Attached files
| file | filename |
|---|---|
| EXCEL - IDEA: XBRL DOCUMENT - ZZLL INFORMATION TECHNOLOGY, INC | Financial_Report.xls |
| EX-31.1 - CERTIFICATION - ZZLL INFORMATION TECHNOLOGY, INC | ex311.htm |
| EX-32.1 - CERTIFICATION - ZZLL INFORMATION TECHNOLOGY, INC | ex321.htm |
| EX-32.2 - CERTIFICATION - ZZLL INFORMATION TECHNOLOGY, INC | ex322.htm |
| EX-31.2 - CERTIFICATION - ZZLL INFORMATION TECHNOLOGY, INC | ex312.htm |
U.S. 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 March 31, 2012
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________________ to ______________________
Commission File No. 333-134991
BAOSHINN CORPORATION
(Exact name of small business issuer as specified in its charter)
Nevada | 20-3486523 | |
(State or other jurisdiction of incorporation or formation) | (I.R.S. employer identification number) |
A-B 8/F Hart Avenue Tsimshatsui
Kowloon, Hong Kong N/A
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (852) 2815-1355
_______________________________________________
Securities registered under Section 12(b) of the Exchange Act:
None.
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value per share
(Title of Class)
Indicate by check mark whether the issuer (1) 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 [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posed 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 [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defeind in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Excahgne Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of March 31, 2012, the Company had 2,140,000 shares of common stock outstanding.
2
BAOSHINN CORPORATION
UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS INDEX
PART I – FINANCIAL INFORMATION:
Item 1. Financial Statements (unaudited)
4
Consolidated Balance Sheet (unaudited) at March 31, 2012 and at December 31, 2011
5
Consolidated Statement of Income (unaudited) for the three months ended March 31, 2011
and March 31, 2012
6
Consolidated Statement of Cash Flows (unaudited) for the three months ended March 31, 2011
and March 31, 2012
7
Notes to Consolidated Financial Statements (interim)
8-24
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
25
Item 3. Quantitative and Qualitative Disclosure About Market Risks
32
Item 4. Controls and Procedures
32
PART II – OTHER INFORMATION:
Item 1. Legal Proceedings
33
Item 1A. Risk Factors
33
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
33
Item 3. Defaults Upon Senior Securities
33
Item 5. Other Information
33
Item 6. Exhibits
33
Signatures
34
3
PART I – FINANCIAL INFORMATION
Item 1.
Financial Statements
Baoshinn Corporation
Consolidated Financial Statements
For the Three Months Ended March 31, 2012 and 2011
(Stated in US Dollars)
4
BAOSHINN CORPORATION
CONSOLIDATED BALANCE SHEET
(Stated in US Dollars)
Mar 31, | Dec 31, | ||
2012 | 2011 | ||
(Unaudited) | (Audited) | ||
$ | $ | ||
ASSETS | |||
Current Assets | |||
Cash and cash equivalents | 1,570,646 | 1,361,357 | |
Accounts receivable | 2,865,905 | 2,058,647 | |
Deferred cost – note 13 | 2,696,429 | 2,078,605 | |
Restricted cash | 12,878 | 12,877 | |
Deposits, prepaid expenses and other receivables – Note 9 | 1,100,999 | 986,485 | |
Amount due from related party – note 12 | - | 4,437 | |
Income tax prepaid | 15,313 | 15,311 | |
Total Current Assets | 8,262,170 | 6,517,719 | |
Plant and equipment – Note 10 | 30,622 | 34,789 | |
TOTAL ASSETS | 8,292,792 | 6,552,508 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||
LIABILITIES | |||
Current Liabilities | |||
Accounts payable | 3,752,069 | 3,080,100 | |
Deferred revenue – note 13 | 2,717,174 | 2,094,307 | |
Other payables and accrued liabilities – Note 11 | 933,496 | 438,019 | |
Total current liabilities | 7,402,739 | 5,612,426 | |
TOTAL LIABILITIES | 7,402,739 | 5,612,426 | |
COMMITMENTS AND CONTINGENCIES – Note 18 | |||
STOCKHOLDERS’ EQUITY | |||
Common stock | |||
Par value : 2012 - US$0.01 (2011: US$0.01) | |||
Authorized: 2012 – 300,000,000 common shares, 100,000,000 preferred shares | |||
Issued and outstanding: 2012 – 2,140,000 shares (2011 – 2,140,000)* | 21,400 | 21,400 | |
Additional paid-in capital | 1,793,596 | 1,793,596 | |
Accumulated other comprehensive income | (277) | (399) | |
Accumulated deficit | (1,128,445) | (1,078,645) | |
TOTAL STOCKHOLDERS’ EQUITY OF THE GROUP | 686,274 | 735,952 | |
ATTRIBUTABLE TO NON-CONTROLLING INTERESTS | 203,779 | 204,130 | |
ATTRIBUTBLE TO THE GROUP | 890,053 | 940,082 | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | 8,292,792 | 6,552,508 |
See notes to consolidated financial statement.
*The number of common stocks outstanding as at Dec 31, 2011 are retrospective stated according to a result of a reverse stock split during year ended December 31, 2011.
5
BAOSHINN CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Stated in US Dollars)
Three Months Ended 31 Mar, 2012 |
| Three Months Ended 31 Mar, 2011 |
| ||
$ |
| $ | |||
|
|
| |||
Retail and Corporate revenue | 9,709,094 |
| 8,501,752 | ||
Commission from travel booking services | 13,960 |
| 32,218 | ||
Incentive commissions | 111,372 |
| 74,303 | ||
|
|
| |||
Net sales | 9,834,426 |
| 8,608,273 | ||
Cost of sales | (9,531,714) |
| (8,259,363) | ||
|
|
| |||
Gross profit | 302,712 |
| 348,910 | ||
Other operating income – Note 5 | 6,091 |
| 9,302 | ||
Depreciation | (5,218) |
| (5,438) | ||
Administrative and other operating expenses | (354,720) |
| (321,771) | ||
|
|
| |||
(Loss)/Income from operations | (51,135) | 31,003 | |||
Other non-operating income - Note 6 | 973 | 1,486 | |||
Interest expenses – Note 7 | (15) |
| - | ||
|
|
| |||
(Loss)/Income before income taxes | (50,177) |
| 32,489 | ||
Income taxes - Note 8 | - |
| - | ||
|
|
| |||
Net (Loss)/Income | (50,177) |
| 32,489 | ||
Non-controlling interest | 377 |
| (4,028) | ||
|
|
| |||
Net Income (Loss) attributable to the Company | (49,800) |
| 28,461 | ||
|
|
| |||
Earnings per share of common stock – Note 4 |
|
|
| ||
- Basic | (2.33) cents |
| 1.33 cents* | ||
- Diluted | (2.33) cents |
| 1.33 cents* | ||
|
|
| |||
Weighted average number of common stock – Note 4 |
|
|
| ||
- Basic | 2,140,000 |
| 2,140,000* | ||
- Diluted | 2,140,000 |
| 2,140,000* | ||
See notes to consolidated financial statements
*As the number of common shares outstanding decreased as a result of a reverse stock split during year ended December 31, 2011, the computations of basic and diluted EPS shall be adjusted retroactively for all periods presented to reflect that change in capital structure.
6
BAOSHINN CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Stated in US Dollars)
See notes to consolidated financial statements.
7
BAOSHINN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
1.
Corporation information
Baoshinn Corporation (the “Company”) was incorporated under the laws of the State of Nevada on September 9, 2005, under the name of JML Holdings, Inc.
On May 10, 2002, Bao Shinn International Express Limited (“BSIE”), a privately-held corporation, was incorporated in Hong Kong.
On March 31, 2006, the Company consummated a merger (the “merger”) with BSIE by issuing 16,500,000 shares in the share exchange transaction for 100% of the issued and outstanding shares of BSIE common stock. As a result of the share exchange transaction, BSIE became our wholly-owned subsidiary.
Bao Shinn Holidays Limited (“BSHL”) was incorporated on July 16, 2008 with 3,000,000 ordinary shares issued and paid at $0.128 per share. At the same day, BSIE owns 55% of BSHL.
During the year ended March 31, 2009, Baoshinn Corporation and its subsidiaries (collectively referred to as the “Group”) issued 2,400,000 restricted common shares of $0.001 per share at a value of $0.3 per share with a net proceeds of approximately $624,000 and redeemed 2,500,000 restricted common shares and these shares are classified as not issued and outstanding.
Effective on October 19, 2011, each of ten (10) shares of the Company’s Common Stock, par value $.001 per share, issued and outstanding immediately prior to the Effective Time, the “Old Common Stock” shall automatically and without any action on the part of the holder thereof, be reclassified as and changed into one (1) share of the Company’s outstanding Common Stock, the “New Common Stock”
2.
Description of business
BSIE, a wholly-owned subsidiary of the Group, offers extended travel services primarily focused on wholesale businesses and corporate clients. BSIE is a ticket consolidator of major international airlines including Thai Airways, Eva Airways, Dragon Air, Air China, China Southern Airlines and China Eastern Airlines that provides travel services such as ticketing, hotel and accommodation arrangements, tour packages, incentive tours and group sightseeing services.
However, the Group relies on the shareholder, Bao Shinn Express Company Limited, which is the member of International Air Transport Association to supply air tickets and tour packages from different airlines companies.
BSHL offers extended travel services primarily focused on corporate clients in Hong Kong and mainland China.
8
BAOSHINN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
3.
Going concern
The financial statements have been prepared in accordance with generally accepted principles in the United States applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. Although the Company generated a net loss of $49,800 for the three months ended March 31, 2012 and net profit $28,461 for the three months ended March 31, 2011, it had an accumulated deficit of $1,128,445 and $1,078,645 as at March 31, 2012 and December 31, 2011.
Management believes that actions presently taken to revise the Group’s operating and financial requirements provide the opportunity for the Group to continue as a going concern. The Group’s ability to achieve these objectives cannot be determined at this stage. If the Group is unsuccessful in its endeavors, it may be forced to cease operations. These financial statements do not include any adjustments that might result from this uncertainty. These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.
4.
Summary of significant accounting policies
Basis of presentation and consolidation
The accompanying consolidated financial statements of The Group have been prepared in accordance with generally accepted accounting principles in the United States of America.
On June 29, 2010, the Financial Accounting Standards Board (FASB) established the FASB Accounting Standards Codification (Codification) as the single source of authoritative US generally accepted accounting principles (GAAP) for all non governmental entities Rules and interpretive releases of the Securities and Exchange Commission (SEC) and also sources of authoritative US GAAP for SEC registrants. The Codification does not change US GAAP but takes previously issued FASB standards and other U.S. GAAP authoritative pronouncements, changes the way the standards are referred to, and includes them in specific topic arrears. The adoption of the Codification did not have any impact on the Group’s financial statements.
The consolidated financial statements include the accounts of The Group and its subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.
The results of subsidiaries acquired or disposed of during the years are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal.
Use of estimates
In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting year. These accounts and estimates include, but are not limited to, the valuation of accounts receivable, deferred income taxes and the estimation on useful lives of plant and equipment. Actual results could differ from those estimates.
9
BAOSHINN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
4.
Summary of significant accounting policies (Continued)
Concentrations of credit risk
Financial instruments that potentially subject the Group to significant concentrations of credit risk consist principally of accounts receivable. In respect of accounts receivable, the Group extends credit based on an evaluation of the customer’s financial condition, generally without requiring collateral or other security. In order to minimize the credit risk, the management of the Group has delegated a team responsibility for determination of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. Further, the Group reviews the recoverable amount of each individual trade debt at each balance sheet date to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the directors of the Group consider that the Group’s credit risk is significantly reduced.
Concentrations of supplier risk
The Group relies on Thai Airways as its major supplier of air tickets and tour packages. If this supplier became unwilling to cooperate with the Group, the Group would have to find alternative resources, which could materially affect the Group’s ability to generate revenue and profitability.
Cash and cash equivalents
Cash and cash equivalents include all cash, deposits in banks and other highly liquid investments with initial maturities of three months or less.
Restricted cash
Certain cash balances are held as security for short-term bank guarantee deposit for the International Air Transport Association and are classified as restricted cash in the consolidated balance sheets.
Accounts receivable
Accounts receivable are stated at original amount less allowance made for doubtful receivables, if any, based on a review of all outstanding amounts at the year end. An allowance is also made when there is objective evidence that the Group will not be able to collect all amounts due according to original terms of receivables. Bad debts are written off when identified. The Group extends unsecured credit to customers in the normal course of business and believes all accounts receivable in excess of the allowances for doubtful receivables to be fully collectible. The Group does not accrue interest on trade accounts receivable.
The Group has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on all customers requiring credit over a certain amount.
10
BAOSHINN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
4.
Summary of significant accounting policies (Continued)
Plant and equipment
Plant and equipment are stated at cost less accumulated depreciation. Cost represents the purchase price of the asset and other costs incurred to bring the asset into its existing use. Maintenance, repairs and betterments, including replacement of minor items, are charged to expense; major additions to physical properties are capitalized.
Depreciation of plant and equipment is provided using the straight-line method over their estimated useful lives at the following annual rates :-
Furniture and fixtures | 20% - 50% | |||
Office equipment | 20% |
Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated.
Revenue recognition
The Group recognizes revenue when it is earned and realizable based on the following criteria: persuasive evidence that an arrangement exists, services have been rendered, the price is fixed or determinable and collectibility is reasonably assured.
The Group also evaluates the presentation of revenue on a gross versus a net basis through application of Emerging Issues Task Force No. (“EITF”) 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent. The consensus of this literature is that the presentation of revenue as “the gross amount billed to a customer because it has earned revenue from the sale of goods or services or the net amount retained (that is, the amount billed to a customer less the amount paid to a supplier) because it has earned a commission or fee” is a matter of judgment that depends on the relevant facts and circumstances. In making an evaluation of this issue, some of the factors that should be considered are: whether the Group is the primary obligor in the arrangement (strong indicator); whether it has general inventory risk (before customer order is placed or upon customer return) (strong indicator); and whether we have latitude in establishing price. The guidance clearly indicates that the evaluations of these factors, which at times can be contradictory, are subject to significant judgment and subjectivity. If the conclusion drawn is that the Group performs as an agent or a broker without assuming the risks and rewards of ownership of goods, revenue should be reported on a net basis.
11
BAOSHINN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
4.
Summary of significant accounting policies (Continued)
Revenue recognition(Continued)
The Group has the following three types of revenues:
-
Retail and corporate travel service revenues,
-
Referral fee for travel booking services, and
-
Incentive commission from travel suppliers.
Retail and corporate travel service revenues
Revenues from retail and corporate travel services are recognized when the travel service provided by the Group is completely delivered. The Group presents revenue from such transactions on a gross basis in the consolidated statements of operations, as the Group acts as a principal, assumes inventory and credit risks, and has primary obligations to the airlines or hotels for cancelled air tickets, packaged tour products or hotel reservations. The Group also has latitude in determining the ticket prices. The Group changes the product by combining air ticket and hotel accommodations with local car transportation and other ancillary services to make it a holiday package or business travel solution for customers.
Referral fee for travel booking services
The Group receives referral fee from travel product providers for booking travel services through the Group. The itinerary and product price are generally fixed by the travel product providers and the Group books the travel services on behalf of the customers. Referral fees from travel booking services rendered are recognized as commissions after the services are rendered and collections are reasonably assured. The Group presents revenues from such transactions on a net basis in the consolidated statements of operations, as the Group acts as an agent, does not assume any inventory and credit risks, has no obligations for cancelled airline or hotel ticket reservations, and does not have latitude in determining the service prices.
Incentive commission from travel suppliers
The Group earns an incentive commission from many travel suppliers. Contracts with certain travel suppliers contain discretionary escalating commissions that are paid to the Group subject to achieving specific performance targets. Such discretionary escalating commissions are recognized on an accrual basis because such commissions are usually paid in arrears and the Group can reasonably estimate such commissions. The Group presents revenues from such transactions on a net basis in the statements of operations, as the Group acts as an agent, does not assume any inventory risk, and has no obligations for cancelled airline ticket reservations.
Deferred revenue
The Group records deferred revenue when it receives payments in advance of the completion of delivery of travel services. Hence, revenue from retail and corporate travel service is deferred. Upon completion of delivery of travel services, the Group recognized this as sales in the consolidated statement of operations.
Deferred cost
The Group adopted an identical policy on retail and corporate service. The Group records deferred cost when it pays in advance of the completion of delivery of travel services and consistently with deferred revenue.
12
BAOSHINN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
4.
Summary of significant accounting policies (Continued)
Deferred cost (Continued)
Upon completion of delivery of travel services, deferred cost is charged to cost of sales in the consolidated statement of operations.
Advertising expenses
Advertising expenses are charged to expense as incurred.
Three Months Ended | Three Months Ended | |||
Mar 31, 2012 | Mar 31, 2011 | |||
$6,702 | $2,567 | |||
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The FASB issued Accounting Standard Codification Topic 740 (ASC 740) “Income Taxes”. ASC 740 clarifies the accounting for uncertainty in tax positions. This requires that an entity recognized in the consolidated financial statements the impact of a tax position, if that position is more likely than not of being sustained upon examination, based on the technical merits of the position. The adoption of ASC 740 did not have any impact on the Group’s results of operations or financial condition for the three months ended 31 March, 2012. As of the date of the adoption of ASC 740, the Group has no material unrecognized tax benefit which would favorably affect the effective income tax rate in future periods. The Group has elected to classify interest and penalties related to unrecognized tax benefits, if and when required, as part of income tax expense in the consolidated statements of operations.
Comprehensive income
Other comprehensive income refers to revenues, expenses, gains and losses that under U.S. GAAP are included in comprehensive income but are excluded from net income as these amounts are recorded as a component of stockholders’ equity. The Group’s other comprehensive income represented foreign currency translation adjustments.
13
BAOSHINN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
4.
Summary of significant accounting policies (Continued)
Foreign currency translation
The functional currency of the Group is Hong Kong Dollars (“HK$”). The Group maintains its financial statements in the functional currency. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet dates. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchanges rates prevailing at the dates of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income for the respective periods.
For financial reporting purposes, the financial statements of the Group which are prepared using the functional currency have been translated into United States Dollars (“US$”). Assets and liabilities are translated at the exchange rates at the balance sheet dates and revenue and expenses are translated at the average exchange rates and stockholders’ equity is translated at historical exchange rates. Any translation adjustments resulting are not included in determining net income but are included in foreign exchange adjustment to other comprehensive income, a component of stockholders’ equity.
Three Months ended | Three Months ended | |||
Mar 31, 2012 | Mar 31, 2011 | |||
Year end HK$ : US$ exchange rate | 7.765 | 7.784 | ||
Average yearly HK$ : US$ exchange rate | 7.759 | 7.790 |
Fair value of financial instruments
The carrying values of the Group’s financial instruments, including cash and cash equivalents, trade and other receivables, deposits, trade and other payables approximate their fair values due to the short-term maturity of such instruments. The carrying amounts of borrowings approximate their fair values because the applicable interest rates approximate current market rates.
4.
Summary of significant accounting policies (Continued)
Basic and diluted earnings per share
The Group computes earnings per share (“EPS’) in accordance with FASB Accounting Standard Codification Topic 260 (“ASC 260”) “Earnings Per Share”, and SEC Staff Accounting Bulletin No. 98 (“SAB 98”). ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as the income or loss available to common shareholders divided by the weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., convertible securities, options, and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.
The calculation of diluted weighted average common shares outstanding for three months ended March 31, 2012 is based on the estimate fair value of the Group’s common stock during such periods applied to options using the treasury stock method to determine if they are dilutive.
Effective on October 19, 2011, each of ten (10) shares of the Company’s Common Stock, par value $.001 per share, issued and outstanding immediately prior to the Effective Time, the “Old Common Stock” shall automatically and without any action on the part of the holder thereof, be reclassified as and changed into one (1) share of the Company’s outstanding Common Stock, the “New Common Stock.”
The following tables are a reconciliation of the weighted average shares used in the computation of basic and diluted earnings per share for the periods presented:
Three Months Ended 31 Mar, 2012 | Three Months Ended 31 Mar, 2011 | ||
$ | $ | ||
Numerator for basic and diluted earnings per share: | |||
Net (Loss)/Income | (49,800) | 28,461 | |
Denominator: | |||
Basic weighted average shares | 2,140,000 | 2,140,000* | |
Effect of dilutive securities | - | - | |
Diluted weighted average shares | 2,140,000 | 2,140,000* | |
Basic earnings per share: | (2.33) cents | 1.33 cents* | |
Diluted earnings per share: | (2.33) cents | 1.33 cents* |
*All the stock options expired as at March 31, 2011 without being exercised, therefore basic earnings per share are equal to diluted earnings per share.
14
BAOSHINN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
4. Summary of significant accounting policies (Continued)
Stock-Based Compensation
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, Share- Compensation (formerly, FASB Statement 123R), the Group measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award and recognizes the costs over the period the employee is required to provide service in exchange for the award, which generally is the vesting period.
During three months ended March 31, 2012, the Group did not record stock-based compensation expense.
During three months ended March 31, 2011, the Group did not record stock-based compensation expense.
Related parties transactions
A related party is generally defined as (i) any person that holds 10% or more of The Group’s securities and their immediate families, (ii) the Group’s management, (iii) someone that directly or indirectly controls, is controlled by or is under common control with the Group, or (iv) anyone who can significantly influence the financial and operating decisions of the Group. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.
Commitments and contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation, fines and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.
4. Summary of significant accounting policies (Continued)
Recently issued accounting pronouncements
In May 2011, the FASB issued ASU 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” This ASU intends to improve consistency in the application of fair value measurement and disclosure requirements in U.S. GAAP and IFRS. The ASU clarifies the application of existing fair value measurement and disclosure requirements including 1) the application of concepts of highest and best use and valuation premise in a fair value measurement are relevant only when measuring the fair value of non-financial assets and are not relevant when measuring the fair value of financial assets or any liabilities, 2) measuring the fair value of an instrument classified in shareholders’ equity from the perspective of a market participant that holds that instrument as an asset, and 3) disclosures about quantitative information regarding the unobservable inputs used in a fair value measurement that is categorized within Level 3 of the fair value hierarchy. The guidance in this ASU is effective for the first interim and annual period beginning after December 15, 2011, and should be applied prospectively. Early adoption is not permitted. This ASU will have no impact on our results of operations.
In June 2011, the FASB issued ASU 2011-05, “Presentation of Comprehensive Income.” This ASU is aimed at increasing the prominence of other comprehensive income in the financial statements. The new guidance eliminates the option to present comprehensive income and its components in the Statement of Changes in Shareholders’ Equity, and requires the disclosure of comprehensive income and its components in one of two ways: a single continuous statement or in two separate but consecutive statements. The single continuous statement would present other comprehensive income and its components on the income statement. Under the two-statement approach, the first statement would include components of net income and the second statement would include other comprehensive income and its components. The ASU does not change the items that must be reported in other comprehensive income. This ASU will have no impact on our results of operations.
The guidance in this ASU is effective for the first interim and annual period beginning after December 15, 2011, and should be applied retrospectively for all periods presented in the financial statements. Early adoption is permitted.
In December 2011, the FASB issued ASU 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05”. This ASU defers the effective date of the requirement to present separate line items on the income statement for reclassification adjustments of items out of accumulated other comprehensive income into net income. The deferral is temporary until the Board reconsiders the operational concerns and needs of financial statement users. The Board has not yet established a timetable for its reconsideration. The requirements to present other comprehensive income in a single continuous statement or two consecutive statements and other requirements of ASU 2011-05, as amended by ASU 2011-12, are effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2011.
15
BAOSHINN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
4. Summary of significant accounting policies (Continued)
Recently issued accounting pronouncements (Continued)
In December 2011, the FASB issued ASU 2011-11, “Disclosures about Offsetting Assets and Liabilities”. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the balance sheet and instruments and transactions subject to an agreement similar to a master netting arrangement. This scope would include derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of IFRS. The amendments are effective for annual reporting periods beginning on or after January 1, 2013. An entity would be required to provide the disclosures required by those amendments retrospectively for all comparative periods presented. This ASU will not impact our results of operations.
5.
Other operating income
Three Months Ended | Three Months Ended | ||||
Mar 31, 2012 | Mar 31, 2011 | ||||
$ | $ | ||||
GDS commission income | 1,213 | 386 | |||
Management service income | 4,878 | 8,916 | |||
| |||||
6,091 | 9,302 |
6.
Other non-operating income
Three Months Ended | Three Months Ended | ||||
Mar 31, 2012 | Mar 31, 2011 | ||||
$ | $ | ||||
| |||||
Gain on exchange | 346 |
| (281) | ||
Interest income | 18 |
| 8 | ||
Sundry income | 609 |
| 1,759 | ||
| |||||
973 |
| 1,486 |
16
BAOSHINN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
7.
Interest expenses
Three Months Ended | Three Months Ended | ||||
Mar 31, 2012 | Mar 31, 2011 | ||||
$ |
| $ | |||
Interest expense | 15 |
| - | ||
| |||||
15 |
| - |
8.
Income taxes
The Company and its subsidiaries file separate income tax returns.
The Company is incorporated in the United States, and is subject to United States federal and state income taxes. The Company did not generate taxable income in the United States in 2012 and 2011.
The subsidiaries are incorporated in Hong Kong, and are subject to Hong Kong Profits Tax at 16.5% for the three months ended March 31, 2012 and 2011.
Provision for Hong Kong profits tax has been made for the year presented as the subsidiaries have assessable profits during the year.
9 Deposits, prepaid expenses and other receivables
March 31 | December 31 | ||||
2012 | 2011 | ||||
$ | $ | ||||
Security deposits to suppliers [1] | 1,001,240 | 935,906 | |||
Prepayments and other receivables | 67,935 | 17,240 | |||
Utility, rental and other deposits | 31,824 | 33,339 | |||
1,100,999 | 986,485 | ||||
[1] Represents a deposit with the airline companies to allow the Group to issue an agreed upon amount of air tickets per month.
17
BAOSHINN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
10. Plant and equipment
March 31, 2012 | December 31 | |||||
2012 | 2011 | |||||
$ | $ | |||||
Cost | ||||||
Furniture and fixtures | 53,330 | 53,324 | ||||
Office equipment | 74,382 | 73,329 | ||||
127,712 | 126,653 | |||||
Accumulated depreciation | ||||||
Furniture and fixtures | 39,576 | 37,162 | ||||
Office equipment | 57,514 | 54,702 | ||||
97,090 | 91,864 | |||||
Net | ||||||
Furniture and fixtures | 13,754 | 16,162 | ||||
Office equipment | 16,868 | 18,627 | ||||
30,622 | 34,789 |
Depreciation expenses for the three months ended March 31, 2012 are $5,218 (Three months ended March 31, 2011: $5,438).
11.
Other payables and accrued liabilities
Mar 31, | Dec 31 | |||||
2012 | 2011 | |||||
$ | $ | |||||
Sale deposits received | 715,503 | 223,930 | ||||
Accrued expenses | 136,622 | 136,983 | ||||
Other payables | 81,371 | 77,106 | ||||
933,496 | 438,019 |
18
BAOSHINN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
12.
Amount due from related party
Amount due from related party are as follows:
March 31 | December 31 | |||||
2012 | 2011 | |||||
$ | $ | |||||
Amount due from related party | - | 4,437 | ||||
As of March 31, 2012 and December 31, 2011, the amount due from/to related party, represent advances from shareholders of the Group, are interest free, unsecured, and have no fixed repayment terms.
13.
Deferred cost and revenue
Cost and revenue is deferred when the Group paid and received payment in advance of the completion of delivery of travel services respectively as at the year end.
14.
Stock options
The Group has stock options plans that allow it to grant options to its key employees. Over the course of employment, The Group issues vested or non-vested stock options to an employee which is struck at US$0.35 per share.
For non-vested stock options, the options have a maximum term of three years up to March 31, 2011. For vested stock options, the exercise period of the options commenced on March 31, 2008 and will expire on March 31, 2011, subject to that maximum of 30% of options to be exercised up to March 31, 2009, maximum of 60% of options to be exercised up to March 31, 2010 and the 100% of options to be exercised up to March 31, 2011.
In the year ended March 31, 2008, a total of 300,000 and 80,000 of vested and non-vested options respectively were granted to key employees of The Group at a price of $0.35 per share, exercisable for a term of three years which vest immediately under the vesting conditions.
19
BAOSHINN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
14. Stock options (Continued)
The fair value of these options at the date of grant was estimated to be $0.1533 and $0.1125 for vested and non-vested options per unit respectively using the Black-Scholes option pricing model with the following weighted average assumptions: expected life of three years; risk-free interest rate of 3.07%; expected dividend yield of 0% and an expected volatility of 47.77%. The stock-based compensation expense recorded in the year ended December 31, 2010 was $15,333 which was charged to the consolidated statement of operations and credited to contribute surplus.
Weighted | ||||||
Weighted | average | |||||
Number of | average | remaining | ||||
options | exercise price | life | ||||
| ||||||
Exercisable as of December 31, 2009 | 230,000 | 0.35 | 1.25 | |||
Exercisable during the year | 100,000 | 0.35 | ||||
Exercisable as of December 31, 2010 | 330,000 | 0.35 | 0.25 | |||
Exercisable during the year | - | 0.35 | ||||
Expired during the year | (330,000) | |||||
Exercisable as of December 31, 2011 | - | - | - | |||
Exercisable as of March 31, 2012 | - | - | - |
15.
Concentration of credit
A substantial percentage of the Group's sales are made to the following customers. Details of the customers accounting for 10% or more of total net revenue are as follows:
Three Months ended |
Year ended | ||
Mar 31, 2012 | Dec 31, 2011 | ||
Company A | 21% | 20% |
Details of the accounts receivable from the one customer with the largest receivable balances are as follows:
Percentage of account receivable | |||
March 31 | |||
2012 | 2011 | ||
Company A | 15% | 19% | |
20
BAOSHINN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
16.
Pension plans
The Group participates in a defined contribution pension scheme under the Mandatory Provident Fund Schemes Ordinance (“MPF Scheme”) for all its eligible employees in Hong Kong.
The MPF Scheme is available to all employees aged 18 to 64 with at least 60 days of service in the employment in Hong Kong. Contributions are made by the Group’s subsidiary operating in Hong Kong at 5% of the participants’ relevant income with a ceiling of HK$20,000. The participants are entitled to 100% of the Group’s contributions together with accrued returns irrespective of their length of service with the Group, but the benefits are required by law to be preserved until the retirement age of 65. The only obligation of the Group with respect to MPF Scheme is to make the required contributions under the plan.
The assets of the schemes are controlled by trustees and held separately from those of the Group. Total pension cost was $7,464 during three months ended March 31, 2012 (Three months ended March 31, 2011: $8,418).
17.
Fair Value Measurements
The Group adopted FASB ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), related to The Group’s financial assets and liabilities. ASC 820 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. ASC 820 defines fair value as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also describes three levels of inputs that may be used to measure fair value:
Level 1 — quoted prices in active markets for identical assets and liabilities.
Level 2 — observable inputs other than quoted prices in active markets for identical assets and liabilities.
Level 3 — unobservable inputs in which there is little or no market data available, which require the reporting entity to develop its own assumptions.
ASC 820 also provides guidance for determining the fair value of a financial asset when the market for that asset is not active, and for determining fair value when the volume and level of activity for an asset or liability have significantly decreased and includes guidance on identifying circumstances that indicate when a transaction is not orderly.
The effective date for certain aspects of ASC 820 was deferred and are currently being evaluated by The Group. Areas impacted by the deferral relate to nonfinancial assets and liabilities that are measured at fair value, but are recognized or disclosed at fair value on a nonrecurring basis. The effects of these remaining aspects of ASC 820 are to be applied by the Group to fair value measurements prospectively beginning November 1, 2010. The adoption of the remaining aspects of ASC 820 is not expected to have a material impact on its financial condition or results of operations.
21
BAOSHINN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
17.
Fair Value Measurements (Continued)
The following table details the fair value measurements of assets and liabilities within the three levels of the fair value hierarchy at March 31, 2012 and December 31, 2011:
Fair Value Measurements at reporting date using | ||||||||
March 31, 2012 | Quoted Price in active Markets for identical assets (level 1) | Significant Other Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | |||||
$ | $ | $ | $ | |||||
Assets | ||||||||
Restricted cash | 12,878 | 12,878 | - | - | ||||
Cash and cash equivalents | 1,570,646 | 1,570,646 | - | - | ||||
Fair Value Measurements at reporting date using | ||||||||
December 31, 2011 | Quoted Price in active Markets for identical assets (level 1) | Significant Other Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | |||||
$ | $ | $ | $ | |||||
Assets | ||||||||
Restricted cash | 12,877 | 12,877 | - | - | ||||
Cash and cash equivalents | 1,361,357 | 1,361,357 | - | - | ||||
18.
Commitments and contingencies
Operating leases commitments
The Group leases office premises under various non-cancelable operating lease agreements that expire at various dates through years 2011 to 2012, with an option to renew the lease. All leases are on a fixed repayment basis. None of the leases includes contingent rentals. Minimum future commitments under these agreements payable as of March 31, 2012 are as follows:-
March 31 | $ | |||
2012 | 53,089 | |||
2013 | - | |||
53,089 |
Rental expenses for the three months ended March 31, 2012 were $25,996 (Three months March 31, 2011: $24,154).
22
BAOSHINN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
19.
Related party transactions
In the ordinary course of business, BSIE, our wholly-owned subsidiary, purchases and sells air tickets and tour packages from/to Bao Shinn Express Company Limited (“BSEL”). BSEL holds 38.6% of Baoshinn Corporation’s outstanding common stock. The consolidated income statement for the periods presented includes the following related party transactions.
Related party | Nature of relationship and control | Description of transactions | Three months ended March 31, 2012 | Three months ended March 31, 2011 | |||
$ | $ | ||||||
Bao Shinn Express Company Limited | Shareholder 38.6% | Sales of air tickets and tour packages | (83,870) | (54,552) | |||
Management service income | (4,878) | (8,916) | |||||
Management service fee | 23,199 | - | |||||
Purchase of air tickets and tour packages | 6,927 | 21,639 | |||||
Account receivable | 268 | - | |||||
Account payable | (409) | - | |||||
HK Airlines Holidays Travel Company Limited | Bao Shinn Express Company Limited is the major shareholder |
Sales of air tickets and tour packages |
(215,285) |
(175,671) | |||
Account receivable | 52,363 | 17,685 | |||||
Account payables | (6,429) | (11,148) | |||||
23
BAOSHINN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
19.
Related party transactions (continued)
Related party | Nature of relationship and control | Description of transactions | Three months ended March 31, 2012 | Three months ended March 31, 2011 | |
$ | $ | ||||
H.C. Patterson and Company Limited | Bao Shinn Express Company Limited is the major shareholder | Purchase of air tickets and tour packages | 13,504 | 6,089 | |
Sale of air tickets and tour packages | (72,327) | (14,542) | |||
Account payables | - | (30,372) | |||
Account receivables | 57,939 | 2,797 | |||
Grand Power Express International Limited | Chiu Tong, Ricky is the connecting related person |
Sales of air tickets and tour packages |
- |
(2,017) | |
Account receivables | - | 2,017 |
20.
Segment Information
FASB Accounting Standard Codification Topic 280 (“ASC 280”) “Segment Reporting” (formerly known as SFAS No.131, Disclosures About Segments of an Enterprise and Related Information), establishes standards for reporting information about operating segments in financial statements. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance.
For management purposes, the Group is regarded as a single segment, being engaged in the provision of travel agent services. These principal activities and geographical market are substantially based in Hong Kong and the mainland China. Accordingly, no geographical segment information is presented.
21.
Subsequent Events
The Company has evaluated all other subsequent events as of May 8, 2012 and determined that there were no other subsequent events or transactions that require recognition or disclosures in the financial statements.
24
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
CAUTIONARY STATEMENT FOR FORWARD-LOOKING STATEMENTS
This discussion and analysis of our financial condition and results of operations includes “forward-looking” statements that reflect our current views with respect to future events and financial performance. We use words such as “expect,” “anticipate,” “believe,” and “intend” and similar expressions to identify forward-looking statements. You should be aware that actual results may differ materially from our expressed expectations because of risks and uncertainties inherent in future events and you should not rely unduly on these forward looking statements. We disclaim any obligation to publicly update these statements, or disclose any difference between its actual results and those reflected in these statements. Reference in the following discussion to “our”, “us” and “we” refer to the operations of Baoshinn Corporation and its subsidiaries (“We”), except where the context otherwise indicates or requires.
The following discussion of our financial condition and results of operations should be read in conjunction with the audited financial statements and the notes to the audited financial statements included in this annual report. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those anticipated in these forward-looking statements.
A.
Operating Results
We are a relatively small consolidator of hotel accommodations and airline tickets in Hong Kong. We aggregate information on hotels and flights and enable our customers to make informed and cost-effective hotel and flight bookings. Our customers are mainly retail travel agencies in Hong Kong, and corporate travelers. We generate a very small portion of our revenue from referral commissions when we refer our clients to other travel product providers such as package tour companies. We also receive incentive commissions from our travel services supplier such as airlines based on our contract with such suppliers.
In the three months ended March 31, 2012, we derived 98.7%, 0.2% and 1.1% of our total revenues from our retail and corporate clients, referral commissions and airline incentive commissions respectively.
Major Factors Affecting the Travel Industry
A variety of factors affect the travel industry in Hong Kong, and hence our results of operations and financial condition, including:
Growth in the Overall Economy and Demand for Travel Services in Hong Kong. We expect that our financial results will continue to be affected by the overall growth of the economy and demand for travel services in Hong Kong and the rest of the world. The Hong Kong economy is highly influenced by the Chinese economy. Any adverse changes in economic conditions of China and the rest of the world, such as the global financial crisis and the economic downturn, could have a material adverse affect on the travel industry in Hong Kong, which in turn would harm our business.
Seasonality in the Travel Service Industry. The travel service industry is characterized by seasonal fluctuations and accordingly our revenues may vary from quarter to quarter. To date, the revenues generated during the summer season of each year generally are higher than those generated during the winter season. The reason for this is mainly because the summer season coincides with the peak business and leisure travel season, while the winter season of each year includes the Christmas and Chinese New Year holiday, during which our customers reduce their business activities.
Disruptions in the Travel Industry. Individual travelers tend to modify their travel plans based on the occurrence of events such as:
·
The outbreak of HIN1 influenza, avian flu, SARS or any other serious contagious diseases;
·
Increased oil prices resulting fuel surcharge;
·
Increased occurrence of travel-related accidents;
·
Natural disasters or severe weather conditions;
·
Terrorist attacks or threats of terrorist attacks or war;
·
Any travel restrictions or security procedures
In early 2003, several regions in Asia, including Hong Kong and China, were affected by the outbreak of SARS. The travel industry in China, Hong Kong and some other parts of Asia suffered tremendously as a result of the outbreak of SARS.
25
In 2009, an outbreak of H1N1 influenza (swine flu) occurred in Mexico and the United States and human cases of the swine flu were discovered in China and Hong Kong.
In 2010, the political instability and riots in Thailand disrupted holiday travel and many travelers canceled holiday bookings to the region.
In 2011, the earthquake, Tsunami and nuclear power station failure in Japan resulted in a major airline in Hong Kong temporarily cancelling all its flights to Japan. Our business and operating results were adversely affected in all these cases.
Major Factors Affecting the Our Business
Our main business comes from retail and corporate travelers. We are vulnerable to all the above general factors affecting the travel industry. In particular, we are more sensitive to the disruption in the Southeast Asia region, including the Philippines, Thailand, Indonesia, Malaysia, and Taiwan.
During 2010, our biggest travel destination market was Thailand, and it had a politically volatile year, with marches and demonstrations disrupting tourist travel. The Hong Kong government issued several travel advisories for Thailand (Bangkok in particular) which caused a decline in ticket sales. The political situation in Thailand had stabilized by the end of 2010.
Results of Operations for the three months ended March 31, 2012 compared to the three months ended March 31, 2011
The following table sets forth a summary of our consolidated statements of operations for the periods indicated.
Three months Ended March 31 2012 |
| Three months Ended March 31, 2011 |
| |
$ |
| $ | ||
|
|
| ||
Retail and Corporate revenue | 9,709,094 |
| 8,501,752 | |
Referral Commission from travel booking services | 13,960 |
| 32,218 | |
Incentive commissions | 111,372 |
| 74,303 | |
|
|
| ||
Net sales | 9,834,426 |
| 8,608,273 | |
Cost of sales | (9,531,714) |
| (8,259,363) | |
|
|
| ||
Gross profit | 302,712 |
| 348,910 | |
Other operating income | 6,091 |
| 9,302 | |
Depreciation | (5,218) |
| (5,438) | |
Administrative and other operating expenses | (354,720) |
| (321,771) | |
|
|
| ||
Income/(Loss) from operations | (51,135) | 31,003 | ||
Other non-operating income - Note 6 | 973 | 1,486 | ||
Interest expenses – Note 7 | (15) |
| - | |
|
|
| ||
Income/(Loss) before income taxes | (50,177) |
| 32,489 | |
Income taxes - Note 8 | - |
| - | |
|
|
| ||
Net Income/(Loss) | (50,177) |
| 32,489 | |
Non-controlling interest | 377 |
| (4,028) | |
|
|
| ||
Net Income/(Loss) attributable to The Group | (49,800) |
| 28,461 |
Revenues
Revenues Composition and Sources of Revenue Growth
We have experienced revenue growth in the past 3 months. Our total revenues grew from USD 8.6 million in the three months ended March 31, 2011 to USD 9.8 million in the three months ended March 31, 2012, representing a growth rate of 14%.
26
The table below sets forth the revenues from our principal lines of business as a percentage of our revenues for the periods indicated.
Three months ended March 31, 2012 | Three months ended March 31, 2011 | ||||
% | % | ||||
Retail and Corporate revenue | 98.7% | 98.8% | |||
Commission from travel booking services | 0.2% | 0.4% | |||
Incentive commissions | 1.1% | 0.8% | |||
|
| ||||
Total revenue | 100% | 100% | |||
We generate our revenues primarily from retail and corporate business. Our primary source of growth came from increased sales in that area. We are not relying on referral commissions and incentive commissions as our primary source of revenue as those categories only represent a fraction of our revenue. We also refer our clients to other travel product providers when we cannot provide needed services to our clients. We see referrals as an added value to our customers in terms of widening our client base. We also do not rely on airline incentive commissions due to the fact that the airlines are cutting back commissions through the use of online booking technologies which have begun to predominate over the past ten years. As a result of these factors, airlines are more and more reluctant to give away commissions to travel agencies. However, our relationships with the airlines are very important because they allow us to obtain better wholesale pricing.
Retail and Corporate Revenue
We recognize revenues from retail and corporate travel services when we completely deliver the travel service. We present revenue from such transactions on a gross basis in the consolidated statements of comprehensive income because we act as a principal, we assume inventory and credit risks, and we have the primary obligation to the airlines or hotels for cancelled airline tickets, packaged tour products, or hotel reservations. We also have discretion in determining the service prices. We make alterations to the product by combining airline tickets and hotel accommodations with local car transportation and other ancillary services in order to create a holiday package or business travel solution for customers.
Retail and corporate revenue is our main source of revenue growth. Retail and corporate revenue grew from $8.5 Million in the three months beginning March 31, 2011 to $9.7 Million in three months ended March 31, 2012, representing a growth rate of 14.2%. We attribute the growth mainly to a stable global economic recovery in the three months ended March 31, 2012 as compared to three months ended March 31, 2011. We see an increase of transaction volume in terms of the increased number of travelers in both the retail agency section and corporate travel section.
We also believe we had a relatively stable year in 2012 as compared to 2011 in terms of the general travel disruption factors discussed previously. We have had difficult years from 2008 to 2010 due to the many travel disruption factors we have mentioned before. The uncertainty of the global economic recovery from the 2008 financial crisis, lead to a significant reduction of business travelers. During that period, we saw our corporate clients limit business travel expenses as a cost reduction strategy. With the 2009 outbreak of the H1N1 influenza (swine flu), we also saw a significant reduction in the number of retail flights being booked.
During 2010, the Thailand market, which is our biggest travel destination market, had a politically volatile year, with marches and demonstrations disrupting tourist travel. The Hong Kong government issued several travel advisories for Thailand (Bangkok in particular) which caused a decline in ticket sales in that year. The political situation in Thailand stabilized by the end of 2010. However the negative impact from Thailand in 2010 was offset by the improving global economic recovery.
We have maintained our good relations with airlines which specialize in the Southeast Asia region. We were recognized by Eva Airline as its top selling agent in Hong Kong in 2010. Eva Airlines operates both short haul routes within Southeast Asia and long haul routes including routes to North America and Europe. We have also been appointed as a first tier agent for two additional airlines, i.e., Hong Kong Airlines & Hong Kong Express during 2009. Hong Kong Airlines operates flights originating mainly from Hong Kong to destinations in Asian cities, including Bangkok, Kuala Lumpur, Manila, and major cities in Japan. Hong Kong express operates flights originating mainly from Hong Kong to second-tier cities on mainland China, including Changsha, Fuzhou, Hangzhou, Hefei, Guiyang etc.
Referral fees for travel booking services
We received referral fees from travel product providers for booking travel services during the three month period. The itinerary and product prices are generally fixed by the travel product providers and we book the travel services on behalf of the customers. Referral fees from travel booking services rendered are recognized as commissions after the services are rendered and collections are reasonably assured. We present revenues from such transactions on a net basis in the consolidated statements of operations, because we act as agent, we do not assume any inventory and credit risks, we have no obligation for cancelled airline tickets or hotel reservations, and we do not have discretion in determining the service prices.
27
Incentive commission from travel suppliers
We earn incentive commissions from many travel suppliers. Contracts with certain travel suppliers contain discretionary escalating commissions that are paid to us subject to achieving specific performance targets. Such discretionary escalating commissions are recognized on an accrual basis because such commissions are usually paid in arrears and we can reasonably estimate the amount of the commissions. Our statement of operations presents revenues from such transactions on a net basis, because we act as an agent, we do not assume any inventory risk, and we have no obligation for cancelled airline tickets.
Cost of Sales and Gross Profit
Costs of sales are costs directly attributable to rendering our revenues, which consist primarily of payments for travel costs to airlines and suppliers. Cost of sales accounted for 96.9% of our revenue in the three months ended March 31, 2012 and 96% of our revenues in the three months ended March 31, 2011.
The table below sets forth the cost of sales as a percentage of revenue for the periods indicated.
Three months ended March 31, 2012 | Three months ended March 31, 2011 | ||||||||
$ | $ | ||||||||
Total revenue | 9,834,426 | 8,608,273 | |||||||
Cost of sales | (9,531,714) | 96.9% | (8,259,363) | 95.9% | |||||
Gross profit | 302,712 | 3.1% | 349,910 | 4.1% | |||||
Increase in Cost of Sales
Our cost of sales increased from 95.9% in the three months ended March 31, 2011 to 96.9% in the three months ended March 31, 2012. A large part of the increase in the cost of sales is directly related to the increase in the fuel surcharge that the airlines levy. This surcharge is dependent upon the price of jet fuel, which is affected by the price of oil. We, in turn, pass this surcharge on to our clients.
Decrease in gross profit margin
The decrease in our gross profit margin rate from 4.1% in the three months ended March 31, 2011 to 3.1% in the three months ended March 31, 2012 is due to an increase in airline ticket prices. However, the gross profit per ticket remained relatively stable. Consequently, the gross profit margin rate decreased.
Fuel surcharges are announced at the end of each month. In our experience, we find that the prices tend to be sticky on the upside, as the airlines try to protect themselves from the volatile price swings that the commodities markets have experienced. We anticipate these fuel surcharges will remain high for the time being, with the airlines preferring to offer discounts as an incentive to get consumers to travel, rather than decreasing the surcharge.
Operating Expenses
Overview
Total operating expenses for the three months ended March 31, 2012 were $354,720 or 3.6% of revenues, while the operating expenses for the three months ended March 31, 2011 were $321,771 or 3.7% of revenues. Our operating expenses decreased slightly regardless of the high inflation in Hong Kong. This is mainly attributed to our cost reduction strategy that we started implementing in 2007.
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The table below sets forth the main category of our expenses both in dollar amounts and as a percentage of total revenue for the periods indicated.
Three months ended March 31, 2012 | % of Revenue | Three months ended March 31, 2011 | % of Revenue | |
Salaries, commission, allowance | $226,951 | 2.3% | $225,074 | 2.6% |
Legal & Professional fees | 7,733 | 0.1% | 5,777 | 0.1% |
Office Rental | 25,996 | 0.3% | 24,154 | 0.2% |
Other operating expenses | 94,040 | 0.9% | 66,766 | 0.8% |
$354,720 | 3.6% | $321,771 | 3.7% |
Salaries, Commissions and Allowances
Salaries, Commissions and Allowances for the three months ended March 31, 2011 were $225,074, while the salaries, commissions and allowance for the three months ended March 31, 2012 were $226,951, salaries, commissions and allowances in the current period were consistent to the same period last year.
Legal and Professional Fees
Legal and professional fees for the three months ended March 31, 2012 were $7,733 or 0.1% of revenues, while the legal and professional fees for the three months ended March 31, 2011 were $5,777 or 0.1% of :revenues. Legal and professional fees in the three months ended March 31, 2012 were slightly higher compared to the three months ended March 31 2011, due mainly to additional costs related to the electronic SEC filing requirements.
Office Rental
Office rental for the three months ended March 31, 2012 was $25,996 or 0.3% of revenues, while the office rental for the three months ended March 31, 2011 were $24,154 or 0.2% of revenues. Office rental expenses in the current period were consistent with the same period last year.
Other General and Administration Expenses
Other expenses for the three months ended March 31, 2012 were $94,040 or 0.9% of revenues, while the other expenses for the three months ended March 31, 2011 were $66,766 or 0.8% of revenues. The increase in the expenses in the current period are due mainly to an increase in the management fee.
Other operating income
Three months Ended | Three months Ended | |||
Mar 31, 2012 | Mar 31, 2011 | |||
audited | audited | |||
GDS commission income | 1,213 | 386 | ||
Management service income | 4,878 | 8,916 | ||
| ||||
6,091 | 9,302 |
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Commission Income
Commission income received by the Group for the three months ended March 31, 2012 was $1,213 as compared to $386 for the three months ended March, 2011. During the three months ended March 31, 2012, we increased the number of tickets booked through a lower percentage commission booking system, which resulted in a lower amount of commissions.
We received commission from the Global Distribution Systems Supplier (“GDS”), which is the booking system that links airlines, IATA and travel agencies. GDS acts as an information medium between the airlines and travel agencies. Travel consultants check seat availability and fare conditions, and make reservations through GDS. GDS also links airline and travel agencies through IATA’s Bill and Settling Plans (“BSP”). Once the ticket is issued from IATA through the GDS system, travel agencies will settle the payment with airlines through IATA‘s BSP Payment usually within two weeks.
Each GDS system has a different layout and different user commands. Airlines can choose to link with one or a few GDSs. We currently have four (4) GDSs installed: “Amadeus”, “Worldspan”, “Travelsky” and “Abacus”. A GDS will normally provide the equipment and install the system onsite for a travel agency. The travel agency must generally sign an agreement with each GDS supplier which details the usage and reward scheme. Some GDS suppliers require travel agencies to maintain a minimum usage volume, otherwise the travel agency will have to pay fees for the equipment. GDS suppliers also encourage travel agencies to book tickets through their system by rewarding travel agencies on the number of tickets booked in a certain period of time.
We encourage our consultants to use the GDS that has the best compensation structure, however, a balance between operational efficiency is also considered. Some airlines are more user friendly with a specific GDS and with each travel consultancy’s experience with different systems. We leave it to the consultant’s discretion which GDS to use.
Management Service Income
Management service income represents compensation from a related party, Bao Shinn Express Company Limited (“BSEL”). BSEL currently holds 38.55% of our outstanding common stock. We have provided management services to BSEL on business operations and general travel industry knowledge. Management service income from BSEL was $4,878 in the three months ended March 31, 2012 as compared to $8,916 in the three months ended March 31, 2011.
We recognize the management service as “other operating income” due to the fact that our management team is part of the BSEL operation team. Accordingly, the revenue generated by the management team is considered part of our operations.
Refund Write Back
There were no refund write backs issued for the three months ended March 31, 2012 and there were none in the previous year.
Exchange Gain
The exchange gain was $346 for the three months ended March 31, 2012 as compared to the exchange loss of $281 in the three months ended March 31, 2011. This was attributable to the fluctuation of the global foreign currency market. We are not exposed to material foreign exchange currency risk. We pay overseas suppliers in their currency, and charge our customers in HK dollars, with the exchange rate determined at the point of invoicing. The exchange gain or loss reflects the timing difference between payments to suppliers and the invoice to clients. We recognize the gain or loss as “non-operational income or expense”, as this is not from operations.
Interest Income
This interest was earned from bank savings and fixed deposit accounts. Interest income was $18 for the three months ended March 31, 2012 as compared to $8 for the three months ended March 31, 2011. This reflected a very low bank interest rate prevailing for the past few years, since the 2008 financial crisis.
Net Income
Our net loss was $49,800 for the three months ended March 31, 2012 as compared to a net income of $28,461for the three months ended March 31, 2011. The decrease in net income for the three months ended March 31, 2012 as compared to the same period last year was due mainly to a lower gross profit margin because of high fuel surcharges from airlines and higher competition in the travel market as a result of the recovery of the Hong Kong economy.
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A.
Liquidity and Capital Resources
Operating Activities Going Concern
We had a net loss of $49,800 for the three months ended March 31, 2012 and a net loss since inception of $1,128,445. On March 31, 2012 we had cash on hand of $1,570,646. The accumulative loss has raised substantial doubt about our ability to continue as a going concern. These doubts were outlined in our independent auditor’s report on our consolidated financial statements for the year ended December 31, 2011, which are included in our annual report on Form 10-K. Although our consolidated financial statements raise substantial doubt about our ability to continue as a going concern, they did not include any adjustments relating to recoverability and classification of recorded assets, or the amounts or classifications of liabilities that might be necessary in the event we cannot continue as a going concern. Certain of our shareholders have verbally agreed to provide continuing financial support to us for future losses we may incur.
Liquidity
The following table sets forth the summary of our cash flows for the periods indicated:
For Three Months Ended Mar 31, 2012 | For Three Months Ended Mar 31, 2011 | |||||
(audited) | (audited) | |||||
$ | $ | |||||
| ||||||
Net cash flows generated from/( used in) operating activities |
205,758 |
|
(178,925) | |||
| ||||||
Net cash flows (used in)/provided by investing activities |
(1,059) |
(2,551) | ||||
| ||||||
Net cash flows provided by/(used in) financing activities |
4,437 |
(300) | ||||
Net increase/(decrease) in cash and cash equivalents | 209,136 | (181,776) | ||||
Effect of foreign currency translation | 153 | (999) | ||||
Cash and cash equivalents - beginning of year | 1,361,357 | 547,485 | ||||
Cash and cash equivalents - end of period | 1,570,646 |
| 364,710 | |||
Operating Activities
Net cash generated in operating activities was $205,758 for the three months ended March 31, 2012 as compared to net cash used in operating activities of $178,925 for the three months ended March 31, 2011. The increase in cash generated during the three months ended March 31, 2012 is due mainly to increased transaction volume.
Investing Activities
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Net cash used in investing activities was $1,059 for the three months ended March 31, 2012 as compared to net cash used in investing activities of $2,551 for the three months ended March 31, 2011. The cash used in investing activities is mainly for office equipment and computer hardware.
Financing Activities
Net cash provided by financing activities was $4,437 for the three months ended March 31, 2012. This reflected an advance from related parties as of December 31, 2011 being paid back during the three months ended March 31 2012, as compared to $300 net cash used to repay related parties during the three months ended March 31, 2011.
As of March 31, 2012 and March 31, 2011, the amounts due from or to related parties, represented advances from related parties of the Group which are interest free, unsecured, and have no fixed repayment terms.
Item 3.
Quantitative and Qualitative Disclosure About Market Risks.
Not Applicable.
Item 4.
Controls and Procedures.
(a)
Evaluation of disclosure controls and procedures.
As required by paragraph (b) of Rules 13a-15 or 15d-15 under the Securities Exchange Act of 1934, the Company’s principal executive officer and principal financial officer have evaluated the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation these officers have concluded that as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective and were adequate to insure that the information required to be disclosed by the Company in reports it files or submits under the Exchange Act were recorded, processed, summarized and reported within the time period specified in the Commission’s rules and forms. It is also important to point out that all internal control systems, no matter how well designed, have inherent limitations and may not prevent or detect misstatements. Therefore even those systems determined to be effective can only provide reasonable assurance with respect to financial reporting reliability and financial statements preparation and presentation.
(b)
Changes in internal controls.
There have been no significant changes in our internal controls or other factors that would significantly affect such controls and procedures subsequent to the date we completed our evaluation. Therefore, no corrective actions were taken.
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PART II - OTHER INFORMATION
Item 1.
Legal Proceedings.
To the best knowledge of the Company’s officers and directors, the Company is currently not a party to any material pending legal proceeding.
Item 1A.
Risk Factors.
Not applicable as a smaller reporting company.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3.
Defaults Upon Senior Securities.
None.
Item 5.
Other Information.
None.
Item 6.
Exhibits
(a)
Exhibits
*3.1
Certificate of Incorporation
*3.2
Amended and Restated Certificate of Incorporation
*3.3
By-laws
*4.0
Stock Certificate
31.1
Certification pursuant to Section 302 of Sarbanes Oxley Act of 2002
31.1
Certification pursuant to Section 302 of Sarbanes Oxley Act of 2002
32.1
Certification pursuant to Section 906 of Sarbanes Oxley Act of 2002
32.2
Certification pursuant to Section 906 of Sarbanes Oxley Act of 2002
101
Interactive data files pursuant to Rule 405 of Regulation S-T
* Filed as an exhibit to the Company's registration statement on Form SB-2, as filed with the Securities and Exchange Commission on June 14, 2006, and incorporated herein by this reference.
(b) Reports of Form 8-K
None.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: May 14, 2012
BAOSHINN CORPORATON
By: /s/ Sean Webster
Name: Sean Webster
Title: President
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