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 June 30, 2011

[_] 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)

StateplaceNevada		20-3486523
(State or other jurisdiction of incorporation or formation)		(I.R.S. employer identification number)

A-B 8/F Hart Avenue Tsimshatsui

CityKowloon, placeHong 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)

Check 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

State the number of shares outstanding of each of the issuer's classes of common equity, as of June 30, 2011: 21,400,000 shares of common stock.

Transitional Small Business Disclosure Format (check one):  Yes [ ] No [X]

i

 

BAOSHINN CORPORATION

UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS INDEX

PART I – FINANCIAL INFORMATION:

Item 1. Financial Statements (Unaudited)

1

Unaudited Condensed Consolidated Balance Sheet at June 30, 2011 and at December 31, 2010

1

Condensed Consolidated Statement of Comprehensive Income (unaudited) for the three months ended

    June 30, 2010 and 2011 and the six months ending June 30, 2010 and 2011

2

Unaudited Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2011 and

   the six months ending June 30, 2010

3

Notes to Consolidated Interim Financial Statements

4-25

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

26

Item 3. Quantitative and Qualitative Disclosure About Market Risk

32

Item 4T. Controls and Procedures

32

PART II – OTHER INFORMATION:

Item 1. Legal Proceedings

32

Item 1A. Risk Factors

32

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

32

Item 3. Defaults Upon Senior Securities

32

Item 5. Other Information

32

Item 6. Exhibits

32

Signatures

33

ii

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

BAOSHINN CORPORATION

 

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET

 

(Stated in US Dollars)

	June  30          December 31

	2011		2010
	$		$
ASSETS
Current Assets
Cash and cash equivalents	592,279		547,485
Accounts receivable	2,331,640		1,695,759
Deferred cost	1,442,407		1,200,598
Restricted cash	12,850		12,861
Deposits, prepaid expenses and other receivables	895,102		785,854
Total Current Assets	5,274,278		4,242,557
Plant and equipment	34,919		41,475
TOTAL ASSETS	5,309,197		4,284,032
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Current Liabilities
Accounts payable	2,334,542		1,804,077
Deferred revenue	1,452,642		1,217,300
Other payables and accrued liabilities	581,026		414,354
Income tax payable	16,605		18,568
Amounts due to related parties	-		300
Total current liabilities	4,384,815		3,454,599
TOTAL LIABILITIES	4,384,815		3,454,599
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY
Common stock
Par value : 2011 - US$0.001
Authorized: 2011 – 200,000,000 shares
Issued and outstanding: 2011 – 21,400,000 shares	21,400		21,400
Additional paid-in capital	1,793,596		1,793,596
Accumulated other comprehensive income	(1,891)		(1,329)
Accumulated deficit	(1,086,041)		(1,167,418)
TOTAL STOCKHOLDERS’ EQUITY OF THE GROUP	727,064		646,249
ATTRIBUTABLE TO NON-CONTROLLING INTERESTS	197,318		183,184
ATTRIBUTBLE TO THE GROUP	924,382		829,433
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	5,309,197		4,284,032

See notes to consolidated financial statement.

1

BAOSHINN CORPORATION

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

(Stated in US Dollars)

	For 3 Months		For 6 Months
	Ended June 30		Ended June 30
	Unaudited		Unaudited

	2011	2010		2011	2010
	$	$		$	$
Retail and Corporate revenue	10,063,224	6,765,104		18,564,976	13,629,256
Commission from travel booking services	117,603	22,622		149,821	56,890
Incentive commissions	24,018	81,690		98,321	153,612
Net sales	10,204,845	6,869,416		18,813,118	13,839,758
Cost of sales	(9,832,398)	(6,568,280)		(18,091,761)	(13,151,343)
Gross profit	372,447	301,136		721,357	688,415
Other operating income	9,230	8,133		18,532	16,287
Depreciation	(5,168)	(4,634)		(10,606)	(11,433)
Administrative and other operating expenses	(315,628)	(307,402)		(637,399)	(613,381)
Profit/(Loss) from operations	60,881	(2,767)		91,884	79,888
Other non-operating income	2,304	167		3,790	290
Interest expenses	0	(49)		0	(141)
Profit/(Loss) before income taxes	63,185	(2,649)		95,674	80,037
Income taxes	0	0		0	0
Net Profit/(Loss)	63,185	(2,649)		95,674	80,037
Non-controlling interest	(10,270)	(14,893)		(14,298)	(35,921)
Net Profit/(loss) attributable to the Company	52,915	(17,542)		81,376	44,116
Loss per share of common stock
- Basic	0.003	(0.001)		0.004	0.002
- Diluted	0.003	(0.001)		0.004	0.002
Weighted average number of common stock
- Basic	21,400,000	21,400,000		21,400,000	21,400,000
- Diluted	21,780,000	21,400,000		21,780,000	21,715,094

See notes to consolidated financial statement.

 

2

BAOSHINN CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

 

(Stated in US Dollars)

 

 

 

See notes to consolidated financial statement.

3

BAOSHINN CORPORATION

 

NOTES TO UNAUDITED CONDENSED 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. During the year ended March 31, 2008, 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.

On February 20, 2008, Bao Shinn International Express Limited (“BSIE”) incorporated a wholly owned subsidiary, Bao Shinn (China) Express Limited (“BSCE”) of 1,000,000 ordinary shares at $0.128 per share. On October 2010, BSCE has been deregistered.

On July 16, 2008, Bao Shinn Holidays Limited (“BSHL”) was incorporated with 3,000,000 ordinary shares issued and paid at $0.128 per share. BSIE owns 55% of BSHL.

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 client in Hong Kong and the Mainland China.

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. The Company generated a net profit for the six months ended June 30, 2011 of $81,376; on June 30, 2011 it had an accumulated deficit of $1,086,041 and a working capital of $889,463.

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

BAOSHINN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

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.

While the information presented in the accompanying interim financial statements is unaudited, it includes all adjustments which are in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows for the interim period presented in accordance with accounting principles generally accepted in the United States of America.  All adjustments are of a normal recurring nature.

Although these interim financial statements follow the same accounting policies and methods of their application as the Company’s December 31, 2010 annual financial statements, they do not include all information and footnotes required by generally accepted accounting principles for complete financial statements.  Accordingly, it is suggested that these interim financial statements be read in conjunction with the Company’s December 31, 2010 annual 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.

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.  

5

BAOSHINN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

4.    Summary of significant accounting policies

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 sheet.

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 preferred on all customers requiring credit over a certain amount.

During the reporting six months ended June 30, 2011,the Group did not experience any bad debts and accordingly, did not make any allowance for doubtful debts.

 

6

BAOSHINN CORPORATION

NOTES TO UNAUDITED CONDENSED 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% - 50%

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.

7

BAOSHINN CORPORATION

NOTES TO UNAUDITED CONDENSED 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 indented 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. Upon completion of delivery of travel services, deferred cost is charged to cost of sales in the consolidated statement of operations.

 

8

BAOSHINN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

4.

Summary of significant accounting policies (Continued)

Advertising expenses

Advertising expenses are charged to expense as incurred.

For 3 months ended 30/06       For 6 months ended 30/06

           2011        2010                          2011         2010

           $               $                               $                $

           649         4,182                      3,216         4,245

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 year ended 31 December, 2010.  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.

9

BAOSHINN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

4.    Summary of significant accounting policies (Continued)

Foreign currency translation

The functional currency of the Group is Hong Kong dollars (“HK$”).  The Group maintains its financial statements in the functional currency.  Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet dates.  Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchanges rates prevailing at the dates of the transaction.  Exchange gains or losses arising from foreign currency transactions are included in the determination of net income for the respective periods.

For financial reporting purposes, the financial statements of the Group which are prepared using the functional currency have been translated into United States dollars.  Assets and liabilities are translated at the exchange rates at the balance sheet dates and revenue and expenses are translated at the average exchange rates and stockholders’ equity is translated at historical exchange rates.  Any translation adjustments resulting are not included in determining net income but are included in foreign exchange adjustment to other comprehensive income, a component of stockholders’ equity.

		Six Months Ended		Six Months Ended
		30 June 2011		30 June 2010
Period/year end HK$ : US$ exchange rate		7.782		7.786
Average quarterly HK$ : US$ exchange rate		7.783		7.772

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.

10

BAOSHINN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

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 the Three Months Ended June 30, 2011 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.

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:

11

BAOSHINN CORPORATION

NOTES TO UNAUDITED CONDENSED 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.

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.

Recently issued accounting pronouncements

In March 2008, the FASB issued ASC 815 (SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133) to amend and expand the disclosures about derivatives and hedging activities. The standard requires enhanced qualitative disclosures about an entity’s objectives and strategies for using derivatives, and tabular quantitative disclosures about the fair value of derivative instruments and gains and losses on derivatives during the reporting period. This standard is effective for both fiscal years and interim periods that begin after November 15, 2008. The adoption of this standard on December 29, 2008, the beginning of The Group’s fiscal year, did not have a material impact on its audited condensed consolidated financial statements.

In April 2010, the FASB issued ASC805-20-35. ASC805-20-35 amends the provisions for the initial recognition and measurement, subsequent measurement and accounting, and disclosures for assets and liabilities arising from contingencies in business combinations. ASC805-20-35 eliminates the distinction between contractual and non-contractual contingencies, including the initial recognition and measurement criteria and instead carries forward most of the provisions in ASC805 for acquired contingencies. ASC805-20-351 is effective for contingent assets and contingent liabilities acquired in business combinations for which the acquisition date is on or after the first annual reporting period beginning on or after December 15, 2008. We do not expect ASC805-20-35 to have any impact on the Group’s consolidated results of operations and financial condition.

 

12

BAOSHINN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

4.     Summary of significant accounting policies (Continued)

Recently issued accounting pronouncements (Continued)

In May 2010, ASC 855, Subsequent Events (“ASC 855”) includes guidance that was issued by the FASB, and is consistent with current auditing standards in defining a subsequent event. Additionally, the guidance provides for disclosure regarding the existence and timing of a company’s evaluation of its subsequent events. ASC 855 defines two types of subsequent events, “recognized” and “non-recognized”. Recognized subsequent events provide additional evidence about conditions that existed at the date of the balance sheet and are required to be reflected in the financial statements. Non-recognized subsequent events provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date and, therefore; are not required to be reflected in the financial statements. However, certain non-recognized subsequent events may require disclosure to prevent the financial statements from being misleading. This guidance was effective prospectively for interim or annual financial periods ending after June 15, 2010. The Group implemented the guidance included in ASC 855 as of April 1, 2010. The effect of implementing this guidance was not material to The Group’s financial position or results of operations.

In August 2010, the FASB issued Accounting Standards Update (“ASU”) 2010-05, which amends ASC Topic 820, Measuring Liabilities at Fair Value, which provides additional guidance on the measurement of liabilities at fair value. These amended standards clarify that in circumstances in which a quoted price in an active market for the identical liability is not available, we are required to use the quoted price of the identical liability when traded as an asset, quoted prices for similar liabilities, or quoted prices for similar liabilities when traded as assets. If these quoted prices are not available, we are required to use another valuation technique, such as an income approach or a market approach. These amended standards are effective for us beginning in the fourth quarter of fiscal year 2010. There was no material impact upon the adoption of this standard on The Group’s consolidated financial statements.

In September 2010, the FASB issued ASU 2010-06, Income Taxes (Topic 740), ”Implementation Guidance on Accounting for Uncertainty in Income Taxes and Disclosure Amendments for Nonpublic Entities”, which provides implementation guidance on accounting for uncertainty in income taxes, as well as eliminates certain disclosure requirements for nonpublic entities.  For entities that are currently applying the standards for accounting for uncertainty in income taxes, this update shall be effective for interim and annual periods ending after September 15, 2010. For those entities that have deferred the application of accounting for uncertainty in income taxes in accordance with paragraph 740-10-65-1(e), this update shall be effective upon adoption of those standards. The adoption of this standard is not expected to have an impact on The Group’s consolidated financial position and results of operations since this accounting standard update provides only implementation and disclosure amendments.

In September 2010, the FASB has published ASU 2010-12, “Fair Value Measurements and Disclosures (Topic 820) - Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)”. This ASU amends Subtopic 820-10, “Fair Value Measurements and Disclosures – Overall”, to permit a reporting entity to measure the fair value of certain investments on the basis of the net asset value per share of the investment (or its equivalent). This ASU also requires new disclosures, by major category of investments including the attributes of investments within the scope of this amendment to the Codification. The guidance in this update is effective for interim and annual periods ending after December 15, 2010. Early application is permitted.   The Group is in the process of evaluating the impact of this standard on its consolidated financial position and results of operations.

13

BAOSHINN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

4.     Summary of significant accounting policies (Continued)

Recently issued accounting pronouncements (Continued)

In October 2010, the FASB has published ASU 2010-13, “Revenue Recognition (Topic 605)-Multiple Deliverable Revenue Arrangements”, which addresses the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit. Specifically, this guidance amends the criteria in Subtopic 605-25, “Revenue Recognition-Multiple-Element Arrangements”, for separating consideration in multiple-deliverable arrangements. This guidance establishes a selling price hierarchy for determining the selling price of a deliverable, which is based on: (a) vendor-specific objective evidence; (b) third-party evidence; or (c) estimates. This guidance also eliminates the residual method of allocation and requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method and also requires expanded disclosures. The guidance in this update is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2011. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on The Group’s consolidated financial position and results of operations.

ASC 105, Generally Accepted Accounting Principles (“ASC 105”), reorganized by topic existing accounting and reporting guidance issued by the Financial Accounting Standards Board (“FASB”) into a single source of authoritative generally accepted accounting principles (“GAAP”) to be applied by nongovernmental entities. All guidance contained in the Accounting Standards Codification (“ASC”) carries an equal level of authority. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. Accordingly, all other accounting literature will be deemed “non-authoritative”. ASC 105 is effective on a prospective basis for financial statements issued for interim and annual periods ending after September 15, 2010. The Group has implemented the guidance included in ASC 105 as of July 1, 2010. The implementation of this guidance changed the Group’s references to GAAP authoritative guidance but did not impact the Group’s financial position or results of operations.

In December 2010, the FASB issued Accounting Standards Update ASU 2010-29, Disclosure of Supplementary Pro Forma Information for Business Combinations (Topic 805). The update requires public companies to disclose pro forma information for business combinations that occur in the current reporting period. The disclosures include pro forma revenue and earnings of the combined entity for the current reporting period as though the acquisition date for all business combinations that occurred during the year had been as of the beginning of the annual reporting period. This guidance is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010, with early adoption permitted. The Company’s adoption of FASB ASU No. 2010-29 effective December 1, 2010 did not have an impact on the Company’s consolidated results of operations or financial position but did result in additional disclosures.

In January 2011, the FASB issued Accounting Standards Update No. 2011-06 (ASU 2011-06), Fair Value Measurements and Disclosures which amends ASC Topic 820, adding new requirements for disclosures for Levels 1 and 2, separate disclosures of purchases, sales, issuances, and settlements relating to Level 3 measurements and clarification of existing fair value disclosures.  ASU 2011-06 is effective for interim and annual periods beginning after December 15, 2010, except for the requirement to provide Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which will be effective for fiscal years beginning after December 15, 2011 (the Group’s fiscal year 2012); early adoption is permitted.  The Group is currently evaluating the impact of adopting ASU 2010-14 on its financial statements.

In February 2011, the FASB issued ASU 2011-09 which requires that an SEC filer, as defined, evaluate subsequent events through the date that the financial statements are issued. The update also removed the requirement for an SEC filer to disclose the date through which subsequent events have been evaluated in originally issued and revised financial statements. The adoption of this guidance on January 1, 2011 did not have a material effect on the Company’s financial statements.

 

14

BAOSHINN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

4.     Summary of significant accounting policies (Continued)

Recently issued accounting pronouncements (Continued)

In May 2011, the FASB issued ASU 2011-04 which is intended to be consistent with the Memorandum of Understanding and the Boards’ commitment published in 2006 to achieving that goal, the amendments in this Update are the result of the work by the FASB and the IASB to develop common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRSs). The Boards worked together to ensure that fair value has the same meaning in U.S. GAAP and in IFRSs and that their respective fair value measurement and disclosure requirements are the same (except for minor differences in wording and style). The Boards concluded that the amendments in this Update will improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRSs. The amendments in this Update explain how to measure fair value. They do not require additional fair value measurements and are not intended to establish valuation standards or affect valuation practices outside of financial reporting.

In June 2011, the FASB issued ASU 2011-05 which is intended to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. To increase the prominence of items reported in other comprehensive income and to facilitate convergence of U.S. generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS), the FASB decided to eliminate the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity, among other amendments in this Update. The amendments require that all nonowner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income.

5.

Other operating income

6.

Other non-operating income

BAOSHINN CORPORATION

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

 

7.

Interest expenses

 

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 2010 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 June 30, 2011 and 2010.

No provision for Hong Kong profits tax has been made for the year presented as the subsidiaries did not have assessable profit during the period.

16

BAOSHINN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

9.    Deposits, prepaid expenses and other receivables

			Jun 30,2011		Dec 31, 2010
			$		$
	Security deposits to suppliers [1]		749,138		699,732
	Prepayments and other receivables		112,886		55,458
	Utility, rental and other deposits		33,078		30,664
			895,102		785,854

^[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 UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

 

10.    Plant and Equipment

				June 30             December 31,

				2011		2010
				$		$
	Cost
	Furniture and fixtures			53,214		51,333
	Office equipment			63,578		61,472
				116,792		112,805
	Accumulated depreciation
	Furniture and fixtures			32,530		26,913
	Office equipment			49,343		44,417
				81,873		71,330
	Net
	Furniture and fixtures			20,684		24,420
	Office equipment			14,235		17,055
				34,919		41,475

Depreciation expenses for the three months ended 30 June 2011 are $5,168 (Three months ended 30 June, 2010: $4,634).

11.    Other payables and accrued liabilities

				June 30,    December 31,

				2011		2010
				$		$
	Sale deposits received			360,221		165,447
	Accrued expenses			128,117		199,693
	Other payables			79,995		49,214
				568,333		414,354

18

BAOSHINN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

12.    Amounts due from/(to) related parties

Amounts due from/(to) related parties for working capital are as follows:

				June 30,       December 31,

				2011		2010
				$		$
	Amounts due to related parties			-		300

The amounts due to related parties, represent advances from certain directors and shareholders of The Group, are interest free (December 31, 2010: 5.5% per annum), unsecured and have no fixed repayment terms.

13.    Deferred cost and revenue

The Group has re-evaluated its accounting treatment for revenues from retail and corporate travel services from previously issued financial statements and concluded that these revenues are recognized when the travel service provided by the Group is completely delivered.  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 (see note 4).

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, 2010, maximum of 60% of options to be exercised up to March 31, 2011 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 UNAUDITED CONDENSED 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%.

						Weighted
				Weighted		average
		Number of		average		remaining
		options		exercise price		life
Balance as of June 30, 2011		330,000		0.35		0
Exercisable as of December 31, 2008		155,000		0.35		2.25
Exercisable during the year		75,000		0.35		0
Exercisable as of December 31, 2009		230,000		0.35		1.25
Exercisable during the year		100,000		0.35		0
Exercisable as of December 31, 2010		330,000		0.35		0.25
Expired during the period		(330,000)		0.35		0
Exercisable as of June 30, 2011		0		0		0

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:

	Six Months ended June 30, 2011		Six Months ended June 30, 2010
Travel Expert Limited (a Hong Kong  incorporated travel agent)	23%		14%

20

BAOSHINN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

15.    Concentration of credit (Continued)

Details of the accounts receivable from the one customer with the largest receivable balances at December 31, 2010 and June 30, 2011 are as follows:

	Percentage of account receivable
	June 30                          December 31

	2011		2010
Travel Expert Limited (a Hong Kong incorporated travel agent)	21%		18%

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 $15,865 during Six Months Ended June 30, 2011 (for the Six Months Ended June 30, 2010: $15,929).

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.

 

21

BAOSHINN CORPORATION

NOTES TO UNAUDITED CONDENSED 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 June 30, 2011 and December 31, 2010:

				Fair Value Measurements at reporting date using

		30 June 2011		Quoted Price in active Markets for identical assets (level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
		$		$		$		$
Assets
Accounts receivable		2,331,640		-		-		2,331,640
Deferred cost		1,442,407		-		-		1,442,407
Restricted cash		12,850		-		-		12,850
Deposit, prepayment and other receivables		895,102		-		-		895,102
Liabilities
Accounts payable		2,334,542		-		-		2,334,542
Deferred revenue		1,452,642		-		-		1,452,642
Other payables and accrued liabilities		581,026		-		-		581,026

22

BAOSHINN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

17.    Fair Value Measurements (Continued)

				Fair Value Measurements at reporting date using

		31 Dec 2010		Quoted Price in active Markets for identical assets (level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
		$		$		$		$
Assets
Accounts receivable		1,692,797		-		-		1,692,797
Deferred cost		1,200,598						1,200,598
Deposit, prepaid expenses and other receivables		785,854		-		-		785,854
Restricted cash		12,861		-		-		12,861
Liabilities
Accounts payable		1,804,077		-		-		1,804,077
Deferred revenue		1,217,300						1,217,300
Other payables and accrued liabilities		414,354		-		-		414,354
Amounts due to related parties		300		-		-		300

Level 3 financial assets represent the fair value of our accounts and other receivables and restricted cash.

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 June 30, 2011 are as follows:

				$
Within 1 Year (30.6.2012)				78,140
2 - 5  Years				4,965
				83,104

Rental expenses for the Three Months Ended June 30, 2011 were $24,197 (for the Three Months Ended June 30, 2010: $24,179).

23

BAOSHINN CORPORATION

NOTES TO UNAUDITED CONDENSED 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 30 June 2011  $	Three Months Ended 30 June 2010   $	Six Months Ended 30 June 2011    $	Six Months Ended 30 June 2010   $
Bao Shinn Express Co., Ltd.	Shareholder	Sales	(45,445)	(22,930)	(99,997)	(92,792)
	38.6%	Management service income	(9,089)	(8,143)	(18,005)	(16,297)
		Purchase	9,546	13,948	31,169	23,235
HK Airlines Holidays Travel   Company Limited	Bao Shinn Express  Co Ltd is a Major shareholder	Sales	(300,198)	(386,538)	(475,869)	(540,459)
		Purchase	-	1,404	-	1,404
H.C, Patterson and Company Ltd	Bao Shinn Express  Co Ltd is a Major shareholder	Purchase	12,220	1,821	18,308	8,041
		Sales	(4,824)	(7,581)	(19,365)	(22,640)
Grand Power Express   International Ltd	Chiu Tong, Ricky is the connected person	Sales	-	(50)	(2,017)	(583)

24

BAOSHINN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

20.    Subsequent Events

Effective on 19 July 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, pursuant, into one (1) share of the Company’s outstanding Common Stock, the “New Common Stock”.

21.    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.

25

 

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 (“the Company”), except where the context otherwise indicates or requires.

The following discussion of our financial condition and results of operations should be read in conjunction with the audited financial statements and the notes to the audited financial statements included in this annual report. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those anticipated in these forward-looking statements.

Results of operations for the Three months ended June 30, 2011 compared to the Three months ended June 30, 2010

 

Revenues

For the three months ended June 30, 2011, the Company has experienced an increase in sales revenues, and the Company was recognized by Eva Airline as its top selling agent in Hong Kong. Eva Airlines operates both short haul routes within South East Asia and long haul routes including North America and Europe. The Company has also been appointed as a first tier agent for two additional airlines, i.e., HongKong Airlines & HongKong Express. Hong Kong Airlines mainly operates flights originating from Hong Kong to destinations in Asian cities, including Bangkok, Kuala Lumpur, Manila, and major cities in Japan. HongKong express mainly operates flights originating from Hong Kong to mainland China‘s second tier cities, including Changsha, Fuzhou, Hangzhou, Hefei, Guiyang etc.

Our revenue for the three months ended June 30, 2011 was $10,063,224, compared to $6,765,104 in the three months ended June 30, 2010. We generate our revenues primarily from retail and corporate business. For the three months ended June 30, 2011, we derived 98.6%, 1.2% and 0.2% of our revenues from our retail & corporate clients, commissions from travel booking services and airline incentive commissions respectively.

The table below sets forth the revenues from our principal lines of business for the periods indicated.

Cost of Sales

Costs of sales are costs directly attributable to rendering our revenues, which consist primarily of payments for travel costs to airlines and suppliers. Cost of revenues accounted for 96,35% of our revenue in the Three months ended June 30, 2011 and 96,62% of our revenues in the Three months ended June 30, 2010.

The table below sets forth the cost of sales for the periods indicated.

Gross Profit and Gross Profit Margin

Our gross profit for the three months ended June 30, 2011 was $372,447, compared to $301,136 in the three months ended June 30, 2010. The gross profit margin rate decreased from 4.38% for the three months ended June 30, 2010 to 3.65% for the three months ended June 30, 2011. The decrease in gross profit margin rate is mainly due to higher competition in the travel market as a result of the recovery of the Hong Kong economy.

 

Operating Expenses

Overview

Total operating expenses for the three months ended June 30, 2011 were $315,628 or 3.1% of revenues, while the operating expenses for three months ended June 30, 2010 were $307,402 or 4.5% of revenues. The decrease in operating expenses was due to our cost saving strategy, which significantly reduced expenses, such as salaries, commissions, and allowances compared to the same period last year.

 

Salaries, Commissions and Allowances

Salaries, Commissions and Allowances increased from $217,585 for the three months ended June 30, 2010 to $224,562 for the three months ended June 30, 2011, the Group flattened its organization structure by cutting senior management staff, reducing staff redundancy and decentralizing its operations. Meanwhile, support and administration staffing has also been cut to keep back office costs down.

Legal and Professional Fees

Legal and professional fees for the three months ended June 30, 2011 were $5,980 or 0.1% of revenues, while the legal and professional fees for three months ended June 30, 2010 were $9,956 or 0.1% of revenues. Legal and professional fees in the current period were consistent with the same period last year.

Office Rental

Office rental for the three months ended June 30, 2011 was $24,197 or 0.2% of revenues, while the Office rental for three months ended June 30, 2010 was $24,179 or 0.3% 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 June 30, 2011 were $60,889 or 0.6% of revenues, while the other expenses for Three months ended June 30, 2010 were $55,679 or 0.8% of revenues. The expenses in the current period were consistent with the same period last year.

Other operating income

Commission Income

Commission income for the three months ended June 30, 2011 were $141 compared to nil for three months ended June 30, 2010. During the Three months ended June 30, 2011, we increased the number of tickets booked through a lower percentage commission booking system, which resulted in a lower amount of commissions.

Management Service Income

Management service income represents compensation from a related party, Bao Shinn Express Company Limited (“BSEL”). Management service income from BSEL was $9,089 in the three months ended June 30, 2011, compared to $8,133 in the three months ended June 30, 2010.

The Company recognizes the management service as “other operating income”, as the Company’s management team is part of its operation team. Accordingly, the revenue generated by the management team is considered part of the Company’s operations.

 

Other non-operating income

Exchange Gain

The exchange gain was $102 for the three months ended June 30, 2011 compared to $164 for the three months ended June 30, 2010. This was attributable to a more stable rate of the Hong Kong Dollar against foreign currencies, including the U.S. Dollar, RMB and the Thai Baht during the three months ended June 30, 2011.

Interest Income

Interest income was $2 for the Three months ended June 30, 2011, compared to $3 for the three months ended June 30, 2010. This interest was earned from bank savings and fixed deposit accounts. The Company considers it non-operational income. The decrease in the interest income for the three months ended June 30, 2011 was mainly due to a decrease in the bank interest rate compare to the same period in 2009.

Net Income

Our net profit was $52,915 for the three months ended June 30, 2011, compared to a net loss of $17,542 for the three months ended June 30, 2010. The increase in net profit for the three months ended June 30, 2011 compared to the same period last year was mainly due to the increase in gross margin as a result of the change in the Company’s business strategy, as well as an improvement in the overall economy.

 

Results of operations for the Six months ended June 30, 2011 compared to the Six months ended June 30, 2010

 

Revenues

For the six months ended June 30, 2011, the Company has experienced an increase in sales revenues, the Company was recognized by Eva Airline as its top selling agent in Hong Kong. Eva Airlines operates both short haul routes within South East Asia and long haul routes that include  routes to North America and Europe. The Company has also been appointed as a first tier agent for two additional airlines, i.e., HongKong Airlines & HongKong Express. Hong Kong Airlines mainly operates flights originating from Hong Kong to destinations in Asian cities, including Bangkok, Kuala Lumpur, Manila, and major cities in Japan. HongKong express mainly operates flights originating from Hong Kong to mainland China‘s second tier cities, including Changsha, Fuzhou, Hangzhou, Hefei, Guiyang etc.

Our revenue for the six months ended June 30, 2011 was $18,813,118, compared to $13,839,758 in the six months ended June 30, 2010. For the six months ended June 30, 2011, we derived 98.7%, 0.8% and 0.5% of our revenues from our retail & corporate clients, commissions from travel booking services and airline incentive commissions respectively.

 

The table below sets forth the revenues from our principal lines of business for the periods indicated.

 

Cost of Sales

Costs of sales are costs directly attributable to rendering our revenues, which consist primarily of payments for travel costs to airlines and suppliers. Cost of revenues accounted for 96.2% of our revenue in the Six months ended June 30, 2011 and 95% of our revenues in the Six months ended June 30, 2010.

 

The table below sets forth the cost of sales for the periods indicated.

Gross Profit and Gross Profit Margin

Our gross profit for the six months ended June 30, 2011 was $721,357, compared to $688,415 in the six months ended June 30, 2010. The gross profit margin rate decreased from 5% for the six months ended June 30, 2010 to 3.8% for the six months ended June 30, 2011. The decrease in gross profit margin rate is mainly due to higher competition in the travel market as a result of the recovery of the Hong Kong economy.

Operating Expenses

Overview

Total operating expenses for the six months ended June 30, 2011 were $637,399 or 3.4% of revenues, while the operating expenses for six months ended June 30, 2010 were $613,381 or 4.4% of revenues. The increase in operating expenses was mainly due to higher salaries, commissions, and allowances compared to the same period last year.

 

Salaries, Commissions and Allowances

Salaries, Commissions and Allowances increased from $435,917 for the six months ended June 30, 2010 to $449,637 for the six months ended June 30, 2011. Sales staff are rewarded by performance, higher Salaries, commissions and allowances are mainly due to better sales driven by staff compared to the same period last year.

Legal and Professional Fees

Legal and professional fees for the six months ended June 30, 2011 were $11,756 or 0.1% of revenues, while the legal and professional fees for six months ended June 30, 2010 were $19,622 or 0.1% of revenues.

Office Rental

Office rental for the six months ended June 30, 2011 was $48,352 or 0.3% of revenues, while the Office rental for six months ended June 30, 2010 was $48,420 or 0.3% 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 six months ended June 30, 2011 were $127,654 or 0.6% of revenues, while the other expenses for six months ended June 30, 2010 were $109,422 or 0.8% of revenues. The expenses in the current period were consistent with the same period last year.

Other operating income

Commission Income

Commission income for the six months ended June 30, 2011 was $527 compared to nil for six months ended June 30, 2010. During the six months ended June 30, 2011, we increased the number of tickets booked through a higher percentage commission booking system, which resulted in a slightly higher amount of commissions for the period.

Management Service Income

Management service income represents compensation from a related party, Bao Shinn Express Company Limited (“BSEL”). Management service income from BSEL was $18,005 in the six months ended June 30, 2011, compared to $16,287 in the six months ended June 30, 2010.

The Company recognizes the management service as “other operating income”, as the Company’s management team is part of its operation team. Accordingly, the revenue generated by the management team is considered part of the Company’s operations.

 

Other non-operating income / (expenses)

Exchange Gain

The exchange loss was $179 for the six months ended June 30, 2011 compared to $279 exchange gain for the six months ended June 30, 2010. This was attributable to depreciation of the Hong Kong Dollar against foreign currencies, including RMB and the Thai Baht during the six months ended June 30, 2011

Interest Income

Interest income was $10 for the six months ended June 30, 2011, compared to $11 for the six months ended June 30, 2010. This interest was earned from bank savings and fixed deposit accounts. The Company considers it non-operational income.

Net Income

Our net profit was $81,376 for the six months ended June 30, 2011, compared to a net profit of $44,116 for the six months ended June 30, 2010. The increase in net profit for the six months ended June 30, 2011 compared to the same period last year was mainly due to higher competition in the travel market as a result of the recovery of the Hong Kong economy.

Operating Activities

Net cash used in operating activities was $49,858, for the six months ended June 30, 2011, compared to net cash generated from operating activities of $40,165 for the six months ended June 30, 2010. The cash provided during the three months ended June 30, 2011 is mainly from the movement of working capital.

Investing Activities  

For the six months ended June 30, 2011, net cash used in investing activities was $3,987 compared to $2,115 for the same period in 2010. The cash was mainly used for the purchase of new office equipment for our subsidiary.

Financing Activities

Net cash used by financing activities was $300 for the six months ended June 30, 2011, compared to $113,553 for the same period in 2010. The cash was mainly used to reduce the temporary  advance from related parties.  

Liquidity and Capital Resources

Our primary source of capital has been from sales and issuances of equity securities. Our primary use of capital has been for the expansion and development of our business, and the associated need for increased working capital. Our working capital requirements are expected to increase in line with the growth of our business. We have no lines of credit or other bank financing arrangements. We expect that working capital requirements will be funded through a combination of our existing funds, cash flow from operations, private loans, and issuance of equity and debt securities. Additional issuances of equity and debt securities will result in dilution to our current common stockholders. The Company’s former shareholders agreed to provide continuing financial support to the Company in the form of a temporary loan. The agreements for continuing financial support are verbal. These temporary loans were unsecured with no fixed term of repayment during the three months ended June 30, 2011. Interest was paid at the rate of 5.5% per annum.

Financing Our Capital Expenditures

During the next 12 months, the Company anticipates that it will implement its business plan for expanding into the China market. The initial investment is expected to be approximately US$1,200,000. These funds will be used for setting up a China flagship company in Shanghai. Expenses are expected to include obtaining travel licenses, office renovation, purchase of communication equipment, purchase of computers and office equipment. An additional investment of US$1,500,000 may be required as the working capital for the Shanghai office.

The new flagship company will be a wholly owned subsidiary of the Company, it will be registered in Shanghai and it will serve as our China headquarters. We subsequently plan to open branch offices in Beijing, Guangzhou, Chongqing and Kunming. There is no assurance that all these plans will be accomplished.

As a marketing tool, an “On-line travel” business team will be set up in Shanghai. The team includes the IT specialist for development of a travel booking system to China.

Off-Balance Sheet Arrangements

For the Three months ended June 30, 2011, and the Three months ended June 30, 2010, the Company did not engage in any off-balance sheet activities or have any relationships or arrangements with unconsolidated entities established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, we have not guaranteed any obligations of unconsolidated entities nor do we have any commitment or intent to provide additional funding to any such entities.

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 30 June 2011  $	Three Months Ended 30 June 2010   $	Six Months Ended 30 June 2011    $	Six Months Ended 30 June 2010   $
Bao Shinn Express Co., Ltd.	Shareholder	Sales	(45,445)	(22,930)	(99,997)	(92,792)
	38.6%	Management service income	(9,089)	(8,143)	(18,005)	(16,297)
		Purchase	9,546	13,948	31,169	23,235
HK Airlines Holidays Travel   Company Limited	Bao Shinn Express  Co Ltd is a Major shareholder	Sales	(300,198)	(386,538)	(475,869)	(540,459)
		Purchase	-	1,404	-	1,404
H.C, Patterson and Company Ltd	Bao Shinn Express  Co Ltd is a Major shareholder	Purchase	12,220	1,821	18,308	8,041
		Sales	(4,824)	(7,581)	(19,365)	(22,640)
Grand Power Express   International Ltd	Chiu Tong, Ricky is the connected person	Sales	-	(50)	(2,017)	(583)

 

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Item 3.     Quantitative and Qualitative Disclosure About Market Risks.

Not Applicable.

Item 4T.    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.

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.

tem 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

31.2

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

* 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.

 

 

32

 

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:  August 10, 2011

BAOSHINN CORPORATON

By:  /s/ Sean Webster

Name:  Sean Webster

Title: President

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