Attached files

file filename
EX-31.1 - Winland Ocean Shipping Corpv192805_ex31-1.htm
EX-32.2 - Winland Ocean Shipping Corpv192805_ex32-2.htm
EX-32.1 - Winland Ocean Shipping Corpv192805_ex32-1.htm
EX-31.2 - Winland Ocean Shipping Corpv192805_ex31-2.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 

FORM 10-Q

   
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2010
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from ______to______.

WINLAND ONLINE SHIPPING HOLDINGS CORPORATION
 (Exact name of registrant as specified in Charter)
 
TEXAS
 
333-142908
 
 20-5933927
(State or other jurisdiction of
incorporation or organization)
 
(Commission File No.)
 
(IRS Employee Identification No.)

Rm 703, 7/F, Bonham Trade Centre, 50 Bonham Strand, Sheung Wan, Hong Kong, China

(Address of Principal Executive Offices)

 
00852-28549088
(Issuer Telephone number)
 

 (Former Name or Former Address if Changed Since Last Report)

Check whether the issuer (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 issuer was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days. Yes o     Nox

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company filer.  See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):
 
Large Accelerated Filer o
Accelerated Filer o
Non-Accelerated Filer x
Smaller Reporting Company o

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

State the number of shares outstanding of each of the issuer’s classes of common equity, as of July 26, 2010: 130,000,000 shares of common stock.

 
 

 

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION
 
       
 
ITEM 1.
FINANCIAL STATEMENTS
  3
       
 
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  4
       
 
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  17
       
 
ITEM 4.
CONTROLS AND PROCEDURES
  17
   
PART II OTHER INFORMATION
 
       
 
ITEM 1.
LEGAL PROCEEDINGS
  18
       
 
ITEM 1A.
RISK FACTORS
  18
       
 
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  31
       
 
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
  31
       
 
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
  31
       
 
ITEM 5.
OTHER INFORMATION
  31
       
 
ITEM 6.
EXHIBITS
  32
   
SIGNATURES
  37
 
 
- 2 -

 
 
PART I
FINANCIAL INFORMATION
 
ITEM I. FINANCIAL STATEMENTS
 
 
WINLAND ONLINE SHIPPING HOLDINGS CORPORATION
AND SUBSIDIARIES

FINANCIAL STATEMENTS
TABLE OF CONTENTS

CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2010 (UNAUDITED) AND DECEMBER 31, 2009
F-2
   
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009 (UNAUDITED)
F-4
   
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009 (UNAUDITED)
F-5
   
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009 (UNAUDITED)
F-7
 
 
 
F-1

 
 
WINLAND ONLINE SHIPPING HOLDINGS CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

   
June 30, 2010
   
December 31, 2009
 
   
(Unaudited)
       
CURRENT ASSETS
           
Cash and cash equivalents
  $ 4,511,484     $ 3,530,724  
Accounts receivable
    3,792,758       1,881,584  
Inventories
    2,285,664       1,839,146  
Prepayments
    1,880,545       688,117  
Other receivables and other assets
    412,162       683,010  
Deferred tax assets
    -       1,538  
Due from related parties
    2,471,163       1,113,643  
Total current assets
    15,353,776       9,737,762  
                 
Vessels, net
    41,095,832       42,597,403  
Vessels under construction
    20,498,163       -  
Fixed assets, net
    168,750       151,041  
Deferred dry dock fees, net
    8,838,098       9,311,647  
Other intangible assets
    3,656       3,657  
Deferred tax assets
    33       -  
Total long-term assets
    70,604,532       52,063,748  
                 
TOTAL ASSETS
  $ 85,958,308     $ 61,801,510  

See accompanying notes to condensed consolidated financial statements.

 
F-2

 

WINLAND ONLINE SHIPPING HOLDINGS CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

LIABILITIES AND SHAREHOLDER’S EQUITY

   
June 30, 2010
   
December 31, 2009
 
   
(Unaudited)
       
CURRENT LIABILITIES
           
Accounts payable
  $ 7,833,784     $ 6,893,862  
Short-term bank loan
    1,170,070       1,170,070  
Current portion of long-term loans
    4,626,448       4,128,908  
Current portion of long-term notes payable, net of discount of $644,593 and
$693,012 at June 30, 2010 and December 31, 2009, respectively
    1,542,812       3,326,132  
Advances from customers
    2,548,043       793,334  
Payroll payable
    839,765       903,964  
Due to related parties
    302,971       20,907  
Payable to contractor
    1,850,000       -  
Taxes payable
    5,802       51,250  
Deferred revenue
    157,307       159,688  
Deferred tax liabilities
    3,285       -  
Other current liabilities and accrued liabilities
    2,155,711       2,375,613  
Total current liabilities
    23,035,998       19,823,728  
                 
LONG-TERM LIABILITIES
               
Long-term loans
    15,597,521       15,359,535  
Long-term notes payable, net of discount of $1,097,708 and $1,407,170
at June 30, 2010 and December 31, 2009, respectively
    18,608,284       2,541,441  
Deferred tax liabilities
    -       1,150  
Total long-term liabilities
    34,205,805       17,902,126  
                 
TOTAL LIABILITIES
    57,241,803       37,725,854  
                 
COMMITMENTS AND CONTINGENCIES
               
                 
SHAREHOLDERS’ EQUITY
               
Preferred stock, $0.001 per share;  20,000,000 shares authorized; 0 share issued and outstanding
    -       -  
Common stock, $0.001 per share; 200,000,000 shares authorized, 130,000,000 shares issued and outstanding
    130,000       130,000  
Additional paid-in capital
    3,322,966       3,322,966  
Accumulated other comprehensive income
    735,844       716,805  
Retained earnings
    24,527,695       19,905,885  
Total Shareholders’ Equity
    28,716,505       24,075,656  
                 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
  $ 85,958,308     $ 61,801,510  
 
See accompanying notes to condensed consolidated financial statements.
 
 
F-3

 

 
WINLAND ONLINE SHIPPING HOLDINGS CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
 INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
 
   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2010
   
2009
   
2010
   
2009
 
                         
REVENUES
  $ 21,295,692     $ 11,936,089     $ 35,984,254     $ 24,870,034  
                                 
COSTS AND EXPENSES
                               
Vessel operating costs
    14,406,777       9,843,113       24,027,661       21,543,075  
Service costs
    966,800       714,473       1,541,422       1,982,960  
Depreciation and amortization
    1,710,222       1,794,742       3,417,318       3,800,278  
General and administrative expenses
    809,774       634,857       1,489,608       1,345,055  
Selling expenses
    81,120       72,048       181,334       164,158  
TOTAL COSTS AND EXPENSES
    17,974,693       13,059,233       30,657,343       28,835,526  
                                 
INCOME (LOSS) FROM OPERATIONS
    3,320,999       (1,123,144 )     5,326,911       (3,965,492 )
                                 
OTHER (EXPENSES) INCOME
                               
                                 
Interest expense, net
    (336,148 )     (43,478 )     (679,136 )     (91,726 )
Other income (expense), net
    1,748       92,433       (8,942 )     (92,509 )
                                 
INCOME (LOSS) BEFORE INCOME TAXES
    2,986,599       (1,074,189 )     4,638,833       (4,149,727 )
                                 
INCOME TAX EXPENSE
    (9,069 )     (5,234 )     (17,023 )     (6,553 )
                                 
NET INCOME (LOSS)
    2,977,530       (1,079,423 )     4,621,810       (4,156,280 )
                                 
OTHER COMPREHENSIVE INCOME
                               
                                 
Foreign currency translation gain (loss)
    17,943       492       19,039       (45,497 )
                                 
COMPREHENSIVE INCOME (LOSS)
  $ 2,995,473     $ (1,078,931 )   $ 4,640,849     $ (4,201,777 )
                                 
WEIGHTED AVERAGE SHARES OUTSTANDING, BASIC AND DILUTED
    130,000,000       130,000,000       130,000,000       130,000,000  
                                 
NET INCOME (LOSS) PER SHARE, BASIC AND DILUTED
  $ 0.02     $ (0.01 )   $ 0.04     $ (0.03 )

 
See accompanying notes to condensed consolidated financial statements.
 
 
F-4

 
 
WINLAND ONLINE SHIPPING HOLDINGS CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
   
Six Months Ended June 30,
 
   
2010
   
2009
 
             
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net income (loss)
  $ 4,621,810     $ (4,156,280 )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
               
Depreciation
    1,549,214       1,670,419  
Amortization of deferred dry dock fees
    1,868,104       2,129,859  
Amortization of  long-term note payable discount
    357,881       7,876  
Deferred taxes
    3,640       5,582  
Loss on disposal of fixed assets
    (5,520 )     -  
                 
Changes in operating assets and liabilities:
               
                 
(Increase) Decrease In:
               
Accounts receivable
    (1,911,174 )     (297,286 )
Inventories
    (446,518 )     665,314  
Prepayments
    (1,192,428 )     (35,443 )
Other receivables and other assets
    270,995       (760,170 )
Deferred dry dock fees
    (1,394,555 )     (1,661,917 )
                 
Increase (Decrease) In:
               
Accounts payable
    939,922       768,848  
Advances from customers
    1,754,709       236,903  
Payroll payable
    (64,199 )     -  
Taxes payable
    (45,448 )     (9,707 )
Deferred revenue
    (2,382 )     23,022  
Other current liabilities and accrued liabilities
    (219,902 )     140,317  
Net cash provided by (used in) operating activities
    6,084,149       (1,272,663 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Purchases of fixed assets
    (59,832 )     (513 )
Advances for vessels under construction
    (18,648,163 )     -  
Deposit for vessel
    -       (2,070,000 )
Net cash used in investing activities
    (18,707,995 )     (2,070,513 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Proceeds from/repayments of long-term loans
    735,526       (1,405,836 )
Proceeds from/repayments of long-term notes payable
    13,925,643       (191,209 )
Repayments to related parties
    (1,075,602 )     (1,916,029 )
Advances from related parties
    -       1,118,318  
Net cash provided by (used in) financing activities
    13,585,567       (2,394,756 )
 
See accompanying notes to condensed consolidated financial statements.
 
 
F-5

 

 
WINLAND ONLINE SHIPPING HOLDINGS CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

   
Six Months Ended June 30,
 
   
2010
   
2009
 
             
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    961,721       (5,737,932 )
Effect of exchange rate changes on cash
    19,039       (45,762 )
Cash and cash equivalents at beginning of period
    3,530,724       8,233,588  
                 
CASH AND CASH EQUIVALENTS AT END OF PERIOD
  $ 4,511,484     $ 2,449,894  
                 
SUPPLEMENTARY CASH FLOW INFORMATION:
               
Interest paid
  $ 293,768     $ 91,726  
Income taxes paid
  $ 35,526     $ 7,420  

 
See accompanying notes to condensed consolidated financial statements.
 
 
F-6

 
 
WINLAND ONLINE SHIPPING HOLDINGS CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(UNAUDITED)
 
1.   ORGANIZATION AND PRINCIPAL ACTIVITIES

Winland Online Shipping Holdings Co. was incorporated under the laws of Texas on November 17, 2006. On September 23, 2008, Trip Tech, Inc. changed its name to Winland Online Shipping Holdings Corporation (“WLOL”).

On August 12, 2008, Trip Tech, Inc. (“Trip Tech”) entered into a share exchange agreement with SkyAce Group Limited (“SkyAce”) and Pioneer Creation Holdings Limited (“PCH”). PCH is the sole shareholder of SkyAce. As a result of the share exchange, Trip Tech acquired all of the issued and outstanding securities of SkyAce from PCH in exchange for 76,925,000 newly-issued shares of Trip Tech’s common stock, par value $0.001 per share and 1,000,000 shares of Series A Preferred Stock, which such Preferred Shares would be converted into 30,000,000 shares of Common upon Trip Tech amending its Articles of Incorporation to sufficiently increase the number of authorized shares of Common Stock in order to effect such issuance. SkyAce became a wholly-owned subsidiary of WLOL. At the time of the merger, WLOL had 23,075,000 shares of common stock. On September 23, 2008, the authorized shares were increased to 200,000,000 shares. On Octobers 23, 2008, 1,000,000 shares of preferred stock, par value of $0.001 were converted into 30,000,000 shares of common stock. As a result, the total outstanding shares of common stock increased to 130,000,000, and PCH owned 82.25% of the voting capital stock of WLOL.

The exchange transaction was accounted for as a reverse acquisition. The acquisition was accounted for as the recapitalization of SkyAce. Accordingly, the condensed consolidated and combined statements of income include the results of operations of SkyAce from January 1, 2008, and the results of operations of WLOL from the acquisition date through June 30, 2010.

WLOL and subsidiaries (the “Company”) is mainly engaged in a comprehensive range of online and off-line international shipping services such as dry bulk shipping, chartering, shipping agency, and international logistics.

2.    LIQUIDITY

The Company had a working capital deficit of $7,682,222 as of June 30, 2010. As of June 30, 2010, the Company has attained several preliminary shipping contracts for the two new vessels which are expected to be delivered in December 2010 and March 2011, respectively (See Note 5). To improve liquidity, the Company obtained an extension of the due date of two notes payable to related parties amounting to $2,961,739 to July 19, 2012. See Note 11. Also, the Company obtained commitments from certain shareholders and related parties to provide working capital to the Company, if needed, in the form of notes payable or personal loans.

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)  Basis of Presentation

The unaudited condensed consolidated financial statements of Winland Online Shipping Holdings Corporation have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and pursuant to the requirements for reporting on Form 10-Q, Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. However, the information included in these interim financial statements reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for the fair presentation of the consolidated financial position and the consolidated results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full year. The condensed consolidated balance sheet information as of December 31, 2009 was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K. These interim financial statements should be read in conjunction with that report.

 
F-7

 
 
WINLAND ONLINE SHIPPING HOLDINGS CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(UNAUDITED)
  
3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 (b)  Principles of Consolidation

The condensed consolidated financial statements include the accounts of WLOL and its subsidiaries and variable interest entities (“VIEs”) (the “Company”) as follows:

I. Subsidiaries and Holding Companies:

a)
SkyAce is wholly-owned subsidiary of WLOL and incorporated under the law of British Virgin islands (“BVI”).

b)
Plentimillion Group Limited (“PGL”) is a wholly-owned subsidiary of SkyAce and incorporated in BVI.

c)
Best Summit Enterprise Limited (“BSL”) is a wholly-owned subsidiary of SkyAce and incorporated in BVI.

d)
Hong Kong Wallis Development Limited (“Wallis”) is registered in Hong Kong and is a wholly-owned subsidiary of BSL.

e)
Beijing Huate Xingye Technology Limited (“Huate”) was registered in the People’s Republic of China (“PRC”) on March 18, 2008 and is a wholly-owned subsidiary of Wallis.

II. Subsidiaries of PGL - Businesses in transportation and chartering:

f)
Winland Shipping Co., Limited, is registered in Hong Kong.

g)
Win Star Shipping Co., Limited, is incorporated and registered in St. Vincent and the Grenadines (“S.V.G.”).

h)
Bodar Shipping Co., Limited, is incorporated and registered in S.V.G.

i)
Winland Dalian Shipping S.A. is incorporated in Panama and registered in Hong Kong,

j)
Treasure Way Shipping Limited is incorporated and registered in Hong Kong.

k)
Win Eagle Shipping Co., Limited, is incorporated and registered in Valletta, Malta.

l)
Win Ever Shipping Co., Limited, is incorporated and registered in Valletta, Malta.

m)
Win Bright Shipping Co., Limited, is incorporated and registered in Valletta, Malta.

n)
Kinki International Industrial Limited is registered in Hong Kong, managing chartering business of vessels.

o)
Bestline Shipping Limited is registered in Hong Kong, managing chartering business of vessels.

p)
Lancrusier Development Co., Limited is registered in Hong Kong, management and accounting of the above companies.

q)
Win Glory S.A. is incorporated in Panama, registered in Hong Kong.

r)
Win Grace Shipping Co., Limited is incorporated and registered in Malta.

s)
Win Hope Shipping Co., Limited is incorporated and registered in Malta.
 
 
F-8

 
 
WINLAND ONLINE SHIPPING HOLDINGS CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(UNAUDITED)
 
3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(b)  Principles of Consolidation (Continued)

II. Subsidiaries of PGL - Businesses in transportation and chartering (Continued)
 
t)
Win Moony Shipping Co., Limited is incorporated and registered in Malta.

u)
Bodar Shipping S.A. is incorporated and registered in Panama.

v)
Win Moony Shipping S.A. is incorporated and registered in Panama.

w)
Bao Shun Shipping S.A. is incorporated and registered in Panama.

x)
Winland International Shipping Co., Limited is incorporated and registered in Hong Kong.

y)
Fon Tai Shipping Co., Limited is incorporated and registered in Hong Kong.
   
z)
Won Lee Shipping Co., Limited is incorporated and registered in Hong Kong.

III. VIEs - Businesses in Shipping Agency, Freight Forwarding and Online Services:

To comply with the People’s Republic of China (“PRC”) laws and regulations, the Company provides substantially all its shipping agency and freight forwarding services and online services in China via its VIEs. These VIEs are wholly-owned by certain related parties or directors of the Company.

The following is a summary of the VIEs of the Company:

aa)
Dalian Winland International Shipping Agency Co. Ltd. (“DWIS”) is incorporated under the laws of the PRC. The principal activity of DWIS is shipping agency services.

bb) 
Dalian Winland International Logistic Co. Ltd. (“DWIL”) is incorporated under the laws of PRC. The principal activity of DWIL is freight forwarding services.

cc)
Dalian Shipping Online Network Co. Ltd. (“DSON” or “Shipping Online”) is incorporated under the laws of PRC. The principal activities of DSON are providing online service for the members.

 
F-9

 
WINLAND ONLINE SHIPPING HOLDINGS CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(UNAUDITED)

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(b)  Principles of Consolidation (Continued)

On March 31, 2008, the Company entered into exclusive technical service agreements with DWIS, DWIL and DSON under which the Company provides technical and other services to DWIS, DWIL and DSON in exchange for substantially all net income of DWIS, DWIL and DSON. All voting rights of DWIS, DWIL and DSON are assigned to the Company, and the Company has the right to appoint all directors and senior management personnel of DWIS, DWIL and DSON. In addition, shareholders of DWIS, DWIL and DSON have pledged their equity interests in DWIS, DWIL and DSON as collateral to the Company for the non-payment of the fees for technical and other services due to the Company.

The Company applied the provision of ASC 810 (formerly SFAS No. 46R, Consolidation of Variable Interest Entities ), a variable interest entity (“VIE”) to be consolidated by a company if that company is subject to a majority of the risk of loss for the VIEs or is entitled to receive a majority of  the VIEs’ residual returns. As a result, DWIS, DWIL and DSON became the Company’s VIEs since January 1, 2008.

Inter-company balances and transactions have been eliminated in consolidation.

(c)  Concentrations

The Company’s major customers who accounted for the following percentages of total revenue and accounts receivable are as follows:
 
   
Sales
   
Accounts Receivable
 
Major Customers
 
For The Six
Months Ended
June 302010
   
For The Six
Months Ended
June 30, 2009
   
June 30,
2010
   
December 31,
2009
 
   
(Unaudited)
   
(Unaudited)
   
(Unaudited)
       
                         
Universe Co. Ltd. Taibei
    -       9.80 %     -       -  
Marubeni Tetsugen Co., Ltd
    -       10.29 %     -       -  

The Company’s major oil suppliers who accounted for the following percentages of total oil purchases and total accounts payable are as follows:
 
   
Oil Purchases
   
Accounts Payable
 
Major Suppliers
 
For The Six
Months Ended
June 302010
   
For The Six
Months Ended
June 302009
   
June 30,
2010
   
December 31,
2009
 
   
(Unaudited)
   
(Unaudited)
   
(Unaudited)
       
                         
Dan-Bunkering Ltd.
    27.24 %     3.44 %     0.93 %     7.31 %
Raffles Bunkering Pte Ltd.
    13.63 %     16.00 %     0.38 %     -  
World Fuel Services
    12.36 %     -       3.59 %     -  
Singapore Petroleum Company (Hong Kong) Limited
    -       10.32 %     -       4.55 %
 
 
F-10

 

WINLAND ONLINE SHIPPING HOLDINGS CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(UNAUDITED)
 
3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(d)  Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made. Actual results could differ materially from those estimates.

(e) 
Fair Value of Financial Instruments
 
Fair Value of Financial Instruments - ASC 820-10 (formerly SFAS 157) establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market.
 
These tiers include:
 
(I) 
Level 1—defined as observable inputs such as quoted prices in active markets;
(II)
Level 2—defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and
(III)
Level 3—defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

 
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, and short-term bank loan approximate their fair values due to the short-term nature of these instruments.

The carrying value of long-term loans and long-term notes payable approximate their fair value due to the variable interest rates nature thereof. The fair values are estimated based on the current rates offered to the Company for debt of similar terms and maturities.

(f) Vessels Under Construction

Vessels under construction are stated at cost. They are not depreciated until the vessels are completed and ready for use. Interest and finance costs relating to vessels, barges and other equipment under construction are capitalized to properly reflect the cost of assets acquired. The capitalized interest as part of vessels under construction was $109,856 for the six months ended June 30, 2010.

(g) Revenue Recognition

Revenue is recognized based on the following four criteria:

(I) 
The amount of revenue can be measured reliably;

(II) 
It is probable that the economic benefits will flow to the Company;

(III) 
The stage of completion at the balance sheet date can be measured reliably;

(IV) 
The costs incurred, or to be incurred can be measured reliably.
 
 
F-11

 
 
WINLAND ONLINE SHIPPING HOLDINGS CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(UNAUDITED)
 
3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(g) Revenue Recognition (Continued)

For dry bulk shipping service, the allocation of revenue between reporting periods is based on relative transit time in each reporting period with expenses recognized as incurred.

For chartering brokerage services, sales are recognized when the ship leaves port.

For shipping agency and freight forwarding services, sales are recognized when the ship leaves port.

For online services, sales are recognized according to the stage of completion in accordance with the service period defined in executed contracts.

 (h) Income Tax

Deferred tax assets and liabilities are recognized for the future tax consequence attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statement of income in the period that includes the enactment date. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain. See Note 13.

 (i) Earnings (Loss) Per Share

Basic earnings (loss) per share are computed by dividing income (loss) available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The Company does not have dilutive securities for the three and six months ended June 30, 2010 and 2009.

(j) Foreign Currency Translation

Assets and liabilities of foreign subsidiaries are translated into United States dollars at currency exchange rates in effect at period-end and revenues and expenses are translated at average exchange rates in effect for the period. Gains and losses resulting from foreign currency transactions are included in results of operations. Gains and losses resulting from translation of foreign subsidiaries balance sheets are included as a separate component of shareholders’ equity.
 
   
June 30, 2010
   
December 31, 2009
   
June 30, 2009
 
Period end RMB: US$ exchange rate
    6.8086       6.8372       -  
Average period RMB: US$ exchange rate
    6.8229       -       6.8495  

 
(k) Comprehensive Income (Loss)

Comprehensive income (loss) is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive income (loss) should be reported in a financial statement that is presented with the same prominence as other financial statements. The Company’s only current component of comprehensive income (loss) is the foreign currency translation adjustment.
 
 
F-12

 
WINLAND ONLINE SHIPPING HOLDINGS CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(UNAUDITED)
 
3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(l) Reporting Segments

Accounting standards require public business enterprises to report information about each of their operating business segments that exceed certain quantitative threshold or meet certain other reporting requirements. Operating business segments have been defined as a component of an enterprise about which separate financial information is available and is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company has determined that there are three reportable segments: (1) Dry bulk shipping, (2) Chartering brokerage, and (3) Other activities segment.

Dry Bulk Shipping Service - Dry bulk shipping service operates a fleet of thirteen vessels that provides marine shipping services for dry and liquid bulk cargo shipping. The segment contributed 62% and 49% of combined operating revenues for the six months ended June 30, 2010 and 2009, respectively.

Chartering Brokerage Service - Chartering brokerage service provides ship chartering services for unrelated shipping companies and shippers. The segment contributed 32% and 47% of consolidated operating revenues for the six months ended June 30, 2010 and 2009, respectively.

Other activities - Other activities segment comprises shipping agency and freight forwarding services, and online services. Shipping agency and freight forwarding service provides transportation and logistic services to shippers in the PRC. Online services provide internet services for members. These operating segments were not separately reported as they do not meet any of the quantitative thresholds under ASC 280-10 (formerly SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information). Other activities segment contributed 6% and 4% of consolidated operating revenues for the six months ended June 30, 2010 and 2009, respectively. Also see Note 14.

(m) Recent Accounting Pronouncements

Effective January 1, 2009, the Company adopted ASC 815-10 (formerly SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities ), which amends SFAS No. 133 and expands disclosures to include information about the fair value of derivatives, related credit risks and a company's strategies and objectives for using derivatives. The adoption of ASC 815-10 did not have a material effect on the Company’s condensed consolidated financial statements as of June 30, 2010.

Effective January 1, 2009, the Company adopted ASC 815-40 (formerly Emerging Issues Task Force (“EITF”) Issue No. 07-05, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock (“EITF 07-05”). ASC 815-40 addresses the determination of whether an instrument (or an embedded feature) is indexed to an entity's own stock, which is the first part of the scope exception in paragraph 11(a) of FASB SFAS No. 133 , Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”). If an instrument (or an embedded feature) that has the characteristics of a derivative instrument under paragraphs 6–9 of SFAS 133 is indexed to an entity's own stock, it is still necessary to evaluate whether it is classified in stockholders' equity (or would be classified in stockholders' equity if it were a freestanding instrument). Other applicable authoritative accounting literature, including Issues EITF 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company Own Stock, and EITF 05-2, The Meaning of “Conventional Debt Instrument” in Issue No. 00-19, provides guidance for determining whether an instrument (or an embedded feature) is classified in stockholders' equity (or would be classified in stockholders' equity if it were a freestanding instrument). ASC 815-40 does not address that second part of the scope exception in paragraph 11(a) of SFAS 133. The adoption of ASC 815-40 did not have a material effect on the Company’s condensed consolidated financial statements as of June 30, 2010.

 
F-13

 
 
WINLAND ONLINE SHIPPING HOLDINGS CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(UNAUDITED)
  
3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(m) Recent Accounting Pronouncements (Continued)

On April 9, 2009, the FASB also approved ASC 825-10 (formerly FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments) to require disclosures about fair value of financial instruments in interim period financial statements of publicly traded companies and in summarized financial information required by APB Opinion No. 28, Interim Financial Reporting . We are required to adopt ASC 825-10 for our interim and annual reporting periods ending after June 15, 2009. ASC 825-10 does not require disclosures for periods presented for comparative purposes at initial adoption. ASC 825-10 requires comparative disclosures only for periods ending after initial adoption. The adoption of ASC 825-10 did not have a material effect on the Company’s condensed consolidated financial statements as of June 30, 2010.

In April 2009, the FASB updated guidance related to fair-value measurements to clarify the guidance related to measuring fair-value in inactive markets, to modify the recognition and measurement of other-than-temporary impairments of debt securities, and to require public companies to disclose the fair values of financial instruments in interim periods. This updated guidance became effective for the Company beginning June 1, 2009. The adoption of this guidance did not have a material effect on the Company’s condensed consolidated financial statements as of June 30, 2010.

In June 2009, the FASB issued ASC 810-10 (formerly SFAS No. 167) Amendments to FASB Interpretation No. 46(R), which require an enterprise to perform an analysis and ongoing reassessments to determine whether the enterprises variable interest or interests give it a controlling financial interest in a variable interest entity and amends certain guidance for determining whether an entity is a variable interest entity. It also requires enhanced disclosures that will provide users of financial statements with more transparent information about an enterprises involvement in a variable interest entity. ASC 810-10 is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009 and for all interim reporting periods after that. The adoption of ASC 810-10 did not have a material effect on the Company’s condensed consolidated financial statements as of June 30, 2010.

In January 2010, the FASB issued guidance to amend the disclosure requirements related to recurring and nonrecurring fair value measurements. The guidance requires disclosure of transfers of assets and liabilities between Level 1 and Level 2 of the fair value measurement hierarchy, including the reasons and the timing of the transfers and information on purchases, sales, issuance, and settlements on a gross basis in the reconciliation of the assets and liabilities measured under Level 3 of the fair value measurement hierarchy. This guidance is effective for the Company beginning March 1, 2010. The adoption of this guidance did not have a material effect on the Company’s condensed consolidated financial statements as of June 30, 2010.
 
 
F-14

 
 
WINLAND ONLINE SHIPPING HOLDINGS CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(UNAUDITED)
 
4.    VESSELS

The Company’s current fleet consists of thirteen vessels as bulk carriers as of June 30, 2010 and December 31, 2009. Among the thirteen vessels, two of them denoted (a) were acquired by syndicated loans and are still under pledge, also see Note 10; nine vessels denoted (b) were acquired through capital leases; a vessel denoted (c) was acquired through long-term notes payable from related parties, also see Note 11; and one remaining vessel denoted (d) was acquired through a long-term loan and a long-term note payable, also see Notes 10 and 11.

The vessels of the Company consist of the following:

       
June 30, 2010
   
December 31, 2009
 
       
(Unaudited)
       
At cost:
               
Win Hope
(b)
    $ 2,679,285     $ 2,679,285  
Win Ever
(b)
      1,737,966       1,737,966  
Win Bright
(b)
      1,739,258       1,739,258  
Win Eagle
(b)
      3,560,852       3,560,852  
Win Glory
(b)
      2,503,697       2,503,697  
Win Grace
(b)
      3,677,861       3,677,861  
Win Moony
(b)
      3,682,178       3,682,178  
Win Star
(b)
      3,336,600       3,336,600  
Winland Dalian
(a)
      18,243,139       18,243,139  
Win Honey
(a)
      4,500,000       4,500,000  
Bodar
(b)
      4,985,441       4,985,441  
Andong
(c)
      2,974,180       2,961,739  
Baoshun
(d)
      20,881,125       20,881,125  
        $ 74,501,582     $ 74,489,141  

       
June 30, 2010
   
December 31, 2009
 
       
(Unaudited)
       
Less:  Accumulated depreciation
               
Win Hope
(b)
    $ 2,130,031     $ 2,009,463  
Win Ever
(b)
      1,564,169       1,564,169  
Win Bright
(b)
      1,565,332       1,565,332  
Win Eagle
(b)
      3,204,767       3,204,767  
Win Glory
(b)
      2,253,328       2,119,201  
Win Grace
(b)
      3,310,075       3,310,075  
Win Moony
(b)
      3,313,961       3,313,961  
Win Star
(b)
      3,002,940       3,002,940  
Winland Dalian
(a)
      5,290,510       4,743,216  
Win Honey
(a)
      1,649,531       1,522,969  
Bodar
(b)
      4,486,897       4,486,897  
Andong
(c)
      879,133       797,056  
Baoshun
(d)
      755,076       251,692  
        $ 33,405,750     $ 31,891,738  
Vessels, net
      $ 41,095,832     $ 42,597,403  

Vessel depreciation expense for the six months ended June 30, 2010 and 2009 was $1,510,499 and $1,622,934 respectively.
 
The Company pledged the following vessels as collateral against long-term loans. Also see Note 10.

 
F-15

 
 
WINLAND ONLINE SHIPPING HOLDINGS CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(UNAUDITED)
 
4.    VESSELS (CONTINUED)

   
June 30, 2010
   
December 31, 2009
 
   
(Unaudited)
       
Net Book Value
           
Winland Dalian
  $ 12,952,629     $ 13,499,923  
Win Honey
    2,850,469       2,977,031  
Baoshun
    20,126,049       20,629,433  
Total
  $ 35,929,147     $ 37,106,387  

There are four kinds of marine insurance for the Company which insures the vessels and shipping business as follows:

Insurance
 
Coverage
   
Insurance Premium
For The Six Months Ended June 30,
 
         
2010
   
2009
 
         
(Unaudited)
   
(Unaudited)
 
                   
Hull insurance
  70,180,000     $ 534,042     $ 560,100  
Protection & indemnity insurance
    98,400,000       546,078       503,576  
Freight demurrage and defense insurance
    65,900,000       53,162       49,925  
Delay insurance
    500,000       47,494       40,055  
Others
                    6,573  
Total
          $ 1,180,776     $ 1,160,229  

Insurance costs are amortized on a straight-line basis over the beneficial periods and are recorded in vessel expenses in the condensed consolidated statements of income (loss) and comprehensive income (loss) for the three and six months ended June 30, 2010 and 2009. The premium expenses were $1,180,776 and $1,160,229 for the six months ended June 30, 2010 and 2009, respectively. The prepayment for insurance was $0 and $26,950 as of June 30, 2010 and December 31, 2009, respectively.

5.    VESSELS UNDER CONSTRUCTION

The Company entered an agreement on May 20, 2010 to transfer two Novation Agreements dated August 15, 2009 with reference made to two Ship Building Contracts previously executed on December 6, 2006 between a third party and the ship builder for the construction of vessels HT073 and HT074. The contract amount of $29,950,000 for each vessel included the ship building contract price of $28,500,000 due to the ship yard and a contract transfer fee of $1,450,000 due to Rich Forth Investment Limited (“Rich”), a related party which is controlled by the relative of the Chairman of the Company. The contract transfer fees reimbursed Rich for costs incurred in connection with building the ships, including a finder’s fee and interest that Rich paid to third parties for amounts borrowed to pay the finder’s fee. The amounts shown in the accompanying condensed consolidated balance sheets include milestone installments related to the ship building contract term, contract transfer fees, other direct costs incurred during the construction periods, and capitalized interest, all of which are capitalized to properly reflect the cost of assets acquired and not depreciated until the vessels are completed and ready for use. Vessels under construction as of June 30, 2010 consist of the following (also see Notes 10, 11 and 12):

Vessel
Name
 
Expected
Delivery Date
 
Contract
Amount
   
Construction
Costs
   
Other
Direct Costs
   
Finder’s
Fees
   
Capitalized
Interest
   
Total
 
HT073
 
December 15, 2010
  $ 29,950,000     $ 8,550,000     $ 388,307     $ 1,425,000     $ 84,430     $ 10,447,737  
HT074
 
March 15, 2011
  $ 29,950,000     $ 8,550,000     $ -     $ 1,425,000     $ 75,426     $ 10,050,426  
Total
      $ 59,900,000     $ 17,100,000     $ 388,307     $ 2,850,000       159,856     $ 20,498,163  

 
F-16

 
 
WINLAND ONLINE SHIPPING HOLDINGS CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(UNAUDITED)

6.
FIXED ASSETS

Fixed assets consist of the following:

   
June 30, 2010
   
December 31, 2009
 
   
(Unaudited)
       
At cost:
           
Motor vehicles
  $ 286,591     $ 244,612  
Office equipment
    204,581       204,031  
Leasehold improvement
    182,434       181,671  
      673,606       630,314  
                 
Less:  Accumulated depreciation
               
Motor vehicles
    164,528       159,458  
Office equipment
    175,926       174,298  
Leasehold improvement
    164,402       145,517  
      504,856       479,273  
Fixed assets, net
  $ 168,750     $ 151,041  

Depreciation expense for the six months ended June 30, 2010 and 2009 was $38,715 and $47,485, respectively.

7.    DEFERRED DRY DOCK FEES

Deferred dry dock fees consist of the following:

   
June 30, 2010
   
December 31, 2009
 
   
(Unaudited)
       
Cost
  $ 19,331,801     $ 17,608,753  
Less: Accumulated amortization
    10,493,703       8,297,106  
Deferred dry dock fees, net
  $ 8,838,098     $ 9,311,647  

Amortization expense for the next five years and thereafter is as follows:

Period Ended June 30,
 
Amount
 
2011
  $ 3,078,512  
2012
    2,818,730  
2013
    1,763,265  
2014
    968,145  
2015
    209,446  
Total
  $ 8,838,098  

The roll-forward of the beginning and ending balance of deferred dry dock fees consist of the following:

   
June 30, 2010
   
December 31, 2009
 
   
(Unaudited)
       
Beginning balance
  $ 9,311,647     $ 11,034,686  
Addition of deferrals
    1,394,555       2,284,803  
Less: Amortization expense
    (1,868,104 )     (4,007,842 )
Deferred dry dock fees, net
  $ 8,838,098     $ 9,311,647  
 
 
F-17

 
 
WINLAND ONLINE SHIPPING HOLDINGS CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(UNAUDITED)
   
7.    DEFERRED DRY DOCK FEES (CONTINUED)

The Company’s vessels are required to be drydocked approximately every 60 months for major repairs and maintenance that cannot be performed while the vessels are operating. The Company defers the costs associated with the drydockings as they occur and amortizes these costs on a straight-line basis over the period between drydockings. Cost deferred as part of a vessel’s drydocking include actual costs incurred at the drydocking yard, cost of travel, lodging and subsistence of personnel sent to the drydocking site to supervise, and the cost of hiring a third party to oversee the drydocking. If the vessel is drydocked earlier than originally anticipated, any remaining deferred drydock costs that have not been amortized are expensed at the beginning of the next drydock. Amortization expense for drydocking for the six months ended June 30, 2010 and 2009 was $1,868,104 and $2,129,859, respectively. All other costs incurred during drydocking are expensed as incurred.

8.    DUE TO/FROM RELATED PARTIES

Due to/from related parties consist of the following:

(I)   Due From Related Parties 
     
June 30, 2010
   
December 31, 2009
 
       
(Unaudited)
       
                 
Winland Container Lines Ltd.
 
a)  
  $ 2,415,793     $ 1,097,384  
Dalian Winland Group Co., Ltd
 
b)
    53,500       16,113  
Winland Shipping Japan Co., Ltd
 
c)
    1,870       -  
Due from employees
 
d)
    -       146  
Total due from related parties
      $ 2,471,163     $ 1,113,643  

(II)   Due To Related Parties
     
June 30, 2010
   
December 31, 2009
 
       
(Unaudited)
       
                 
Dalian Winland Shipping Co., Ltd
 
e)  
    28,824       -  
Dalian Master Well Ship Management Co., Ltd
 
f)
    134,888       7,200  
Winland Shipping Japan Co., Ltd
 
c)
    -       13,707  
Rich Forth Investment Limited
 
g)
    139,259       -  
Total due to related parties
      $ 302,971     $ 20,907  

a)
Winland Container Lines Ltd. is controlled by the Chairman and Chief Executive Officer of the Company. The Company provided shipping agency and freight forwarding services to Winland Container Lines Ltd. For the six months ended June 30, 2010 and 2009, the Company recognized charter income for the vessel Winland Dalian of $153,507 and $0, respectively; the Company recognized service revenues of $962,039 and $634,397, respectively. For the six months ended June 30, 2010 and 2009, the Company paid $14,282,873 and $3,391,922 of expenses to related ports, and received $14,084,577 and $2,110,290 of payments from related ports on behalf of Winland Container Lines Ltd., respectively. The outstanding balances at June 30, 2010 and December 31, 2009 are interest-free, unsecured and they were subsequently settled.

 
F-18

 

WINLAND ONLINE SHIPPING HOLDINGS CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(UNAUDITED)
 
8.
DUE TO/FROM RELATED PARTIES (CONTINUED)

b)
Dalian Winland Group Co., Ltd (“DWIG”) is controlled by the Chairman and Chief Executive Officer of the Company. The Company paid $5,270,054 and $15,284,499 of expenses on behalf of DWIG for the six months ended June 30, 2010 and 2009, respectively.  The Company collected $5,187,211 and $16,300,352 on behalf of DWIG for the six months ended June 30, 2010 and 2009, respectively. For the six months ended June 30, 2010 and 2009, the Company recognized interest expense for long-term notes payable of $45,531 and $45,290, respectively. Also see Note 11. The outstanding balances at June 30, 2010 and December 31, 2009 are interest-free, unsecured and have no fixed repayment term. They were subsequently settled.

c)
Winland Shipping Japan Co., Ltd is controlled by the Chairman and Chief Executive Officer of the Company. The Company recognized agency service fees of $30,743 and $87,060 for the six months ended June 30, 2010 and 2009, respectively. The Company paid $74,463 and $209,843 on behalf of Winland Shipping Japan Co., Ltd, for the six months ended June 30, 2010 and 2009, respectively. The Company collected $28,261 and $152,863 on behalf of Winland Shipping Japan Co., Ltd, for the six months ended June 30, 2010 and 2009, respectively. The outstanding balances at June 30, 2010 and December 31, 2009 are interest-free, unsecured and have no fixed repayment term.

d)
Due from employees are interest-free, unsecured and have no fixed repayment terms. The amounts due from employees primarily represent advances to sales personnel for business and travel related expenses.

e)
Dalian Winland Shipping Co., Ltd (“DWSC”) is controlled by the Chairman and Chief Executive Officer of the Company. It operates as a vessel management company for the Company. It operated one and two vessels for the Company for the six months ended June 30, 2010 and 2009, respectively. The vessel management fees were $9,000 and $18,000 for the six months ended June 30, 2010 and 2009, respectively. The Company also recognized service revenue of $0 and $66,780 for the six months ended June 30, 2010 and 2009, respectively. For the six months ended June 30, 2010 and 2009, on behalf of DWSC, the Company paid $9,000 and $108,000, and received $0 and $93,910, respectively. The Company recognized interest expense for long-term notes payable of $28,824 and $28,671 for six months ended June 30, 2010 and 2009, respectively. See Note 11. The outstanding balance at June 30, 2010 is interest-free, unsecured and has no fixed repayment term.

f)
Dalian Master Well Ship Management Co., Ltd is controlled by the Chairman and Chief Executive Officer of the Company. It operates as a vessel management company for the Company. The vessel management fees for the six months ended June 30, 2010 and 2009 were $117,000 and $129,600, respectively. The Company paid $0 and $132,697 on behalf of Dalian Master Well Ship Management Co., Ltd, for the six months ended June 30, 2010 and 2009, respectively. The Company collected $10,688 and $64,390 on behalf of Dalian Master Well Ship Management Co., Ltd, for the six months ended June 30, 2010 and 2009, respectively. The outstanding balances at June 30, 2010 and December 31, 2009 are interest-free, unsecured, and have no fixed repayment term.

g)
Rich Forth Investment Limited is controlled by the relative of the Chairman of the Company. It operates as a vessel management company for the Company. The vessel management fee was $25,200 and $0 for the six months ended June 30, 2010 and 2009, respectively. The Company paid $5,792 and $0, and collected $86,995 and $0 for the six months ended June 30, 2010 and 2009, respectively. The Company recognized interest expense for long-term notes payable of $32,856 and $0 for six months ended June 30, 2010 and 2009, respectively. See Note 11. The outstanding balance at June 30, 2010 is interest-free, unsecured and has no fixed repayment term.
 
 
F-19

 

WINLAND ONLINE SHIPPING HOLDINGS CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(UNAUDITED)
 
9.    SHORT-TERM BANK LOAN

The Company obtained a short-term bank loan from Shanghai Pudong Development Bank for $1,170,070 on July 10, 2009. The loan principal was due on July 6, 2010. The interest payment was due quarterly at an annual interest rate of 5.31%. Interest expense was $31,479 for the six months ended June 30, 2010. The loan was guaranteed by the Chairman and CEO of the Company and paid on the due date.

10.   LONG-TERM LOANS

Long-term loans consist of the following:
   
June 30, 2010
   
December 31,
2009
 
   
(Unaudited)
       
Loans from Dialease Maritime S.A.:
           
Due on August 1, 2011, monthly interest payment is 1-month LIBOR plus 1.75% per annum, and the actual rate at June 30, 2010 is 2.17%, secured by the vessel Winland Dalian (also see Note 4), assignment of insurance of the vessel, and guaranteed by the Chairman of the Company. Principal is repaid every month in 72 equal installments from September 2005.
  $ 2,463,624     $ 3,519,456  
                 
Due on July 21, 2012, monthly interest payment is 1-month LIBOR plus 1.75% per annum, and the actual rate at June 30, 2010 is 2.17%, secured by the vessel Win Honey (also see Note 4), assignment of insurance of the vessel, and guaranteed by the Chairman of the Company. Principal is repaid every month in 72 equal installments from August 2006.
    1,458,302       1,808,306  
                 
Due on October 23, 2016 with interest at the 1-month LIBOR plus 2.30% per annum, and the actual rate at June 30, 2010 is 2.46%, monthly payment principal and interest is fixed at $109,773, initial payment on October 24, 2009, secured by the vessel Baoshun (also see Note 4).
    13,502,043       14,160,681  
 
               
Loan facility of $37,000,000 from China Merchants Bank Co., Ltd. :
               
Drawdown from the loan facilities due on September 21, 2012, with interest rate at the 3-month LIBOR plus 1.5% per annum, and the actual rate at June 30, 2010 is 1.92%. The principal payment is fixed at $466,667 quarterly for 6 quarters, started from June 21, 2011. The interest is accrued from June 29, 2010 and paid quarterly started from September 21, 2010 till the principal payoff. The loan is secured by the vessel HT074, and guaranteed by the Chairman and the CEO of the Company (also see Notes 5 and 16).
    2,800,000       -  
                 
Total long-term loans
    20,223,969       19,488,443  
 
               
Less: Current portion
    4,626,448       4,128,908  
 
               
Long-term portion
  $ 15,597,521     $ 15,359,535  

Interest expense for the six months ended June 30, 2010 and 2009 was $215,578 and $83,850, respectively.
 
 
F-20

 

WINLAND ONLINE SHIPPING HOLDINGS CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(UNAUDITED)
 
10.    LONG-TERM LOANS (CONTINUED)

The repayment schedule for the principal amount of long-term loans is as follows:

Period Ended June 30,
 
Amount
 
2011
  $ 4,626,448  
2012
    4,417,530  
2013
    1,629,776  
2014
    1,317,276  
2015
    1,317,276  
Thereafter
    6,915,663  
Total
  20,223,969  
 
 
F-21

 

WINLAND ONLINE SHIPPING HOLDINGS CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(UNAUDITED)
 
11.    LONG-TERM NOTES PAYABLE

Long-term notes payable consists of the following:
       
June 30, 2010
   
December 31, 2009
 
       
(Unaudited)
       
Notes payable to unrelated party:
               
Sea Carrier Shipping Co., Ltd., net of discount of $1,742,301 and $2,100,182 at June 30, 2010 and December 31, 2009, respectively, due September 25, 2014, fixed repayment of $2,897 per day, monthly payment due one month in advance.
 
a)
  $ 2,739,357     $ 2,905,834  
                     
Sea Carrier Shipping Co., Ltd., Due December 31, 2015, at an interest rate of 1% on unpaid principal balance per month, fixed monthly repayment for principal started at January 1, 2011, interest payment started at June 1, 2010.
 
b)
    3,850,000       -  
                     
Sea Carrier Shipping Co., Ltd., Due March 31, 2016, at an interest rate of 1% on unpaid principal balance per month, fixed monthly repayment for principal started at April 1, 2011, interest payment started at June 1, 2010.
 
c)
    3,850,000       -  
                     
Subtotal
        10,439,357       2,905,834  
                     
Notes payable to related companies:
                   
Dalian Winland Shipping Co., Ltd., due July 19, 2012, at an interest rate of 5% per annum
 
d)
    1,148,131       1,148,131  
Dalian Winland Group Co., Ltd., due July 19, 2012, at an interest rate of 5% per annum
 
e)
    1,813,608       1,813,608  
Rich Forth Investment Limited, due December 31, 2015, at an interest rate of 5.841% on unpaid principal balance per annum, fixed monthly repayment for principal started at January 1, 2011, interest payment started at June 1, 2010.
 
f)
    4,300,000       -  
Rich Forth Investment Limited, due March 31, 2016, at an interest rate of 5.841% on unpaid principal balance per annum, fixed monthly repayment for principal started at April 1, 2011, interest payment started at June 1, 2010.
 
g)
    2,450,000       -  
                     
Subtotal
        9,711,739       2,961,739  
                     
Total long-term notes payable
        20,151,096       5,867,573  
                     
Less: Current portion
        1,542,812       3,326,132  
                     
Long-term portion
      $ 18,608,284     $ 2,541,441  

The amortization of discount on note payable for the six months ended June 30, 2010 and 2009 was $357,881 and $7,876, respectively.

The long-term note denoted a) was used to purchase the vessel Baoshun (see Note 4). The long-term notes denoted b)  and f) were used to build the vessel HT073, c) and g) were used to build the vessel HT074 (see Note 5).
 
 
F-22

 

WINLAND ONLINE SHIPPING HOLDINGS CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(UNAUDITED)

11.    LONG-TERM NOTES PAYABLE (CONTINUED)

The long-term notes obtained from DWSC and DWIG, two related parties, denoted d) and e) were both used to purchase the vessel Andong. Also see Notes 4 and 8.

Interest expense for the six months ended June 30, 2010 and 2009 was $184,054 and $73,911, respectively.

The repayment schedule for long-term notes payable is as follows:

Period Ended June 30,
 
Amount
 
2011
  $ 1,542,812  
2012
    3,422,954  
2013
    6,532,587  
2014
    3,760,591  
2015
    4,892,152  
Total
  $ 20,151,096  

12.    COMMITMENTS

The Company leases office space under operating leases. Lease expense was $111,665 and $77,206 for the six months ended June 30, 2010 and 2009, respectively.

As of June 30, 2010, future minimum payments required under non-cancelable leases are:

Period Ended June 30,
 
Amount
 
2011
  $ 111,492  
2012
    13,541  
Total
  $ 125,033  

The Company chartered a vessel on May 9, 2010 from a third party with a chartering period of 5 months at $28,500 per day. As of June 30, 2010, chartering costs incurred were $1,510,500. The future chartering commitment is $2,878,500 for 101 days.

The Company entered an agreement on May 20, 2010 to transfer two Novation Agreements dated August 15, 2009 with reference made to two Ship Building Contracts previously executed on December 6, 2006 for the construction of two vessels. As of June 30, 2010, the future payments required for the balance of the Ship Building Contracts are as follows:

Period Ended June 30,
 
HT073
   
HT074
   
Amount
 
2011
  $ 17,100,000     $ 17,100,000     $ 34,200,000  
2012
    950,000       950,000       1,900,000  
2013
    950,000       950,000       1,900,000  
2014
    950,000       950,000       1,900,000  
Total
  $ 19,950,000     $ 19,950,000     $ 39,900,000  

The Company will substantially pay for the balance of the Ship Building Contracts with the $37,000,000 loan facility. See Note 10.

 
F-23

 

WINLAND ONLINE SHIPPING HOLDINGS CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(UNAUDITED)
 
13.    INCOME TAX

(a)   Income Tax Expense

Dalian Winland International Shipping Agency Co. Ltd., Dalian Winland International Logistic Co. Ltd. and Dalian Shipping Online Network Co. Ltd. are incorporated under the laws of PRC and subjected by Chinese tax law. On March 16, 2007, the National People’s Congress of China approved the Corporate Income Tax Law of the People’s Republic of China (the “new CIT Law”), which was effective on January 1, 2008. Under the new CIT Law, the corporate income tax rate applicable to these companies starting from January 1, 2008 is 25%.

Winland Shipping Co., Limited, Treasure Way Shipping Limited, Kinki International Industrial Limited, Bestline Shipping Limited, Lancrusier Development Co., Limited, Winland International Shipping Co., Limited, Fon Tai Shipping Co., Limited and Won Lee Shipping Co., Limited are incorporated and registered in Hong Kong. All the income derived from these companies is exempt from income tax under the local tax law; there is no income tax expense for the six months ended June 30, 2010 and 2009.

Win Star Shipping Co., Limited and Bodar Shipping Co., Limited are incorporated and registered in St. Vincent and Grenadines. Win Eagle Shipping Co., Limited, Win Ever Shipping Co., Limited, and Win Bright Shipping Co., Limited are incorporated and registered in Valletta, Malta. These five companies obtained tax exemptions from the local governments, so they did not have any tax expense for the three months ended March 31, 2010 and 2009. Winland Dalian Shipping S.A. and Win Glory S.A. are incorporated in Panama and are registered in HongKong. Win Grace Shipping Co., Limited, Win Hope Shipping Co., Limited, Win Moony Shipping Co., Limited are incorporated and registered in Valletta, Malta. Bodar Shipping S.A., Win Moony Shipping S.A., and Bao Shun Shipping S.A. are incorporated and registered in Panama. Since these companies are exempt from income tax under the local tax law, they did not have any income tax for the six months ended June 30, 2010 and 2009.

Effective January 1, 2007, the Company adopted ASC 740-10 (formerly FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB statement No.109, Accounting for Income Taxes). ASC 740-10 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740-10, we may recognize the tax benefit from an uncertainty tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. ASC 740-10 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.
Income tax expense for the six months ended June 30, 2010 and 2009 is summarized as follows:

   
For The Six Months Ended June 30,
 
   
2010
   
2009
 
   
(Unaudited)
   
(Unaudited)
 
             
Current
  $ (13,383 )   $ (971 )
Deferred
    (3,640 )     (5,582 )
Income tax expense
  $ (17,023 )   $ (6,553 )

The Company’s income tax expense differs from the “expected” tax expense for the six months ended June 30, 2010 and 2009 (computed by applying the Hong Kong CIT rate of 16.5% and PRC CIT rate of 25% to income before income taxes) as follows:

 
F-24

 
 
WINLAND ONLINE SHIPPING HOLDINGS CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(UNAUDITED)
 
13.    INCOME TAX (CONTINUED)

(a)   Income Tax Expense (Continued)

   
For The Six Months Ended June 30,
 
   
2010
   
2009
 
   
(Unaudited)
   
(Unaudited)
 
             
Computed “expected” (expense) benefit
  $ (748,024 )   $ 726,212  
Favorable tax rates
    731,001       (732,765 )
Income tax expense
  $ (17,023 )   $ (6,553 )

The tax effects of temporary differences that give rise to the Company’s net deferred tax assets and liabilities as of June 30, 2010 and December 31, 2009 are as follows:

   
June 30, 2010
   
December 31, 2009
 
   
(Unaudited)
       
Deferred tax assets (liabilities):
           
Current portion:
           
General and administrative expenses
  $ 91     $ -  
Service revenue and commissions
    (3,376 )     2,434  
Valuation allowance-short term
    -       (732 )
Other income
    -       (164 )
Subtotal
    (3,285 )     1,538  
                 
Non-current portion:
               
Depreciation expense
    (43,908 )     (31,454 )
Accrued financial expense
    (3,002 )     -  
Net operating loss
    189,696       135,585  
Valuation allowance
    (142,753 )     (105,281 )
Subtotal
    33       (1,150 )
                 
Net deferred tax (liabilities) assets
  $ (3,252 )   $ 388  

(b)   Tax Holiday Effect

For the six months ended June 30, 2010 and 2009, the Hong Kong corporate income tax rate was 16.5%. Certain subsidiaries of the Company which were registered in Hong Kong are entitled to tax exemptions as long as they do not operate in Hong Kong under the local tax law. Since these companies do not have operations in Hong Kong, they did not have any income tax expense for the six months ended June 30, 2010 and 2009.

The combined effects of the income tax expense exemptions and reductions available to the Company for the six months ended June 30, 2010 and 2009 are as follows:

 
F-25

 
 
WINLAND ONLINE SHIPPING HOLDINGS CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(UNAUDITED)

13.    INCOME TAX (CONTINUED)

(b)   Tax Holiday Effect (Continued)

   
For The Six Months Ended June 30,
 
   
2010
   
2009
 
   
(Unaudited)
   
(Unaudited)
 
             
Tax holiday (benefit) expense
  $ (731,001 )   $ 732,765  
Basic net income (loss) per share excluding tax holiday effect
  $ 0.03     $ (0.03 )

14.    SEGMENT INFORMATION

The Company determined that there are three reportable segments: (1) Dry bulk shipping, (2) Chartering brokerage, and (3) Other activities segment. The other activities segment comprises shipping agency, freight forwarding services and online services. These operating segments were not separately reported as they do not meet any of the quantitative thresholds under ASC 280-10 (formerly SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information).

The Company's segment information as of June 30, 2010 and December 31, 2009, and for the six months ended June 30, 2010 and 2009 are as follows:

Six Months Ended
June 30, 2010
(Unaudited)
 
Dry Bulk
Shipping
   
Chartering
Brokerage
   
Other
Activities
   
Corporate
and
Eliminations
   
Consolidated
 
Sales to unaffiliated customers
  $ 22,205,051     $ 11,600,708     $ 2,178,495     $ -     $ 35,984,254  
Intersegment sales
    -       -       48,253       (48,253 )     -  
Net sales
    22,205,051       11,600,708       2,226,748       (48,253 )     35,984,254  
Costs
    14,121,869       9,954,045       1,541,422       (48,253 )     25,569,083  
Depreciation and amortization
    3,379,873       -       37,445       -       3,417,318  
Other operating expenses
    1,345,154       171,890       745,976       113,023       2,376,043  
Net income (loss)
  $ 3,358,155     $ 1,474,773     $ (98,095 )   $ (113,023 )   $ 4,621,810  
                                         
June 30, 2010 (Unaudited)
                                       
Identifiable assets
  $ 72,200,932     $ 12,228,787     $ 9,756,222     $ (8,227,633 )   $ 85,958,308  
 
 
F-26

 
 
WINLAND ONLINE SHIPPING HOLDINGS CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(UNAUDITED)

14.    SEGMENT INFORMATION (CONTINUED)

Six Months Ended 
June 30, 2009
(Unaudited)
 
Dry Bulk
Shipping
   
Chartering
Brokerage
   
Other
Activities
   
Corporate
and
Eliminations
   
Consolidated
 
Sales to unaffiliated customers
  $ 12,257,263     $ 11,767,802     $ 844,969     $ -     $ 24,870,034  
Intersegment sales
    -       -       180,383       (180,383 )     -  
Net sales
    12,257,263       11,767,802       1,025,352       (180,383 )     24,870,034  
Costs
    13,150,492       10,188,932       366,994       (180,383 )     23,526,035  
Depreciation and amortization
    3,691,692       -       108,586       -       3,800,278  
Other operating expenses
    761,454       127,028       726,703       84,816       1,700,001  
Net (loss) income
  $ (5,346,375 )   $ 1,451,842     $ (176,931 )   $ (84,816 )   $ (4,156,280 )
                                         
December 31, 2009
                                       
Identifiable assets
  $ 44,537,934     $ 10,900,478     $ 9,340,286     $ (2,977,188 )   $ 61,801,510  

 
Information for Company’s sales by geographical area for the six months ended June 30, 2010 and 2009 are as follows:

   
For The Six Months Ended June 30,
 
   
2010
   
2009
 
   
(Unaudited)
   
(Unaudited)
 
Sales to unaffiliated customers:
           
Japan, Korea and Russia
  $ 7,196,851     $ 12,435,017  
PRC
    21,590,552       8,704,512  
Southern and Eastern Asia
    5,397,638       3,233,104  
Mediterranean and Red Sea
    1,079,528       -  
Other
    719,685       497,401  
Total
  $ 35,984,254     $ 24,870,034  

15.   CONTINGENCIES

The Company signed a voyage charter contract with Sinoriches Global Ltd. on June 11, 2007. The Company canceled the contract on June 18, 2007. Sinoriches Global Ltd. filed an arbitration claim of $501,640 including interest for the dispute. As of June 30, 2010, the case is in the process of exchanging documents and evidence for arbitration. The Company does not believe the case will result in a significant unfavorable outcome.

16.   SUBSEQUENT EVENT

In July 2010, the Company borrowed an additional $5,700,000 of the $37 million loan facility from China Merchants Bank Co., Ltd. to finance the construction of vessels HT073 and HT074. Also see Note 10.
 
 
F-27

 
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Forward Looking Statements

The following is management’s discussion and analysis of certain significant factors which have affected the financial position and operating results of Winland Online Shipping Holdings Corporation (formerly Trip Tech, Inc. and hereinafter, “Winland” or “WLOL” and together with its subsidiaries and its variable interest entities, the “Company”) during the periods included in the accompanying consolidated and combined financial statements, as well as information relating to the plans of our current management. This report includes forward-looking statements. Generally, the words “believes” “anticipates”, “may”, “will”, “should”, “expect”, “intend”, “estimate”, “continue” and similar expressions or the negative thereof or comparable terminology are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, including the matters set forth in this report or other reports or documents we file with the U.S. Securities and Exchange Commission (the “SEC”) from time to time, which could cause actual results or outcomes to differ materially from those projected. Undue reliance should not be placed on these forward-looking statements which speak only as of the date hereof. We undertake no obligation to update these forward-looking statements.

The following discussion and analysis should be read in conjunction with our consolidated and combined financial statements and the related notes thereto and other financial information contained elsewhere in this report.

Acquisition of SkyAce Group Limited

On August 12, 2008, Trip Tech, Inc. (n/k/a WLOL and sometimes referred to herein as “Trip Tech” when referring to the operations of the Company prior to the Exchange, as defined below) entered into a Share Exchange Agreement with SkyAce Group Limited (“SkyAce”), a British Virgin Islands company and Pioneer Creation Holdings Limited (“PCH”), a British Virgin Islands company and the sole stockholder of SkyAce. As a result of the share exchange, the Company acquired all of the issued and outstanding securities of SkyAce from PCH in exchange for 76,925,000 newly-issued shares of the Company’s common stock, par value $0.001 per share and 1,000,000 shares of the Company’s Series A Preferred Stock which such preferred shares were convertible into (and subsequently did convert into) 30,000,000 shares of common stock (the “Exchange”).  On August 12, 2008, PCH beneficially owned 82.25% of the voting capital stock of the Company. As a result of the Exchange, SkyAce became a wholly-owned subsidiary of WLOL.  On October 23, 2008, PCH converted its 1,000,000 shares of Series A Preferred Stock into 30,000,000 shares of common stock. As a result, the total outstanding shares of common stock increased to 130,000,000, and PCH now directly owns 82.25% of the voting capital stock of WLOL.

The following is disclosure regarding WLOL, SkyAce and SkyAce’s two wholly-owned subsidiaries: (a) Plentimillion Group Limited (“PGL”), a British Virgin Islands holding company, the principal business activities of which are (through its wholly-owned subsidiaries) ocean transportation and chartering brokerage and (b) Best Summit Enterprise Limited (“BSL” and together with PGL, the “SkyAce Group”), a British Virgin Islands holding company which controls (as is more fully described below) (i) Dalian Winland International Shipping Agency Co. Ltd., a company organized under the laws of the People’s Republic of China (“PRC”), the principal activities of which include shipping agency services, booking cargo space, storage of goods and customs declaration (“DWIS”), (ii) Dalian Winland International Logistics Co. Ltd., a company organized under the laws of the PRC, the principal activities of which include freight forwarding services and logistics shipping agency services (“DWIL”) and (iii) Dalian Shipping Online Network Co. Ltd. (“Shipping Online”), a company organized under the laws of the PRC, the principal activities of which include online services for its members.

Prior Operations of Trip Tech

Trip Tech was incorporated in Texas on November 17, 2006 to enter the online travel industry and to establish a large scale, full service online travel company. Immediately prior to the Exchange, Trip Tech was a development stage internet-based travel company operating with a functional “branded” travel website. Since Trip Tech’s inception, Trip Tech established its corporate existence as a publicly held corporation, raised founder capital, and designed and installed a functional “branded” travel website. As of the date immediately prior to the Exchange, Trip Tech had not been able to raise additional funds through either debt or equity offerings. As a result of the foregoing, Trip Tech began to explore its options regarding the development of a new business plan and direction. On August 12, 2008, Trip Tech consummated the Exchange with SkyAce and the PCH.

 
- 4 -

 
 
Our common stock is currently traded on the OTCQB under the symbol “WLOL”. Immediately prior to the Exchange, Trip Tech was considered a “blank check” company with US$40,963 in assets and a net loss of US$34,965 for the fiscal year ending February 29, 2008.  On the date of the closing of the Exchange, the Company did not have any liabilities.

Current Operations of the Company (General Development of Business)

SkyAce

SkyAce is a holding company founded in the British Virgin Islands on September 22, 2006 with no significant operations. SkyAce was formed solely for the purpose of acquiring PGL and BSL from Mr. Li Honglin and Ms. Xue Ying, each of whom had owned fifty percent (50%) of both PGL and BSL and each of whom now own fifty percent (50%) of SkyAce. SkyAce has authorized capital of US$50,000 consisting of 50,000 ordinary shares authorized, two of which are currently issued and outstanding and held by Trip Tech as a result of the Exchange. Li Honglin, a Director and the President of Winland, serves as a Director of SkyAce. Xue Ying, a Director, the Chief Executive Officer and the Secretary of Winland, also serves as a Director of SkyAce.

PGL

PGL is a holding company founded in the British Virgin Islands on July 5, 2006. PGL was formed solely for the purpose of acquiring each of the following wholly-owned subsidiaries from Li Honglin and Xue Ying (both of whom previously owned fifty percent (50%) of each of the following entities), which such transfers occurred between January 1, 2008 and March 31, 2008:

 
(a)
Winland Shipping Co., Ltd., a company organized under the laws of Hong Kong on August 11, 2000 (“Winland Shipping”);

 
(b)
Kinki International Industrial Limited, a company organized under the laws of Hong Kong on May 2, 2006 (“Kinki”);

 
(c)
Bestline Shipping Limited, a company organized under the laws of Hong Kong on January 27, 1994 (“Bestline”);

 
(d)
Lancrusier Development Co., Limited, a company organized under the laws of Hong Kong on July 11, 1995 (“Lancrusier”);

 
(e)
Win Star Shipping Co., Ltd., a company organized under the laws of St. Vincent and the Grenadines (“SVG”) on June 21, 2000 (“Win Star”);

 
(f)
Bodar Shipping Co., Ltd., a company organized under the laws of SVG on January 7, 2004 (“Bodar”);

 
(g)
Winland Dalian Shipping S.A., a company organized under the laws of Panama on June 8, 2005 (“Winland Dalian”);

 
(h)
Treasure Way Shipping Limited, a company organized under the laws of Hong Kong on May 27, 2002 (“Treasure Way”).

PGL acquired the following additional entities in 2008:
 
 
(i)
Win Eagle Shipping Co., Ltd., a company organized under the laws of Malta on July 29, 2002 (“Win Eagle”);

 
(j)
Win Bright Shipping Co., Ltd. a company organized under the laws of Malta on February 8, 2002 (“Win Bright”);
 
- 5 -

   
 
(k)
Win Ever Shipping Co., Ltd., a company organized under the laws of Malta on February 8, 2002 (“Win Ever”).

 
(l)
Win Glory S.A., a company organized under the laws of Panama on April 2, 2003 (“Win Glory”).

 
(m)
Win Moony Shipping Co., Ltd., a company organized under the laws of Malta on September 26, 2003 (“Win Moony”).
PGL acquired the following entities in 2009:

 
(n)
Win Grace Shipping Co., Ltd., a company organized under the laws of Malta on September 4, 2003 (“Win Grace”).

 
(o)
Win Hope Shipping Co., Ltd., a company organized under the laws of Malta on June 14, 2001 (“Win Hope”).
PGL established the following entities in 2009:
   
 
(p)
Bodar Shipping S.A. is incorporated and registered in Panama on February 12, 2009 (“Bodar Shipping”).

 
(q)
Win Moony Shipping S.A. was incorporated and registered in Panama on April 30, 2009 (“Win Shipping”).

 
(r)
Bao Shun Shipping S.A. was incorporated and registered in Panama on June 10, 2009 (“Bao Shun”).

 
(s)
Winland International Shipping Co., Limited is incorporated and registered in Hong Kong on August 27, 2009 ("Winland International").

PGL established the following entities in 2010:

 
 
(t)
Fon Tai Shipping Co., Limited is incorporated and registered in Hong Kong on March 1, 2010 (“Fon Tai”).

 
(u)
Won Lee Shipping Co., Limited is incorporated and registered in Hong Kong on March 1, 2010 (“Won Lee”).
  
PGL and each of its wholly-owned subsidiaries set forth above (collectively, the “PGL Group”) are engaged in ocean transportation of dry bulk cargoes worldwide through the ownership and operation of dry bulk vessels. The principal business activities of the PGL Group are ocean transportation and chartering. The operations of each of the Company’s vessels are managed by Winland Shipping, while the chartering businesses are managed by Kinki and Bestline. Lancrusier’s primary business is management and accounting.  Win Star, Winland Dalian, Treasure Way, Win Eagle, Win Bright, Win Ever, Win Glory, Win Grace, Win Hope, Bodar Shipping, Win Shipping and Bao Shun collectively own 12 of the Company’s vessels.  Bodar and Win Moony are in the process of winding down and have no operations.  Winland International's primary business is to develop and expand the global shipping market. Fon Tai and Won Lee each own one vessel which are currently under construction and are expected to be delivered and operational by December 15, 2010 and March 15, 2011, respectively.  DWIL also owns one vessel, as described below.
 
 
- 6 -

 

BSL

SkyAce’s wholly-owned subsidiary BSL was incorporated in the British Virgin Islands on November 30, 2006. BSL sole business is to act as a holding company for its wholly-owned subsidiary, Wallis Development Limited, a company organized under the laws of Hong Kong on December 9, 2006 (“Wallis”). The sole business of Wallis is to act as a holding company for its wholly-owned subsidiary, Beijing Huate Xingye Keji Co., Ltd., a company organized under the laws of the PRC on March 18, 2008 (“Beijing Huate”). Beijing Huate was formed with the purpose of producing IT software, developing new products and adopting advanced and applicable technology and scientific management methods to create economic benefits for its stockholders. It does this by controlling, through Exclusive Technical Consulting and Service Agreements and related transaction documents dated as of March 31, 2008 (collectively, the “Service Agreements”, each of which are referenced as Exhibits herein), DWIS, DWIL and Shipping Online.

In compliance with the PRC’s foreign investment restrictions on internet information services and other laws and regulations, the Company conducts all of its internet information and media services and advertising in China through DWIS, DWIL and Shipping Online, each a domestic variable interest entity (also referred to in this Quarterly Report collectively as the “VIEs”). In accordance with FASB Interpretation No. 46R “Consolidation of Variable Interest Entities”, an Interpretation of Accounting Research Bulletin No. 51, and ASC 810-10 (formerly SFAS No. 167) “Amendments to FASB Interpretation No. 46(R)”, a VIE is to be consolidated by a company if that company is subject to a majority of the risk of loss for the VIE or is entitled to receive a majority of the VIE’s residual returns. Upon executing the Service Agreements, DWIS, DWIL and Shipping Online are all considered VIEs and the Company, through its ownership and control of SkyAce, BSL, Wallis and Beijing Huate, their primary beneficiary.

Pursuant to the Service Agreements, Beijing Huate provides on-going technical services and other services to the VIEs in exchange for substantially all net income of the VIEs. In addition, the stockholders of the VIEs have pledged all of their shares in the VIEs to Beijing Huate, representing one hundred percent (100%) of the total issued and outstanding capital stock of the VIEs, as collateral for non-payment under the Service Agreements or for fees on technical and other services due thereunder. Beijing Huate also has the power to appoint all directors and senior management personnel of the VIEs.
 
DWIS
 
DWIS was incorporated under the laws of the PRC on December 5, 2002 by three investors, namely, Dalian Winland Industry Group Co., Ltd. (“DWIG”), Dalian Winland Shipping Co., Ltd. (“DWSC”) and Dalian Weihang Freight Forwarding Co., Ltd. (“DWFF”). At establishment, the percentage of each party’s equity interest was 51%, 41.5% and 7.5%, respectively. DWIG was incorporated by Li Honglin and Xue Ying having a 60% and 40% interest, respectively. DWSC was incorporated by DWIG and Xue Ying having a 60% and 40% interest, respectively. DWFF was incorporated by Li Honglin and Xue Ying having a 66.7% and 33.3% interest, respectively. Thus, Li Honglin and Xue Ying had owned a 50.5425% and 49.4575% of DWIS indirectly at inception.  According to a share trust instrument agreement executed in February 2005, Li Honglin transferred 0.5425% of his interest in DWIS to Xue Ying. Thereafter, Li Honglin and Xue Ying own 50% each of DWIS as at December 31, 2009 and 2008. The principal activities of DWIS include shipping agency services, booking cargo space, storage of goods, and declaration of customs. On August 18, 2009, DWIS disposed of the Haoyue vessel to a related party, Dalian Winland Shipping Co., Ltd. The net cash proceeds were $1,272,685, after deducting tax expenses of $28,350 from the gross proceeds of $1,301,035.

DWIL
 
DWIL was incorporated under the laws of the PRC on July 28, 2003 by three investors, namely, DWIG, DWSC and Winland International. At establishment, the percentage of each party’s equity interest was 51%, 47.6% and 1.4%, respectively, and Li Honglin and Xue Ying owned 48.4436% and 51.5564% of DWIL indirectly at inception, respectively.  According to a share trust instrument agreement executed in February 2005, Xue Ying transferred 1.5564% of her interest in DWIL to Li Honglin. Thereafter, Li Honglin and Xue Ying each owned 50% of DWIL as of December 31, 2009 and 2008. The principal activities of DWIL are freight forwarding services logistics shipping agency services. DWIL owns one of the Company’s vessels.
 
 
- 7 -

 

Shipping Online
 
Shipping Online was incorporated under the laws of the PRC on February 20, 2003 by two investors, namely, Li Honglin and Xue Ying. At establishment, the percentage of each party’s equity interest was 80% and 20%, respectively. According to a share trust instrument executed in February 2005, Li Honglin transferred 30% of his interest of Shipping Online to Xue Ying. Thereafter, Li Honglin and Xue Ying each owned 50% of Shipping Online as at December 31, 2009 and 2008. On January 19, 2010, DWIL invested RMB500,000 in Shipping Online, increasing its capitalization from RMB500,000 to RMB1,000,000. Thereafter, DWIL, Li Honglin and Xue Ying owned 50%, 25% and 25% of the equity interests in Shipping Online as of March 31, 2010, respectively. The principal activities of Shipping Online are providing online services to its members.

Summary of Current Business of the Company

The Company is a comprehensive, modern international shipping company with its world headquarters based in the PRC. The Company is mainly engaged in a comprehensive range of international shipping and logistics services such as bulk cargo transportation, chartering, shipping agents, logistics, ship trading, spare parts supplies, crew recruitment and shipping porter operation, as well as relevant industry news and data analysis and advertising.

The Company's core business is international bulk cargo transportation. It has an ocean shipping fleet of 13 vessels, with a self-owned carrying capacity of nearly 200,000 tons.  Through monthly voyage charters and time charters, the Company can provide carrying capacity of about 1,000,000 tons with shipping lines to major ports around the world. 

In addition, the Company owns and operates an industrial online portal called “Shipping Online” which is accessed on the internet at http://www.sol.com.cn. This website functions as a business platform, providing on-line and off-line integrated international shipping and logistics services, such as bulk cargo chartering, container booking, shipping agents, ship trading and building, spare parts supplies, crew recruitment, as well as shipping news and data analysis; the off-line operating team is made up of industrial elites and a logistics network with branches in Beijing, Tianjin, Dalian, Yingkou, Qingdao, Zhangjiagang, Lianyungang and Shanghai. These branches collectively provide a full service system with a combination of integrated group and localized branches.
 
Providing comprehensive shipping and logistics services through the internet is not only the innovation and creation of the Company, but is also the basis of the transition for the entire shipping industry from a traditional business model to a modern business model. The Company believes it will create a broad space for development and lead the accelerated development of the entire shipping industry.

Our operating revenue in 2006 reached US$59.2 million, of which the net profit was nearly US$7.4 million.  As the global shipping market experienced a breakthrough in development, the Company achieved annual operating revenues of US$70.3 million in 2007, net income of US$21.4 million, enjoying approximately 200% growth as compared with 2006. The operating revenue of 2008 reached $84.2 million, net income of $19.1 million. The operating revenue of 2009 was $50.2 million.  The operating revenue and net income for the six months ended June 30, 2010 was $35,984,254 and $4,621,810, respectively, compared with operating revenue of $24,870,034, a net loss of $4,156,280 for the corresponding period of 2009, respectively.
 
The Company intends to steadily expand its capacity and enlarge the size of its ocean transport fleet by constructing new vessels and by acquiring additional vessels or businesses at lower prices in light of the current slump in the shipping market. The Company intends to continue to push forward with its comprehensive shipping and logistics services with Shipping Online in order to expand its market share.

On June 3, 2009, Winland Shipping and Bao Shun Shipping S.A. entered into a Memorandum of Agreement (“MOA”) with Mario Shipping Corporation (“MSC”) for the purchase by the Company from MSC of a 2003 built handysize vessel (20,212 gross tonnage, 10,948 net tonnage) known as “Bao Shun” for a price of US$20,700,000.  On June 4, 2009, the MOA was amended to nominate Bao Shun as the actual buyer that would remain fully responsible for performing under the MOA, and on July 14, 2009 the MOA was further amended to change the expected time of delivery to the period of July 14, 2009 to October 10, 2009 and to modify certain payment and interest terms.  On August 14, 2009, the Company paid ten percent (10%) of the purchase price for the vessel (approximately US$2,070,000) in cash.

 
- 8 -

 

On September 25, 2009, the parties to the MOA closed on the purchase of the vessel whereby the Company paid the balance on the purchase price of US$18,630,000 as well as acquisition cost of $181,125.  The Company funded $14,490,000 through a long-term loan with Mitsubishi UFJ Lease & Finance Co., Ltd., which is secured by the vessel “Bao Shun”, and funded $3,000,000 via a long-term note. The Company paid the remaining balance of $1,321,125 in cash.  The loan is to be repaid in eighty-four (84) monthly payments with an interest rate at the Japanese LIBOR plus 2.3%.

On March 26, 2010, the Company obtained a term loan facility of $37 million from China Merchant Bank Co., Ltd. to finance the construction of two new vessels. As of June 30, 2010, we drew down $2,800,000 and as of the date of this filing, we drew down $8,500,000 from the loan facility and executed four new notes payable totaling $14,450,000 in the aggregate for purposes of building such vessels in June 2010.
 
On May 20, 2010, Fon Tai entered into a novation agreement, which was subsequently amended on May 21, 2010, whereby Fon Tai assumed all of the rights and obligations of Rich Forth Investments Limited ("Rich"), a related party which is controlled by a relative of the Chairman of the Company, under a shipbuilding contract with JiangSu Hantong Ship Heavy Industry Co., Ltd. ("JiangSu") previously executed on December 6, 2006 for the construction of one 57,000dwt bulk carrier vessel. The contract amount of $29,950,000 included the ship building contract price of $28,500,000 due to JiangSu and a contract transfer fee of $1,450,000 due to Rich for reimbursement for costs incurred in connnection with the construction. JiangSu agreed to deliver the new vessel on or before December 15, 2010.
 
Also, on May 20, 2010, Won Lee entered into a novation agreement, which was subsequently amended on May 21, 2010, whereby Won Lee assumed all of the rights and obligations of Rich under a shipbuilding contract with JiangSu for the construction of one 57,000dwt bulk carrier vessel. The contract amount of $29,950,000 included the ship building contract price of $28,500,000 due to JiangSu and a contract transfer fee of $1,450,000 due to Rich for reimbursement for costs incurred in connnection with the construction. JiangSu agreed to deliver the new vessel to Won Lee on or before March 15, 2011.
 
Summary of Significant Accounting Policies

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with generally accepted accounting principles of the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made. Actual results could differ materially from those estimates.

Revenue Recognition

Revenue is recognized based on the following four criteria:
 
(I)
The amount of revenue can be measured reliably;

(II)
It is probable that the economic benefits will flow to the Company;

(III)
The stage of completion at the balance sheet date can be measured reliably;

(IV)
The costs incurred, or to be incurred can be measured reliably.
 
For dry bulk shipping service, the allocation of revenue between reporting periods is based on relative transit time in each reporting period with expenses recognized as incurred.

For chartering brokerage services, sales are recognized when the ship leaves port.

For shipping agency and freight forwarding services, sales are recognized when the ship leaves port.

For online services, sales are recognized according to the stage of completion in accordance with the service period defined in executed contracts.

Recent Accounting Pronouncements

Effective January 1, 2009, the Company adopted ASC 815-10 (formerly SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities ), which amends SFAS No. 133 and expands disclosures to include information about the fair value of derivatives, related credit risks and a company's strategies and objectives for using derivatives. The adoption of ASC 815-10 did not have a material effect on the Company’s condensed consolidated financial statements as of June 30, 2010.

 
- 9 -

 

Effective January 1, 2009, the Company adopted ASC 815-40 (formerly Emerging Issues Task Force (“EITF”) Issue No. 07-05, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock (“EITF 07-05”). ASC 815-40 addresses the determination of whether an instrument (or an embedded feature) is indexed to an entity's own stock, which is the first part of the scope exception in paragraph 11(a) of FASB SFAS No. 133 , Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”). If an instrument (or an embedded feature) that has the characteristics of a derivative instrument under paragraphs 6–9 of SFAS 133 is indexed to an entity's own stock, it is still necessary to evaluate whether it is classified in stockholders' equity (or would be classified in stockholders' equity if it were a freestanding instrument). Other applicable authoritative accounting literature, including Issues EITF 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company Own Stock, and EITF 05-2, The Meaning of “Conventional Debt Instrument” in Issue No. 00-19, provides guidance for determining whether an instrument (or an embedded feature) is classified in stockholders' equity (or would be classified in stockholders' equity if it were a freestanding instrument). ASC 815-40 does not address that second part of the scope exception in paragraph 11(a) of SFAS 133. The adoption of ASC 815-40 did not have a material effect on the Company’s condensed consolidated financial statements as of June 30, 2010.

On April 9, 2009, the FASB also approved ASC 825-10 (formerly FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments) to require disclosures about fair value of financial instruments in interim period financial statements of publicly traded companies and in summarized financial information required by APB Opinion No. 28, Interim Financial Reporting . We are required to adopt ASC 825-10 for our interim and annual reporting periods ending after June 15, 2009. ASC 825-10 does not require disclosures for periods presented for comparative purposes at initial adoption. ASC 825-10 requires comparative disclosures only for periods ending after initial adoption. The adoption of ASC 825-10 did not have a material effect on the Company’s condensed consolidated financial statements as of June 30, 2010.

In April 2009, the FASB updated guidance related to fair-value measurements to clarify the guidance related to measuring fair-value in inactive markets, to modify the recognition and measurement of other-than-temporary impairments of debt securities, and to require public companies to disclose the fair values of financial instruments in interim periods. This updated guidance became effective for the Company beginning June 1, 2009. The adoption of this guidance did not have a material effect on the Company’s condensed consolidated financial statements as of June 30, 2010.

In June 2009, the FASB issued ASC 810-10 (formerly SFAS No. 167) Amendments to FASB Interpretation No. 46(R), which require an enterprise to perform an analysis and ongoing reassessments to determine whether the enterprises variable interest or interests give it a controlling financial interest in a variable interest entity and amends certain guidance for determining whether an entity is a variable interest entity. It also requires enhanced disclosures that will provide users of financial statements with more transparent information about an enterprises involvement in a variable interest entity. ASC 810-10 is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009 and for all interim reporting periods after that. The adoption of ASC 810-10 did not have a material effect on the Company’s condensed consolidated financial statements as of June 30, 2010.

In January 2010, the FASB issued guidance to amend the disclosure requirements related to recurring and nonrecurring fair value measurements. The guidance requires disclosure of transfers of assets and liabilities between Level 1 and Level 2 of the fair value measurement hierarchy, including the reasons and the timing of the transfers and information on purchases, sales, issuance, and settlements on a gross basis in the reconciliation of the assets and liabilities measured under Level 3 of the fair value measurement hierarchy. This guidance is effective for the Company beginning March 1, 2010. The adoption of this guidance did not have a material effect on the Company’s condensed consolidated financial statements as of June 30, 2010.

 
- 10 -

 

Results of Operations

Results of Operations for the Six Months Ended June 30, 2010 Compared With the Six Months Ended June 30, 2009 (in U.S. dollars, except otherwise as indicated)

   
For The Six Months Ended June 30,
       
   
2010
   
2009
   
Increase (Decrease)
 
   
Amount
   
% of
Revenues
   
Amount
   
% of
Revenues
   
In Amount
   
In %
 
Revenues
  35,984,254       100.0 %   24,870,034       100.0 %   11,114,220       44.7 %
Vessel operating expenses
    24,027,661       66.8 %     21,543,075       86.6 %     2,484,586       11.5 %
Service costs
    1,541,422       4.3 %     1,982,960       8.0 %     (441,538 )     (22.3 )%
Depreciation and amortization
    3,417,318       9.5 %     3,800,278       15.3 %     (382,960 )     (10.1 )%
General and administrative expense
    1,489,608       4.1 %     1,345,055       5.4 %     144,553       10.7 %
Selling expense
    181,334       0.5 %     164,158       0.7 %     17,176       10.5 %
Interest expense, net
    (679,136 )     (1.9 )%     (91,726 )     (0.4 )%     (587,410 )     640.4 %
Other expense, net
    (8,942 )     0.0 %     (92,509 )     (0.4 )%     83,567       90.3 %
Income tax expense
    (17,023 )     0.0 %     (6,553 )     0.0 %     (10,470 )     159.8 %
Net income (loss)
    4,621,810       12.8 %     (4,156,280 )     (16.7 )%     8,778,090       (211.2 )%
                                                 
Weighted average shares outstanding
    130,000,000               130,000,000               -       0.0 %
Net income (loss) per share
  0.04             (0.03 )           0.07       (233.3 )%
 
Revenues

Our revenues are derived from the operation of:
 
 
Dry bulk shipping;
 
Chartering brokerage; and
 
Other activities which represent shipping agency services, freight forwarding services, and online services.

Of the total revenues, dry bulk shipping, chartering brokerage and other activities contributed 62%, 32% and 6% for the six months ended June 30, 2010, respectively, compared with 49%, 47%, and 4% for the comparable period in 2009, respectively.

For the six months ended June 30, 2010, total revenues increased by approximately $11.1 million, or 44.7%, to $36.0 million from $24.9 million for the six months ended June 30, 2009. This increase resulted from the strong performance of our dry bulk shipping segment which increased $9.9 million, or 81.2%, and increased revenue of $1.3 million, or 157.8%, from our other activities segment, slightly offset by a decline in our chartering brokerage business of $0.2 million, or 1.4%.

The increase in the dry bulk shipping segment was driven by the acquisition of a new vessel in September 25, 2009, and the utilization of a new chartering vessel in May 9, 2010.  The increase also reflected the improvement of the global shipping market from the financial crisis and economic recession in place since late 2008.  The Baltic Dry Index, a leading indicator of the global dry bulk shipping market, increased approximately 31% for the six months ended June 30, 2010 as compared with the same period of 2009.  

Among other activities, online services continued to grow significantly. We believe this growth reflected management’s strategic decision to implement and market the shipping online portal more aggressively at the beginning of 2009.
 
 
- 11 -

 

 Vessel Operating Expenses

Vessel operating expenses included mainly fuel costs, port fees, chartering fees and crew wages which were incurred in the operation of dry bulk shipping, and vessel chartering costs which were incurred in the business of chartering brokerage. For the six months ended June 30, 2010, vessel operating expenses increased by $2.5 million, or 11.5%, to $24.0 million, compared with $21.5 million for the comparable period in 2009. This increase is principally attributable to the $1.5 million chartering fee of a vessel for the six months ended June 30, 2010 compared with no such transaction for the same period in 2009. The increase is also due to the business volume of 7% of our dry bulk shipping business, which resulted in the increase in fuel and related consumption, and the 48% increase in the Intermediate Fuel Oil rate.

Service Costs

Service costs were incurred in the operation of other activities in our freight forwarding services. For the six months ended June 30, 2010, service costs decreased by $0.4 million, or 22.3%, to $1.5 million, compared with $2.0 million for the comparable period in 2009. This decrease was in line with the approximately 21% decrease in revenue derived from freight forwarding services for the comparable periods.

Depreciation and Amortization

Depreciation of vessels and amortization of deferred dry dock fees decreased by approximately $0.4 million, or 10.1%, to $3.4 million for the six months ended June 30, 2010, compared with $3.8 million for the same period in 2009. The decrease is primarily attributable to the decreased amortization of deferred dry dock fees of $0.3 million for two vessels which were fully amortized in 2009. The deferred dry dock fees for these two vessels to be amortized commencing in 2010 decreased by 72% compared with the deferred dry dock fees which had amortized over the past five years and were totally amortized as of 2009.  The decrease is also due to the decreased depreciation of $0.1 million which resulted from the accumulated effect of the depreciation schedules of multiple vessels.
 
General and Administrative Expenses

 
General and administrative expenses, which included mainly wages, public relations and professional service fees increased by approximately $0.14 million, or 10.7%, to $1.49 million for the six months ended June 30, 2010 from $1.35 million for the same period in 2009. The increase is primarily attributable to the supplemental charge of $0.13 million on the operations of our vessels “Andong” and “Haoyue” for the previous years of 2007, 2008 and 2009 in compliance with the Chinese government regulations. The increase is also due to the hiring of 6 new personnel.
 
Selling Expenses

Selling expenses were commissions paid to promote our dry bulk shipping and chartering brokerage businesses. For the six months ended June 30, 2010, selling expenses increased by $0.02 million, or 10.5%, to $0.18 million compared with $0.16 million for the corresponding period in 2009. The increase was in line with the increased revenue derived from our dry bulk shipping business.

Interest Expense, Net

Net interest expense increased significantly by approximately $0.59 million, or 640.4%, to $0.68 million for the six months ended June 30, 2010, compared with approximately $0.09 million for corresponding period in 2009. The increase is primarily attributable to a new long-term loan of $14,490,000 and a note payable of $3,000,000 initiated from the purchase of a new vessel in late 2009.

Other Expense, Net
 
Other expense decreased by approximately $0.08 million, or 90.3%, to $0.01 million for the six months ended June 30, 2010, compared with $0.09 million for the six months ended June 30, 2009. This decrease is the cumulative effect of the currency translation resulting from other activities and other immaterial factors.
 
- 12 -

 

Income Tax Expense

Income tax was imposed on the taxable income from other activities. For the six months ended June 30, 2010, income tax expense increased by $0.010 million, or 159.8%, to $0.017 million, compared with $0.007 million for the same period in 2009. This increase is mainly attributable to the increased 117.2% in revenue generated from the other activities segment of our business during the six months ended June 30, 2010 as compared with the same period in 2009.

Net Income (Loss)

Net income increased by approximately $8.8 million, or 211.2%, to a net income of $4.6 million for the six months ended June 30, 2010 from a net loss of $(4.2) million for the same period in 2009. This increase is primarily attributable to the 44.7% increase in revenues, the 22.3% decrease in service cost and the 10.1% decrease in depreciation and amortization expenses, partially offset by the increase of 11.5% in vessel operating expenses and the cumulative effect of the other aforementioned factors.

As a percentage of revenue, net income was 12.8% compared with a net loss of (16.7)% for the six months ended June 30, 2010 and 2009, respectively. This change reflected the improvement in the global shipping market from the financial crisis and economic recession in place since late 2008.

Net Income (Loss) Per Share

For both basic and diluted shares, net income (loss) per share increased by $0.07, or 233.3%, to net income of $0.04 per share for the six months ended June 30, 2010 from a net loss of $(0.03) per share for the same period of 2009.  This increase is attributable to the increase in net income of $8.8 million for the six months ended June 30, 2010 as compared to the same period in 2009.

Results of Operations for the Three Months Ended June 30, 2010 Compared With the Three Months Ended June 30, 2009 (in U.S. dollars, except otherwise as indicated)

   
For The Three Months Ended June 30,
       
   
2010
   
2009
   
Increase (Decrease)
 
   
Amount
   
% of
Revenues
   
Amount
   
% of
Revenues
   
In Amount
   
In %
 
Revenues
  21,295,692       100.0 %   11,936,089       100.0 %   9,359,603       78.4 %
Vessel operating expenses
    14,406,777       67.7 %     9,843,113       82.5 %     4,563,664       46.4 %
Service costs
    966,800       4.5 %     714,473       6.0 %     252,327       35.3 %
Depreciation and amortization
    1,710,222       8.0 %     1,794,742       15.0 %     (84,520 )     (4.7 )%
General and administrative expense
    809,774       3.8 %     634,857       5.3 %     174,917       27.6 %
Selling expense
    81,120       0.4 %     72,048       0.6 %     9,072       12.6 %
Interest expense, net
    (336,148 )     (1.6 )%     (43,478 )     (0.4 )%     (292,670 )     673.1 %
Other Income, net
    1,748       0.0 %     92,433       0.8 %     90,685       98.1 %
Income tax expense
    (9,069 )     0.0 %     (5,234 )     0.0 %     (3,835 )     73.3 %
Net income (loss)
    2,977,530       14.0 %     (1,079,423 )     (9.0 )%     4,056,953       (375.8 )%
                                                 
Weighted average shares outstanding
    130,000,000               130,000,000               -       0.0 %
Net income (loss) per share
  0.02             (0.01 )           0.03       (300.0 )%
 
 
- 13 -

 

Revenues

Our revenues are derived from the operation of:
 
 
Dry bulk shipping;
 
Chartering brokerage; and
 
Other activities which represent shipping agency services, freight forwarding services, and online services.

For the three months ended June 30, 2010, total revenues increased by approximately $9.4 million, or 78.4%, to $21.3 million from $11.9 million for the three months ended June 30, 2009. The increase was driven by the revenue earned from the acquisition of a new vessel in September 25, 2009, and the utilization of a new chartering vessel in May 9, 2010.  This increase also reflected the improvement of the global shipping market from the financial crisis and economic recession in place since late 2008.  The Baltic Dry Index, a leading indicator of the global dry bulk shipping market, increased by approximately 29% for the three months ended June 30, 2010 as compared with the same period of 2009.  

Among other activities, online services continued to grow significantly. We believe this growth reflected the management’s strategic decision to implement and market the shipping online portal more aggressively at the beginning of 2009.

 Vessel Operating Expenses

Vessel operating expenses included mainly fuel costs, port fees, chartering fees and crew wages which were incurred in the operation of dry bulk shipping, and vessel chartering costs which were incurred in the business of chartering brokerage. For the three months ended June 30, 2010, vessel operating expenses increased by $4.6 million, or 46.4%, to $14.4 million, compared with $9.8 million for the comparable period in 2009. This increase is principally attributable to the $1.5 million chartering fee of a vessel for the three months ended June 30, 2010 compared with no such transaction for the same period in 2009. The increase is also due to the increase in business volume of 8%, which resulted in the increase in fuel and related consumption, and the 33% increase in the Intermediate Fuel Oil rate.

Service Costs

Service costs were incurred in the operation of other activities in our freight forwarding services. For the three months ended June 30, 2010, service costs increased by $0.3 million, or 35.3%, to $1.0 million, compared with $0.7 million for the comparable period in 2009. This increase reflected the approximately 31% increase in revenue derived from our freight forwarding services.

Depreciation and Amortization

Depreciation of vessels and amortization of deferred dry dock fees decreased by approximately $0.08 million, or 4.7%, to $1.7 million for the three months ended June 30, 2010, compared with $1.8 million for the same period in 2009. This decrease is mainly attributable to the decreased amortization of deferred dry dock fees of $0.16 for two vessels which were fully amortized in 2009. The deferred dry dock fees for these two vessels to be amortized commencing in 2010 decreased by 72% compared with the deferred dry dock fees which had amortized over the past five years and were totally amortized as of 2009. The decrease is also due to the decreased depreciation of $0.08 million which resulted from the accumulated effect of the depreciation schedules of multiple vessels.

General and Administrative Expenses
 
General and administrative expenses, which included mainly wages and professional service fees, increased by approximately $0.17 million, or 27.6%, to $0.80 million, compared with $0.63 million for the three months ended June 30, 2010 and 2009, respectively. The increase is primarily attributable to the supplemental charge of $0.13 million on the operations of our vessels “Andong” and “Haoyue” for the previous years of 2007, 2008 and 2009 in compliance with the Chinese government regulations. The increase is also due to the hiring of 6 new personnel, offset by increased public relation expense of $0.03 million.

 
- 14 -

 

Selling Expenses

Selling expenses were commissions paid to promote our dry bulk shipping and chartering brokerage businesses. For the three months ended June 30, 2010, selling expenses increased by $0.01 million, or 12.6%, to $0.08 million compared with $0.07 million for the corresponding period in 2009. The increase was in line with the increased revenue derived from our dry bulk shipping business.

Interest Expense, Net

Net interest expense increased significantly by approximately $0.29 million, or 673.1%, to $0.34 million for the three months ended June 30, 2010, compared with approximately $0.04 million for the corresponding period in 2009. This increase is primarily attributable to a new long-term loan of $14,490,000 and a note payable of $3,000,000 initiated from the new vessel purchased in late 2009.

Other Income, Net
 
Other income decreased by approximately $0.091 million, or 98.1%, to $0.002 million for the three months ended June 30, 2010, compared with $0.093 million for the three months ended June 30, 2009. This decrease is the cumulative effect of the currency translation resulting from other activities and other immaterial factors.
 
Income Tax Expense

Income tax was imposed on the taxable income from other activities. For the three months ended June 30, 2010, income tax expense increased by $0.004 million, or 73.3%, to $0.009 million, compared with $0.005 million for the same period in 2009. This increase is mainly attributable to the increase of approximately 50% in revenue generated from the other activities segment of our business.

Net Income (Loss)

Net income increased by approximately $4.1 million, or 375.8%,  to a net income of $3.0 million for the three months ended June 30, 2010 from a net loss of $(1.1) million for the same period in 2009. This increase is primarily attributable to the 78.4% increase in revenues, offset by the cumulative effect of the other aforementioned factors.

As a percentage of revenue, net income was 14.0% compared with a net loss of (9.0)% for the three months ended June 30, 2010 and 2009, respectively. This change reflected the improvement in the global shipping market from the financial crisis and economic recession in place since late 2008.

Net Income (Loss) Per Share

For both basic and diluted shares, net income (loss) per share increased by $0.03 to net income of $0.02 per share for the three months ended June 30, 2010 from a net loss of $(0.01) per share for the same period of 2009.  This increase is attributable to the increase in net income of $4.1 million for the three months ended June 30, 2010.

 
- 15 -

 

Liquidity and Capital Resources

Working Capital

We had a working capital deficit of approximately $7.7 million at June 30, 2010 as compared to a working capital deficit of approximately $10.1 million at December 31, 2009. This improvement is principally attributable to the increase in net income of $8.8 million.

To face the challenges of a global financial crisis and a depressed shipping market since late 2008, we have taken effective initiatives to pursue profitability by pushing forward the implementation of our online portal, which has resulted in sales increases on the segment of online services. We have developed cost control strategies on cutting vessel management costs as well as general management costs. We have carried out our strategies to collect outstanding balances while maintaining strong business relationships with our customers. We have also negotiated (and continue to negotiate) with our vendors to extend our credit terms.  

To increase our cash resources, on March 5, 2010 the Company obtained an extension of the due dates to July 19, 2012 of two notes payable to related parties amounting to $2,961,739. On March 26, 2010, the Company obtained a term loan facility of $37 million from China Merchant Bank Co., Ltd. to finance the construction of two new vessels. As of June 30, 2010, we drew down $2,800,000 and as of the date of this filing, we drew down $8,500,000 from the loan facility and executed four new notes payable totaling $14,450,000 in the aggregate for purposes of building such vessels.  Also in 2010, the Company obtained commitments from certain shareholders and related parties to provide working capital to the Company, if needed, in the form of notes payable or personal loans. We believe our working capital will increase and liquidity will be improved. We also believe the Company has sufficient cash to sustain operations for the next 12 months.

Operating Activities

Net cash provided by operating activities was $6.1 million and cash used of $1.3 million for the six months ended June 30, 2010 and 2009, respectively. The significant change in cash flow from operating activities was mainly due to the increase in revenue of $11.1 million, which caused the net income of $4.6 million from the net loss of $4.2 million for the comparable periods.

Investing Activities

For the six months ended June 30, 2010, the Company used $18.7 million in investment activities, which mainly included $18.6 million used for the construction of two new vessels. For the six months ended June 30, 2009, the Company spent $2.1 million in investment activities, which included $2.1 million on deposit for a vessel purchase.

Financing Activities

Net cash provided by our financing activities was $13.6 million for the six months ended June 30, 2010. This amount is mainly attributable to the drawdown on our loan facility of $2.8 million and the four notes payable of total $14.45 million for the construction of two new vessels, offset by repayments to related parties of $1.1 million.

For the six months ended June 30, 2009, net cash used in financing activities was $2.4 million, mainly attributable to the repayment of long-term loans, long-term notes payable and related parties of $1.4 million, $0.2 million, and $1.9 million, respectively, offset by advances from related parties of $1.1 million.

Capital Expenditures

We expect to make major capital expenditures in connection with the construction of two new vessels and we will finance such capital expenditures through bank loans and notes payable. We expect we will incur capital expenditures on developing our shipping online portal and by marketing our shipping online services. We expect other major capital expenditures to include funding dry dockings of our fleet to preserve the quality of our vessels as well as to comply with international shipping standards and environmental laws and regulations during the remainder of 2010.

 
- 16 -

 

Capital Resources

We will finance capital expenditures on the construction of two new vessels through bank loans.  On March 26, 2010, the Company obtained a term loan facility in the amount of $37 million. As of June 30, 2010, there is $34,200,000 credit balance of this facility. We intend to finance other capital expenditures mainly from cash flows from our operations, and from notes payable and personal loans, if needed. We believe that cash flow from our operations will improve as business operations rebound and as the global economy gradually recovers. We believe that existing cash and resources from our credit facilities are sufficient to meet our projected operating requirements during the next 12 months.

Material Commitments/Tabular Disclosure of Contractual Obligations

   
Payments Due by Period
 
   
Total
   
Less Than 
1 Year
   
1-3 
Years
   
3-5 
Years
   
More Than 5
Years
 
Long-term loans obligations
  $ 20,223,969     $ 4,626,448     $ 6,047,306     $ 2,634,552     $ 6,915,663  
Long-term notes payable obligations
    20,151,096       1,542,812       9,955,541       8,652,743       -  
Non-cancelable leases obligations
    125,033       111,492       13,541       -       -  
Vessel chartering obligations
    2,878,500       2,878,500       -       -       -  
Shipbuilding obligations
    39,900,000       34,200,000       3,800,000       1,900,000       -  

Off-Balance Sheet Arrangements

None.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Interest Rate Risk

The Company is exposed to market risk from floating interest rates, which could impact its results of operations and financial condition. The Company minimizes market risk via its operating and financing activities. As of June 30, 2010, the Company’s debt consisted of $20,223,969 in long-term loans at various margin above the LIBOR. For the six months ended June 30, 2010, actual interest rates on the outstanding debt ranged from 1.92% to 2.46%. The weighted average interest rate was 2.33%.

Foreign Currency and Exchange Rate Risk

The shipping industry’s functional currency is the U.S. dollar. The Company generates a majority of its revenues in U.S. dollars. The majority of the Company’s operating expenses are in U.S. dollars, and the majority of the Company’s investing and all of its financing activities are in U.S. dollars.  The Company does not intend to use financial derivatives to mitigate the risk of exchange rate fluctuations for its operating, investing and financing activities. For the six months ended June 30, 2010, the exchange rate for Renminbi against the U.S. dollar was in the region of RMB6.7756 to RMB6.8436 against USD1.00.  The moving average translation rate was RMB6.8347 against USD1.00.
 
ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Exchange Act. Based on this evaluation, our management, including our principal executive officer and our principal financial officer, concluded that our disclosure controls and procedures were effective as of the fiscal quarter covered by this report, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act (i) is recorded, processed, summarized and reported within the time period specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate to allow appropriate decisions on a timely basis regarding required disclosure.

Internal Control over Financial Reporting

There were no changes in internal control over financial reporting that occurred during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 
- 17 -

 

PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

In the normal course of business, we are named as a defendant in lawsuits in which claims are asserted against us. In our opinion, the liabilities, if any, which may ultimately result from such lawsuits, are not expected to have a material adverse effect on our financial position, results of operations or cash flows. The Company signed a voyage charter contract with Sinoriches Global Ltd. on June 11, 2007. The Company canceled the contract on June 18, 2007. Sinoriches Global Ltd. filed an arbitration claim of $501,640 including interest for the dispute. As of June 30, 2010, the case is in the process of exchanging documents and evidence for arbitration. The Company does not believe the case will result in a significant unfavorable outcome.

ITEM 1A. RISK FACTORS

The financial condition, business, operations, and prospects of the Company involve a high degree of risk. You should carefully consider the risks and uncertainties described below, which constitute the material risks relating to the Company, and the other information in this report. If any of the following risks are realized, the Company’s business, operating results and financial condition could be harmed and the value of the Company’s stock could suffer. This means that investors and stockholders of the Company could lose all or a part of their investment. 

RISKS RELATING TO THE PEOPLE’S REPUBLIC OF CHINA
 
The Company has operating subsidiaries with operations conducted in the PRC. Accordingly, their businesses, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC and by the general state of the PRC economy.
 
Certain Political and Economic Considerations Relating to China Could Adversely Affect Our Company.
 
The PRC is transitioning from a planned economy to a market economy. While the PRC government has pursued economic reforms since its adoption of the open-door policy in 1978, a large portion of the PRC economy is still operating under five-year plans and annual state plans. Through these plans and other economic measures, such as control on foreign exchange, taxation and restrictions on foreign participation in the domestic market of various industries, the PRC government exerts considerable direct and indirect influence on the economy. Many of the economic reforms carried out by the PRC government are unprecedented or experimental, and are expected to be refined and improved.
 
Other political, economic and social factors can also lead to further readjustment of such reforms. This refining and readjustment process may not necessarily have a positive effect on our operations or future business development. Our operating results may be adversely affected by changes in the PRC’s economic and social conditions as well as by changes in the policies of the PRC government, such as changes in laws and regulations (or the official interpretation thereof), measures which may be introduced to control inflation, changes in the interest rate or method of taxation, and the imposition of additional restrictions on currency conversion.
 
The Chinese Government Exerts Substantial Influence Over The Manner In Which We Must Conduct Our Business Activities Which Could Adversely Affect Our Company.
 
China only recently has permitted provincial and local economic autonomy and private economic activities. The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and State ownership. Our ability to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation, import and export tariffs, environmental regulations, land use rights, property and other matters. We believe that our operations in China are in material compliance with all applicable legal and regulatory requirements. However, the central or local governments of these jurisdictions may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations.

 
- 18 -

 

Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof, and could require us to divest ourselves of any interest we then hold in China.
 
The Chinese Legal System Has Inherent Uncertainties That Could Limit The Legal Protections Available To You.
 
Our contractual arrangements with our VIEs in China are governed by the laws of the PRC. China’s legal system is based upon written statutes. Prior court decisions may be cited for reference but are not binding on subsequent cases and have limited value as precedents. Since 1979, the Chinese legislative bodies have promulgated laws and regulations dealing with economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade. However, because these laws and regulations are relatively new, and because of the limited volume of published decisions and their non-binding nature, the interpretation and enforcement of these laws and regulations involve uncertainties, and therefore you may not have legal protections for certain matters in China.
   
Even If We Are In Compliance With Chinese Governmental Regulations Relating To Foreign Investment Prohibitions, The Chinese Government May Prevent Us From Advertising Or Distributing Content That It Believes Is Inappropriate And We May Be Liable For Such Content Or We May Have To Stop Profiting From Such Content.
 
China has enacted regulations governing Internet access and the distribution of news and other information. In the past, the Chinese government has stopped the distribution of information over the Internet that it believes to violate Chinese law, including content that it believes is obscene, incites violence, endangers national security, is contrary to the national interest or is defamatory. In addition, we may not publish certain news items without permission from the Chinese government. Furthermore, the Ministry of Public Security has the authority to cause any local Internet service provider to block any web site maintained outside China at its sole discretion. Even if we comply with Chinese governmental regulations relating to foreign investment prohibitions, if the Chinese government were to take any action to limit or prohibit the distribution of information through our network or to limit or regulate any current or future content or services available to users on our network, our business could be significantly harmed.
 
            Because the definition and interpretation of prohibited content is in many cases vague and subjective, it is not always possible to determine or predict what and how content might be prohibited under existing restrictions or restrictions that might be imposed in the future.
 
We are also subject to potential liability for content on http://www.sol.com.cn that is deemed inappropriate and for any unlawful actions of our subscribers and other users of our systems. Furthermore, we are required to delete content that clearly violates the laws of China and report content that we suspect may violate Chinese law. It is difficult to determine the type of content that may result in liability for us, and if we are wrong, we may be prevented from operating our web sites.
 
Some Of Our Assets Are Located In China, Any Dividends Of Proceeds From Liquidation Is Subject To The Approval Of The Relevant Chinese Government Agencies.
 
Some of our assets are located inside China. Under the laws governing foreign invested enterprises in China, dividend distribution and liquidation are allowed but subject to special procedures under the relevant laws and rules. Any dividend payments will be subject to the decision of our Board of Directors and subject to foreign exchange rules governing such repatriation. Any liquidation is subject to both the relevant government agency’s approval and supervision as well the foreign exchange control. This may generate additional risk for our investors in case of dividend payments and liquidation.
 
 
- 19 -

 

Future Inflation In China May Inhibit Our Activity To Conduct Business In China.
 
In recent years, the Chinese economy has experienced periods of rapid expansion and high rates of inflation, which have led to the adoption by Chinese government, from time to time, of various corrective measures designed to restrict the availability of credit or regulate growth and contain inflation. While inflation has been more moderate since 1995, high inflation may in the future cause the Chinese government to impose controls on credit and/or prices, or to take other action, which could inhibit economic activity in China and thereby harm our business operations.
 
Currency Conversion And Exchange Rate Volatility Could Adversely Affect Our Financial Condition.
 
The PRC government imposes control over the conversion of Renminbi into foreign currencies. Under the current unified floating exchange rate system, the People’s Bank of China (PBOC) publishes an exchange rate, which we refer to as the PBOC exchange rate, based on the previous day’s dealings in the inter-bank foreign exchange market. Financial institutions authorized to deal in foreign currency may enter into foreign exchange transactions at exchange rates within an authorized range above or below the PBOC exchange rate according to market conditions.
 
Pursuant to the Foreign Exchange Control Regulations of the PRC issued by the State Council which came into effect on April 1, 1996, and the Regulations on the Administration of Foreign Exchange Settlement, Sale and Payment of the PRC which came into effect on July 1, 1996, regarding foreign exchange control, conversion of Renminbi into foreign exchange by Foreign Investment Enterprises (“FIEs”), for use on current account items, including the distribution of dividends and profits to foreign investors, is permissible. FIEs are permitted to convert their after-tax dividends and profits to foreign exchange and remit such foreign exchange to their foreign exchange bank accounts in the PRC. Conversion of Renminbi into foreign currencies for capital account items, including direct investment, loans, and security investment, is still under certain restrictions. On January 14, 1997, the State Council amended the Foreign Exchange Control Regulations and added, among other things, an important provision, which provides that the PRC government shall not impose restrictions on recurring international payments and transfers under current account items.
 
Enterprises in the PRC (including FIEs) which require foreign exchange for transactions relating to current account items, may, without approval of the State Administration of Foreign Exchange, or SAFE, effect payment from their foreign exchange account or convert and pay at the designated foreign exchange banks by providing valid receipts and proofs.
 
Convertibility of foreign exchange in respect of capital account items, such as direct investment and capital contribution, is still subject to certain restrictions, and prior approval from the SAFE or its relevant branches must be sought.
 
Since 1994, the exchange rate for Renminbi against the United States dollars has remained relatively stable. However, in 2005, the Chinese government announced that would begin pegging the exchange rate of the Chinese Renminbi against a number of currencies, rather than just the U.S. Dollar. As our operations are primarily in China, any significant revaluation of the Chinese Renminbi may materially and adversely affect our cash flows, revenues and financial condition. For example, to the extent that we need to convert United States dollars into Chinese Renminbi for our operations, appreciation of this currency against the United States dollar could have a material adverse effect on our business, financial condition and results of operations. Conversely, if we decide to convert Chinese Renminbi into United States dollars for other business purposes and the United States dollar appreciates against this currency, the United States dollar equivalent of the Chinese Renminbi we convert would be reduced.
 
 
- 20 -

 

The Value Of Our Securities Will Be Affected By The Foreign Exchange Rate Between U.S. Dollars And Renminbi.
 
The value of our common stock will be affected by the foreign exchange rate between U.S. dollars and Renminbi, and between those currencies and other currencies in which our sales may be denominated. For example, to the extent that we need to convert U.S. dollars into Renminbi for our operational needs and should the Renminbi appreciate against the U.S. dollar at that time, our financial position, the business of the Company, and the price of our common stock may be harmed. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of declaring dividends on our common stock or for other business purposes and the U.S. dollar appreciates against the Renminbi, the U.S. dollar equivalent of our earnings from our China operations would be reduced.
   
You May Experience Difficulties In Effecting Service Of Legal Process, Enforcing Foreign Judgments Or Bringing Original Actions In China Based On United States Or Other Foreign Laws Against Us.
 
We conduct our operations in China and some of our assets are located in China. In addition, some of our Directors and executive officers reside within China. As a result, it may not be possible to effect service of process within the United States or elsewhere outside China upon such directors or executive officers, including with respect to matters arising under U.S. federal securities laws or applicable state securities laws. Moreover, our Chinese counsel has advised us that China does not have treaties with the U.S. and many other countries that provide for the reciprocal recognition and enforcement of judgment of courts. As a result, recognition and enforcement in China of judgments of a court of the U.S. or any other jurisdiction in relation to any matter may be difficult or impossible.
 
Underdeveloped Telecommunications Infrastructure Has Limited, And May Continue To Limit, The Growth Of The Internet Market In China Which, In Turn, Could Limit Our Ability To Grow Our Business.
 
The telecommunications infrastructure in China is not well developed. Although private sector ISPs do exist in China, almost all access to the Internet is accomplished through ChinaNet, China’s primary commercial network, which is owned and operated by China Telecom and China Netcom under the administrative control and regulatory supervision of MII. The underdeveloped Internet infrastructure in China has limited the growth of Internet usage in China. If the necessary Internet infrastructure is not developed, or is not developed on a timely basis, future growth of the Internet in China could be limited and our business could be harmed.
 
Our Significant Amount Of Deposits In Certain Banks In China May Be At Risk If These Banks Go Bankrupt During Our Deposit Period.
 
We had approximately $1,693,000 at June 30, 2010 in banks in China, which constitutes all of our total cash. The terms of these deposits are, in general, up to twelve (12) months. Historically, deposits in Chinese banks are secure due to the state policy on protecting depositors’ interests. However, China promulgated a new Bankruptcy Law in August 2006, which became effective on June 1, 2007, which contains a separate article expressly stating that the State Council may promulgate implementation measures for the bankruptcy of Chinese banks based on the Bankruptcy Law. Under the new Bankruptcy Law, a Chinese bank may go bankrupt. In addition, since China’s concession to WTO, foreign banks have been gradually permitted to operate in China and have been severe competitors against Chinese banks in many aspects, especially since the opening of Renminbi business to foreign banks in late 2006. Therefore, the risk of bankruptcy of those banks in which we have deposits has increased. In the event of bankruptcy of one of the banks which holds our deposits, we are unlikely to recover our deposits back in full since we are unlikely to be classified as a secured creditor based on PRC laws.
 
RISKS RELATING TO OUR BUSINESS
 
Cyclical Patterns In The Global Shipping Industry Will Have a Substantial Impact On Our Overall Business Performance

The Internet-based shipping and logistics services integrated the shipping industry and the Internet industry. The Company's operating performance will also depend on the development of these two industries. Ocean transportation business is the core business of the Company. The cyclical changes of the ocean transportation industry and the cyclical changes of the global shipping industry will have a substantial impact on the business performance of the Company. With a sustained operating history and anti-risk experience for over 15 years, as well as integrated shipping and logistics services through the Internet, the Company will offset the risk to some extent, but the overall performance will inevitably be affected.

 
- 21 -

 
Stringent Regulations In China Could Force Us To Change Our Online Business Practices Which Could Have a Negative Impact On Our Business

The Internet industry is currently at the outbreak of the growth period in China, but the related industrial legislature is not sound, and some non-standard operations, dishonesty of e-commerce websites had a certain negative impact on the image of industry as a whole, resulting in strengthened supervision and administration on the Internet e-commerce industry by state departments. Shipping Online will face more stringent regulations which could change how we conduct our business and have a negative impact on our business.
 
If We Do Not Quickly Respond To E-Commerce Trends and Market Conditions And Increase Our Online Transaction Volume of Business We Could Lose Strategic Opportunities For The Rapid Promotion Of Our Services Which Could Adversely Affect Our Business
 
When the Company entered the shipping market in 1993, it experienced several ups and downs in the industry. Although we have accumulated rich anti-risk experience and are mature and stable in the ocean transportation for bulk cargo and associated traditional shipping services, e-commerce provided by is still a relatively new service model in the shipping industry. Although the Internet has already been proven in many other fields to greatly promote the development of traditional business, as a brand-new operation mode of the transactions, it may face some doubt from the enterprises at the initial stage, and may also experience setbacks, exploration and reiteration in the process of growth. Secondly, although there are higher access barriers to conduct business, as the necessary trend in the development of the shipping industry, fierce competition in the market is bound to affect the industry in the future. If the Company does not quickly increase its online transaction volume of business and localization of orders and services, it is possible we could see losses of strategic opportunity for the rapid promotion of services which could have an adverse effect our business.
 
Costs And Revenues In The Shipping Industry Are Volatile Which Could Adversely Affect Our Business.
 
The shipping industry historically has experienced volatility in freight rates, the cost of fuel oil, the cost and availability of crew, port charges and currency exchange rates, as well as in vessel charter rates and values, due to changes in the level and pattern of global economic activity and the highly competitive nature of the world shipping industry. Changes to marine regulatory regimes in the ports at which the Company’s vessels call also may increase the costs. The Company’s revenue is influenced by a number of factors that are difficult to predict with certainty, including global and regional economic conditions, developments in international trade, changes in seaborne, and other transportation patterns, weather patterns, port congestion, canal closures, political developments, and armed conflicts, acts of terrorism, embargoes, and strikes. Demand for the transportation services is influenced by the demand for the goods the Company ship, including steel products, metal concentrates and agricultural commodities, which in turn is affected by general economic conditions, commodity prices and competition. A decrease in demand for these products could adversely affect the results of operations.
  
High or Volatile Oil Prices Could Adversely Affect The Global Economy And Our Results Of Operations.
 
If oil prices remain high for an extended period of time, or experience prolonged volatility, the global economy could weaken significantly. Global recession or depression would significantly reduce the demand for ocean freight while the fuel costs would be increasing. A significant reduction in the demand for ocean freight would have a material and adverse impact on the Company’s results of operations and financial condition. In addition, the results of operations would be adversely affected if the Company were unable to pass increased fuel costs on to our customers.

 
- 22 -

 

Failure To Comply With International Safety Regulations May Subject The Company To Increased Liability Which May Adversely Affect Our Insurance Coverage Resulting In A Denial Of Access To, Or Detention In, Certain Ports Which Could Adversely Affect Our Business.

The operation of the vessels is affected by the requirements of the International Maritime Organization's International Safety Management Code for the Safe Operation of Ships and Pollution Prevention, or the ISM Code. The ISM Code requires ship owners and bareboat chatterers to develop and maintain an extensive "Safety Management System" that includes the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies. The Company’s failure to comply with the ISM Code may subject us to increased liability, may invalidate existing insurance or decrease available insurance coverage for the affected vessels and may result in a denial of, access to, or detention in certain ports, all of which could materially and adversely affect the Company’s results of operations and liquidity.
 
The Shipping Industry Has Inherent Operational Risks, And Such Risks May Not Be Adequately Covered By Insurance Exposing Us To Risk Of Loss Of Our Vessels Which Would Adversely Affect Our Business
 
The operation of any oceangoing vessel carries with it an inherent risk of marine disaster, environmental mishaps and collision or property losses. In the course of operating a vessel, marine disasters such as oil spills and other environmental mishaps, cargo loss or damage, business interruption due to political developments, labor disputes, strikes and adverse weather conditions could result in loss of revenues, liabilities or increased costs. The Company transports bulk cargoes such as fertilizer, salt and coal which, if not transported properly, could pose a risk to our vessels and to the environment. The Company cannot assure you that any insurance they maintain would be sufficient to cover the cost of damages or the loss of income resulting from a vessel being removed from operation or that any insurance claims would be paid or that insurance will be obtainable at reasonable rates in the future. Any significant loss or liability for which the Company are not insured, or for which the insurers fail to pay the Company, could have a material adverse effect on the Company’s financial condition. In addition, the loss of a vessel would adversely affect the Company’s cash flows and results of operations.
  
As The Company’s Fleet Of Vessels Ages, The Risks Associated With Older Vessels could Adversely Affect Our Business Operations.
 
In general, the costs to maintain an oceangoing vessel in good operating condition increase with the age of the vessel. As of December 31, 2009, the average age of the 13 vessels in the Company-controlled fleet was 21.92 years. The Company estimates that the economic useful life of most bulk carriers is approximately 25 years, however most of the vessels in the industry are used for more than 30 years or more, if the vessel can pass the annual survey. The length of a vessel’s useful life depends on market conditions, the type of cargo being carried and the level of maintenance. Some of the Company’s dry bulk carriers are used to transport products such as coal, salt or fertilizer that may damage the vessels and reduce their useful life, if the Company does not follow specified maintenance and cleaning routines. Older vessels may develop unexpected mechanical and operational problems despite adherence to regular survey schedules and proper maintenance. Due to improvements in engine technology, older vessels typically are less fuel-efficient than more recently constructed vessels. Cargo insurance rates increase with the age of a vessel. Governmental regulations and safety or other equipment standards related to the age of vessels may require expenditures for alterations or the addition of new equipment, to the vessels and may restrict the type of activities in which the vessels may engage. The Company cannot assure you that they will be able to operate the vessels profitably during the remainder of their projected useful lives or that they will be able to sell the vessels profitably when the Company no longer can utilize them in the fleet.
 
Our Vessels May Suffer Damage Whereby Such Vessels Would Need To Be Drydocked Unexpectedly Which Could Adversely Affect Our Cash Flows and Results of Operations.
 
If a vessel suffers damage, it may need to be repaired at a drydocking facility. The costs of drydock repairs are unpredictable and can be substantial. The loss of earnings while the vessel is being repaired and the repositioning of the Company’s vessels in response to the unexpected drydocking, as well as the actual costs of the repairs, would have a material adverse effect on our cash flows and results of operations. The Company may not have insurance that is sufficient to cover all of these costs or losses.

 
- 23 -

 

Risks Associated With The Purchase And Operation Of Secondhand Vessels Could Adversely Affect Our Future Operating Results
 
In addition to constructing new vessels, the Company’s current business strategy also partly involves growing through the purchase of secondhand vessels. Secondhand vessels generally car: y no warranties from the sellers or manufacturers. Although the Company inspects secondhand vessels prior to purchase, an inspection normally would not provide the Company with the same knowledge about their condition that the Company would have if they had been built for and operated exclusively by the Company. Secondhand vessels may have conditions or defects that the Company was not aware of when it bought the vessel and that may require the Company to undertake costly repairs. These repairs may require the Company to put a vessel into drydock, which would reduce the fleet utilization. The costs of drydock repairs are unpredictable and can be substantial. The loss of earnings while the vessels were being repaired and repositioned, as well as the actual cost of those repairs, would decrease the income from operations. The Company may not have insurance that is sufficient to cover all of these costs or losses and may have to pay drydocking costs not covered by our insurance. The Company’s future operating results could be adversely affected if some of the secondhand vessels do not perform as we expect.
 
In Order To Comply With PRC Regulatory Requirements, We Operate Our Main Business Through A Company With Which We Have A Contractual Relationship (the VIEs) But In Which We Do Not Have Controlling Ownership. If The PRC Government Determines That Our Agreements With the VIEs Are Not In Compliance With Applicable Regulations, Our Business In The PRC Could Be Adversely Affected.
 
The Chinese government restricts foreign investment in Internet-related and advertising businesses, including Internet access, distribution of content over the Internet and advertising via the Internet. Accordingly, we operate our Internet-related businesses in China through Shipping Online, a VIE, which is owned by Li Honglin and Xue Ying. We control Shipping Online and operate its business through contractual arrangements and these individual owners, but we have no equity control over Shipping Online. Accordingly, we cannot be sure that the PRC government would view our operating arrangements to be in compliance with PRC licensing, registration or other regulatory requirements, with existing policies or with requirements or policies that may be adopted in the future. If we are determined not to be in compliance, the PRC government could revoke our business and operating licenses, require us to discontinue or restrict our operations, restrict our right to collect revenues, block our web site, require us to restructure our business, corporate structure or operations, impose additional conditions or requirements with which we may not be able to comply, impose restrictions on our business operations or on our customers, or take other regulatory or enforcement actions against us that could be harmful to our business. We may also encounter difficulties in obtaining performance under or enforcement of related contracts.  

 
- 24 -

 

We Rely on Contractual Arrangements With the VIEs For Our Operations, Which May Not Be As Effective In Providing Control Over This Entity As Direct Ownership.
 
Because PRC regulations restrict our ability to provide Internet content, MVAS (Mobile Value-Added Services) and advertising services directly in China, we are dependent on our VIEs in which we have little or no equity ownership interest and must rely on contractual arrangements to control and operate these businesses. These contractual arrangements may not be as effective in providing control over these entities as direct ownership. For example, the VIEs could fail to take actions required for our business or fail to maintain our China web sites despite their contractual obligation to do so. These companies are able to transact business with parties not affiliated with us. If these companies fail to perform under their agreements with us, we may have to rely on legal remedies under Chinese law, which we cannot be sure would be effective. In addition, we cannot be certain that the individual equity owners of the VIEs would always act in the best interests of the VIEs, especially if they leave the VIEs.
 
Substantially all profits generated from our VIEs are paid to the subsidiaries of ours in China through related party transactions under contractual agreements. We believe that the terms of these contractual agreements are in compliance with the laws in China. The tax authorities in China have examined some of these contractual agreements in the past and have not raised any comment. However, due to the uncertainties surrounding the interpretation of the transfer pricing rules relating to related party transactions in China, it is possible that in the future tax authorities in China may challenge the transfer prices that we have used for related party transactions among our entities in China. In the event the tax authorities challenge our VIE structure, we may be forced to restructure our business operation, which could have a material adverse effect on our business.
 
We Cannot Predict Whether We Will Meet Internal or External Expectations Of Future Performance.
 
We believe that our future success depends on our ability to significantly increase revenue from the provision of our services. Accordingly, our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies with a limited operating history. These risks include our ability to:
 
 
·
offer new and innovative services;

 
·
respond effectively to competitive pressures and address the effects of strategic relationships or corporate combinations;

 
·
maintain our current, and develop new, strategic relationships;

 
·
increase awareness of our services and continue to build customer loyalty; and

 
·
attract and retain qualified management, consultants and employees.
 
We Cannot Assure You That Our Organic Growth Strategy Will Be Successful.
 
One of our growth strategies is to grow organically through increasing our services by increasing our market share and entering new markets globally. However, many obstacles to increasing our market share and entering such new markets exist, including, but not limited to, costs associated with increasing market share and entering into such markets and attendant marketing efforts. We cannot, therefore, assure you that we will be able to successfully overcome such obstacles and establish our services in any additional markets. Our inability to implement this organic growth strategy successfully may have a negative impact on our ability to grow and on our future financial condition, results of operations or cash flows.

 
- 25 -

 

Our Business And Growth Could Suffer If We Are Unable To Hire And Retain Key Personnel That Are In High Demand.
 
We depend upon the continued contributions of our senior management and other key personnel, including external experts and advisers. The loss of the services of any of our executive officers or other key personnel could have a material adverse effect on our business, operations, revenues or prospects. We do not maintain key man insurance on the lives of these individuals at present. As we plan to expand, we will have to attract managerial staff. We may not be able to identify and retain qualified personnel due to our lack of understanding of different cultures and lack of local contacts. This may impede any potential expansion. Our future success will also depend on our ability to attract and retain highly skilled and qualified technical, engineering, managerial, finance, marketing, security and customer service personnel in China. Qualified individuals are in high demand, and we may not be able to successfully attract, assimilate or retain the personnel we need to succeed.
 
We May Not Be Able To Manage Our Expanding Operations Effectively, Which Could Harm Our Business.
 
We anticipate expanding our business as we address growth in our customer base and market opportunities. In addition, the geographic dispersion of our operations as a result of overall internal growth requires significant management resources that our locally-based competitors do not need to devote to their operations. In order to manage the expected growth of our operations and personnel, we will be required to improve and implement operational and financial systems, procedures and controls, and expand, train and manage our growing employee base. Further, our management will be required to maintain and expand our strategic relationships necessary to our business. We cannot assure you that our current and planned personnel, systems, procedures and controls will be adequate to support our future operations. If we are not successful in establishing, maintaining and managing our personnel, systems, procedures and controls, our business will be materially and adversely affected.
 
If We Need Additional Capital To Fund Our Growing Operations, We May Not Be Able To Obtain Sufficient Capital And May Be Forced To Limit The Scope Of Our Operations.
 
We may experience increased capital needs and we may not have enough capital to fund our future operations without additional capital investments. Our capital needs will depend on numerous factors, including (i) our profitability; (ii) the success of our competitors; (iii) the amount of our capital expenditures; and (iv) new investments. We cannot assure you that we will be able to obtain capital in the future to meet our needs.
 
If we cannot obtain additional funding, we may be required to:
 
 
·
reduce our investments;

 
·
limit our expansion efforts; and

 
·
decrease or eliminate capital expenditures.
 
Such reductions could materially adversely affect our business and our ability to compete. Even if we do find a source of additional capital, we may not be able to negotiate terms and conditions for receiving the additional capital that are acceptable to us. Any future capital investments could dilute or otherwise materially and adversely affect the holdings or rights of our existing stockholders. We cannot give you any assurance that any additional financing will be available to us, or if available, will be on terms favorable to us.
 
 
- 26 -

 
 
Concerns About The Security Of Electronic Commerce Transactions And Confidentiality Of Information On The Internet May Reduce Use Of Our Network And Impede Growth.
 
A significant barrier to electronic commerce and communications over the Internet in general has been a public concern over security and privacy, especially the transmission of confidential information. If these concerns are not adequately addressed, they may inhibit the growth of the Internet and other online services generally, especially as a means of conducting commercial transactions. If a well-publicized Internet breach of security were to occur, general Internet usage could decline, which could reduce traffic to our destination sites and impede our growth.
 
We May Not Be Able To Adequately Protect Our Intellectual Property, Which Could Cause Us To Be Less Competitive.
 
We rely on a combination of trademark, patent and trade secret laws and restrictions on disclosure to protect our intellectual property rights. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use our products and technology. Monitoring unauthorized use of our products is difficult and costly, and we cannot be certain that the steps we have taken will prevent misappropriations of our products and technology, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States. From time to time, we may have to resort to litigation to enforce our intellectual property rights, which could result in substantial costs and diversion of our resources.
 
We May Be Exposed To Infringement Claims By Third Parties, Which, If Successful, Could Cause Us To Pay Significant Damage Awards.
 
Third parties may initiate litigation against us alleging infringement of their proprietary rights. In the event of a successful claim of infringement and our failure or inability to develop non-infringing products and technology or license the infringed or similar product or technology on a timely basis, our business could be harmed. In addition, even if we are able to license the infringed or similar product or technology, license fees could be substantial and may adversely affect our results of operations.
  
The Law Of The Internet Remains Largely Unsettled, Which Subjects Our Business To Legal Uncertainties That Could Harm Our Business.
 
Due to the increasing popularity and use of the Internet and other online services, it is possible that a number of laws and regulations may be adopted with respect to the Internet or other online services covering issues such as user privacy, pricing, content, copyrights, distribution, antitrust and characteristics and quality of products and services. Furthermore, the growth and development of the market for electronic commerce may prompt calls for more stringent consumer protection laws that may impose additional burdens on companies conducting business online. The adoption of any additional laws or regulations may decrease the growth of the Internet or other online services, which could, in turn, decrease the demand for our products and services and increase our cost of doing business.
 
Moreover, the applicability to the Internet and other online services of existing laws in various jurisdictions governing issues such as property ownership, sales and other taxes, libel and personal privacy is uncertain and may take years to resolve. Any new legislation or regulation, the application of laws and regulations from jurisdictions whose laws do not currently apply to our business, or the application of existing laws and regulations to the Internet and other online services could significantly disrupt our operations.

 
- 27 -

 

We May Be Subject To Claims Based On The Content We Provide Over Our Network and the Products And Services Sold On Our Network, Which, If Successful, Could Cause Us To Pay Significant Damage Awards.
 
As a publisher and distributor of content and a provider of services over the Internet, we face potential liability for defamation, negligence, copyright, patent or trademark infringement and other claims based on the nature and content of the materials that we publish or distribute; the selection of listings that are accessible through our services and media properties, or through content and materials that may be posted by users on our website; losses incurred in reliance on any erroneous information published by us; unsolicited email, lost or misdirected messages, illegal or fraudulent use of email or interruptions or delays in email service; and product liability, warranty and similar claims to be asserted against us by end users who purchase goods and services through http://www.sol.com.cn and any future e-commerce services we may offer.
 
We may incur significant costs in investigating and defending any potential claims, even if they do not result in liability. Although we carry general liability insurance, our insurance may not cover potential claims of this type and may not be adequate to indemnify us against all potential liabilities.
 
 Our Operations Could Be Disrupted By Unexpected Network Interruptions Caused By System Failures, Natural Disasters Or Unauthorized Tampering With Our Systems.
 
The continual accessibility of our website and the performance and reliability of our network infrastructure are critical to our reputation and our ability to attract and retain users, advertisers and merchants. Any system failure or performance inadequacy that causes interruptions in the availability of our services or increases the response time of our services could reduce our appeal to advertisers and consumers. Factors that could significantly disrupt our operations include: system failures and outages caused by fire, floods, earthquakes, power loss, telecommunications failures and similar events; software errors; computer viruses, break-ins and similar disruptions from unauthorized tampering with our computer systems; and security breaches related to the storage and transmission of proprietary information, such as credit card numbers or other personal information.
 
We have limited backup systems and redundancy. In the past, we experienced an unauthorized tampering of the mail server of our China website which briefly disrupted our operations. Future disruptions or any of the foregoing factors could damage our reputation, require us to expend significant capital and other resources and expose us to a risk of loss or litigation and possible liability. We do not carry sufficient business interruption insurance to compensate for losses that may occur as a result of any of these events. Accordingly, our revenues and results of operations may be adversely affected if any of the above disruptions should occur.

We May Be Classified As A Passive Foreign Investment Company, Which Could Result In Adverse U.S. Tax Consequences To U.S. Investors.
 
Based upon the nature of our income and assets, we may be classified as a passive foreign investment company, or PFIC, by the United States Internal Revenue Service for U.S. federal income tax purposes. This characterization could result in adverse U.S. tax consequences to you. For example, if we are a PFIC, our U.S. investors will become subject to increased tax liabilities under U.S. tax laws and regulations and will become subject to more burdensome reporting requirements. The determination of whether or not we are a PFIC is made on an annual basis, and those determinations depend on the composition of our income and assets, including goodwill, from time to time. We intend to operate our business so as to minimize the risk of PFIC treatment, however you should be aware that certain factors that could affect our classification as PFIC are out of our control. For example, the calculation of assets for purposes of the PFIC rules depends in large part upon the amount of our goodwill, which in turn is based, in part, on the then market value of our shares, which is subject to change. Similarly, the composition of our income and assets is affected by the extent to which we spend the cash we have raised on acquisitions and capital expenditures. In addition, the relevant authorities in this area are not clear and so we operate with less than clear guidance in our effort to minimize the risk of PFIC treatment. Therefore, we cannot be sure whether we are not and will not be a PFIC for the current or any future taxable year. In the event we are determined to be a PFIC, our stock may become less attractive to U.S. investors, thus negatively impacting the price of our stock.

 
- 28 -

 

RISKS RELATING TO OUR COMMON STOCK
 
Our common stock Price Is Volatile And Could Decline In The Future.

The stock market in general and the market price for other companies based in the PRC have experienced extreme stock price fluctuations. In some cases, these fluctuations have been unrelated to the operating performance of the affected companies. Many companies in China have experienced dramatic volatility in the market prices of their common stock. We believe that a number of factors, both within and outside of our control, could cause the price of our common stock to fluctuate, perhaps substantially. Factors such as the following could have a significant adverse impact on the market price of our common stock:
 
 
·
announcements of technological innovations by us or our competitors;

 
·
our ability to obtain additional financing and, if available, the terms and conditions of the financing;

 
·
our financial position and results of operations;

 
·
litigation;

 
·
period-to-period fluctuations in our operating results;

 
·
changes in estimates of our performance by any securities analysts;

 
·
new regulatory requirements and changes in the existing regulatory environment;

 
·
the issuance of new equity securities in a future offering;

 
·
changes in interest rates;

 
·
changes in environmental standards;

 
·
market conditions of securities traded on the OTCBB;

 
·
investor perceptions of us and the shipping industry generally; and

 
·
general economic and other national conditions.
 
We May Have Difficulty Raising Necessary Capital To Fund Operations As A Result Of Market Price Volatility For Our Shares Of common stock.
 
In recent years, the securities markets in the United States have experienced a high level of price and volume volatility, and the market price of securities of many companies have experienced wide fluctuations that have not necessarily been related to the operations, performances, underlying asset values or prospects of such companies. For these reasons, our shares of common stock can also be expected to be subject to volatility resulting from purely market forces over which we will have no control. If our business development plans are successful, we may require additional financing to continue to develop and exploit existing and new technologies and to expand into new markets. The exploitation of our technologies may, therefore, be dependent upon our ability to obtain financing through debt and equity or other means.

 
- 29 -

 

Our common stock Is Considered A “Penny Stock” And As A Result, Related Broker-Dealer Requirements Affect Its Trading And Liquidity.
 
Our common stock is considered to be a “penny stock” since it meets one or more of the definitions in Rules 15g-2 through 15g-6 promulgated under Section 15(g) of the Exchange Act.  These include but are not limited to the following: (i) the common stock trades at a price less than $5.00 per share; (ii) the common stock is not traded on a “recognized” national exchange; (iii) the common stock is not quoted on the NASDAQ Stock Market, or (iv) the common stock is issued by a company with average revenues of less than $6.0 million for the past three (3) years. The principal result or effect of being designated a “penny stock” is that securities broker-dealers cannot recommend our common stock to investors, thus hampering its liquidity.
 
Section 15(g) and Rule 15g-2 require broker-dealers dealing in penny stocks to provide potential investors with documentation disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the documents before effecting any transaction in a penny stock for the investor’s account. Potential investors in our common stock are urged to obtain and read such disclosure carefully before purchasing any of our shares.
 
Moreover, Rule 15g-9 requires broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker-dealer to (i) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives; (ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor’s financial situation, investment experience and investment objectives.
 
Compliance with these requirements may make it more difficult for holders of our common stock to resell their shares to third parties or to otherwise dispose of them in the market or otherwise.
 
Shares Eligible For Future Sale May Adversely Affect The Market Price Of Our common stock.
 
From time to time, certain of our stockholders may be eligible to sell all or some of their shares of common stock by means of ordinary brokerage transactions in the open market pursuant to Rule 144, promulgated under the Securities Act of 1933, as amended, subject to certain limitations. Any substantial sale of our common stock pursuant to Rule 144 may have an adverse effect on the market price of our common stock.
 
One Stockholder, Which is 50% Controlled By Our Chairman of the Board and President and 50% Controlled By Our Chief Executive Officer and Secretary, Exercises Significant Control Over Matters Requiring Stockholder Approval.
 
One stockholder has voting power equal to eighty-two and one quarter percent (82.25%) of our voting securities as of the date of this report. Moreover, the stockholder is 50% controlled by Li Honglin, our Chairman of the Board and President and 50% controlled by Xue Ying, our Chief Executive Officer and Secretary. As a result, the Stockholder and our Chairman of the Board, through such stock ownership, exercise control over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership in the Stockholder may also have the effect of delaying or preventing a change in control of us that may be otherwise viewed as beneficial by stockholders other than the Stockholder.
 
We May Incur Significant Costs To Ensure Compliance With U.S. Corporate Governance And Accounting Requirements.
 
We may incur significant costs associated with our public company reporting requirements, costs associated with newly applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the SEC. We expect all of these applicable rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly. We also expect that these applicable rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our Board or as executive officers. We cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

 
- 30 -

 
  
We May Be Required To Raise Additional Financing By Issuing New Securities With Terms Or Rights Superior To Those Of Our Shares Of common stock, Which Could Adversely Affect The Market Price Of Our Shares Of common stock.
 
We may require additional financing to fund future operations, including expansion in current and new markets, development and acquisition, capital costs and the costs of any necessary implementation of technological innovations or alternative technologies. We may not be able to obtain financing on favorable terms, if at all. If we raise additional funds by issuing equity securities, the percentage ownership of our current stockholders will be reduced, and the holders of the new equity securities may have rights superior to those of the holders of shares of common stock, which could adversely affect the market price and the voting power of shares of our common stock. If we raise additional funds by issuing debt securities, the holders of these debt securities would similarly have some rights senior to those of the holders of shares of common stock, and the terms of these debt securities could impose restrictions on operations and create a significant interest expense for us.
 
Standards For Compliance With Section 404 Of The Sarbanes-Oxley Act Of 2002 Are Uncertain, And If We Fail To Comply In A Timely Manner, Our Business Could Be Harmed And Our Stock Price Could Decline.
 
Rules adopted by the SEC, pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 require annual assessment of our internal control over financial reporting, and attestation of our assessment by our independent registered public accountants. The standards that must be met for management to assess the internal control over financial reporting as effective are new and complex, and require significant documentation, testing and possible remediation to meet the detailed standards and will impose significant additional expenses on us. We may encounter problems or delays in completing activities necessary to make an assessment of our internal control over financial reporting. In addition, the attestation process by our independent registered public accountants is new and we may encounter problems or delays in completing the implementation of any requested improvements and receiving an attestation of our assessment by our independent registered public accountants. If we cannot assess our internal control over financial reporting as effective, or our independent registered public accountants are unable to provide an unqualified attestation report on such assessment, investor confidence and share value may be negatively impacted.
 
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

None.

ITEM 5. OTHER INFORMATION

None.
- 31 -

ITEM 6. EXHIBITS

(a) Exhibits:
 
EXHIBIT
NO.
 
DESCRIPTION
 
LOCATION
         
2.1
 
Share Exchange Agreement, dated August 12, 2008, by and among Trip Tech, Inc., SkyAce Group Limited and Pioneer Creation Holdings Limited
 
Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on August 12, 2008
         
3.1
 
Articles of Incorporation of Trip Tech, Inc.
 
Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form SB-2 as filed with the SEC on May 14, 2007
         
3.2
 
Amended and Restated Bylaws of Trip Tech, Inc. dated as of August 27, 2008
 
Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on September 29, 2008
         
3.3
 
Memorandum and Articles of Association of SkyAce Group Limited
 
Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on August 12, 2008
         
3.4
 
Certificate of Incorporation of SkyAce Group Limited
 
Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on August 12, 2008
         
3.5
 
Memorandum and Articles of Association of Plentimillion Group Limited
 
Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on August 12, 2008
         
3.6
 
Certificate of Incorporation of Plentimilllion Group Limited
 
Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on August 12, 2008
         
3.7
 
Memorandum and Articles of Association of Best Summit Enterprises Limited
 
Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on August 12, 2008
         
3.8
 
Certificate of Incorporation of Best Summit Enterprises Limited
 
Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on August 12, 2008
         
3.9
 
Memorandum and Articles of Association of Wallis Development Limited
 
Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on August 12, 2008
         
3.10
 
Certificate of Incorporation of Wallis Development Limited
 
Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on August 12, 2008
         
3.11
 
Articles of Association of Beijing Huate Xingye Keji Co. Ltd.
 
Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on August 12, 2008
         
3.12
 
Certificate of Incorporation of Beijing Huate Xingye Keji Co. Ltd.
 
Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on August 12, 2008
         
3.13
 
Certificate of Correction to Trip Tech’s Articles of Incorporation, dated August 11, 2008
 
Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on August 12, 2008
 
 
- 32 -

 

3.14
 
Certificate of Amendment to Certificate of Incorporation of the Company, dated September 24, 2008
 
Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on September 29, 2008
         
3.15
 
Certificate of Corporate Resolutions Designating Series A Preferred Stock of the Company, dated August 12, 2008
 
Incorporated by reference to Exhibit 3.15 to the Company’s Annual Report on Form 10-K as filed with the SEC on March 31, 2009
         
10.1
 
Exclusive Technology Consultation Service Agreement, dated March 31, 2008, by and among Beijing Huate Xingye Keji Co. Ltd. and Winland International
 
Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on August 12, 2008
         
10.2
 
Exclusive Technology Consultation Service Agreement, dated March 31, 2008, by and among Beijing Huate Xingye Keji Co. Ltd. and Winland Logistics
 
Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on August 12, 2008
         
10.3
 
Exclusive Technology Consultation Service Agreement, dated March 31, 2008, by and among Beijing Huate Xingye Keji Co. Ltd. and Shipping Online
 
Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on August 12, 2008
         
10.4
 
Exclusive Equity Interest Purchase Agreement, dated March 31, 2008, by and among Wallis Development Limited, Dalian Winland International Shipping Agency Co., Ltd. and Dalian Winland Group Co., Ltd.
 
Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on August 12, 2008
         
10.5
 
Exclusive Equity Interest Purchase Agreement, dated March 31, 2008, by and among Wallis Development Limited, Dalian Winland International Shipping Agency Co., Ltd. and Dalian Weihang Logistic Agent Co., Ltd.
 
Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on August 12, 2008
         
10.6
 
Exclusive Equity Interest Purchase Agreement, dated March 31, 2008, by and among Wallis Development Limited, Dalian Winland International Shipping Agency Co., Ltd. and Dalian Winland Shipping Co., Ltd.
 
Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on August 12, 2008
         
10.7
 
Exclusive Equity Interest Purchase Agreement, dated March 31, 2008, by and between Wallis Development Limited, Dalian Winland International Logistics Co., Ltd. and Dalian Winland Group Co., Ltd.
 
Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on August 12, 2008
         
10.8
 
Exclusive Equity Interest Purchase Agreement, dated March 31, 2008, by and between Wallis Development Limited, Dalian Winland International Logistics Co., Ltd. and Dalian Winland Shipping Co., Ltd.
 
Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on August 12, 2008

 
- 33 -

 

10.9
 
Exclusive Equity Interest Purchase Agreement, dated March 31, 2008, by and between Wallis Development Limited, Dalian Winland International Logistics Co., Ltd. and Dalian Winland International Shipping Agency Co., Ltd.
 
Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on August 12, 2008
         
10.10
 
Exclusive Equity Interest Purchase Agreement, dated March 31, 2008, by and among Wallis Development Limited, Dalian Shipping Online Network Co., Ltd. and Li Honglin
 
Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on August 12, 2008
         
10.11
 
Exclusive Equity Interest Purchase Agreement, dated March 31, 2008, by and among Wallis Development Limited, Dalian Shipping Online Network Co., Ltd. and Xue Ying
 
Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on August 12, 2008
         
 10.12
 
Equity Interest Pledge Agreement, dated March 31, 2008, by and between Beijing Huate Xingye Keji Co. Ltd. and Dalian Winland Group Co.
 
Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on August 12, 2008
         
10.13
 
Equity Interest Pledge Agreement, dated March 31, 2008, by and between Beijing Huate Xingye Keji Co. Ltd. and Dalian Winland Shipping Co., Ltd.
 
Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on August 12, 2008
         
10.14
 
Equity Interest Pledge Agreement, dated March 31, 2008, by and between Beijing Huate Xingye Keji Co. Ltd. and Dalian Weihang Logistic Agent Co., Ltd.
 
Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on August 12, 2008
         
10.15
 
Equity Interest Pledge Agreement, dated March 31, 2008, by and between Beijing Huate Xingye Keji Co. Ltd. and Dalian Winland International Logistics Co., Ltd.
 
Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on August 12, 2008
         
10.16
 
Equity Interest Pledge Agreement, dated March 31, 2008, by and between Beijing Huate Xingye Keji Co. Ltd. and Dalian Winland Group Co.
 
Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on August 12, 2008
         
10.17
 
Equity Interest Pledge Agreement, dated March 31, 2008, by and between Beijing Huate Xingye Keji Co. Ltd. and Winland Shipping Co., Ltd.
 
Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on August 12, 2008
  
       
10.18
 
Equity Interest Pledge Agreement, dated March 31, 2008, by and between Beijing Huate Xingye Keji Co. Ltd. and Li Honglin
 
Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on August 12, 2008
         
10.19
 
Equity Interest Pledge Agreement, dated March 31, 2008, by and between Beijing Huate Xingye Keji Co. Ltd. and Xue Ying
 
Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on August 12, 2008
         
10.20
 
Powers of Attorney, dated March 31, 2008, executed by Dalian Winland Group Co., Ltd., Dalian Winland Shipping Co., Ltd. and Dalian Weihang Logistic Agent Co., Ltd. in favor of Beijing Huate Xingye Keji Co. Ltd. For Dalian Winland International Shipping Agency Co., Ltd.
 
Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on August 12, 2008
 
 
- 34 -

 
 
  10.21
 
Powers of Attorney, dated March 31, 2008, executed by Dalian Winland Group Co., Ltd., Dalian Winland Shipping Co., Ltd. and Dalian Winland International Shipping Agency Co., Ltd. in favor of Beijing Huate Xingye Keji Co. Ltd. for Dalian Winland International Logistics Co., Ltd.
 
Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on August 12, 2008
         
10.22
 
Powers of Attorney, dated March 31, 2008, executed by Li Honglin and Xue Ying in favor of Beijing Huate Xingye Keji Co. Ltd. and Dalian Shipping Online Network Co., Ltd.
 
Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on August 12, 2008
         
10.23
 
Memorandum of Agreement, dated June 3, 2009, by and between Mario Shipping Corporation and Winland Shipping Co. Ltd.
 
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q as filed with the SEC on November 13, 2009
         
10.24
 
Addendum No. 1 to Memorandum of Agreement dated June 4, 2009 (Bao Shun)
 
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q as filed with the SEC on November 13, 2009
         
10.25
 
Addendum No. 2 to Memorandum of Agreement dated July 14, 2009 (Bao Shun)
 
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q as filed with the SEC on November 13, 2009
         
10.26
 
Loan Agreement (Mitsubishi UFJ Lease Finance Co., Ltd.)
 
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q as filed with the SEC on November 13, 2009
         
10.27
 
Amendment to Loan Agreement (Mitsubishi UFJ Lease Finance Co., Ltd.)
 
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q as filed with the SEC on November 13, 2009
         
10.28
 
First Preferred Panamanian Ship Mortgage
 
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q as filed with the SEC on November 13, 2009
         
10.29
 
Deed of Guarantee
 
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q as filed with the SEC on November 13, 2009
         
21
`
List of Subsidiaries
 
Incorporated by reference to Exhibit 21 to Amendment No. 1 to the Company’s Annual Report on Form 10-K/A as filed with the SEC on July 8, 2010
         
31.1
 
Certifications of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 Provided herewith
         
31.2
 
Certifications of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
Provided herewith
         
32.1
 
Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of the Sarbanes-Oxley Act Of 2002
 
Provided herewith
 
 
- 35 -

 

32.2
 
Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of the Sarbanes-Oxley Act Of 2002
 
Provided herewith
         
99.1
 
Audit Committee Charter, dated January 15, 2009
 
Incorporated by reference Exhibit 99.1 to the Company’s Current Report on Form 8-K as filed with the SEC on January 20, 2009
         
99.2
 
Compensation Committee Charter, dated January 15, 2009
 
Incorporated by reference Exhibit 99.2 to the Company’s Current Report on Form 8-K as filed with the SEC on January 20, 2009
         
99.3
 
Corporate Governance and Nominating Committee Charter, dated January 15, 2009
 
Incorporated by reference Exhibit 99.3 to the Company’s Current Report on Form 8-K as filed with the SEC on January 20, 2009
 
 
- 36 -

 

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Amendment No. 1 to Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.
 
Date: August 10, 2010
By:
/s/ Xue Ying
 
Name: 
Xue Ying
 
Its:
Chief Executive Officer, Principal Executive Officer,
Secretary and Director
     
Date: August 10, 2010
By:
/s/ Jing Yan
 
Name: 
Jing Yan
 
Its:
Chief Financial Officer, Principal Financial and
Accounting Officer

 
- 37 -