U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A
(Mark One)
|_| ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2008
|X| TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from April 1, 2008 to December 31, 2008
Commission File Number333-134991
_______________________________________________
BAOSHINN CORPORATION
(Exact name of registrant as specified in its charter)
______________________________________________
Nevada |
| 20-3486523 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
|
|
|
A-B 8/F Hart Avenue Tsim Sha Tsui, Kowloon, Hong Kong |
| N/A |
(Address of principal executive offices) |
| (Zip code) |
Registrant's telephone number, including area code:
(852) 2815-1355
_____________________________________________
Securities registered under Section 12(b) of the Exchange Act:
None.
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value per share
(Title of Class)
Indicate by check mark if registrant is a well known seasoned issuer, as defined in Rule 405 of the Securities Act. | | Yes | X | No.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.
| | Yes | X | No.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. | X | Yes | | No.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ]
Accelerated filer [ ]
Non-accelerated filer [ ]
Smaller reporting company [ X ]
(Do not check if a smaller reporting company)
Indicate by check mark whether the issuer is a shell company (as defined in Rule 12b-2 of the Exchange Act).
| | Yes | X | No.
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked prices of such common equity, as of the last business day of the registrant's most recently completed quarter. Note: If determining whether a particular person or entity is an affiliate cannot be made without involving an unreasonable effort and expense, the aggregate market value of the common equity held by non-affiliates may be calculated on the basis of reasonable assumptions, if the assumptions are set forth in this form.
6,550,000 common shares @ $0.10* = $655,000
*Average of bid and ask closing prices on June 30, 2008.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes | | No. | |
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.
21,400,000 common shares issued and outstanding as of March 25, 2009
DOCUMENTS INCORPORATED BY REFERENCE:
None.
FORWARD-LOOKING STATEMENTS
Certain statements made in this Annual Report on Form 10-K are "forward-looking statements" (within the meaning of the Private Securities Litigation Reform Act of 1995) regarding the plans and objectives of management for future operations. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of Baoshinn Corporation (the "Company") to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. The Company's plans and objectives are based, in part, on assumptions involving the continued expansion of business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and fu ture business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although the Company believes its assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance the forward-looking statements included in this Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved.
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TABLE OF CONTENTS
Page
PART I
Item 1.
Business
4
Item 1A.
Risk Factors
9
Item 2.
Properties
12
Item 3.
Legal Proceedings
12
Item 4.
Submission of Matters to a Vote of Security Holders
12
PART II
Item 5.
Market for Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
13
Item 6.
Selected Financial Data
13
Item 7.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
14
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
22
Item 8.
Financial Statements and Supplementary Data
22
Item 9.
Changes In and Disagreements with Accountants on Accounting
And Financial Disclosure
51
Item 9A(T).
Controls and Procedures
51
Item 9B.
Other Information
52
PART III
Item 10.
Directors and Executive Officers and Corporate Governance
52
Item 11.
Executive Compensation
55
Item 12.
Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
56
Item 13.
Certain Relationships and Related Transactions, and
Director Independence
57
Item 14.
Principal Accountant Fees and Services
58
Item 15.
Exhibits
59
Signatures
60
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PART I
ITEM 1. BUSINESS
Background
Baoshinn Corporation was incorporated under the laws of the State of Nevada on September 9, 2005, under the name of JML Holdings, Inc. We were formed as a "blind pool" or "blank check" company whose business plan was to seek to acquire a business opportunity through completion of a merger, exchange of stock, or other similar type of transaction. Prior to our identification of Bao Shinn International Express ("BSIE") as an acquisition target, our only business activity was organizational activities.
We consummated our merger with BSIE, a privately held Hong Kong corporation, on March 31, 2006, by acquiring all of the issued and outstanding common stock of BSIE in a share exchange transaction. We issued 16,500,000 shares of our common stock in exchange for 100% of the issued and outstanding shares of BSIE common stock. As a result of the share exchange transaction, BSIE became our wholly-owned subsidiary.
The former stockholders of BSIE acquired 76.74% of our issued and outstanding common stock as a result of completion of the share exchange transaction. Therefore, although BSIE became our wholly-owned subsidiary, the transaction was accounted for as a recapitalization of BSIE whereby BSIE is deemed to be the accounting acquirer and is deemed to have adopted our capital structure.
Government Approval/Regulations
BSIE is a travel service provider located in Hong Kong. As a travel service provider BSIE must be a member of the Travel Industry Council in Hong Kong. Such a member must meet the following criteria:
1.
It is a limited company incorporated or registered in Hong Kong.
2.
Its only business is travel-related and tourism.
3.
It is a member of one of the eight Association Members. BSIE is a HATA member (Hong Kong Association of Travel Agents). It has a minimum paid-up capital of Hong Kong Currency of $500,000, plus an additional Hong Kong Currency of $250,000 for each branch office.
4.
It conducts its travel-related and tourism business within separate and independent commercial premises / buildings.
5.
It employs at each office at least one manager with two years' relevant experience and another full-time staff member.
Any company that participates in the Travel industry in Hong Kong is required by law to be the member of the Travel Industry Council (TIC) in Hong Kong. Without joining the TIC, we cannot sell travel packages or provide travel services to the public. Any individual that buys a travel package or receives travel service from a non Travel Industry Council member will not have proper insurance coverage, and it is illegal for a company to sell travel service without joining the TIC.
Baoshinn International Express Background
BSIE is headquartered in Hong Kong and was established in 2002 to offer extended travel services primarily focused on wholesale businesses and corporate clients. Through our Hong Kong subsidiary, we are ticket consolidators of major international airlines, including Thai Airways, Eva Airways, Dragon Air, Air China, China Southern Airlines, China Eastern Airlines, HongKong Airlines & HongKong Express. With a strong and experienced team of travel consultants and officers dedicated to excellent travel services, we provide travel services such as ticketing, hotel and accommodation arrangements, tour packages, incentive tours and group sightseeing services to customers located in Hong Kong and Mainland China.
Chartered Flights
Chartered flights generally account for less than 5% of our total business. During peak periods, such as the Easter holiday, summer holiday, Christmas, New Year and Chinese New Year, our chartered flight schedule will depend on the market situation. We will
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discuss options with airlines such as Eastern Airline to Shanghai, Thai Airways to Bangkok, Eva Airlines to Taipei and Dragon Airline to Beijing.
Business Objective
We intend to expand our current travel agency wholesale business, direct corporate client sales and Hong Kong to China travel arrangement in Hong Kong operations, and establish additional operations Mainland China. The estimated funding to meet these objectives is: (i) US $500,000 to expand the Hong Kong Operation; (ii) US $1,200,000 to establish branch offices and sales representative centers in Mainland China; (iii) US$1,500,000 for working capital of Mainland China operations.
Our long term objective is to enlarge our customer base and to provide privileged services in the Hong Kong and China Mainland market.
Description of Services
Ticketing Agency
We are ticket consolidators (meaning we are wholesale agents for the airlines) for Thai Airway, Eva Airways, China Airlines, Dragon Air, Air China, China Southern Airlines, China Eastern Airlines, HongKong Airlines and Hong Kong Express. Our computerized in-house ticketing network allows us to book and issue flight tickets for any international airline. We currently use the Abacus, Amadeus, World Span, Galileo and E-Term ticketing systems, which offer the most comprehensive ticketing services to our customers. All of these systems are recognized by the airlines as ticket booking systems, which link to airline computer systems and allow us to gain direct access to those systems and issue the ticket.
Hotel/Accommodation Arrangement
We provide extensive accommodation arrangements through our Hotel Division, which enables our customer to make advance arrangements throughout their tour. We have the capability to provide hotel reservations to any hotel in the world.
Inbound Division
We provide extensive local support and accommodation for inbound travelers to Hong Kong through our strategic alliances and relationships with local hotels and transportation companies. We provide hotel reservations, transportation, tour guides, optional tour and entrance tickets for playground and Disneyland in Hong Kong. Our current customers mostly come from the Asia Pacific regions, including China, Japan and Taiwan, also chartered customers from Europe and North America. Our staff will concentrate on China Inbound travel and Disneyland Resort Tours as we hope to capitalize on the domestic travel market in China.
China Division
With our long established relationships in the China travel industry and our special relationships with hosts in China, we provide one-stop service to customers to enjoy the widest range of options, packages, tickets and accommodations in China.
Corporate Division
We provide custom services and arrangements to our corporate clients for their business travel. With a team of travel consultants specifically trained for our corporate clients, we provide our expertise to corporate customers by designing business itineraries that fit their busy schedules.
We are now undergoing developments and expansion in all divisions. With our planned branch offices due to open in the next two years, our business is expected to be more comprehensive and be offered to a much wider spectrum of customers, while maintaining our high standard of service.
Operation
BSIE's headquarters is located in Kowloon, Hong Kong. The office lease commenced on January 1, 2004 and is for a period of 6 years. In addition, BSIE has two branch offices in Hong Kong, one is located in central, the lease commenced on September 1, 2005 and is for a term of 3 years, the other one is located in Kwai Chung, the lease commenced on August 1, 2006 and is for a term of 3 years.
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BSIE has 37 employees in Hong Kong and plans to increase this to 45 employees by the end of 2009.
BSIE is a member of the Travel Industry Council of Hong Kong (TIC) and the Hong Kong Outbound Tour Operator's Association (OTOA). To maintain memberships with these organizations, we are required to comply with the agencies regulations which demand a high standard of professionalism in the travel industry and to protect the interests of our customers.
Ordinary Membership of the TIC shall meet the following criteria:
Our goal is to capture an all-encompassing market that will include the inbound/outbound markets for travel services in Hong Kong, China and around the world. We believe that we can compete on the retail, wholesale and corporate levels of the travel industry using this all-encompassing approach.
Market Overview
The travel industry has become a significant driving force in Hong Kong's economy. This includes inbound as well as outbound business, as evidenced by the following facts, trends and future estimates.
1.
In 2008, there were 29.51 million visitors to Hong Kong, a growth of 4.7%% compared to 2007. Source: Hong Kong Tourism Board, January 2009.
2.
Being an international city, Hong Kong is a popular venue for international conventions and exhibitions, which bring a large number of visitors to the City every year.
3.
Attractions in Hong Kong such as the Sun Yat-Sen Museum, Ocean Park Theme Hotel and Disneyland Resort are expected to attract more visitors in the coming years.
4.
International Sports events, including the Macau Grand Prix in November and the Hong Kong Rugby Seven are held every year have been attracting a large number of visitors to Hong Kong:
PEOPLES REPUBLIC OF CHINA
Market Overview
Travelers from Mainland China are by far the largest source of revenue for the Hong Kong travel industry. The Chinese Government plans to further expand the opportunities given to its citizens to travel to Hong Kong. With the expanding middle class in China, the number of Mainland China Travelers and the revenues they generate is expected to increase. The recent opening of the Disneyland Resort in Hong Kong has also attracted tourists from Mainland China.
| 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 |
Total Overnight Visitors Spending Per Capita (HKD$) | 4.588 | 4.904 | 5.041 | 4.478 | 4.663 | 4.799 | 5.122 |
Percentage Growth (%) | 0.5 | 6.9 | 4.2 | 11.2 | 4.1 | 2.9 | 6.7 |
Source: Hong Kong Tourism Board, April, 2008
•
The economy of China has been expanding dramatically since the 1990's. The number of travelers continues to increase as well as their spending power. Overall spending by Mainland China Visitors has been increased steadily in the past five years. Source: Hong Kong Tourism Board.
•
Besides traveling outside China, the domestic travel market in Mainland China has been growing rapidly. With Baoshinn's new sales representative offices we plan to tap into this increasing demand.
Travel Policy Changes
•
Benefiting from the progressive extension of the Individual Visit Scheme (IVS), Mainland China was the origin for more than half the total visitors to Hong Kong in 2007. Source: Hong Kong Tourism Board, February, 2008.
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•
The Individual Visit Scheme (IVS) was originally implemented in July, 2003. On July 1, 2004, IVS was launched in a total of 32 cities in southern and eastern China, permitting residents to travel to Hong Kong as individuals. Previously the Chinese Government only allowed groups to travel to Hong Kong. During 2007, 15.49 million or 55% of all the Mainland visitors traveled to Hong Kong under IVS.
•
Total Mainland China Visitors to Hong Kong increased of 16.8% from 2007 to 2008. This represented 16.8 million visitors in 2008. Source: Hong Kong Tourism Board, January, 2009.
•
Starting in July, 2002, Mainland China Visitors were allowed to exchange foreign currencies freely in unlimited amounts with commercial banks. In January 2005, the Chinese Government increased the cash limit that may be carried by visitors form Mainland China to Hong Kong from US$749 to US$2,497 (RMB 6,000 to RMB 20,000). (Exchange Rate: US$1:RMB8.01).
The "Quota System" was cancelled in January 2002 for traveling from PRC to Hong Kong. New "Travel Permits" for Mainland China Visitors was established in May 2002. New Permits are valid for 5 years with multi-purposes entries, including leisure and business visits; unlike the prior permits, which were only valid for business visits. Transit Travel Permits allow Chinese citizens to stay in Hong Kong for a maximum of 7 days. Business Travel Permits have been gradually replaced by Multi-purpose Permits, which offers more flexibility and ease of use. For visitors from the Mainland, the flexibility and convenience offered by IVS travel encourages them to make more frequent and short-stay visits to Hong Kong.
Marketing Strategies
Our goal is to create and keep customers. Our marketing strategy will reflect this goal as we build our reputation in Hong Kong and China. With our experience and network in the industry, we are growing our business to provide excellent travel solutions to customers.
Our marketing strategies include the following:
•
With the number of visitors increasing, we continue to enhance our sales volume in ticketing sales, inbound and outbound tours packages, and hotel accommodation arrangements. This allows us to negotiate competitive rates, since we are a ticket consolidator for several international airlines.
•
We will work to take advantage of the IVS and the spectacular growth in China's economy.
•
We will strive to improve service quality for customers, by investing in advanced computer programs, with a view to supplying innovative information technology solutions to both individual and corporate travelers.
•
To further expand our service coverage for Mainland China visitors, we plan to open a new office in Shanghai and Beijing. This office will provide complete travel services to individual and corporate customers in the Eastern and Northern area of China.
•
We plan to further expand our travel services coverage to Guangzhou and Shenzhen in Mainland China. These offices will allow us to provide superior travel services for travelers in the Southern China.
•
We also plan to operate chartered flights from Hong Kong to Mainland, Thailand and Taiwan in the future.
•
We plan to increase our coverage and our presence in China through the development of five representative sales offices in each of the five China regions, result in a total of 20 representative sales offices in China. This "well-organized network" is our planned branch in the People's Republic of China. This will be a network that, based on the experience of our officers and directors, we plan on being well organized and efficient. We plan to set up our network in the People's Republic of China through the retail chain which will not only contact the customer, but will also deal with the local travel companies in China to expand the sales network.
•
We plan to operate in a retail chain store format to enlarge our customer base and provide more comprehensive services in Mainland China. This "retail chain" means the company will open the branch to serve the direct customer of the Chinese agents. Currently, we provide our services to travel agencies who further sell our product to direct customers.
•
Currently, a majority of our revenues are generated from travel agencies, the rest of our revenue comes from direct corporate customers and sale of air ticket route from Hong Kong to Mainland China. Our plan is to increase the direct corporate customer business, because of its higher gross profit margin.
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Marketing Techniques
Air Tickets wholesale (core business):
•
Maintain a good relationship with airlines to get competitive first tier agent air ticket price, as well as lucrative airline incentive contract.
•
Strong sales team built up a wide network within the Hong Kong travel industry over years, and kept a good reputation among Hong Kong local retail travel agents.
•
Flat organization structure enables efficient decision making and quick response to market change.
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Distribute the competitive selling price list by electronic auto-fax and email and by physical visits to our customer.
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Increase fixed space allotment from airlines in the travel hot season.
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Geographically located in the heart of East Asia, the short haul travel package market in Hong Kong has great potential and a higher margin.
•
Build in house package design, combine hotel services and air flight with innovative ideas.
Corporate travel:
Our current market techniques to promote corporate are:
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Focus on niche market and avoid competing with giant corporate traveler company such as American Express and CWT.
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Provide superior service to SME clients that are ignored by giant corporate travel agencies, and keep them by providing flexible service terms.
•
Recruit experienced corporate travel consultants with clients on hand, and retain them by an incentive salary structure.
•
Full decentralized corporate travel department, to enable department head full autonomy in operating the corporate travel business.
Sale of air ticket route from Hong Kong to Mainland China.
Our current market techniques to promote inbound travel are:
•
Build extensive relationships with China local hotels to obtain competitive hotel rates, and secure hotel rooms during peak season.
•
Use existing networks in mainland China and Taiwan to penetrate into those overseas markets, provide tour services, hotel, and car transfer services for Hong Kong visitors from these regions.
•
As part of our long term market strategies, the existing business in Hong Kong will build the foundation for future China development, and will integrate into future China operations.
Competition and Market Trends
There is considerable competition for consolidators and wholesale ticket sellers in China. While we have considerable experience and expertise in this field, several major competitors do exist in this market. Our competitors run similar businesses to ours.
The e-ticket is a trend that the airlines are moving towards, and consumers purchasing airline tickets and making hotel reservations via telephone or internet is a competitive force. Due to the limitations and regulations surrounding e-tickets, this is not a trend that we feel will have a significant impact on our business expansion, if at all.
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Airlines are trying to build up e-ticket systems/internet booking systems, so they can reach end customers directly without the use of travel agents. However whether the e-ticket system can be successful in Hong Kong and China is still a question mark. With the limitations of e-ticketing itself, and different consumer habits in Greater China compare to developed western countries, time will tell whether e-ticket can be prevail in greater China.
Limitations & Regulations
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E-tickets are normally non-endorsable, non-re-routable, and they lack flexibility when dealing with more complicated bookings.
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Details are input by the end-customer, and it is very easy to create errors by those not familiar with airline coding.
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Dependence on internet and computer system will be a disaster during system outage.
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Reasons for E-ticket being "not a growing trend in Greater China Region on consumer end"
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Online credit card usage is still not prevailing in Greater China due to insecurity and fraud. In general, people's attitude towards credit card is different with western developed country, where the later are more get used to shopping with credit cards.
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Fewer people in China have credit cards.
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As a developing country, consumers in China are not confident in internet transactions. They are more likely to accept physical human contact, or a paper ticket where they can see what they get.
Regarding the methods of competition in our industry, we release the authority to the front line staff to negotiate the deal with customers, while our competitors have more formal channels they must go through to make a decision. Thus, our turn around is faster than our competition and more efficient.
Our competitor's advantage is that their financial background is stronger than ours.
Our main advantage is our relatively small size which allows us to be more flexible and respond to market changes more rapidly.
Employees
We have approximately 37 employees in Hong Kong, and we plan to increase this number to approximately 45 employees by the end of 2009.
ITEM 1.A. RISK FACTORS.
THERE MAY EXIST CONFLICTS OF INTEREST ON THE PART OF OUR OFFICERS AND DIRECTORS.
Our directors and officers are or may become, in their individual capacities, officers, directors, controlling shareholders and/or partners of other entities engaged in a variety of businesses. Each of our officers and directors is engaged in business activities outside of the Company. As a result of these activities, there exists potential conflicts of interest including, among other things, time, effort and business combinations with other such entities.
OUR COMMON STOCK MAY NOT BE LISTED ON NASDAQ OR ANY OTHER SECURITIES EXCHANGE.
We may seek the listing of our common stock on NASDAQ or another United States Stock Exchange. However, we may not be able to meet the initial listing standards of such an exchange, and even if we are able to obtain such a listing initially, we may not be able to maintain such listing of our common stock. Until our common stock is listed on the NASDAQ or another stock exchange, we expect that our common stock would be eligible to trade on the OTC Bulletin Board, another over-the-counter quotation system, or on the "pink sheets," where our stockholders may find it more difficult to dispose of shares or obtain accurate quotations as to the market value of our common stock. In addition, we would be subject to an SEC rule that, if we failed to meet the criteria set forth in such rule, imposes various practice requirements on broker-dealers who sell securities governed by the rule to persons other than established customers and accredited i nvestors. Consequently, such rule may deter broker-dealers from recommending or selling our common stock, which may further affect the liquidity of our stock. This would also make it more difficult for us to raise additional capital.
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CONTROL BY MANAGEMENT.
Management currently owns the majority of all the issued and outstanding capital stock of the Company. Consequently, management has the ability to influence control of the operations of the Company and, acting together, will have the ability to influence or control substantially all matters submitted to stockholders for approval, including:
●
Election of the board of directors;
●
Removal of any directors;
●
Amendment of the Company's certificate of incorporation or bylaws; and
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Adoption of measures that could delay or prevent a change in control or impede a merger, takeover or other business combination.
These stockholders will thus have substantial influence over our management and affairs, this concentration of ownership by itself may have the effect of impeding a merger, consolidation, takeover or other business consolidation, or discouraging a potential acquirer from making a tender offer for the common stock.
DOING BUSINESS IN CHINA IS SUBJECT TO LEGAL RISKS AND POLITICAL AND ECONOMIC CHANGES OVER WHICH WE HAVE NO CONTROL.
We plan to develop our business in China so China's policies will affect our growth.
While China's economy has experienced significant growth in the past twenty years, growth has been uneven, both geographically and among various sectors of the economy. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit the overall economy of China, but may also have a negative effect on us. For example, our operating results and financial condition may be adversely affected by the government control over capital investments or changes in tax regulations.
The economy of China has been transitioning from a planned economy to a market-oriented economy. In recent years the Chinese government has implemented measures emphasizing the utilization of market forces for economic reform and the reduction of state ownership of productive assets and the establishment of corporate governance in business enterprises; however, a substantial portion of productive assets in China are still owned by the Chinese government. In addition, the Chinese government continues to play a significant role in regulating industry development by imposing industrial policies. It also exercises significant control over China's economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies.
Capital outflow policies in the People's Republic of China may hamper our ability to remit income to the United States.
China has adopted currency and capital transfer regulations. These regulations may require that we comply with complex regulations for the movement of capital. If these regulations change or if the interpretation of the regulations by courts or regulatory agencies, we may not be able to remit all income earned from the sale of our services.
The monetary policy in China does not allow the local currency to be freely exchanged for foreign currency, so capital outflow is inhibited.
CURRENCY FLUCTUATIONS CAN CAUSE US SIGNIFICANT LOSSES.
Some of our costs are denominated in Chinese Renmenbi. Changes in the exchange rate between the Chinese Renminbi ("RMB") and the United States dollars ("US$") and Hong Kong dollars ("HK$") may affect our costs of sales and operating margins. Some of our sales are also denominated in RMB.
Fluctuations in the value of the RMB could materially affect our financial condition and results of operations.
The value of the RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in the PRC's political and economic conditions. As some of our net revenue is denominated in RMB, any significant revaluation of the RMB may materially and adversely affect our cash flows, revenues and financial condition.
On July 21, 2005, the Chinese government changed its policy of tying the value of the RMB to the U.S. dollar. Under the new policy, the RMB is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. This change in policy has resulted in an approximately 2.0% appreciation of the RMB against the U.S. dollar. While the international reaction to the RMB revaluation generally has been positive, there remains significant international pressure on the Chinese
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government to adopt an even more flexible currency policy, which could result in a further and more significant appreciation of the RMB against the U.S. dollar.
WE HAVE HISTORICALLY LOST MONEY AND MAY CONTINUE TO LOSE MONEY IN THE FUTURE; ACCORDINGLY, OUR AUDITORS HAVE EXPRESSED SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN.
We have historically incurred losses and future losses are likely to occur. Accordingly, we may experience significant liquidity and cash flow problems, because our operations may not be profitable. No assurances can be given that we will be successful in reaching or maintaining profitable operations. Because of our continuing losses from operations and lack of working capital, our auditors have expressed substantial doubt as to our ability to continue as a going concern. The financial statements do not include any adjustments that might result from the uncertainty about our ability to continue in business.
IF WE CANNOT RAISE ADDITIONAL CAPITAL TO FINANCE FUTURE OPERATIONS, WE MAY NEED TO CURTAIL OUR OPERATIONS IN THE FUTURE.
We have relied on our shareholders to fund our operations, and we plan to obtain additional capital to finance future operations. We cannot assure you that we will be able to obtain such financing on favorable terms, in sufficient amounts, or at all, when needed. Our inability to obtain sufficient financing would have an immediate material adverse affect on us, and our business, financial condition and results of operations. If we are unable to obtain adequate financing our business operations may be curtailed. Any of these events would be materially harmful to our business.
We have verbal commitments from our officers and directors to fund our operations for the next 12 months, however, we cannot be certain that additional financing beyond this point will be available when and to the extent required or that, if available, it will be on acceptable terms. If adequate funds are not available on acceptable terms, we may not be able to fund our expansion, develop or enhance our services, or respond to competitive pressures.
We may need to raise additional capital to fund our future operations.
WE DO NOT EXPECT TO PAY DIVIDENDS IN THE FORESEEABLE FUTURE.
We intend to retain any future earnings to finance the growth and development of our business. Therefore, we do not expect to pay any cash dividends in the foreseeable future. Any future dividends will depend on our earnings, if any, and our financial requirements.
We have historically lost money so we intend to retain the future profit in the company to sustain the business growth rather than pay dividends.
OUR COMMON STOCK IS DEEMED TO BE "PENNY STOCK," WHICH MAY MAKE IT MORE DIFFICULT FOR INVESTORS TO SELL THEIR SHARES DUE TO SUITABILITY REQUIREMENTS.
Our common stock is deemed to be a "penny stock" as that term is defined in Rule 3a51-1 promulgated under the Securities Exchange Act of 1934. These requirements may reduce the potential market for our common stock by reducing the number of potential investors. This may make it more difficult for investors in our common stock to sell shares to third parties or to otherwise dispose of them.
Penny stocks are stock:
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with a price of less than $5.00 per share;
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that are not traded on a "recognized" national exchange;
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whose prices are not quoted on the NASDAQ automated quotation system (NASDAQ listed stock must still have a price of not less than $5.00 per share); or
•
in issuers with net tangible assets less than $2.0 million (if the issuer has been in continuous operation for at least three years) or $5.0 million (if in continuous operation for less than three years), or with average revenues of less than $6.0 million for the last three years.
The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to make a special written determination that the penny stock is a suitable investment for the purchaser and to receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitably statement. These disclosure requirements may have the effect of reducing the
11
trading activity in the secondary market for our stock as long as it is subject to the penny stock rules. In addition, holders of our shares may have difficulty selling those shares because our common stock will probably be subject to the penny stock rules.
ITEM 2. PROPERTIES.
We do not own any real property for use in our operations or otherwise. We do rent office space from non-affiliates third parties, on the terms described more specifically below:
Name of Landlord | Property Location | Rental Charges Monthly | Duration | Lease Contract Under |
Wan Shinn Motors Company Limited | Room A&B, 8/F, 8 Hart Avenue, Tsim Sha Tsui, Kowloon | $2,912 | 01/01/2004-12/31/2009 | Bao Shinn International Express |
Grand Monrovia Enterprises Limited | Suites 903, 9/F Wing On Life Building, 22-22A Des Voeux Central, Hong Kong | $1,590 | 09/01/2005-08/31/2008 | Bao Shinn International Express |
Grand Power Express Int’l, Ltd. | Level 18, Metroplaza Tower 2, 223 Hing Fond Rd., Kwai Chung, NT, Hong Kong * Supplementary Agreement | $2,142 $670 | 06/05/52006-06/09/2008 01/08/2006-01/09/2008-01/09/2008 | Bao Shinn International Express |
Tak Shing Investment Co. Ltd. | Room 208 Tak Shing House, 20 Des Voeux Road Central, HK | $4,985 | 07/28/2008-07/27/2010 |
|
Twelve Months Ending March 31: | Future Minimum Lease Payments $ |
December 31, 2009 | 94,772 |
December 31, 2010 | 29,911 |
December 31, 2011 | Nil |
We use our facilities to house our corporate headquarters and operations and believe our facilities are suitable for such purpose. We also believe that our insurance coverage adequately covers our interest in our leased space. We have a good relationship with our landlords. We believe that these facilities will be adequate for the foreseeable future.
The Company currently has no policy with respect to investments or interests in real estate, real estate mortgages or securities or interests in, persons primarily engaged in real estate activities.
ITEM 3. LEGAL PROCEEDINGS.
We could be subject to litigation from time to time as a result of our normal business operations. Presently, there are no material pending legal proceedings to which we are a party or as to which any of our property is subject, and no such proceedings are known to be threatened or contemplated against us.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
12
PART II
ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
(a)
MARKET INFORMATION. Our common shares are quoted for trading on the OTC Bulletin Board under the symbol "BHNN". The closing price of our common stock, as reported by the OTC Bulletin Board on December 31, 2008, was $0.21.
National Association of Securities Dealers OTC Bulletin Board* | ||
|
|
|
Quarter End | High | Low |
June 30, 2007 | - | .07 |
September 30, 2007 | .07 | .07 |
December 31, 2007 | .21 | .21 |
March 31, 2008 | .40 | .30 |
June 30, 2008 | .39 | .10 |
September 30, 2008 | .10 | .07 |
December 31, 2008 | .21 | .07 |
*
Over-the-counter market quotations reflects high and low bid quotations and inter-dealer prices without retail mark-up, mark-down or commission, and may not represent actual transactions.
Our transfer agent and registrar for our common stock is Madison Stock Transfer Inc. Their address is PO Box 145, Brooklyn, New York, USA 11229-0145. Their telephone number is (718) 627-4453. Their fax number is (718) 627-6341
(b)
HOLDERS. As of December 31, 2008, we had approximately 27 shareholders of record who held 21,400,000 shares of the Company's common stock. This figure does not include shareholders whose shares are held in street or nominee names. We believe that as of December 31, 2008, there are approximately 75 beneficial owners of our Common Stock.
(c)
DIVIDEND POLICY. We have not declared or paid any cash dividends on our common stock and we do not intend to declare or pay any cash dividend in the foreseeable future. The payment of dividends, if any, is within the discretion of our Board of Directors and will depend on our earnings, if any, our capital requirements and financial condition and such other factors as our Board of Directors may consider.
(d)
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS.
Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column) |
Equity compensation plans approved by security holders | 380,000 | Nil | Nil |
(e)
RECENT SALE OF UNREGISTERED SECURITIES. The Company has made no sales of unregistered securities in the last three years.
ITEM 6. SELECTED FINANCIAL DATA.
Not Applicable.
13
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
CAUTIONARY STATEMENT FOR FORWARD-LOOKING STATEMENTS
This discussion and analysis of our financial condition and results of operations includes "forward-looking" statements that reflect our current views with respect to future events and financial performance. We use words such as "expect," "anticipate," "believe," and "intend" and similar expressions to identify forward-looking statements. You should be aware that actual results may differ materially from our expressed expectations because of risks and uncertainties inherent in future events and you should not rely unduly on these forward looking statements. We disclaim any obligation to publicly update these statements, or disclose any difference between its actual results and those reflected in these statements. Reference in the following discussion to "our", "us" and "we" refer to the operations of Baoshinn Corporation and its subsidiaries ("the company") , except where the context otherwise indicates or requires.
The following discussion of our financial condition and results of operations should be read in conjunction with the audited financial statements and the notes to the audited financial statements included in this annual report. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those anticipated in these forward-looking statements.
Change in fiscal year end
The Company's fiscal year end has been changed from March 31 to December 31. The current period financial statements cover a transitional reporting period for the nine months from April 1, 2008 to December 31, 2008. These financial statements are not entirely comparable to our last audit report which covered a period of twelve months (April 1, 2007 to March 31, 2008 and April 1, 2006 to March 31, 2007) for the consolidated statements of operations, consolidated statements of stockholders equity, consolidated statements of cash flows and the notes to financial statements thereon. Our current transitional period audited financial statements includes footnote 19 which contains an analysis of unaudited income statement items for the nine month period ending December 31, 2007. For the purpose of this MD&A, we compare our transitional nine months period ended December 31, 2008 to the nine months ended December 31, 2007. The results for the nine mo nths ending December 31, 2008 are audited, while the results for the nine months ending December 31, 2007 are unaudited, as a result of a change in our fiscal year for 2008.
Results of operations for the 9 months ended December 31, 2008 compared to 9 months ended December 31, 2007.
|
| 9-months |
| 9-months |
|
| period ended |
| period ended |
|
| December 31, 2008 |
| December 31, 2007 |
|
| (audited) |
| (unaudited) |
|
| $ |
| $ |
Retail and Corporate revenue |
| 24,704,983 |
| 27,990,948 |
Commission from travel booking services |
| 113,117 |
| 10,843 |
Incentive commissions |
| 304,787 |
| 380,715 |
|
| 25,122,887 |
| 28,382,506 |
Cost of sales |
| (24,076,245) |
| (27,411,848) |
|
|
|
|
|
Gross profit |
| 1,046,642 |
| 970,658 |
Other operating income |
| 57,725 |
| 60,853 |
Depreciation |
| (28,866) |
| (32,856) |
Administrative and other operation expenses |
| (1,224,028) |
| (1,186,910) |
|
|
|
|
|
Loss from operations |
| (148,527) |
| (188,255) |
Other non-operating expenses |
| 10,266 |
| 24,726 |
Interest expenses |
| (8,083) |
| (33,606) |
|
|
|
|
|
Loss before income tax |
| (146,344) |
| (197,135) |
Income tax |
| - |
| - |
Minority interest |
| 2,171 |
| - |
Net loss from continuing operations |
| (144,173) |
| (197,135) |
14
Going Concern
The accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern. We incurred a net loss of $144,173 for the nine months ended December 31, 2008 and a net loss since inception of $1,198,331. On December 31, 2008 we had cash on hand of $217,453. These circumstances raise substantial doubt about our ability to continue as a going concern. These doubts were outlined in our independent auditor's report on our consolidated financial statements for the nine months ended December 31, 2008, which are included in this annual report on Form 10-K. Although our consolidated financial statements raise substantial doubt about our ability to continue as a going concern, they do not include any adjustments relating to recoverability and classification of recorded assets, or the amounts or classifications of liabilities that might be necessary in the event we cannot continue as a going concern. The Company's shareholders have verbally agreed to provide continuing financial support to the Company for future losses it may incur.
In this difficult and challenging time, it is our intention to focus first on the things that we can directly control, such as costs. It is our intention to eliminate inefficiencies in operations to mitigate losses and to improve our chances for profitability. At the same time, we are also working on new routes to generate additional revenues, without increasing our need for additional cash. We hope to generate a new segment of revenue flow, along with new routes by working with local carriers on short haul flights.
Management has reviewed its operations for the past few years and the current travel industry market conditions. Based on that review we plan to take the following actions to improve our performance and to continue as a going concern.
Staff Redundancy
The Group plans to flatten organization structure by cutting senior management staff reducing staff redundancy and decentralizing its operations. Meanwhile, support and administration staffing has also been cut to keep back office costs down. Our total staff was reduced from 48 in May 2008 (highest) to 38 in September 2008. In September 2008, five of the 38 staff members are non-operational staff (management and back office), the remaining 33 are operational, plus the sales and marketing staff. In comparison to May, 2008, nine (9) of the 48 staff were non-operational and 39 were operational, plus the sales marketing staff.
As a result of staff cuts, the Company has been able to downsize its office space. Office rental was reduced from $11,860 per month to $7,976 in September 2008, representing a 32.7% decrease in office rental expense.
Operations decentralized
Effective from September, 2008, management decided to decentralize operations in its main wholesale business division and corporate division. Business decisions will be made on a lower level within the business division instead of through a senior management team. Management expects the decentralization will improve flexibility and speed up the Company’s response time to market changes. Each business division head will have more discretion to make business decisions, and at the same time each division head will be more accountable for their performance.
With the senior management team’s functions being shifted to lower organization levels, the Company’s management fee has also been decreased significantly. The Company decreased its monthly management fee from $11,538 in April 2008 (highest) to $3,205 in September 2008.
Business Strategy
As a result of increased fuel prices, airlines have become increasingly competitive in Hong Kong. Hong Kong is an international hub for long haul flights as well as short distance destinations. Popular travel destinations are becoming less profitable, because more airlines are competing for the same route. The Company, as a travel agency, is dependent on airline commissions and market conditions for ticket prices. The more competition, the less profit it can earn.
The Company has reviewed the market conditions, and decided to change its strategy by dealing with new emerging airlines with new destinations. The Company has recently developed a close relationship with Hong Kong Airlines which is primarily focused on Mainland China travel destinations. As the Hong Kong Airbus travel agency, the Company has less competition and is able to maintain a more stable profit margin.
Management believes that actions presently taken to revise the Company’s operating and financial requirements provide the opportunity for the Company to continue as a going concern. The Company’s shareholders have agreed to provide continuing financial supports to the Company in terms of a temporary loan. The agreements for continuing financial support are verbal.
15
Revenues
For the nine months ended December 31, 2008, the Company has experienced decrease in sales revenues due to the global economic contraction, although the Company was recognized by Eva Airline as its top selling agent in Hong Kong. Eva Airlines operates both short haul routes within South East Asia and long haul routes including North America and Europe. The company has also been appointed as a first tier agent for two additional airlines, HongKong Airlines & HongKong Express. Hong Kong Airlines mainly operates flights originating from Hong Kong to destinations in Asian cities, including Bangkok, Kuala Lumpur, Manila, and major cities in Japan. HongKong express mainly operates flights originating from Hong Kong to mainland China's second tier cities, including Changsha, Fuzhou, Hangzhou, Hefei, Guiyang etc.
Our revenue for the nine months ended December 31, 2008 was $25,122,887, compared to $28,382,506 for the nine months ended December 31, 2008. We generate our revenues primarily from retail and corporate business. For nine months ended December 31, 2008, we derived 98.3%, 0.4% and 1.21% of our revenues from our retail & corporate clients, commission from travel booking services and airline incentive commissions respectively.
The table below sets forth the revenues from our principal lines of business for the periods indicated.
| 9 Months ended December 31, 2008 |
| 9 Months ended December 31, 2007 |
| Audited |
| Unaudited |
|
|
|
|
| $ |
| $ |
Retail and Corporate revenue | 24,704,983 |
| 27,990,948 |
Commission from travel booking services | 113,117 |
| 10,843 |
Incentive commissions | 304,787 |
| 380,715 |
|
|
|
|
Total revenue | 25,122,887 |
| 28,382,506 |
Retail and Corporate Revenue
Revenues from retail and corporate travel services are recognized when the travel service provided by the Company is completely delivered. The Company presents revenue from such transactions on a gross basis in the consolidated statements of operations, as the Company acts as a principal, assumes inventory and credit risks, and has the primary obligation to the airlines or hotels for cancelled air tickets, packaged tour products or hotel reservations. The Company also has latitude in determining the service prices. The Company changes the product by combining air ticket and hotel accommodations with local car transportation and other ancillary services to make it a holiday package or business travel solution for customers.
Referral fees for travel booking services
We receive referral fees from travel product providers for booking travel services. The itinerary and product price are generally fixed by the travel product providers and we book the travel services on behalf of the customers. Referral fees from travel booking services rendered are recognized as commissions after the services are rendered and collections are reasonably assured. We present revenues from such transactions on a net basis in the consolidated statements of operations, as we act as an agent, we do not assume any inventory and credit risks, we have no obligations for cancelled airline or hotel ticket reservations, and do not have latitude in determining the service prices.
Incentive commission from travel suppliers
We earn an incentive commission from many travel suppliers. Contracts with certain travel suppliers contain discretionary escalating commissions that are paid to us subject to achieving specific performance targets. Such discretionary escalating commissions are recognized on an accrual basis because such commissions are usually paid in arrears and we can reasonably estimate such commissions. Our statement of operations presents revenues from such transactions on a net basis, because we act as an agent, we do not assume any inventory risk, and we have no obligation for cancelled airline tickets.
16
Cost of Sales
Costs of sales are costs directly attributable to rendering our revenues, which consist primarily of payments for travel costs to airlines and suppliers. Cost of revenues accounted for 95.8% of our revenue in the nine months ended December 31, 2008 and 96.4% of our revenues in the twelve months ended March 31, 2008.
The table below sets forth the cost of sales for the periods indicated.
| 9 Months ended December 31, 2008 |
| 9 Months ended December 31, 2007 |
| Audited |
| Unaudited |
|
|
|
|
Total revenue | 25,122,887 |
| 28,382,506 |
Cost of Sales | (24,076,245) |
| (27,411,848) |
|
|
|
|
Gross profit | 1,046,642 |
| 970,658 |
Gross Profit and Gross Profit Margin
Our gross profit for the nine months ended December 31, 2008 was $1,046,642, compared to $970,658 for the nine months ended December 31, 2007. The gross profit margin rate increased from 3.42% for the nine months ended December 31, 2008 compared to 4.17% for the nine months ended December 31, 2008. The increasing in gross profit margin rate shows the positive affect of our new business strategy. The Company has reviewed the market conditions, and decided to change its strategy by dealing with new emerging airlines with new destinations. The Company has recently developed a close relationship with Hong Kong Airlines which is primarily focused on Mainland China travel destinations. As the Hong Kong Airbus travel agency, the Company has less competition and is able to maintain a more stable profit margin.
Operating Expenses
Overview
Total operating expenses for the nine months ended December 31, 2008 were $1,224,028 or 4.87% of revenues, while the operating expenses for nine months ended December 31, 2007 were $1,186,910 or 4.18% of revenues. Although we have implemented a cost saving strategy, which significantly reduced office rental and management fee expenses, the savings was offset by the increase in salaries as a result of staff layoff compensation, and the increased legal fees due to the shortened transitional audit report and the SEC comments we have responded to during the 9 months ended December 31, 2008. As the cost saving strategy was implemented from the second half of 2008, we are expecting to see more improvement next year.
| 9 months ended December 31, 2008 | % of Revenue | 9 months ended December 31, 2007 | % of Revenue |
Salaries, commission, allowance | 812,662 | 3.23% | 719,185 | 2.53% |
Legal & Professional fees | 43,794 | 0.17% | 18,776 | 0.06% |
Office Rental | 84,880 | 0.35% | 103,678 | 0.36% |
Management fee | 32,026 | 0.13% | 125,405 | 0.44% |
Other operating expenses | 250,666 | 1.00% | 219,866 | 0.77% |
| 1,224,028 | 4.87% | 1,186,910 | 4.18% |
Salaries, Commissions and Allowances
The Group has flattened organization structure by cutting senior management staff reducing staff redundancy and decentralizing its operations. Meanwhile, support and administration staffing has also been cut to keep back office costs down. Our total staff was reduced from 48 in May 2008 (highest) to 38 in September 2008.
Salaries, Commissions and Allowances has increased from $719,185 for the nine months ended December 31, 2007 to $812,662 for the nine months ended December 31, 2008, mainly due to the additional lay off compensation paid to employees due to cost cutting strategy which was implemented later in 2008.
17
Legal and Professional Fees
Legal & professional fees for the nine months ended December 31, 2008 were $43,794 or 0.17% of revenues, while the legal & professional fees for nine months ended December 31, 2007 were $18,776 or 0.06% of revenues. The main reason for the increase in legal fee was associated with the SEC comments the Company responded to during the 9 months ended December 31, 2008 in regards to accounting policy and restatement of financial statements.
Office Rental
Office rental for the nine months ended December 31, 2008 were $84,880 or 0.35% of revenues, while the Office rental and building management fees for nine months ended December 31, 2007 were $103,678 or 0.36% of revenues. The decrease is mainly attributable to reduction office space.
Management Fees
Management fees for the nine months ended December 31, 2008 were $32,026 or 0.13% of revenues, while the management fees for nine months ended December 31, 2007 were $125,405 or 0.44% of revenues. The management fees were paid for financial control advice, financial reporting assistance and business strategic advice. During the nine months ended December 31, 2008, management decided to decentralize operations in its main wholesale business division and corporate division. Business decisions will be made on a lower level within the business division instead of through a senior management team. Management expects the decentralization will improve flexibility and speed up our response time to market changes. As a result of these changes, management fee have been decreased substantially.
Other General and Administration Expenses
Other expenses for the nine months ended December 31, 2008 were $250,666 or 1.00% of revenues, while the other expenses for nine months ended December 31, 2007 were $219,866 or 0.77% of revenues.
Stock Based Compensation
The Company has stock option plans that allow it to grant options to its key employees. Over the course of employment, the Company may issue vested or non-vested stock options to employees. For non-vested stock options, the options have a maximum term of three years up to March 31, 2011. For vested stock options, the exercise period of the options commenced on March 31, 2008 and will expire on March 31, 2011, subject to the maximum of 30% of options to be exercised up to March 31, 2009, a maximum of 60% of options to be exercised up to March 31, 2010 and all options must be exercised prior to March 31, 2011. In the year ended March 31, 2008, a total of 300,000 vested and 80,000 non-vested options were granted to key employees of the Company at a price of $0.35 per share, exercisable for a term of three years, which vest immediately under the vesting conditions. The fair market value of these options at the date of grant was estimated to be $0.15 33 and $0.1125 for vested and non-vested options per unit, respectively using the Black-Scholes option pricing model. During the nine months ended December 31, 2008, the Company recorded the overprovision of $2,300 as a credit to recognize the forfeited stock option included in other non-operating income. During the nine months ended December 31, 2007, Share-based compensation expense was zero. The stock compensation expense for the twelve months ended March 31, 2008 was $22,800, and this amount was recorded when the stock option was granted during the quarter ended March 31, 2008.
Other operating income
| 9-months |
| 9-months |
| Period ended |
| Period ended |
| December 31, 2008 |
| December 31, 2007 |
| Audited |
| Unaudited |
| $ |
| $ |
|
|
|
|
Commission income | 4,277 |
| 9,383 |
Refund write back | 19,923 |
| 21,108 |
Management service income | 33,525 |
| 30,362 |
|
|
|
|
| 57,725 |
| 60,853 |
18
Commission Income
Commission income for the nine months ended December 31, 2008 were $4,277 compared to $9,383 for nine months ended December 31, 2007. During the nine months ended December 31, 2008, we increased the number of tickets booked through a lower percentage commission booking system, which resulted in a lower amount of commissions.
Commission income is received by the Company from the Global Distribution Systems Supplier (GDS), which is the booking system that links airlines, IATA and travel agencies. GDS acts as an information medium between the Airlines and Travel agencies. Travel consultants check seat availability and fare conditions, and make reservations through GDS. GDS also links Airline and Travel Agencies through IATA's Bill and Settling Plans (BSP). Once the ticket is issued from IATA through the GDS system, travel agencies will settle the payment with airlines through IATA's fortnightly BSP Payment.
Each GDS system has a different layout, and different user manual and command. Airlines can choose to link with one or a few GDS. The Company currently has 4 GDS's installed; they are "Amadeus", "Worldspan", "Travelsky" and "Abacus". A GDS will normally provide equipment and install their system onsite for a travel agency. The travel agency must generally sign an agreement with each GDS supplier which details the usage and reward scheme. Some GDS suppliers require travel agencies to maintain a minimum usage volume, otherwise the travel agency will have to pay fees for the equipment. GDS suppliers also encourage travel agencies to book tickets through their system by rewarding travel agencies on the number of tickets booked in a certain period of time.
The Company encourages its consultants to use the GDS that has the best compensation structure, however, a balance between operational efficiency is also considered. Some airlines are more user friendly with a specific GDS, also with each travel consultancy's experience with different systems, the Company leaves it to the consultant's discretion to choose the GDS it uses.
Refund Written Back
During the nine months ended December 31, 2008, we recognized $19,923 in unclaimed refunds as income, compared to $21,108 for nine months ended December 31, 2007.
As a general travel industry practice, unclaimed refunds over 2 years old will not be recoverable by the customer. A refund takes place when a passenger wants to cancel a booking after a ticket is issued but before the flight takes off. Each airline has their own policy on cancellations, and each airfare class has different policy on refunds, cancellation or re-bookings. When a customer requires a refund, the Company charges a refund handling fee to examine the fare condition, airline refund procedure, and apply for the refund on behalf of the customer. Whether a refund can be successfully claimed is ultimately the Airline's decision. It generally takes from six weeks to one year to obtain a refund from the airlines. The Company will contact the customers when it receives refunds from Airlines, however due to the length and uncertainty of the procedure, sometimes the Company cannot reach its customers after a refund has come back from the airlin es. The Company's policy is to recognize unclaimed refunds as income after a period of 2 years.
Management Service Income
Management service income represents compensation from a related party, Bao Shinn Express Company Limited ("BSEL"). BSEL currently holds 38.55% of the company's outstanding common stock. The Company has provided management services to BSEL on business operations and general travel industry knowledge. Management service income from BSEL was $33,525 in the nine months ended December 31, 2008, compared to $30,362 in the nine months ended December 31, 2007.
The Company recognizes the management service as "other operating income", as the Company's management team is part of its operation team. Accordingly, the revenue generated by the management team is considered part of the Company's operations.
19
Other non-operating income
| 9-months |
| 9-months |
| Period ended |
| Period ended |
| December 31, 2008 |
| December 31, 2007 |
| Audited |
| Unaudited |
�� | $ |
| $ |
Gain on exchange | 2,907 |
| 9,190 |
Interest income | 1,357 |
| 9,761 |
Sundry income | 3,702 |
| 5,775 |
Reversal of stock based compensation | 2,300 |
| - |
|
|
|
|
| 10,266 |
| 24,726 |
Exchange Gain
The exchange gain was $2,907 for the nine months ended December 31, 2008 compared to $9,190 in the nine months ended December 31, 2007. This was attributable to the depreciation of the Hong Kong Dollar against foreign currencies including the U.S. Dollar, RMB and the Thai Baht.
The Company pays overseas suppliers in their currency, and charges its customers in HK dollars, with the exchange rate determined at the point of invoicing. Because of the timing difference between payments and receipts, the Company incurs exchange differences in transactions with overseas suppliers. The Company recognizes the gain or loss as "non-operational income or expense", as this is not from operations.
Interest Income
Interest income was $1,357 for the nine months ended December 31, 2008, compared to $9,761 in the nine months ended December 31, 2007. This interest was earned from bank savings and fixed deposit accounts. The Company considers this non-operational income. The decrease in the interest income for the nine months ended December 31, 2008 was mainly due to a decrease in the bank interest rate compare to the same period in 2007.
Sundry Income
Sundry income was $3,702 for the nine months ended December 31, 2008, compared to $5,775 in the nine months ended December 31, 2007.
Sundry income is mainly from IATA BSP Fund reimbursement. IATA BSP Fund is a fund created when IATA collects $0.38 (HK $3.00) per air ticket from travel agencies at the time each travel agency issues an air ticket with IATA. IATA BSP Fund was established to protect airlines when travel agencies go bankrupt and are unable to meet the payment obligation to the airlines. The fund will be used to recover the debt to airlines from the bankrupted travel agency. IATA BSP Fund has a ceiling of $1.28M (HK $10M), when the ceiling is reached, IATA will reimburse the additional collections to all participating travel agencies proportionally. The Company's sundry income is the reimbursement from the IATA BSP Fund, and the amount is calculated monthly by IATA. The Company considers the income as non-operational income, as it is not part of its operation activities.
Interest Expense
Interest expense was $8,083 for the nine months ended December 31, 2008, compared to $33,606 for the nine months ended December 31, 2008. This was attributable to the fact that the outstanding principal balance on loans from former shareholders was significantly reduced.
Net Loss
Our net loss was $144,173 for the nine months ended December 31, 2008, compared to $197,135 for the nine months ended December 31, 2008. The decrease in loss for the nine months ended December 31, 2008 compare to same period last year was mainly due to the increasing gross margin as a result of the company's business strategy change, however increase in gross margin was offset by layoff compensation paid to employees and the additional expenses incurred to maintain the company as a US listed company. These expenses include professional and legal fees, management fees, audit fees, and consulting fees.
20
Liquidity and Capital Resources
We have not generated positive cash flows from operating activities. Our primary sources of capital have been from sales and issuances of equity securities. Our primary use of capital has been for the expansion and development of our business, and the associated need for increased working capital. Our working capital requirements are expected to increase in line with the growth of our business. We have no lines of credit or other bank financing arrangements. We expect that working capital requirements will be funded through a combination of our existing funds, cash flow from operations, private loans, issuance of equity and debt securities. Additional issuances of equity and debt securities will result in dilution to our current common stockholders. The Company's former shareholders agreed to provide continuing financial support to the Company in the form of a temporary loan. The agreements for continuing financial support are in verbal. There w ere no temporary loans outstanding from our former shareholders as of December 31, 2008. These temporary loans were unsecured with no fixed term of repayment during the nine months ended December 31, 2008. Interest was paid at the rate of 10% per annum.
Operating Activities
Net cash used in operating activities was $74,284 for the nine months ended December 31, 2008, compared to net cash used in operating activities of $894,350 for the nine months ended December 31, 2007. The cash usage during the nine months ended December 31, 2008 is mainly for working capital. Working capital increased $69,414 from $755,596 as of December 30, 2007 to $686,182 as of December 31, 2008.
Investing Activities
Net cash provided by investing activities was $49,442 for the nine months ended December 31, 2008, compared to $15,270 for the nine months ended December 31, 2007. The cash was mainly used for the purchase of new computer equipment and computer software for our new subsidiaries.
Financing Activities
Net cash used in financing activities was $4,257 for the nine months ended December 31, 2008, compare to $343,135 net cash provided by financing activities for the nine months ended December 31, 2007. In accordance with our SEC registration statement effective on April 3, 2007, the Company issued 2,400,000 common shares at a price of $0.3 per share on September 28, 2007, which raised gross proceeds of $720,000 and net proceeds of $624,000. Part of the money raised was used to repay loans from former shareholders. The Company redeemed 2,500,000 common shares for $0 on December 30, 2007 and such shares were thereafter classified as authorized, but unissued. For the nine months ended December 31, 2008 there was no financing activities.
Financing Our Capital Expenditures
During the next 12 months, the Company will implement its business plan for expanding into the China market. The initial investment is expected to be approximately US$1,200,000. These funds will be used for setting up a China flagship company in Shanghai. Expenditures are expected to include obtaining travel licenses, office renovation, purchase of communication equipment, purchase of computers and office equipment. An additional investment of US$1,500,000 will be required as the working capital for the Shanghai office.
The new flagship company will be registered in Shanghai and will serve as our China headquarters. We subsequently plan to open branch offices in Beijing, Guangzhou, Chongqing and Kunming.
As a marketing tool, an "On-line travel" business team will be set up in Shanghai. The team includes the IT specialist for development of a travel booking system to China.
Off-Balance Sheet Arrangements
For the nine months ended December 31, 2008, and the nine months ended December 31, 2007, the Company did not engage in any off-balance sheet activities or have any relationships or arrangements with unconsolidated entities established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, we have not guaranteed any obligations of unconsolidated entities nor do we have any commitment or intent to provide additional funding to any such entities.
21
Related Party Transactions
Loans from shareholders represent temporary advances from certain present and former shareholders of the company. The loans are unsecured and have no fixed terms of repayment. Interest is charged at the rate of 10% per annum. There are no loans from shareholders outstanding as of December 31, 2008.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
22
Baoshinn Corporation
Consolidated Financial Statements
For the 9-months Period Ended December 31, 2008 and
Years Ended March 31, 2008 and 2007
(Stated in US Dollars)
23
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Baoshinn Corporation
We have audited the accompanying consolidated balance sheet of Baoshinn Corporation (the “Company”) and its subsidiaries (collectively referred to as the “Group”) as of December 31, 2008 and March 31, 2008, and the related consolidated statements of operations, stockholders’ equity and comprehensive income and cash flows for the nine months ended December 31, 2008 and the years ended March 31, 2008 and 2007. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company and its subsidiaries as of December 31, 2008 and March 31, 2008, and the consolidated results of their operations and their cash flows for the nine months ended December 31, 2008 and the years ended March 31, 2008 and 2007, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has recurring net losses. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Dominic K.F. Chan & Co
Certified Public Accountants
Hong Kong
March 19, 2009
24
BAOSHINN CORPORATION
CONSOLIDATED BALANCE SHEETS
(Stated in US Dollars)
| At December 31 |
| At March 31 |
| 2008 |
| 2008 |
| $ |
| $ |
ASSETS |
|
|
|
Current Assets: |
|
|
|
Cash and cash equivalents | 217,453 |
| 243,358 |
Accounts receivable | 900,629 |
| 1,006,257 |
Amount due from a related party – Note 12 | 10,691 |
| 3,596 |
Deposits, prepaid expenses and other receivables – Note 9 | 940,238 |
| 819,398 |
|
|
|
|
Total current Assets | 2,069,011 |
| 2,072,609 |
Plant and equipment – Note 10 | 80,091 |
| 88,270 |
|
|
|
|
TOTAL ASSETS | 2,149,102 |
| 2,160,879 |
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
Current Liabilities: |
|
|
|
Accounts payable | 1,103,390 |
| 1,105,514 |
Other payables and accrued liabilities – Note 11 | 276,601 |
| 318,031 |
Amount due to a related party – Note 12 | 2,838 |
| - |
|
|
|
|
Total Current Liabilities | 1,382,829 |
| 1,423,545 |
|
|
|
|
Minority Interest | 171,993 |
| - |
|
|
|
|
TOTAL LIABILITIES | 1,554,822 |
| 1,423,545 |
|
|
|
|
COMMITMENTS AND CONTINGENCIES – Note 16 |
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY |
|
|
|
Common Stock |
|
|
|
Par value: 2008 – US $0.001 |
|
|
|
Authorized: 2008 – 200,000,000 shares |
|
|
|
Issued and outstanding: 2008 – 21,400,000 shares | 21,400 |
| 21,400 |
Additional paid-in capital | 1,766,763 |
| 1,769,063 |
Accumulated other comprehensive income | 4,448 |
| 1,029 |
Accumulated deficit | (1,198,331) |
| (1,054,158) |
|
|
|
|
TOTAL STOCK HOLDERS’ EQUITY | 594,280 |
| 737,334 |
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | 2,149,102 |
| 2,160,879 |
|
|
|
|
See notes to consolidated financial statements.
25
BAOSHINN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Stated in US Dollars)
| 9-months period ended December 31, 2008 |
| Year ended March 31, 2008 |
| Year ended March 31, 2007 |
| $ |
| $ |
| $ |
Retail and Corporate revenue | 24,704,983 |
| 35,968,820 |
| 30,481,322 |
Commission from travel booking services | 113,117 |
| 114,776 |
| 127,077 |
Incentive commissions | 304,787 |
| 484,775 |
| 354,242 |
|
|
|
|
|
|
Total revenue | 25,122,887 |
| 36,568,371 |
| 30,962,641 |
Cost of sales | (24,076,245) |
| (35,249,504) |
| (29,741,659) |
|
|
|
|
|
|
Gross profit | 1,046,642 |
| 1,318,867 |
| 1,220,982 |
Other operating income – Note 5 | 57,725 |
| 77,026 |
| 28,998 |
Depreciation | (28,866) |
| (44,205) |
| (39,771) |
Administrative and other operating expenses | (1,224,028) |
| (1,687,677) |
| (1,464,876) |
|
|
|
|
|
|
Loss from operations | (148,527) |
| (335,989) |
| (254,667) |
Other non-operating income – Note 6 | 10,266 |
| 24,880 |
| 16,540 |
Interest expenses – Note 7 | (8,083) |
| (33,975) |
| (43,175) |
|
|
|
|
|
|
Loss before income taxes | (146,344) |
| (345,084) |
| (281,302) |
Income taxes – Note 8 | - |
| - |
| - |
Minority interest | 2,171 |
| - |
| - |
|
|
|
|
|
|
Net loss | (144,173) |
| (345,084) |
| (281,302) |
|
|
|
|
|
|
Loss per share of |
|
|
|
|
|
common stock – Note 4 |
|
|
|
|
|
- Basic | (0.01) |
| (0.02) |
| (0.01) |
- Diluted | (0.01) |
| (0.02) |
| (0.01) |
|
|
|
|
|
|
Weighted average number of common stock – Note 4 |
|
|
|
|
|
- Basic | 21,400,000 |
| 21,933,607 |
| 21,500,000 |
- Diluted | 21,400,000 |
| 21,933,607 |
| 21,500,000 |
See notes to consolidated financial statements.
26
BAOSHINN CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
(Stated in US Dollars)
| Common stock |
| Additional Paid-in | Accumulated Other Comprehensive Income/(loss) |
| Accumulated |
| |||||
| Shares |
| Amount |
| capital |
|
|
| Deficit |
| Total | |
|
|
| $ |
| $ |
| $ |
| $ |
| $ | |
Balance, March 31, 2006 | 21,500,000 |
| 21,500 |
| 1,090,944 |
| - |
| (427,772) |
| 684,672 | |
Comprehensive income |
|
|
|
|
|
|
|
|
| |||
Net loss | - |
| - |
| - |
| - |
| (281,302) |
| (281,302) | |
Foreign currency translation |
|
|
|
|
|
|
|
|
| |||
adjustments | - |
| - |
| - |
| (7) |
| - |
| (7) | |
Total comprehensive income | - |
| - |
| - |
| (7) |
| (281,302) |
| (281,309) | |
|
|
|
|
|
|
|
|
|
| |||
Balance, March 31, 2007 | 21,500,000 |
| 21,500 |
| 1,090,944 |
| (7) |
| (709,074) |
| 403,363 | |
Issuance of common stock, | 2,400,000 |
| 2,400 |
| 621,600 |
| - |
| - |
| 624,000 | |
net of IPO cost |
|
|
|
|
|
|
|
|
| |||
Redemption of common stock | (2,500,000) |
| (2,500) |
| 2,500 |
| - |
| - |
| - | |
Stock based compensation | - |
| - |
| 22,800 |
| - |
| - |
| 22,800 | |
Reimbursement from shareholders |
|
|
|
| 31,219 |
|
|
|
| 31,219 | ||
Comprehensive income |
|
|
|
|
|
|
|
|
| |||
Net loss | - |
| - |
| - |
| - |
| (345,084) |
| (345,084) | |
Foreign currency translation |
|
|
|
|
|
|
|
|
| |||
adjustments | - |
| - |
| - |
| 1,036 |
| - |
| 1,036 | |
Total comprehensive income | - |
| - |
| - |
| 1,036 |
| (345,084) |
| (344,048) | |
|
|
|
|
|
|
|
|
|
| |||
Balance, March 31, 2008 | 21,400,000 |
| 21,400 |
| 1,769,063 |
| 1,029 |
| (1,054,158) |
| 737,334 | |
Reversal of stock based compensation | - |
| - |
| (2,300) |
| - |
| - |
| (2,300) | |
Comprehensive income |
|
|
|
|
|
|
|
|
| |||
Net loss | - |
| - |
| - |
| - |
| (144,173) |
| (144,173) | |
Foreign currency translation |
|
|
|
|
|
|
|
|
| |||
adjustments | - |
| - |
| - |
| 3,419 |
| - |
| 3,419 | |
Total comprehensive income | - |
| - |
| - |
| 3,419 |
| (144,173) |
| (140,754) | |
|
|
|
|
|
|
|
|
|
| |||
Balance, December 31, 2008 | 21,400,000 |
| 21,400 |
| 1,766,763 |
| 4,448 |
| (1,198,331) |
| (594,280) | |
See notes to consolidated financial statements.
27
BAOSHINN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in US Dollars)
| At December 31, |
| At March 31, |
| At March 31, |
| 2008 |
| 2008 |
| 2007 |
| $ |
| $ |
| $ |
Cash flows from operating activities |
|
|
|
| |
Net loss | (144,173) |
| (345,084) |
| (281,302) |
Adjustments to reconcile net loss to net cash flows provided by operating activities: |
|
|
|
|
|
Depreciation | 28,866 |
| 44,205 |
| 39,771 |
(Reversal of) stock based compensation | (2,300) |
| 22,800 |
| - |
Loss on disposal of plant and equipment | 17,174 |
| - |
| - |
Minority interest | (2,171) |
| - |
| - |
|
|
|
|
|
|
Changes in operating assets and liabilities : |
|
|
|
|
|
Accounts receivable | 105,628 |
| 190,081 |
| (426,774) |
Deposits, prepaid expenses and other receivables | (33,754) |
| 28,291 |
| (154,767) |
Accounts payable | (2,124) |
| (793,797) |
| 990,464 |
Other payables and accrued liabilities | (41,430) |
| 80,208 |
| 60,965 |
|
|
|
|
|
|
Net cash flows (used in) / provided by operating activities | (74,284) |
| (773,296) |
| 228,357 |
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
Acquisition of plant and equipment | (43,378) |
| (20,988) |
| (42,337) |
Proceeds of disposal of plant and equipment | 5,742 |
| - |
| - |
Incorporation of a subsidiary net of cash required | 87,078 |
| - |
| - |
|
|
|
|
|
|
Net cash flows provided by / (used in) investing activities | 49,442 |
| (20,988) |
| (42,337) |
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
Net proceeds from issuance of new shares | - |
| 624,000 |
| - |
Amounts due from related parties | (7,095) |
| 204,787 |
| (47,792) |
Amounts due to related parties | 2,838 |
| (561,891) |
| 404,216 |
|
|
|
|
|
|
Net cash flows (used in) / provided by financing activities | (4,257) |
| 266,896 |
| 356,424 |
|
|
|
|
|
|
Net (decrease) / increase in cash and cash equivalents | (29,099) |
| (527,388) |
| 542,444 |
Effect of foreign currency translation on cash and cash equivalents | 3,194 |
| 315 |
| (552) |
Cash and cash equivalents - beginning of year | 243,358 |
| 770,431 |
| 228,539 |
|
|
|
|
|
|
Cash and cash equivalents - end of year | 217,453 |
| 243,358 |
| 770,431 |
|
|
|
|
|
|
Supplemental disclosures for cash flow information : |
|
|
|
|
|
Cash paid for : |
|
|
|
|
|
Interest | 8,083 |
| 33,975 |
| 43,175 |
Income taxes | - |
| - |
| - |
See notes to consolidated financial statements
28
BAOSHINN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
1.
Corporation information
Baoshinn Corporation (the “Company”) was incorporated under the laws of the State of Nevada on September 9, 2005, under the name of JML Holdings, Inc. The Company was formed as a "blind pool" or "blank check" company whose business plan was to seek to acquire a business opportunity through completion of a merger, exchange of stock, or other similar type of transaction. During the fiscal year ended March 31, 2006, the Company issued 5,000,000 restricted common shares at $0.01 per share for total cash consideration of $50,000. On March 31, 2006, the Company consummated a merger (the “merger”) with Bao Shinn International Express Limited (“BSIE”), a privately-held Hong Kong corporation, by issuing 16,500,000 shares in the share exchange transaction for 100% of the issued and outstanding shares of BSIE common stock. As a result of the shar e exchange transaction, BSIE became our wholly-owned subsidiary. During the year ended March 31, 2008, the Company issued 2,400,000 restricted common shares of $0.001 per share at a value of $0.3 per share with a net proceeds of approximately $624,000 and redeemed 2,500,000 restricted common shares and these shares are classified as not issued and outstanding.
The former stockholders of BSIE acquired 76.74% of the Company’s issued and outstanding common stock as a result of completion of the share exchange transaction. Therefore, although BSIE became the Company’s wholly-owned subsidiary, the transaction was accounted for as a recapitalization of the Company, whereby BSIE is deemed to be the accounting acquirer and is deemed to have adopted the Company’s capital structure. Since the Merger was accounted for as a reverse acquisition, the accompanying consolidated financial statements reflect the historical financial statements of BSIE, the accounting acquirer, as adjusted for the effects of the exchange of shares on its equity accounts, the inclusion of net liabilities of the accounting subsidiary as of the date of the merger on their historical basis and the inclusion of the accounting subsidiary’s results of operations from that da te. Although the Company is the legal acquirer, BSIE will be treated as having acquired the Company for accounting purposes and all of the operations reported represent the historical financial statements of BSIE.
On February 20, 2008, BSIE incorporated a wholly owned subsidiary, Bao Shinn (China) Express Limited (“BSCE”) of 1,000,000 ordinary shares at $0.1284 per share.
On July 16, 2008, Bao Shinn Holidays Limited (“BSHL”) was incorporated with 3,000,000 ordinary shares issued and paid at $0.1281 per share. BSIE owns 55% of BSHL.
2.
Description of business
Bao Shinn International Express Limited (“BSIE”), a wholly owned subsidiary of the Company, offers extended travel services primarily focused on wholesale businesses and corporate clients. BSIE is a ticket consolidator of major international airlines including Thai Airways, Eva Airways, Dragon Air, Air China, China Southern Airlines and China Eastern Airlines that provides travel services such as ticketing, hotel and accommodation arrangements, tour packages, incentive tours and group sightseeing services.
29
BAOSHINN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
2.
Description of business (Continued)
However, the Group relies on the shareholder, Bao Shinn Express Company Limited, which is the member of International Air Transport Association to supply air tickets and tour packages from different airlines companies.
BSCE offered extended travel services primarily focused on wholesale businesses and corporate clients in the Mainland China. During to changing market conditions and economic environment, BSCE has ceased operation on December 31, 2008 and applied for deregistration.
BSHL offers extended travel services primarily focused on corporate client in Hong Kong and the Mainland China.
3.
Going concern
These financial statements have been prepared in accordance with generally accepted principles in the United States applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Group has generated recurring losses resulting in an accumulated deficit. The Group requires additional funds to maintain its operations.
Management has reviewed its operations for the past few years and the current travel industry market conditions. Based on the review the Group plans to take the following actions to improve its performance and to continue as a going concern.
Staff Redundancy
-
The Group plans to flatten the organization structure by cutting senior management staff reducing staff redundancy and decentralizing its operations. Meanwhile, supporting and administration staff has also been cut to keep the back office costs down. The Company’s total staff was reduced from 48 in May 2008 (highest) to 38 in September 2008. In September 2008, 5 of the 38 staff are non-operational staff (management and back office), the remaining 33 are operational, plus the sales and marketing staff. In comparison to May, 2008, nine (9) of the 48 staff were non-operational staff and 39 were operational, plus the sales and marketing staff.
-
As a result of staff cuts, the Company has been able downsize its office space. Office rental has been decreased from $11,860 per month to $7,976 in September 2008, representing a 32.7% decrease in office rental.
30
BAOSHINN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
3.
Going concern (Continued)
Operations decentralized
-
Effective from September, 2008, management decided to decentralize operations in its main wholesale business division and corporate division. Business decisions will be made on a lower level within the business division instead of through a senior management team. Management expects the decentralization will improve flexibility and speed up the Company’s response time to market changes. Each business division head will have more discretion to make business decisions, and at the same time each division head will be more accountable for their performance.
-
With the senior management team’s functions being shifted to lower organization levels, the Company’s management fee has also been decreased significantly. The Company decreased its monthly management fee from $11,538 in April 2008 (highest) to $3,205 in September 2008.
Business Strategy
-
As a result of increased fuel prices, airlines have become increasingly competitive in Hong Kong. Hong Kong is an international hub for long haul flights as well as short distance destinations. Popular travel destinations are becoming less profitable, because more airlines are competing for the same route. The Company, as a travel agency, is dependent on airline commissions and market conditions for ticket prices. The more competition, the less profit it can retain.
-
The Company has reviewed the market conditions, and decided to change its strategy by dealing with new emerging airlines with new destinations. The Company has recently developed a close relationship with Hong Kong Airlines which is primarily focused on Mainland China travel destinations. As the Hong Kong Airbus travel agency, the Company has less competition and is able to maintain a more stable profit margin.
Management believes that actions presently taken to revise the Group’s operating and financial requirements provide the opportunity for the Group to continue as a going concern. The Company’s shareholders agreed to provide continuing financial supports to the Company in terms of a temporary loan. The agreements for continuing financial support are verbal.
31
BAOSHINN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
4.
Summary of significant accounting policies
Change in fiscal year end
The Group’s fiscal year ended has been changed from March 31 to December 31. The current period financial statements covering a nine month period from April 1, 2008 to December 31, 2008, are not entirely comparable to the comparative amounts (which covered a period of twelve months from April 1, 2007 to March 31, 2008 and from April 1, 2006 to March 31, 2007) for the consolidated statements of operations, consolidated statements of stockholders, equity, consolidated statements of cash flows and the notes to financial statements thereon. The unaudited comparative period of last year is disclosed in note 19 to the financial statements.
Basis of presentation and consolidation
The accompanying consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America.
The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.
The results of subsidiaries acquired or disposed of during the years are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal.
The Company also evaluates consolidation of entities under Financial Accounting Standards Board (FASB) Interpretation No.46, “Consolidation of Variable Interest Entities” (FIN 46). FIN 46 requires management to evaluate whether an entity or interest is a variable interest entity and whether the Company is the primary beneficiary. Consolidation is required if both of these criteria are met. The Company does not have any variable interest entities requiring consolidation.
Use of estimates
In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting year. These accounts and estimates include, but are not limited to, the valuation of accounts receivable, deferred income taxes and the estimation on useful lives of plant and equipment. Actual results could differ from those estimates.
32
BAOSHINN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
4.
Summary of significant accounting policies (Continued)
Concentrations of credit risk
Financial instruments that potentially subject the Group to significant concentrations of credit risk consist principally of accounts receivable. In respect of accounts receivable, the Group extends credit based on an evaluation of the customer’s financial condition, generally without requiring collateral or other security. In order to minimize the credit risk, the management of the Group has delegated a team responsibility for determination of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. Further, the Group reviews the recoverable amount of each individual trade debt at each balance sheet date to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the directors of the Group consider that the Group’s credit risk is significantly reduced.
Concentrations of supplier risk
The Group relies on Thai Airways as its major supplier of air tickets and tour packages. If this supplier became unwilling to cooperate with the Group, the Group would have to find alternative resources, which could materially affect the Group’s ability to generate revenue and profitability.
Cash and cash equivalents
Cash and cash equivalents include all cash, deposits in banks and other highly liquid investments with initial maturities of three months or less.
Accounts receivable
Accounts receivable are stated at original amount less an allowance made for doubtful receivables, if any, based on a review of all outstanding amounts at the year end. An allowance is also made when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Bad debts are written off when identified. The Group extends unsecured credit to customers in the normal course of business and believes all accounts receivable in excess of the allowances for doubtful receivables to be fully collectible. The Group does not accrue interest on trade accounts receivable.
The Group has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis credit evaluations are preferred on all customers requiring credit over a certain amount.
During the 9-months period ended December 31, 2008, the Group did not experience any bad debts and, accordingly, did not make any allowance for doubtful debts. (March 31 2008: Nil and March 31, 2007: Nil).
33
BAOSHINN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
4.
Summary of significant accounting policies (Continued)
Plant and equipment
Plant and equipment are stated at cost less accumulated depreciation. Cost represents the purchase price of the asset and other costs incurred to bring the asset into its existing use. Maintenance, repairs and betterments, including replacement of minor items, are charged to expense; major additions to physical properties are capitalized.
Depreciation of plant and equipment is provided using the straight-line method over their estimated useful lives at the following annual rates:
Furniture and fixtures
20%
Office equipment
20%
Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated.
Revenue recognition
The Group recognizes revenue when it is earned and realizable based on the following criteria: persuasive evidence that an arrangement exists, services have been rendered, the price is fixed or determinable and collectability is reasonably assured.
The Group also evaluates the presentation of revenue on a gross versus a net basis through application of Emerging Issues Task Force No. (“EITF”) 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent. The consensus of this literature is that the presentation of revenue as “the gross amount billed to a customer because it has earned revenue from the sale of goods or services or the net amount retained (that is, the amount billed to a customer less the amount paid to a supplier) because it has earned a commission or fee” is a matter of judgment that depends on the relevant facts and circumstances. In making an evaluation of this issue, some of the factors that should be considered are: whether The Group is the primary obligor in the arrangement (strong indicator); whether it has general inventory risk (before customer order is placed or upon customer return) (strong indicator ); and whether the Group has latitude in establishing price. The guidance clearly indicates that the evaluations of these factors, which at times can be contradictory, are subject to significant judgment and subjectivity. If the conclusion drawn is that the Group performs as an agent or a broker without assuming the risks and rewards of ownership of goods, revenue should be reported on a net basis.
34
BAOSHINN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
4.
Summary of significant accounting policies (Continued)
Revenue recognition (Continued)
The Group has the following three types of revenues:
(i)
Retail and corporate travel service revenues,
(ii)
Referral fee for travel booking services, and
(iii)
Incentive commission from travel suppliers.
(i)Retail and corporate travel service revenues
Revenues from retail and corporate travel services are recognized when the travel service provided by the Group is completely delivered. The Group presents revenue from such transactions on a gross basis in the consolidated statements of operations, as the Group acts as a principal, assumes inventory and credit risks, and has primary obligations to the airlines or hotels for cancelled air tickets, packaged tour products or hotel reservations. The Group also has latitude in determining the ticket prices. The Group changes the product by combining air ticket and hotel accommodations with local car transportation and other ancillary services to make it a holiday it a holiday package or business travel solution for customers.
(ii)Referral fee for travel booking services
The Group receives referral fee from travel product providers for booking travel services through the Group. The itinerary and product price are generally fixed by the travel product providers and the Group books the travel services on behalf of the customers. Referral fees from travel booking services rendered are recognized as commissions after the services are rendered and collections are reasonably assured. The Group presents revenues from such transactions on a net basis in the consolidated statements of operations, as the Group acts as an agent, does not assume any inventory and credit risks, has no obligations for cancelled airline or hotel ticket reservations, and does not have latitude in determining the service prices.
(iii)Incentive commission from travel suppliers
The Group earns an incentive commission from many travel suppliers. Contracts with certain travel suppliers contain discretionary escalating commissions that are paid to the Group subject to achieving specific performance targets. Such discretionary escalating commissions are recognized on an accrual basis because such commissions are usually paid in arrears and the Group can reasonably estimate such commissions. The Group presents revenues from such transactions on a net basis in the statements of operations, as the Group acts as an agent, does not assume any inventory risk, and has no obligations for cancelled airline ticket reservations.
35
BAOSHINN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
4.
Summary of significant accounting policies (Continued)
Advertising expenses
Advertising expenses are charged to expense as incurred. Advertising expenses amounted to $6,543 (March 31 2008: $1,730 and March 31, 2007: $3,135) are included in administrative and other operating expenses.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of Statement of Financial Accounting Standards No. 109 (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in tax positions. This interpretation requires that an entity recognizes in the consolidated financial statements the impact of a tax position, if that position is more likely than not of being sustained upon examination, based on the technical merits of the position. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgement occurs. The Group has elected to classify interest and penalties related to unrecognized tax benefits, if and when required, as part of income tax expense in the consolidated statement s of operations. The adoption of FIN 48 did not have a significant effect on the consolidated financial statements.
Comprehensive income
Other comprehensive income refers to revenues, expenses, gains and losses that under U.S. GAAP are included in comprehensive income but are excluded from net income as these amounts are recorded as a component of stockholders’ equity. The Company’s other comprehensive income represented foreign currency translation adjustments.
36
BAOSHINN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
4.
Summary of significant accounting policies (Continued)
Foreign currency translation
The functional currency of the Group is Hong Kong dollars (“HK$”). The Group maintains its financial statements in the functional currency. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet dates. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchanges rates prevailing at the dates of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income for the respective periods.
For financial reporting purposes, the financial statements of the Group which are prepared using the functional currency have been translated into United States dollars.
Assets and liabilities are translated at the exchange rates at the balance sheet dates and revenue and expenses are translated at the average exchange rates and stockholders’ equity is translated at historical exchange rates. Any translation adjustments resulting are not included in determining net income but are included in foreign exchange adjustment to other comprehensive income, a component of stockholders’ equity.
| 9-months period ended December 31,2008 |
| Year ended March 31, 2008 |
| Year ended March 31, 2007 |
Period/year end HK$: US$ exchange rate | 7.7510 |
| 7.7860 |
| 7.8130 |
Average periodically/yearly HK$: US$ exchange rate | 7.7802 |
| 7.7951 |
| 7.7805 |
Fair value of financial instruments
The carrying values of the Group’s financial instruments, including cash and cash equivalents, trade and other receivables, deposits, trade and other payables approximate their fair values due to the short-term maturity of such instruments. The carrying amounts of borrowings approximate their fair values because the applicable interest rates approximate current market rates.
37
BAOSHINN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
4.
Summary of significant accounting policies (Continued)
Basic and diluted earnings/(loss) per share
The Company computes earnings/(loss) per share (“EPS”) in accordance with Statement of Financial Accounting Standards No. 128, “Earnings per Share” (“SFAS No. 128”), and SEC Staff Accounting Bulletin No. 98 (“SAB 98”). SFAS No. 128 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as the income or loss available to common shareholders divided by the weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential 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. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are exclude d from the calculation of diluted EPS.
The calculation of diluted weighted average common shares outstanding for the nine months ended December 31, 2008 is based on the estimate fair value of the Company’s common stock during such periods applied to options using the treasury stock method to determine if they are dilutive.
The following tables are a reconciliation of the weighted average shares used in the computation of basic and diluted earnings/(loss) per share for the periods presented:
| 9-months |
| |||
| period ended |
| Year ended |
| Year ended |
| December 31, 2008 |
| March 31,2008 |
| March 31,2007 |
| $ |
| $ | $ | |
Numerator for basic and diluted earnings/(loss) per share: |
| ||||
Net loss | (144,173) |
| (345,084) |
| (281,302) |
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
Basic weighted average shares | 21,400,000 |
| 21,933,607 |
| 21,500,000 |
Effect of dilutive securities | - |
| - |
| - |
Diluted weighted average shares 1 | 21,400,000 |
| 21,933,607 |
| 21,500,000 |
|
|
|
|
|
|
Basic earnings/(loss) per share: | (0.01) |
| (0.02) |
| (0.01) |
|
|
|
|
|
|
Diluted earnings/(loss) per share: |
(0.01) |
| (0.02) |
| (0.01) |
38
BAOSHINN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
5.
Summary of significant accounting policies (Continued)
Basic and diluted earnings/(loss) per share (Continued)
1 Due to the net loss in the nine months ended December 31, 2008, and year ended March 31, 2008, diluted shares used in the diluted EPS calculation represent basic shares for the nine months period/year ended December 31, 2008 and March 31, 2008. Using actual diluted shares would result in anti-dilution. 380,000 anti-dilutive stock options issued during the year ended March 31, 2008 was excluded from the calculation of diluted earnings per share for the nine months ended December 31, 2008, and year ended March 31, 2008. There were no anti-dilutive shares for the year ended March 31, 2007.
Stock-Based Compensation
Effective January 1, 2006, the Group adopted Statements of Financial Accounting Standards (“SFAS”) No. 123R, Share-Based Payment (“SFAS No. 123R”). Under SFAS No. 123R, the Group measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award and recognizes the costs over the period the employee is required to provide service in exchange for the award, which generally is the vesting period.
During the nine months period ended December 31, 2008, the Company recorded the overprovision of $2,300 as a credit to recognize the forfeited stock option included in other non-operating income. Share-based compensation expense was $22,800 and Nil and for the years ended March 31, 2008 and 2007, respectively.
Related parties transactions
A related party is generally defined as (i) any person that holds 10% or more of the Company’s securities and their immediate families, (ii) the Group’s management, (iii) someone that directly or indirectly controls, is controlled by or is under common control with the Group, or (iv) anyone who can significantly influence the financial and operating decisions of the Group. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.
Commitments and contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation, fines and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.
39
BAOSHINN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
4.
Summary of significant accounting policies (Continued)
Recently issued accounting pronouncements
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” and SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment to ARB No. 51”. SFAS No. 141(R) and SFAS No. 160 require most identifiable assets, liabilities, noncontrolling interests and goodwill acquired in a business combination to be recorded at “full fair value” and require noncontrolling interests (previously referred to as minority interests) to be reported as a component of equity, which changes the accounting for transactions with noncontrolling interest holders. Both statements are effective for periods beginning on or after December 15, 2008, and earlier adoption is prohibited. SFAS No. 141(R) will be applied to business combinations occurring after the effective date. SFAS No. 160 will be applied prospectively to all noncontrolling interests, including any that arose before the effective date. Management has assessed that the adoption of SFAS No. 160 is not expected to have a material impact on the Company’s consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities,” which requires enhanced disclosures about an entity’s derivative and hedging activities. This Statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company does not expect the adoption of SFAS No.161 will have a material impact on the results of operations and financial position.
In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 162”). This statement identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in accordance with generally accepted accounting principles (“GAAP”). With the issuance of this statement, the FASB concluded that the GAAP hierarchy should be directed toward the entity and not its auditor, and reside in the accounting literature established by the FASB as opposed to the American Institute of Certified Public Accountants “AICPA”) Statement on Auditing Standards No. 69, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” This statement is effective 60 days following the Securities a nd Exchange Commission’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” The Company does not expect the adoption of SFAS No. 162 will have a material impact on the results of operations and financial position.
40
BAOSHINN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
5.
Other operating income
| 9-months |
|
|
| ||
| period ended |
| Year ended | Year ended | ||
| December 31, 2008 |
| March 31, 2008 | March 31, 2007 | ||
| $ |
| $ | $ | ||
|
|
|
|
|
| |
Commission income | 4,277 |
| 11,033 |
| 23,214 | |
Refund write back | 19,923 |
| 21,157 |
| - | |
Management service income | 33,525 |
| 44,836 |
| 5,784 | |
|
|
|
|
|
| |
| 57,725 |
| 77,026 |
| 28,998 |
6.
Other non-operating income
| 9-months |
|
|
| |
| period ended |
| Year ended | Year ended | |
| December 31, 2008 |
| March 31, 2008 | March 31, 2007 | |
| $ | $ |
| $ | |
|
|
|
|
|
|
Gain on exchange | 2,907 |
| 10,102 |
| 6,350 |
Interest income | 1,357 |
| 9,774 |
| 9,882 |
Sundry income | 3,702 |
| 5,004 |
| 308 |
Reversal of stock based compensation | 2,300 |
| - |
| - |
|
|
|
|
|
|
| 10,266 |
| 24,880 |
| 16,540 |
7.
Interest expenses
| 9-months |
|
|
| ||
| period ended |
| Year ended | Year ended | ||
| December 31, 2008 |
| March 31, 2008 | March 31,2007 | ||
| $ | $ |
| $ | ||
Interest on amounts due to related parties | 8,083 |
| 33,975 |
| 43,175 |
41
BAOSHINN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
8.
Income taxes
The Company was subject to Hong Kong profits or income tax at 16.5% (March 31, 2008: 17.5% and March 31, 2007: 17.5%) for the nine months ended December 31, 2008.
No provision for Hong Kong profits tax has been made for any of the 9-months period/years presented because the Group does not have any assessable profits during the period/year.
The following table accounts for the differences between the actual tax provision and the amounts obtained by applying the applicable statutory income tax rate of 16.5%, 17.5% and 17.5% to loss before taxes for the nine months ended December 31, 2008, years ended March 31, 2008 and 2007 respectively.
| 9-months |
|
|
|
| |
| period ended |
| Year ended |
| Year ended | |
| December 31, 2008 |
| March 31, 2008 |
| March 31, 2007 | |
| $ |
| $ |
| $ | |
Loss before taxes | (146,473) |
| (345,084) |
| (281,302) | |
|
|
|
|
|
| |
| Computed tax benefit at Hong Kong |
|
|
|
|
|
| income tax rate | (28,950) |
| (60,389) |
| (49,227) |
| Valuation allowance adjustment | 26,773 |
| 48,055 |
| 44,287 |
| Non-taxable items | (224) |
| (1,709) |
| (1,729) |
| Non-deductible expenses | 7,385 |
| 10,177 |
| 6,390 |
| Others | (4,985) |
| 3,866 |
| 279 |
|
|
|
|
|
|
|
|
| - |
| - |
| - |
Deferred taxes are determined based on the temporary differences between the financial statement and income tax bases of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse.
42
BAOSHINN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
8.
Income taxes(Continued)
The components of deferred income tax assets at 9-months period/years ended December 31, 2008 and March 31, 2008, were as follows:
|
| 9-months |
|
|
|
| |
|
| period ended |
| Year ended |
| Year ended | |
|
| December 31, 2008 |
| March 31, 2008 |
| March 31, 2007 | |
|
| $ |
| $ |
| $ | |
| Deferred tax assets |
|
|
|
| ||
| Tax loss carrying-forwards | 26,773 |
| 48,055 |
| 44,287 | |
| Valuation allowance | 26,773 |
| 48,055 |
| 44,287 | |
|
|
|
|
|
|
| |
| Net deferred tax asset | - |
| - |
| - |
The Group follows Statement of Financial Accounting Standards Number 109 (SFAS 109), “Accounting for Income Taxes.” SFAS No.109 and requires a valuation allowance, if any, to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized, and therefore, a full valuation allowance has been provided as of December 31, 2008, March 31, 2008 and March 31, 2007. The change in valuation allowance for the period/years ended December 31, 2008, March 31, 2008 and March 31, 2007 were approximately ($21,282), $3,768 and $15,397 respectively.
At December 31, 2008, the Group had a net operating loss carrying forward for Hong Kong profits tax purposes totaling approximately $184,809. These losses do not expire under the Hong Kong current tax legislation.
As of April 1, 2007 and for the nine months ended December 31, 2008 and the twelve months ended March 31, 2008, the Group did not have unrecognized tax benefits relating to uncertain tax positions. Also, the Group does not expect that the amount of unrecognized tax benefits will change significantly within the next twelve months. No interest or penalties were accrued at the date of initial adoption of FIN 48 and as of March 31, 2008 and December 31, 2008.
9.
Deposits, prepaid expenses and other receivables
|
| At |
| At |
|
|
| December 31, |
| March 31, |
|
|
| 2008 |
| 2008 |
|
|
| $ |
| $ |
|
| Security deposits to suppliers [1] | 772,247 |
| 763,449 |
|
| Prepayments and other receivables | 130,100 |
| 24,055 |
|
| Utility, rental and other deposits | 37,891 |
| 31,894 |
|
|
|
|
|
|
|
|
| 940,238 |
| 819,398 |
|
[1]
Represents a deposit with the airline companies to allow the Group to issue an agreed upon amount of air tickets per month.
43
BAOSHINN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
10.
Plant and equipment
|
| At |
| At |
|
|
| December 31, |
| March 31, |
|
|
| 2008 |
| 2008 |
|
|
| $ |
| $ |
|
| Cost |
|
|
| |
| Furniture and fixtures | 53,392 |
| 100,404 |
|
| Office equipment | 106,599 |
| 129,145 |
|
|
|
|
|
|
|
|
| 159,991 |
| 229,549 |
|
|
|
|
|
|
|
| Accumulated depreciation |
|
|
|
|
| Furniture and fixtures | 17,462 |
| 73,437 |
|
| Office equipment | 62,438 |
| 67,842 |
|
|
|
|
|
|
|
|
| 79,900 |
| 141,279 |
|
|
|
|
|
|
|
| Net |
|
|
|
|
| Furniture and fixtures | 35,930 |
| 26,967 |
|
| Office equipment | 44,161 |
| 61,303 |
|
|
|
|
|
|
|
|
| 80,091 |
| 88,270 |
|
Depreciation expenses for the 9-months period ended December 31, 2008 are $28,866 (Year ended March 31, 2008: $44,205 and March 31, 2007: $39,771).
11.
Other payables and accrued liabilities
|
|
| At |
| At |
|
|
|
| December 31, |
| March 31, |
|
|
|
| 2008 |
| 2008 |
|
|
|
| $ |
| $ |
|
|
|
|
|
|
| |
| Sale deposits received |
| 88,327 |
| 112,917 |
|
| Accrued expenses |
| 154,961 |
| 205,114 |
|
| Other payables |
| 33,313 |
| - |
|
|
|
|
|
|
|
|
|
|
| 276,601 |
| 318,031 |
|
44
BAOSHINN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
12.
Amounts due from/(to) related parties
Amounts due from/(to) related parties for working capital are as follows:
|
|
| At |
| At |
|
|
|
| December 31, |
| March 31, |
|
|
|
| 2008 |
| 2008 |
|
|
|
| $ |
| $ |
|
|
|
|
|
|
|
|
| Amount due from a shareholder |
| 10,691 |
| 3,596 |
|
|
|
|
|
|
|
|
| Amount due to shareholder |
| 2,838 |
| - |
|
The amount due from a shareholder is temporary advance, interest free, unsecured and due on demand.
The amount due to a shareholder, represents advances from certain shareholder of the Company, is interest free, unsecured and has no fixed repayment terms.
13.
Stock based compensation
The Company has stock options plans that allow it to grant options to its key employees. Over the course of employment, the Company issues vested or non-vested stock options to an employee which is struck at US$0.35 per share.
For non-vested stock options, the options have a maximum term of three years up to March 31, 2011. For vested stock options, the exercise period of the options commenced on March 31, 2008 and will expire on March 31, 2011, subject to that maximum of 30% of options to be exercised up to March 31, 2009, maximum of 60% of options to be exercised up to March 31, 2010 and the 100% of options to be exercised up to March 31, 2011.
In the year ended March 31, 2008, a total of 300,000 and 80,000 of vested and non-vested options respectively were granted to key employees of the Company at a price of $0.35 per share, exercisable for a term of three years which vest immediately under the vesting conditions.
The fair value of these options at the date of grant was estimated to be $0.1533 and $0.1125 for vested and non-vested options per unit respectively using the Black-Scholes option pricing model with the following weighted average assumptions: expected life of three years; risk-free interest rate of 3.07%; expected dividend yield of 0% and an expected volatility of 47.77%. The stock-based compensation expense recorded in the 9-months period ended December 31, 2008 was $(2,300) (year ended March 31, 2008: $22,800) which was (credited)/charged to the consolidated statements of operations and (debited)/credited to contributed surplus.
45
BAOSHINN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
13.
Stock based compensation(Continued)
|
|
|
|
|
| Weighted | ||
|
|
|
| Weighted |
| average | ||
|
|
| Number of |
| average |
| remaining | |
|
|
| options |
| exercise price |
| life | |
|
|
|
| $ |
| |||
| Balance as of March 31, 2007 |
| - |
| - |
| - | |
|
|
|
|
|
|
| ||
| Granted |
| 380,000 |
| 0.35 |
| 3 | |
|
|
|
|
|
|
|
| |
| Balance as of March 31, 2008 |
| 380,000 |
| 0.35 |
| 3 | |
|
|
|
|
|
|
|
| |
| Balance as of December 31, 2008 |
| 380,000 |
| 0.35 |
| 2.25 | |
|
|
|
|
|
|
|
| |
| Exercisable as of March 31, 2008 |
| 170,000 |
| 0.35 |
| 3 | |
|
|
|
|
|
|
|
| |
| Forfeited during the period |
| (15,000) |
| 0.35 |
|
| |
|
|
|
|
|
|
|
| |
| Exercisable as of December 31, 2008 |
| 155,000 |
| 0.35 |
| 2.25 | |
14.
Concentration of credit
A substantial percentage of the Group's sales are made to the following customers. Details of the customers accounting for 10% or more of total net revenue are as follows:
| 9-months period ended December 31, 2008 |
| Year ended March 31, 2008 |
| Year ended March 31, 2007 |
Travel Expert Limited (a Hong Kong incorporated travel agent) |
13% |
| 11% |
| - |
Details of the accounts receivable from the one customer with the largest receivable balances at December 31, 2008, March 31, 2008 and March 31, 2007 are as follows:
| Percentage of account receivable | ||||
| December 31, 2008 |
| March 31, 2008 |
| March 31, 2007 |
Travel Expert Limited (a Hong Kong incorporated travel agent) | 17% |
| 15% |
| 12% |
46
BAOSHINN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
15.
Pension plans
The Group participates in a defined contribution pension scheme under the Mandatory Provident Fund Schemes Ordinance “MPF Scheme” for all its eligible employees in Hong Kong.
The MPF Scheme is available to all employees aged 18 to 64 with at least 60 days of service in the employment in Hong Kong. Contributions are made by the Group’s subsidiary operating in Hong Kong at 5% of the participants’ relevant income with a ceiling of HK$20,000. The participants are entitled to 100% of the Group’s contributions together with accrued returns irrespective of their length of service with the Group, but the benefits are required by law to be preserved until the retirement age of 65. The only obligation of the Group with respect to MPF Scheme is to make the required contributions under the plan.
The assets of the schemes are controlled by trustees and held separately from those of the Group. Total pension cost was $31,813 during the nine months ended December 31, 2008 (year ended March 31, 2008: $44,237 and March 31, 2007: $41,737).
16.
Commitments and contingencies
Operating leases commitments
The Group leases office premises under various non-cancelable operating lease agreements that expire at various dates through years 2009 to 2010, with an option to renew the lease. All leases are on a fixed repayment basis. None of the leases includes contingent rentals. Minimum future commitments under these agreements payable as of December 31, 2008 are as follows:-
Year ending December 31 |
|
|
| $ |
|
|
|
|
|
2009 |
|
|
| 94,772 |
2010 |
|
|
| 29,911 |
|
|
|
|
|
|
|
| 124,683 |
Rental expenses for the nine months ended December 31, 2008 were $84,880 (year ended March 31, 2008: $133,669 and March 31, 2007: $124,024).
47
BAOSHINN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
17.
Related party transactions
In the ordinary course of business, BSIE, our wholly-owned subsidiary, purchases and sells air tickets and tour packages from/to Bao Shinn Express Company Limited (“BSEL”). BSEL holds 38.6% of Baoshinn Corporation’s outstanding common stock. The consolidated income statement for the periods presented includes the following related party transactions:
Related party | Nature of relationshipand control | Description oftransactions | 9-months period ended December 31, 2008 |
| Year ended March 31, 2008 |
| Year ended March 31, 2007 |
|
|
| $ |
| $ |
| $ |
|
|
|
|
|
|
|
|
Bao Shinn Express Company Limited | Shareholder 38.6% | Sales of air tickets and tour packages | (73,076) |
| (168,028) |
| (188,369) |
|
|
|
|
|
|
|
|
|
| Management service income | (33,525) |
| (44,836) |
| (5,784) |
|
|
|
|
|
|
|
|
|
| Purchase of air tickets and tour packages | 96,434 |
| 260,483 |
| 373,624 |
|
|
|
|
|
|
|
|
|
| Loan interest paid | 12 |
| 16,783 |
| 14,424 |
|
|
|
|
|
|
|
|
|
| Rent paid | 643 |
| 16,934 |
| 26,219 |
|
|
|
|
|
|
|
|
|
| Amount due from | 10,691 |
| 3,591 |
| 3,654 |
|
|
|
|
|
|
|
|
HK Airlines Holidays Travel Company Limited | Bao Shinn Express Company Limited is the major shareholder | Sales of air tickets and tour packages | (5,427) |
| - |
| - |
|
|
|
|
|
|
|
|
|
| Purchase of air tickets and tour packages | 12,247 |
| - |
| - |
|
|
|
|
|
|
|
|
|
| Sales of plant and equipment | (2,631) |
| - |
| - |
|
|
|
|
|
|
|
|
|
| Account receivable | 1,021 |
| - |
| - |
|
|
|
|
|
|
|
|
|
| Account payables | (4,708) |
| - |
| - |
48
BAOSHINN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
17.
Related party transactions(Continued)
Related party | Nature of relationshipand control | Description oftransactions | 9-months period ended December 31, 2008 |
| Year ended March 31, 2008 |
| Year ended March 31, 2007 |
|
|
| $ |
| $ |
| $ |
|
|
|
|
|
|
|
|
Mr. Wong Yun Leung, Edward | Shareholder 18.5% | Loan interest paid | - |
| 1,628 |
| 3,073 |
|
|
|
|
|
|
|
|
H.C. Patterson and Company Limited | Bao Shinn Express Company Limited is the major shareholder | Purchase of air tickets and tour packages | 58,976 |
| - |
| - |
|
|
|
|
|
|
|
|
|
| Account payables | (18,946) |
| - |
| - |
|
|
|
|
|
|
|
|
Grand Power Express International Limited | Chiu Tong, Ricky is the common director | Sales of air tickets and tour packages | (18,009) |
| - |
| - |
|
|
|
|
|
|
|
|
|
| Account receivables | 201 |
| - |
| - |
18.
Segment Information
SFAS No.131,Disclosures about Segments of an Enterprise and Related Information, establishes standards for reporting information about operating segments in financial statements. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance.
For management purposes, the Group is regarded as a single segment, being engaged in the provision of travel agent services. These principal activities and geographical market are substantially based in Hong Kong. Accordingly, no geographical segment information is presented.
49
BAOSHINN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
19.
Comparative period of the prior year
According to the section (b) of Rule 13a-10, the financial data for the comparable period of the prior year as follows:
| 9-months |
| 9-months | |
| period ended |
| period ended | |
| December 31, 2008 |
| December 31, 2007 | |
| (audited) |
| (unaudited) | |
| $ | $ |
| |
|
|
|
|
|
Retail and Corporate revenue | 24,704,983 |
| 27,990,948 |
|
Commission from travel booking services | 113,117 |
| 10,843 |
|
Incentive commissions | 304,787 |
| 380,715 |
|
|
|
|
|
|
| 25,122,887 |
| 28,382,506 |
|
|
|
|
|
|
Cost of sales | (24,076,245) |
| (27,411,848) |
|
|
|
|
|
|
Gross profit | 1,046,642 |
| 970,658 |
|
Other operating income | 57,725 |
| 60,853 |
|
Depreciation | (28,866) |
| (32,856) |
|
Administrative and other operation expenses | (1,224,028) |
| (1,186,910) |
|
|
|
|
|
|
Loss from operations | (148,527) |
| (188,255) |
|
Other non-operating expenses | 10,266 |
| 24,726 |
|
Interest expenses | (8,083) |
| (33,606) |
|
|
|
|
|
|
Loss before income tax | (146,344) |
| (197,135) |
|
Income tax | - |
| - |
|
Minority interest | 2,171 |
| - |
|
|
|
|
|
|
Net loss from continuing operations | (144,173) |
| (197,135) |
|
|
|
|
|
|
|
|
|
|
|
Loss per share of common stock |
|
|
|
|
- Basic | (0.01) |
| (0.01) |
|
- Diluted | (0.01) |
| (0.01) |
|
|
|
|
|
|
Weighted average number of common stock |
|
|
|
|
- Basic | 21,400,000 |
| 23,900,000 |
|
- Diluted | 21,400,000 |
| 23,900,000 |
|
|
|
|
|
|
50
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
There have been no disagreements with accountants as described in Item 304 of Regulation S-K and there has been no change in accountant during the period covered by this report.
ITEM 9A(T). CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures.
As required by paragraph (b) of Rules 13a-15 or 15d-15 under the Securities Exchange Act of 1934, the Company's principal executive officer and principal financial officer have evaluated the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Annual Report on Form 10-K. Based on this evaluation these officers have concluded that as of the end of the period covered by this Annual Report on Form 10-K, our disclosure controls and procedures were ineffective and were not adequate to insure that the information required to be disclosed by the Company in reports it files or submits under the Exchange Act were recorded, processed, summarized and reported within the time period specified in the Commission's rules and forms.
The deficiencies in the Company's controls and procedures relates to the Company's income recognition policies. Previously, and during the period ending December 31, 2008, the Company recognized revenues when travel tickets and vouchers were delivered to customers. However, in some cases, the Company's customers are entitled to refunds even after tickets or vouchers are delivered. To avoid this problem and to use more appropriate accounting policies the Company has revised its revenue recognition policies to recognize income only when the customer actually travels. The financial statements contained in the Company's amended Annual Report on Form 10-K have been restated to reflect these new revenue recognition policies for the periods ending March 31, 2007, and 2008.
In addition, the Company was previously recording income on a gross basis, which was equal to the Company's total billings to its customers. The company has subsequently determined that the gross method is appropriate where the Company acts as principal and assumes all inventory and credit risks. However, where the product is fixed and where the Company receives referral fees and commissions, the gross method is not appropriate and the Company has changed its income recognition policies to recognize such revenues on a net basis to reflect appropriate accounting policies. (See "Footnote 4 to the financial statements").
In order to prevent ineffective disclosure controls and procedures and ineffective internal controls over financial reporting in the future the Company will educate and train its internal accounting staff in United States generally accepted accounting procedures, and it will employ an external expert to review its procedures for proper compliance.
Management’s report on internal control over financial reporting.
Management is responsible for establishing and maintaining adequate internal controls over financial reporting. In order to evaluate the effectiveness of our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, management has conducted an assessment, including testing, using the criteria in Internal Control - Integrated Framework, issued by the Committee of Sponsoring Organization of the Treadway Commission ("COSO"). The Company's system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherit limitations, internal control over financial reporting may not prevent or detect misstatements.
The Company has concluded that its internal controls over financial reporting were ineffective as of December 31, 2008. This ineffectiveness, as more specifically discussed above, resulted from our inability to determine that our revenue recognition policies were not in compliance with generally accepting accounting principles. The Company has subsequently determined that its revenue recognition policies were incorrect and it has restated its financial statements as discussed above.
Because of its inherit limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to risks that controls may become inadequate because of changes in conditions and that the degree of compliance with the policies and procedures may deteriorate.
51
Changes in Internal Control Over Financial Reporting
There were no changes in the Company's internal control over financial reporting during the quarter ended March 31, 2008 that have materially affected, or are reasonably likely to materially affect the Company's internal control over financial reporting.
Regulatory Statement
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 pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this annual report.
ITEM 9B. OTHER INFORMATION.
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The following table sets forth certain information regarding the Company's directors and executive officers for the fiscal year ended December 31, 2008:
The following table provides information concerning our officers and directors. All directors hold office until the next annual meeting of stockholders or until their successors have been elected and qualified.
Name and Address | Age | Position(s) |
Chiu Wan Kee (1) | 67 | Chairman, Director |
Sean Webster (2) | 37 | President, C.F.O., Director |
Ricky Chiu | 38 | Director |
Benny Kan | 44 | C.E.O., Director |
Mike Lam | 37 | Director, Secretary |
Bernard Leung (3) | 49 | C.O.O. |
(1)
Chiu Wan Kee was appointed as director, and Chairman of the Board of Directors on March 31, 2006. He resigned as a director and Chairman of the Board of Directors on February 9, 2009 due to personal and health reasons.
(2)
Sean Webster was elected as a director of the Company, and appointed as President and Chief Financial Officer of the Company on a meeting of directors on March 25, 2008.
(3)
Bernard Leung was appointed as Chief Operating Officer on March 31, 2006, he resigned from the position on March 26, 2009.
The directors named above serve for one year terms or until their successors are elected or they are re-elected at the annual stockholders' meeting. Officers hold their positions at the pleasure of the board of directors, absent any employment agreement, none of which currently exists or is contemplated. There is no arrangement or understanding between any of our directors or officers and any other person pursuant to which any director or officer was or is to be selected as a director or officer, and there is no arrangement, plan or understanding as to whether non-management shareholders will exercise their voting rights to continue to elect the current directors to the Company's board.
Mr. Wan Kee CHIU, former Chairman, Director. Mr. Chiu founded Bao Shinn Express Co. Ltd. in 1966, the business upon which Baoshinn Corporation is built. It is his extensive experience and connections in the industry that has allowed Baoshinn Corporation to grow and prosper in such a short time. Mr. CHIU Wan Kee with over 40 years experience in the travel industry was appointed Chairman and Director of Baoshinn Corporation on March 31, 2006 when the company incorporated. Mr. Chiu is also member of board of directors of several other travel and logistics companies, none of which are public companies. He resigned as a director and chairman of the board of directors on February 9, 2009 due to personal and health reasons.
52
Mr. Sean Webster, President, Chief Financial Officer and Director. Sean Webster was elected as a director of the Company, and appointed as President and Chief Financial Officer of the Company at a meeting of directors on March 25, 2008. Mr. Webster will hold these positions until he resigns or a successor is elected. From January 1999 to April 1999, Mr. Webster was an Investment Associate at Yorkton Securities, Inc. in Calgary, Canada. In May, 1999 he became an Investment Advisor (Investment Dealers Association of Canada, Registered Representative) with the same company, until it changed its name to Blackmont Capital, Inc. He remained at Blackmont until October, 2008. In November, 2008 he became the Vice President, Corporate Development of Grand Power Logistics Group, Inc., which is a publicly traded company on the Canadian TSX Venture Exchange traded under the symbol "GPW". Mr . Webster graduated from the University of Calgary in 1996 with a Bachelors Degree in Economics, and a minor in Management and Commerce.
Mr. Benny Kan, C.E.O., Director. Mr. Kan joined the group in 2003. Mr. Kan has served as C.E.O. and Director of Baoshinn Corporation since March 341, 200-6 when the company incorporated. Mr. Kan was the company CFO from March 31, 2006 to March 25, 2008. Before that, he was General Manager of Million Tour, King's Travel Services Ltd. and King Travel Co. Ltd, where he managed ticketing and customer services and operation for nearly 20 years. Mr. Kan has extensive experience in ticketing, holiday options, accommodation wholesales and travel agency management. Mr. Kan is also a member of board of directors of Bao Shinn International Express Ltd., a subsidiary of Baoshinn Corporation, and he has held that position since the inception of the Company.
Mr. Mike Lam, Director and Secretary, and he has served as a director since March 31, 2006. Mr. Lam will hold these positions until he resigns or his successor is elected. Mr. Lam has over 10 years of experience in air cargo and logistics services. With his extensive knowledge on sales and pricing, he has developed relationships with local and overseas clients. Since May 2000, Mr. Lam has served as General Manager of Grand Power Express and, since May, 1997 he has served as General Manager of Grand Power Express Forwarders Co. Ltd., and Grand Power Express Tourism Col Ltd. (Macau). Mr. Lam was the general manager of Grand Power Express Tourism Co Ltd. in Macao prior to joining the Company. He has more than 15 years experience working in the Travel industry. Mr. Lam spent the past 3 years in Grand Power Express Tourism Co Ltd.
Mr. Ricky Chiu, is a Director of the Company. Mr. Chiu will hold this position until he resigns or his successor is elected. Mr. Chiu previously served as Director and President of the Company from November, 2000 until March 25, 2008. Mr. Chiu has been the Managing Director of Grand Power Express since 2000 and listed this business through Grand Power Logistics Group Inc. on the TSX Venture Exchange ("GPW") in 2004. Mr. Chiu has a BS degree from London University. Mr. Chiu has served as a director of Bao Shinn Express Co. Ltd since 1998, and has over 10 year working experience in the Travel industry in Hong Kong. Mr. Chiu is an owner of Bao Shinn Express Co. Ltd.
Mr. Bernard Leung, C.O.O. Mr. Leung joined the group in 2005 with more than 25 years experience in the travel industry. Mr. Leung was appointed C.O.O. on March 31, 2006 when the Company incorporated, and resigned from the position on March 26, 2009. Before that, he held various positions, and was on board of King Travel Co. Ltd., managing all direct and wholesale marketing & sales for more than 10 years. Mr. Leung also worked for Jardine Airport Services, a subsidiary of Jardine Matheson Group in Hong Kong Kai Tak International Airport for 15 years from 1981 until 1996. Bernard Leung has been the manager of Bao Shinn International Express Ltd., subsidiary of Baoshinn Corporation, since inception. He is now looking after the operations and sales of the company
(b) Significant Employees.
As of the date hereof, we have no other significant employees.
(c) Family Relationships.
Ricky Chiu, director is the son of Chiu Wan Kee, former Chairman of our board of directors.
(d) Involvement in Certain Legal Proceedings.
None.
Section 16(a) Beneficial Ownership Reporting Compliance.
Section 16(a) of the Exchange Act requires the Company's directors and officers, and persons who beneficially own more than 10% of a registered class of the Company's equity securities, to file reports of beneficial ownership and changes in beneficial ownership of the Company's securities with the SEC on Forms 3, 4 and 5. Officers, directors and greater than 10% stockholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file.
53
Based solely on the Company's review of the copies of the forms received by it during the fiscal year ended December 31, 2008, the Company does not believe that any person required to make filings under Section 16(a) during such fiscal year failed to file such reports or filed such reports late.
Code of Ethics
Our board of directors adopted a Code of Business Conduct and Ethics that applies to, all our officers, directors, employees and agents. Certain provisions of the Code apply specifically t o our president and secretary (being our principle executive officer, principle financial officer and principle accounting officer, controller), as well as persons performing similar functions. As adopted, our Code of Business Conduct and Ethics sets forth written standards that are designed to deter wrongdoing and to promote:
1.
Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
2.
Full, fair, accurate, timely, and understandable disclosure in reports and documents that we file with, or submit to, the Securities and Exchange Commission and in other public communications made by us;
3.
Compliance with applicable governmental laws, rules and regulations;
4.
The prompt internal reporting of violations of the Code of Business Conduct and Ethics to an appropriate person identified in our Code of Business Conduct and Ethics; and
5.
Accountability for adherence to the Code of Business Conduct and Ethics.
Our Code of Business Conduct and Ethics requires, among other things, that all of our company's senior officers commit to timely, accurate and consistent disclosure of information; that they maintain confidential information; and that they act with honesty and integrity.
In addition, our Code of Business Conduct and Ethics emphasizes that all employees, and particularly senior officers, have a responsibility for maintaining financial integrity within our company, consistent with generally accepted accounting principles, and federal and state securities laws. Any senior officer who becomes aware of any incidents involving financial or accounting manipulation or other irregularities, whether by witnessing the incident or being told of it, must report it to our management.
We will provide a copy of our code of ethics without charge to any person that requests it. Any such request should be made in writing to the attention of Benny Kan, Chief Executive Officer, Baoshinn Corporation, A-B, 8/F Hart Avenue, Tsimshatsui, Kowloon, Hong Kong.
Nominating Committee
We do not have a separate nominating committee. Management believes that it is not necessary to have a separate nomination committee, because our entire board acts as our nominating committee.
Audit Committee
Our Board of Directors acts as our audit committee and we do not have an audit committee charter. We do not have a qualified financial expert on the Board at this time, because we have not been able to hire a qualified candidate. Further, we believe that we have inadequate financial resources at this time to hire such an expert.
Compensation Committee
Our board of directors acts as our compensation committee, and due to this fact we believe it is not necessary for us to have a separate compensation committee.
54
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth the cash compensation paid by the Company to its President and all other executive officers for services rendered during the fiscal year ended December 31, 2008.
SUMMARY COMPENSATION TABLE
(All amounts in US$ 000's) | Long Term Compensation | Total | |||||||
Compensation | Awards | Payouts |
| ||||||
Name & Principal Position | Period | Salary | Bonus | Other Annual Comp. | Restricted Stock Awards | Securities Underlying Options/ SARs (#) | LTIP Payouts | All Other Compensation |
|
Chiu Wan Kee | 12 months ended March 31,2008 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 9 months ended December 31,2008 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
Sean Webster | 12 months ended March 31,2008 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 9 months ended December 31,2008 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
Benny Kan | 12 months ended March 31,2008 | 42.82 | 0 | 0 | 0 | 0 | 0 | 0 | 42.82 |
| 9 months ended December 31,2008 | 53.34 | 0 | 0 | 0 | 0 | 0 | 0 | 53.34 |
Mike Lam | 12 months ended March 31,2008 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
|
| 9 months ended December 31,2008 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
Ricky Chiu | 12 months ended March 31,2008 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 9 months ended December 31,2008 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
Bernard Leung | 12 months ended March 31,2008 | 40.76 | 0 | 0 | 0 | 0 | 0 | 0 | 40.76 |
| 9 months ended December 31,2008 | 20.44 | 0 | 0 | 0 | 0 | 0 | 14.25 | 34.69 |
No other executive received any compensation from the Company and any of its subsidiaries for the previous three years.
(a)
Option/SAR Grants
The Company has stock option plans that allow it to grant options to its key employees. Over the course of employment, the Company may issue vested or non-vested stock options to an employee.
For non-vested stock options, the options have a maximum term of three years, up to March 31, 2011. For vested stock options, the exercise period of the options commenced on March 31, 2008 and will expire on March 31, 2011, subject to the maximum of 30% of options to be exercised up to March 31, 2009, a maximum of 60% of options to be exercised up to March 31, 2010 and 100% of options to be exercised up to March 31, 2011.
In the year ended March 31, 2008, a total of 300,000 of vested and 80,000 non-vested options were granted to employees of the Company at a price of $0.35 per share, exercisable for a term of three years. No stock options have been granted to any of the officers or directors.
No stock options have been exercised by any employees, officers or directors since we were founded.
55
(b)
Long-Tem Incentive Plans and Awards
We do not have any long-term incentive plans that provide compensation intended to serve as incentive for performance. No individual grants or agreements regarding future payouts under non-stock price-based plans have been made to any executive officer or any director or any employee or consultant since our inception; accordingly, no future payouts under non-stock price-based plans or agreements have been granted or entered into or exercised by any of our officers, directors, employees or consultants since we were founded.
(c)
Compensation of Directors
The members of the Board of Directors are not compensated for acting as such. There are no arrangements pursuant to which directors are or will be compensated in the future for any services provided as a director. There were no reimbursement expenses paid to any director.
(d)
Employment Contracts, Termination of Employment, Change-in-Control Arrangements.
There are no employment or other contracts or arrangements with our officers or directors. There are no compensation plans or arrangements, including payments to be made by us with respect to our officers, directors, employees or consultants that would result from the resignation, retirement or any other termination of such directors, officers, employees or consultants. There are no arrangements for compensation to our directors, officers, employees or consultants that would result from a change-in-control.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table sets forth certain information regarding the beneficial ownership of our common stock as of December 31, 2008, by (i) each person who is known by us to own beneficially more than 5% of our outstanding common stock; (ii) each of our officers and directors; and (iii) all our directors and officers as a group.
Name and Address of Beneficial Owner | Amount & Nature of Beneficial Ownership | Percentage of Class(1) |
Chiu Wan Kee (3) Unit E, 8/F, 8 Hart Avenue, Tsimshatsui, Kowloon, Hong Kong | 0 | 0 |
Sean Webster 18/F Metroplaza Tower II, 223 Hing Fong Road, Kwai Chung New Territories, Hong Kong | 0 | 0 |
Ricky Chiu (3) 18/F Metroplaza Tower II, 223 Hing Fong Road, Kwai Chung New Territories, Hong Kong | 0 | 0 |
Bao Shinn Express Co. Ltd.[2] Unit E, 8/F, 8 Hart Avenue, Tsimshatsui, Kowloon, Hong Kong | 8,250,000 | 38.551% |
Benny Kan 1105 Tao Shue House, Lei Muk Shue Est., Kwai Chung, Kowloon, Hong Kong | 1,815,000 | 8.481% |
Mike Lam Unit E, 8/F, 8 Hart Avenue, Tsimshatsui, Kowloon, Hong Kong | 825,000 | 3.855% |
Bernard Leung 11B, Green Land Court, 88, Ma Tau Wai Road, Hunghom Kowloon, Hong Kong | 0 | 0 |
Wong Yun Leung Unit E, 8/F, 8 Hart Avenue, Tsimshatsui, Kowloon, Hong Kong | 3,960,000 | 18.505% |
All Officers and Directors as a Group | 14,850,000 | 69.392% |
56
[1] Applicable percentage ownership is based on 21,400,000 shares of our common stock outstanding as of December 31, 2008. There are no options, warrants, rights, conversion privileges or similar right to acquire the common stock of the Company outstanding as of December 31, 2008.
[2] This company is beneficially owned by Chiu Wan Kee and Ricky Chiu at 50% and 50% respectively.
[3] Chiu Wan Kee is the father of Ricky Chiu.
(a)
Changes in Control
We do not anticipate at this time any changes in control of the Company. There are no arrangements either in place or contemplated which may result in a change of control of the Company. There are no provisions within the Articles or the Bylaws of the Company that would delay or prevent a change of control.
(b)
Future Sales by Existing Shareholders
As of December 31, 2008, there are a total of 27 Stockholders of record holding 21,400,000 shares of our common stock. 14,850,000 of our outstanding shares of common stock are "restricted securities", as that term is defined in Rule 144 of the Rules and Regulations of the SEC promulgated under the Securities Act. Under Rule 144, such shares can be publicly sold, subject to certain restrictions commencing six (6) months after the acquisition of such shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
In the ordinary course of business, BSIE, our wholly-owned subsidiary, purchases and sells air tickets and tour packages to Bao Shinn Express Company Limited ("BSEL"). BSEL holds 38.551% of our outstanding shares of common stock. The statement of operations for the periods presented includes the following related party transactions:
Related party | Nature of relationship and control | Description oftransactions | 9-months period ended December 31, 2008 |
| Year ended March 31, 2008 |
| Year ended March 31, 2007 |
|
|
| $ |
| $ |
| $ |
Bao Shinn Express Company Limited | Shareholder 38.6% | Sales of air tickets and tour packages | (73,076) |
| (168,028) |
| (188,369) |
|
| Management service income | (33,525) |
| (44,836) |
| (5,784) |
|
| Purchase of air tickets and tour packages | 96,434 |
| 260,483 |
| 373,624 |
|
| Loan interest paid | 12 |
| 16,783 |
| 14,424 |
|
| Rent paid | 643 |
| 16,934 |
| 26,219 |
|
| Amount due from | 10,691 |
| 3,591 |
| 3,654 |
HK Airlines Holidays Travel Company Limited | Bao Shinn Express Company Limited is the major shareholder | Sales of air tickets and tour packages | (5,427) |
| - |
| - |
|
| Purchase of air tickets and tour packages | 12,247 |
| - |
| - |
|
| Sales of plant and equipment | (2,631) |
| - |
| - |
|
| Account receivable | 1,021 |
| - |
| - |
|
| Account payables | (4,708) |
| - |
| - |
57
Related party | Nature of relationship andcontrol | Description oftransactions | 9-months period ended December 31, 2008 |
| Year ended March 31, 2008 |
| Year ended March 31, 2007 |
|
|
| $ |
| $ |
| $ |
|
|
|
|
|
|
|
|
Mr. Wong Yun Leung, Edward | Shareholder 18.5% | Loan interest paid | - |
| 1,628 |
| 3,073 |
|
|
|
|
|
|
|
|
H.C. Patterson and Company Limited | Bao Shinn Express Company Limited is the major shareholder | Purchase of air tickets and tour packages | 58,976 |
| - |
| - |
|
|
|
|
|
|
|
|
|
| Account payables | (18,946) |
| - |
| - |
|
|
|
|
|
|
|
|
Grand Power Express International Limited | Chiu Tong, Ricky is the connected person | Sales of air tickets and tour packages | (18,009) |
| - |
| - |
|
|
|
|
|
|
|
|
|
| Account receivables | 201 |
| - |
| - |
SHAREHOLDER LOANS
Loans from shareholders represent temporary advances from certain shareholders of the Company. The amounts are unsecured, and they bear interest at 10%, with no fixed terms of repayment. As of December 31, 2008, there are no shareholder loans outstanding, there is no accrued and unpaid interest on the outstanding loans.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Dominic K. F. Chan & Co ("DKFC") is the Company's independent registered public accountant.
Audit Fees
The aggregate fees billed by DKFC for professional services rendered for the audits of our annual financial statements in connection with statutory and regulatory filings were $25,706 for the nine months ended December 31, 2008 and $22,360 for the twelve months ended March 31, 2008.
Audit-Related Fees
The aggregate fees billed by DKFC for assurance and related services that are reasonably related to the performance of the audit or review of the Company's financial statements were $5,732 for the nine months ended December 31, 2008 and $3,849 for the twelve months ended March 31, 2008.
Tax Fees
The aggregate fees billed by DKFC for professional services for tax compliance, tax advice and tax planning were $0 for the nine months ended December 31, 2008 and $0 for the twelve months ended March 31, 2008.
All Other Fees
The aggregate fees billed by DKFC for other products and services were $0 for the nine months ended December 31, 2008 and $0 for the twelve months ended March 31, 2008.
58
Pre-approval Policy
We do not currently have a separate audit committee. The services described above were approved by our Board of Directors, which serves as our audit committee.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Index to Exhibits
Exhibit
Description
*3.1
Certificate of Incorporation
*3.2
Amended and Restated Certificate of Incorporation
*3.3
By-laws
*4.0
Stock Certificate
14
Code of Ethics
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 Annual Report on Form 10-K for the year ended December 31, 2008.
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 Annual Report on Form 10-K for the year ended December 31, 2008.
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.
______________________________________
*
Filed as an exhibit to the Company's registration statement on Form SB-2, as filed with the Securities and Exchange Commission on June 14, 2006, and incorporated herein by this reference.
59
SIGNATURES
In accordance with 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.
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| BAOSHINN CORPORATION | ||
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Dated: March 30, 2009 | By: | /s/ Sean Webster | |
| Name: | Sean Webster | |
| Title: | President | |
In accordance with the 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.
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| Date |
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/s/ Sean Webster |
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| President/CFO/Director |
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| March 30, 2009 |
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Sean Webster |
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/s/ Benny Kan |
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| CEO/Director |
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| March 30, 2009 |
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Benny Kan |
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/s/ Mike Lam |
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| Secretary/Director |
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| March 30, 2009 |
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Mike Lam |
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/s/ Ricky Chiu |
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| Director |
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| March 30, 2009 |
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Ricky Chiu |
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