows:
| | |
Year ending March 31: | | |
2011 | $ | 1,214,233 |
2012 | | 1,172,395 |
2013 | | 1,172,395 |
2014 | | 1,172,395 |
2015 | | 824,961 |
| | |
Total bank borrowings | $ | 5,556,379 |
NOTE 10 - INCOME TAXES
For the three months ended March 31, 2010 and 2009, the local (“United States of America”) and foreign components of income before income taxes were comprised of the following:
| | | | | | |
| | Three months ended March 31, |
| | 2010 | | 2009 |
Tax jurisdiction from: | | | | | | |
– Local | | $ | (59,732) | | $ | - |
– Foreign | | | 73,212 | | | 36,529 |
Income before income taxes | | $ | 13,480 | | $ | 36,529 |
The provision for income tax consisted of the following:
| | | | | | |
| | Three months ended March 31 |
| | 2010 | | 2009 |
Current tax: | | | | | | |
– Local | | $ | - | | $ | - |
– Foreign | | | 65,766 | | | 1,231 |
| | | | | | |
Deferred tax: | | | | | | |
– Local | | | - | | | - |
– Foreign | | | (53,157) | | | - |
| | | | | | |
Income tax expense | | $ | 12,609 | | $ | 1,231 |
The effective tax rate in the periods presented is the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax rates. The Company operates in various countries: United States of America and Vietnam that are subject to tax in the jurisdictions in which they operate, as follows:
United States of America
The Company is registered in the State of Nevada and is subject to the tax laws of the United States of America. The Company does not incur any operation in the United States.
Socialist Republic of Vietnam
The Company’s VIE, Trai Thien is subject to the Law on Corporate Income Tax of the Socialist Republic of Vietnam at the statutory rate of 28% on the assessable income for the periods presented.
17
TRAI THIEN USA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
On June 3, 2008, the National Assembly of the Socialist Republic of Vietnam approved the Law on Corporate Income Tax (the “New CIT Law”). The new CIT Law, among other things, imposes a reduction of income tax rate from 28% to 25% for both domestic and foreign invested enterprises with effect from January 1, 2009. Hence, the Company is subject to the new income rate of 25% on the taxable income.
Pursuant to the New CIT Law, the Company is eligible for corporate income tax holiday, whereas its business is established in a special development zone or considered as encouraged investment. Under such tax holiday, the Company is exempted from corporate income tax for the first two years starting from its first profit-making year, entitled to a reduced corporate income tax rate of 10% for the following three years and a preferential corporate income tax rate of 20% for the remaining five years. Trai Thien continues to enjoy the tax holiday expiring through fiscal year 2016.
The reconciliation of income tax rate to the effective income tax rate based on income before income taxes for the three months ended March 31, 2010 and 2009 is as follows:
| | | | | |
| Three months ended March 31, |
| 2010 | | 2009 |
| | | | | |
Income before income taxes | $ | 73,212 | | $ | 36,529 |
Statutory income tax rate | | 25% | | | 28% |
Income tax expense at statutory tax rate | | 18,303 | | | 10,228 |
| | | | | |
Reversal of tax over-provision | | - | | | (23,198) |
Effect of tax holiday | | (10,982) | | | (6,575) |
Non-deductible items | | 5,288 | | | 20,776 |
Income tax expense | $ | 12,609 | | $ | 1,231 |
The following table sets forth the significant components of the aggregate deferred tax assets of the Company as of March 31, 2010 and December 31, 2009:
| | | | | | |
| | March 31, 2010 | | December 31 2009 |
Deferred tax assets: | | | | | | |
Non-deductible professional fees | | $ | 11,657 | | $ | 8,060 |
Non-deductible vessel rental expense | | | 183,627 | | | 139,790 |
| | | | | | |
Total: | | $ | 195,284 | | $ | 147,850 |
NOTE 11 - CONCENTRATIONS OF RISK
The Company is exposed to the following concentrations of risk:
(a)
Major customers
For the three months ended March 31, 2010 and 2009, the customer who accounts for 10% or more of the Company’s revenues and its outstanding balance as at period-end dates, are presented as follows:
18
TRAI THIEN USA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
| | | | | | | | |
| | Three months ended March 31, 2010 | | March 31, 2010 |
| |
Revenues | | Percentage of revenues | | Accounts receivable |
| | | | | | | | |
Customer C | | $ | 1,721,159 | | 59% | | $ | - |
Customer D | | | 686,482 | | 24% | | | - |
Total: | |
$ | 2,407,641 | | 83% | | $ | - |
| | | | | | | | |
| | Three months ended March 31, 2009 | | March 31, 2009 |
| |
Revenues | | Percentage of revenues | | Accounts receivable |
| | | | | | | | |
Customer A | | $ | 366,998 | | 20% | | $ | - |
Customer B | | | 332,110 | | 18% | | | - |
Customer C | | | 313,653 | | 17% | | | - |
Customer D | | | 277,648 | | 15% | | | - |
Customer E | | | 222,911 | | 12% | | | - |
Total: | |
$ | 1,513,320 | | 82% | | $ | - |
(b)
Credit risk
No financial instruments that potentially subject the Company to significant concentrations of credit risk. Concentrations of credit risk are limited due to the Company’s large number of transactions are on the cash basis.
(c)
Interest rate risk
As the Company has no significant interest-bearing assets, the Company’s income and operating cash flows are substantially independent of changes in market interest rates.
The Company’s interest-rate risk arises from bank borrowings. Borrowings issued at variable rates expose the Company to cash flow interest-rate risk. Borrowings issued at fixed rates expose the Company to fair value interest-rate risk. Company policy is to maintain approximately all of its borrowings in fixed rate instruments. At the period-end, all of borrowings were at fixed rates.
(d)
Exchange rate risk
The reporting currency of the Company is US$, to date part of the revenues and the majority of costs are denominated in VND and a significant portion of the assets and liabilities are denominated in VND. As a result, the Company is exposed to foreign exchange risk as its revenues and results of operations may be affected by fluctuations in the exchange rate between US$ and VND. If VND depreciates against US$, the value of VND revenues and assets as expressed in US$ financial statements will decline. The Company does not hold any derivative or other financial instruments that expose to substantial market risk.
(e)
Economic and political risks
Substantially all of the Company’s services are conducted in Vietnam and Asian region. The Company’s operations are subject to various political, economic, and other risks and uncertainties inherent in Vietnam. Among other risks, the Company’s operations are subject to the risks of restrictions on transfer of funds; export duties, quotas, and embargoes; domestic and international customs and tariffs; changing taxation policies; foreign exchange restrictions; and political conditions and governmental regulations in Vietnam.
19
TRAI THIEN USA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
NOTE 12 - COMMITMENTS AND CONTINGENCIES
(a)
Capital commitments
The Company is committed and contracted with three unaffiliated shipyards, Dai Duong Joint Stock Ocean Transportation Company, Hai Ha Road and Water Transport Company Limited and Dai Duong Vessel Building Co. Ltd, respectively, for the construction of 7 vessels in Vietnam. The total estimated construction cost for 7 vessels was approximately $65.5 million (equivalent to VND1,262 billion). These vessels are expected to be delivered between 2010 and 2011.
As of March 31, 2010, the aggregate future minimum payments to the shipyards in the next two years are as follows:
| | |
Year ending March 31: | | |
2011 | $ | 17,305,825 |
2012 | | 30,587,381 |
| | |
Total: | $ | 47,893,206 |
(b)
Operating lease commitments
The Company is committed to several vessel charter agreements to operate a total of 4 oceangoing vessels for the various terms from 6 months to 1 year with fixed monthly rentals and generally did not contain significant renewal options. For the three months ended March 31, 2010 and 2009, the Company incurred and paid vessel rental of $492,289 and $525,423, respectively.
As of March 31, 2010, the Company has the future minimum rental payments of $483,229 under these operating lease agreements within the next 12 months.
NOTE 13 - COMPARATIVE FIGURES
Certain amounts in the prior periods presented have been reclassified to conform to the current period financial statement presentation.
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Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
Some of the statements contained in this Form 10-Q that are not historical facts are "forward-looking statements" which can be identified by the use of terminology such as "estimates," "projects," "plans," "believes," "expects," "anticipates," "intends," or the negative or other variations, or by discussions of strategy that involve risks and uncertainties. We urge you to be cautious of the forward-looking statements, that such statements, which are contained in this Form 10-Q, reflect our current beliefs with respect to future events and involve known and unknown risks, uncertainties and other factors affecting our operations, market growth, services, products and licenses. No assurances can be given regarding the achievement of future results, as actual results may differ materially as a result of the risks we face, and actual events may differ from the assumptions underlyin g the statements that have been made regarding anticipated events. Factors that may cause actual results, our performance or achievements, or industry results, to differ materially from those contemplated by such forward-looking statements include without limitation:
·
Our ability to attract and retain management, and to integrate and maintain technical information and management information systems;
·
Our ability to raise capital when needed and on acceptable terms and conditions;
·
The intensity of competition; and
·
General economic conditions.
All written and oral forward-looking statements made in connection with this Form 10-Q that are attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Given the uncertainties that surround such statements, you are cautioned not to place undue reliance on such forward-looking statements.
Plan of Operations
We are a Vietnam-based sea cargo company, formed in June 2007, specializing in the transport of dry bulk commodities within Southeast Asia. Currently, we have a fleet of six owner-operated and term-leased geared vessels with an average size of 3,665 dead weight tonnage (“DWT”). The aggregate capacity for all six vessels totals 21,990 DWT. Due to the current capacity of our ships, Most of our business is within Southeast Asia and southern China.
In addition to Trai Thien’s current fleet of six owner-operated and term-leased geared vessels, in order to meet growing market demand for our services, we have contracted to rent six additional new ships with larger capacities of 6,850 DWT on average, of which one is under a financial lease and the others are operating leases. We expect four out of these six ships to be launched in 2010 and the remaining two ships to operate in the first half of 2011. In addition, we have made deposits for building six new cargo ships with a capacity of 7,600 DWT each. We expect delivery of the first four ships in the second half of 2010. The remaining two vessels are expected in 2011. The Company has also contracted to build one new ships of 4,300 DWT which are expected to be delivered in 2010.
As of March 31, 2010, the Company is required to make aggregate future minimum payments of $17,305,825 and $30,587,381 to the shipyards in the years ending March 31, 2011 and 2012, respectively. As of March 31, 2010, the Company has available $16,304 cash and cash equivalents. The Company plans to finance the construction of these seven newly-built vessels through additional capital injection from its shareholders or external financing from banks or a mixed of financing sources. However, there can be no assurance that the Company will be able to obtain sufficient funds to meet with its obligations on a timely basis towards the delivery of the vessels.
With our expansion plan, Trai Thien’s total capacity is expected to significantly increase to more than 80,000 DWT by the end of 2010, then exceeding 110,000 DWT by the end of 2011. Given the larger size and young age of our cargo ships, we believe we can further distance ourselves from locally-owned and foreign-owned competitors in Vietnam and greater South East Asia.
21
Results of Operations for the Three Months Ended March 31, 2010 and 2009
Revenues for the three months ended March 31, 2010 increased by $1,064,119, or 58%, to $2,913,249 compared to $1,849,130 for the months ended March 31, 2009. This increase was primarily due to the launching of an owner-operated vessel with capacity of 4,300 DWT in November 2009, attributing to an increase of 32% in the total capacity of our fleet from 13,390 DWT during the three months ended March 31, 2009 to 17,690 DWT during the three months ended March 31, 2010. With the increase in our fleet dead weight tonnage, we were able to increase the number of our nautical trips from 16 trips during the three months ended March 31, 2009 to 29 trips during the three months ended March 31, 2010, or an increase of 81%. We received another vessel of 4,300 DWT by the end of March 2010; this vessel has been put into operation since April 2010.
Voyage expenses for the three months ended March 31, 2010 were $1,384,694 compared to $772,711 for the three months ended March 31, 2001, an increase of $611,983, or 79%. Voyage expenses mainly include fuel, pilot, towage and port fees. We attributed the increase of voyage expenses to the increase in the number of our vessels and the increase in the number of our nautical trips during the three months ended March 31, 2010 compared to the same period last year. Fuel expense for the three months ended March 31, 2010 increased by $521,621 or 116% to $970,354 compared to $448,733 for the same period last year. Pilot, towage and port fees for the three months ended March 31, 2010 increased by $107,402, or 39%, to $385,481 compared to $278,079 for the same period last year.
Vessel operating expenses for the three months ended March 31, 2010 were $447,928 compared to $212,441 for the three months ended March 31, 2009, an increase of $235,487, or 111%. Vessel operating expenses mainly include crewing expenses, ship administrative expenses, vessel depreciation expense and vessel insurance. We attributed the increase of vessel operating expenses to the increase in the number of our vessels during the three months ended March 31, 2010 compared to the same period last year. Crewing expenses for the three months ended March 31, 2010 increased by $47,537, or 37%, to $177,273 compared to $129,736 for the same period last year. The crewing expense increase was attributable to the increase in crew salaries of about 20% and the increase in the number of crewmen of 26% from 69 people for the three months ended March 31, 2009 to 87 people for the three months ended March 31, 2010. Depreciation expense during the three months ended March 3 1, 2010 was $106,128 as compared to $0 for the same period last year. The increase was attributable to the acquisition of the vessel of 4,300 DWT in November 2009.
Rental expense for the three months ended March 31, 2010 was $492,289 compared to $525,423 for the same period last year. The decrease of $33,134, or 6%, was attributable to foreign currency exchange differences.
Selling, general and administrative expenses for the three months ended March 31, 2010 were $333,004 compared to $299,660 for the three months ended March 31, 2009, an increase of $33,344, or 11%. Selling, general and administrative expenses mainly included office expenses, salary of administration staff, audit fees and consultancy fees. The increase was primarily attributable to the increase in the number of executive officers required and professional fees incurred in the three months ended March 31, 2010 compared to the same period last year.
Interest expense for the three months ended March 31, 2010 was $241,894 compared to $2,442 for the three months ended March 31, 2009. We attribute the increase of $239,452, or 9806%, to the increase in short-term borrowing and long-term borrowing for the financing of working capital needs and acquisition and building of new vessels.
Income tax expense for the three months ended March 31, 2010 was $12,609 compared to $1,231 for the three months ended March 31, 2009.
As a result of the foregoing, net income decreased by $34,427 from $35,298 for the three months ended March 31, 2009 to $871 for the three months ended March 31, 2010.
Liquidity and Capital Resources
As of March 31, 2010, cash and cash equivalents were $16,304 compared to $102,484 as of March 31, 2009.
The Company generated cash of $3,417,655 in operating activities for the three months ended March 31, 2010 while used cash of $287,966 in operating activities for the same period in 2009. The major reasons were the receipt of an advance that was previously made to a supplier of $2,651,157, an increase in trade accounts payable of $730,152 and an increase in accrued liabilities and other payables of $398,839 offset by an increase in prepayment and other current assets of $472,836.
The Company used cash of $7,571,497 in investing activities for the three months ended March 31, 2010 while had no investing activities in the same period in 2009. During the three months ended March 31, 2010, the Company paid $4,920,340 for the purchase of its vessel and paid additional $2,651,157 to shipyards.
22
During the three months ended March 31, 2010, the Company generated net cash of $4,064,216 from financing activities. The cash inflow were attributable to proceeds from long term bank borrowings of $3,316,309 and proceed from promissory note of $1,464,872 which were used to finance the vessel acquisition in March 2010. Repayments of short term borrowings were $641,333 and repayments of long term borrowings were $89,632. During the three months ended March 31, 2009, the Company generated cash of $494,156, which was repayment from stockholders.
As of March 31, 2010, the Company is required to make aggregate future minimum payments of $17,305,825 and $30,587,381 to the shipyards in the years ending March 31, 2011 and 2012, respectively. As of March 31, 2010, the Company has available $16,304 cash and cash equivalents, which may not able to meet with these capital commitments. The Company plans to finance the construction of these 7 newly-built vessels through additional capital injection from its shareholders or external financing from banks or a mixed of financing sources. However, there can be no assurance that the Company will be able to obtain sufficient funds to meet with its obligations on a timely basis towards the delivery of the vessels.
We estimate that our operational expenses over the next twelve months would be approximately $23,862,246, consisting of voyage expenses of $13,957,117, vessel operating expenses of $6,771,389, vessel rental expense of $1,997,001 and selling, general and administrative expenses of $1,136,740. The Company expects to meet such expenses through a mix of the additional capital from its shareholders and external financing from the banks and its internally generated cash flows.
The Company has committed and contracted for the construction of 7 vessels in Vietnam with a combined carrying capacity of 49,900 deadweight tons in the aggregate value of approximately $65.5 million (equivalent to VND1,262,000,000,000), which are expected to be delivered between 2010 and 2011. As of March 31, 2010, the Company is required to make aggregate future minimum payments of $17,305,825 and $30,587,381 to the shipyards in the years ending March 31, 2011 and 2012, respectively. As of March 31, 2010, the Company has available $16,304 cash and cash equivalents, which may not able to meet with these capital commitments. The Company plans to finance the construction of these 7 newly-built vessels through additional capital injection from its shareholders or external financing from banks or a mixed of financing sources. However, there can be no assurance that the Company will be able to obtain sufficient funds to meet with its obligations on a timely b asis towards the delivery of the vessels.
As of March 31, 2010, total current assets were $1,216,047 compared to total current liabilities of $12,261,806, translated to a current ratio of 0.1 times. As of March 31, 2010, short-term bank borrowings were $6,629,011 and the current portion of long term bank borrowings was $1,214,233 which are primarily due by May 2010 and June 2010. The Company depends on its ability for agreements with banks to refinance or to reschedule when these short-term borrowings are due. However, there can be no assurance that the Company will be able to reach such agreements with the banks to refinance or reschedule when these short-term borrowings are due.
These factors raise substantial doubt about the Company’s ability to continue as a going concern. These condensed financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets and liabilities that may result in the Company not being able to continue as a going concern.
Off-Balance Sheet Arrangements
Since our inception, except for standard operating leases and the Vietnamese variable interest entity, Trai Thien, we have not engaged in any off-balance sheet arrangements, including the use of structured finance, special purpose entities or other variable interest entities.
Capital commitments
The Company is committed and contracted with three unaffiliated shipyards, Dai Duong Joint Stock Ocean Transportation Company, Hai Ha Road and Water Transport Company Limited and Dai Duong Vessel Building Co. Ltd, respectively, for the construction of 7 vessels in Vietnam. The total estimated construction cost for 7 vessels was approximately $65.5 million (equivalent to VND1,256 billion). These vessels are expected to be delivered between 2010 and 2011.
As of March 31, 2010, the Company has the aggregate future minimum payments of $17,305,825 and $30,587,381 to the shipyards in the years ended March 31, 2011 and 2012, respectively.
23
Operating lease commitments
The Company is committed to several vessel charter agreements to operate a total of 4 oceangoing vessels in various terms ranging from 6 months to 1 year with fixed monthly rentals and generally did not contain significant renewal options. For the three months ended March 31, 2010 and 2009, the Company incurred and paid vessel rental expense of $492,289 and $525,423, respectively.
As of March 31, 2010, the Company has the future minimum rental payments of $483,229 under these operating lease agreements within the next 12 months.
Item 3.Quantitative and Qualitative Disclosure About Market Risk
Not applicable.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation of our management, including our President, Chief Financial Officer and Secretary, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this report. Based upon that evaluation, our President, Chief Financial Officer and Secretary concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective such that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to o ur management to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
Changes in Internal Control Over Financial Reporting. During the most recent quarter ended March 31, 2010, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) ) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 4t Controls and Procedures
The information required pursuant to item 4(t) has been provided in Item 4.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 1.A. Risk Factors
There have been no material changes to our risk factors from those set forth in our annual report for the year ended December 31, 2009.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Reserved
Item 5. Other Information.
None.
24
Item 6. Exhibits.
| | |
Exhibit No. | | Description |
| | |
31.1 | | Certification of the Company's Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2010. |
| | |
31.2 | | Certification of the Company's Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2010. |
| | |
32.1 | | Certification of the Company's Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | |
32.2 | | Certification of the Company's Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused the Report to be signed on its behalf by the undersigned thereunto duly authorized.
| | |
| TRAI THIEN USA INC. |
| | |
Dated: May 24, 2010 | By: | /s/ Haley Manchester |
| | Haley Manchester |
| | Chief Executive Officer |
| | |
Date: May 24, 2010 | | /s/ Tran Viet Thang |
| | Tran Viet Thang |
| | Chief Financial Officer |
26
