ZZLL INFORMATION TECHNOLOGY, INC - Annual Report: 2009 (Form 10-K)

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

|X| ANNUAL REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2009

| | TRANSITION REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the period from _________________ to __________________

Commission File Number 333-134991

_______________________________________________

BAOSHINN CORPORATION

(Exact name of registrant as specified in its charter)

______________________________________________

Nevada		20-3486523
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
A-B 8/F Hart Avenue
Tsimshatsui, Kowloon, Hong Kong		N/A
(Address of principal executive offices)		(zip code)
Registrant‘s telephone number, including area code: (852) 2815-1355

_____________________________________________

Securities registered under Section 12(b) of the Exchange Act:

None.

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, $.001 par value per share

(Title of Class)

Indicate by check mark if registrant is a well known seasoned issuer, as defined in Rule 405 of the Securities Act.  |  | Yes   | X | No.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.  |  | Yes   | X | No.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. | X | Yes   |  | No.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant‘s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  [  ]

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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer [  ]

Accelerated filer [  ]

Non-accelerated filer [  ]

Smaller reporting company [ X ]

(Do not check if a smaller reporting company)

Indicate by check mark whether the issuer is a shell company (as defined in Rule 12b-2 of the Exchange Act).  

|  | Yes   | X | No.

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked prices of such common equity, as of the last business day of the registrant’s most recently completed second quarter. Note: If determining whether a particular person or entity is an affiliate cannot be made without involving an unreasonable effort and expense, the aggregate market value of the common equity held by non-affiliates may be calculated on the basis of reasonable assumptions, if the assumptions are set forth in this form.

6,550,000 common shares @ $0.02* = $131,000

*Average of bid and ask closing prices on June 30, 2009.

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.  Yes |  | No. |  |

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

21,400,000 common shares issued and outstanding as of March 31, 2010

DOCUMENTS INCORPORATED BY REFERENCE:

None.

FORWARD-LOOKING STATEMENTS

Certain statements made in this Annual Report on Form 10-K are “forward-looking statements” (within the meaning of the Private Securities Litigation Reform Act of 1995) regarding the plans and objectives of management for future operations. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of Baoshinn Corporation (the “Company”) to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. The Company’s plans and objectives are based, in part, on assumptions involving the continued expansion of business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although the Company believes its assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance the forward-looking statements included in this Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved.

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TABLE OF CONTENTS

PART I		Page
Item 1.	Description of Business	4
Item 1A.	Risk Factors	10
Item 2.	Properties	13
Item 3	Legal Proceedings	13
Item 4.	Submission of Matters to a Vote of Security Holders	14
PART II
Item 5.	Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	14
Item 6.	Selected Financial Data	15
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 8.	Financial Statements and Supplementary Data	24
	Report of Independent Registered Public Accounting Firm	26
	Consolidated Balance Sheets	27
	Consolidated Income Statement	28
	Consolidated Statements of Cash Flows	29
	Consolidated Statements of Stockholders’ Equity and Comprehensive Income	30
	Notes to Consolidated Financial Statements	31-55
Item 9.	Changes In and Disagreements with Accountants on Accounting and Financial Disclosure	56
Item 9A.	Controls and Procedures	56
Item 9B.	Other Information	57
PART III
Item 10.	Directors and Executive Officers and Corporate Governance	57
Item 11.	Executive Compensation	60
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	61
Item 13.	Certain Relationships and Related Transactions, and Director Independence	62
Item 14.	Principal Accountant Fees and Services	64
Item 15.	Exhibits	65
	Signatures	66

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PART I

ITEM 1.  DESCRIPTION OF BUSINESS.

Background

Baoshinn Corporation was incorporated under the laws of the State of Nevada on September 9, 2005, under the name of JML Holdings, Inc. We were formed as a “blind pool” or “blank check” company whose business plan was to seek to acquire a business opportunity through completion of a merger, exchange of stock, or other similar type of transaction. Prior to our identification of Bao Shinn International Express (“BSIE”) as an acquisition target, our only business activity was organizational activities.

We consummated our merger with BSIE, a privately held Hong Kong corporation, on March 31, 2006, by acquiring all of the issued and outstanding common stock of BSIE in a share exchange transaction. We issued 16,500,000 shares of our common stock in exchange for 100% of the issued and outstanding shares of BSIE common stock. As a result of the share exchange transaction, BSIE became our wholly-owned subsidiary.

The former stockholders of BSIE acquired 76.74% of our issued and outstanding common stock as a result of completion of the share exchange transaction. Therefore, although BSIE became our wholly-owned subsidiary, the transaction was accounted for as a recapitalization of BSIE whereby BSIE is deemed to be the accounting acquirer and is deemed to have adopted our capital structure.

Government Approval/Regulations

BSIE is a travel service provider located in Hong Kong. As a travel service provider BSIE must be a member of the Travel Industry Council in Hong Kong. Such a member must meet the following criteria:

1.

It is a limited company incorporated or registered in Hong Kong.

2.

Its only business is travel-related and tourism.

3.

It is a member of one of the eight Association Members. BSIE is a HATA member (Hong Kong Association of Travel Agents). It has a minimum paid-up capital of Hong Kong Currency of $500,000, plus an additional Hong Kong Currency of $250,000 for each branch office.

4.

It conducts its travel-related and tourism business within separate and independent commercial premises / buildings.

5.

It employs at each office at least one manager with two years’ relevant experience and another full-time staff member.

Any company that participates in the Travel industry in Hong Kong is required by law to be the member of the Travel Industry Council (TIC) in Hong Kong. Without joining the TIC, we cannot sell travel packages or provide travel services to the public. Any individual that buys a travel package or receives travel service from a non Travel Industry Council member will not have proper insurance coverage, and it is illegal for a company to sell travel service without joining the TIC.

Baoshinn International Express Background

BSIE is headquartered in Hong Kong and was established in 2002 to offer extended travel services primarily focused on wholesale businesses and corporate clients. Through our Hong Kong subsidiary, we are ticket consolidators of major international airlines, including Thai Airways, Eva Airways, Dragon Air, Air China, China Southern Airlines, China Eastern Airlines, HongKong Airlines & HongKong Express. With a strong and experienced team of travel consultants and officers dedicated to excellent travel services, we provide travel services such as ticketing, hotel and accommodation arrangements, tour packages, incentive tours and group sightseeing

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services to customers located in Hong Kong and Mainland China.

Chartered Flights

Chartered flights generally account for less than 5% of our total business. During peak periods, such as the Easter holiday, summer holiday, Christmas, New Year and Chinese New Year, our chartered flight schedule will depend on the market situation. We will discuss options with airlines such as Eastern Airline to Shanghai, Thai Airways to Bangkok, Eva Airlines to Taipei and Dragon Airline to Beijing.

Business Objective

We intend to expand our current travel agency wholesale business, direct corporate client sales and Hong Kong to China travel arrangement in Hong Kong operations, and establish additional operations Mainland China. The estimated funding to meet these objectives is: (i) US $500,000 to expand the Hong Kong Operation; (ii) US $1,200,000 to establish branch offices and sales representative centers in Mainland China; (iii) US$1,500,000 for working capital of Mainland China operations.

Our long term objective is to enlarge our customer base and to provide privileged services in the Hong Kong and China Mainland market.

Description of Services

Ticketing Agency

We are ticket consolidators (meaning we are wholesale agents for the airlines) for Thai Airway, Eva Airways, China Airlines, Dragon Air, Air China, China Southern Airlines, China Eastern Airlines, HongKong Airlines and Hong Kong Express. Our computerized in-house ticketing network allows us to book and issue flight tickets for any international airline. We currently use the Abacus, Amadeus, World Span, Galileo and E-Term ticketing systems, which offer the most comprehensive ticketing services to our customers. All of these systems are recognized by the airlines as ticket booking systems, which link to airline computer systems and allow us to gain direct access to those systems and issue the ticket.

Hotel/Accommodation Arrangement

We provide accommodation arrangements through our Hotel Division, which enables our customer to make advance arrangements throughout their tour. We have the capability to provide hotel reservations to any hotel in the world.

Inbound Division

We provide local support and accommodation for inbound travelers to Hong Kong through our strategic alliances and relationships with local hotels and transportation companies. We provide hotel reservations, transportation, tour guides, optional tour and entrance tickets for playground and Disneyland in Hong Kong. Our current customers mostly come from the Asia Pacific regions, including China, Japan and Taiwan, also chartered customers from Europe and North America. Our staff will concentrate on China Inbound travel and Disneyland Resort Tours as we hope to capitalize on the domestic travel market in China.

China Division

With our long established relationships in the China travel industry and our special relationships with hosts in China, we provide one-stop service to customers to enjoy the widest range of options, packages, tickets and accommodations in China.

Corporate Division

We provide custom services and arrangements to our corporate clients for their business travel. With a team of travel

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consultants specifically trained for our corporate clients, we provide our expertise to corporate customers by designing business itineraries that fit their busy schedules.

We are now undergoing developments and expansion in all divisions. With our planned branch offices due to open in the next two years, our business is expected to be more comprehensive and be offered to a much wider spectrum of customers, while maintaining our high standard of service.

Operation

BSIE’s headquarters is located in Kowloon, Hong Kong. The office lease is for a term of six (6) years, and it commenced on January 1, 2010. On January 2, 1020 the lease was renewed for another 2 years, and that extension will expire on December 31, 2011. Bao Shinn Holiday Limited (“BSHL”), which is one o the Company’s subsidiaries (55% owned), is located in Central Hong Kong, and its office lease for a twelve (12) year term commencing on July 28 2008.

BSIE has 19 employees, and BSHK has 11 employees as of the end of 2010.

BSIE is a member of the Travel Industry Council of Hong Kong (TIC) and the Hong Kong Outbound Tour Operator’s Association (OTOA). To maintain memberships with these organizations, we are required to comply with the agencies’ regulations, which demand a high standard of professionalism in the travel industry and to protect the interests of our customers.

Ordinary Membership of the TIC shall meet the following criteria:

Our goal is to capture an all-encompassing market that will include the inbound/outbound markets for travel services in Hong Kong, China and around the world. We believe that we can compete on the retail, wholesale and corporate levels of the travel industry using this all-encompassing approach.

Market Overview

The travel industry has become a significant driving force in Hong Kong’s economy. This includes inbound as well as outbound business, as evidenced by the following facts, trends and future estimates.

1.

In 2008, there were 29.51 million visitors to Hong Kong, a growth of 4.7%% compared to 2007. Source: Hong Kong Tourism Board, January 2009.

2.

Being an international city, Hong Kong is a popular venue for international conventions and exhibitions, which bring a large number of visitors to the City every year.

3.

Attractions in Hong Kong such as the Sun Yat-Sen Museum, Ocean Park Theme Hotel and Disneyland Resort are expected to attract more visitors in the coming years.

4.

International Sports events, including the Macau Grand Prix in November and the Hong Kong Rugby Seven are held every year have been attracting a large number of visitors to Hong Kong:

PEOPLES REPUBLIC OF CHINA

Market Overview

Travelers from Mainland China are by far the largest source of revenue for the Hong Kong travel industry. The Chinese Government plans to further expand the opportunities given to its citizens to travel to Hong Kong. With the expanding middle class in China, the number of Mainland China Travelers and the revenues they generate is expected to increase. The recent opening of the Disneyland Resort in Hong Kong has also attracted tourists from Mainland China.

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Source:  Hong Kong Tourism Board, April, 2008

·

The economy of China has been expanding dramatically since the 1990’s. The number of travelers continues to increase as well as their spending power. Overall spending by Mainland China Visitors has been increased steadily in the past five years. Source: Hong Kong Tourism Board.

·

Besides traveling outside China, the domestic travel market in Mainland China has been growing rapidly. With Baoshinn’s new sales representative offices we plan to tap into this increasing demand.

Travel Policy Changes

·

Benefiting from the progressive extension of the Individual Visit Scheme (IVS), Mainland China was the origin for more than half the total visitors to Hong Kong in 2007. Source: Hong Kong Tourism Board, February, 2008.

·

The Individual Visit Scheme (IVS) was originally implemented in July, 2003. On July 1, 2004, IVS was launched in a total of 32 cities in southern and eastern China, permitting residents to travel to Hong Kong as individuals. Previously the Chinese Government only allowed groups to travel to Hong Kong. During 2007, 15.49 million or 55% of all the Mainland visitors traveled to Hong Kong under IVS.

·

Total Mainland China Visitors to Hong Kong increased of 16.8% from 2007 to 2008. This represented 16.8 million visitors in 2008. Source: Hong Kong Tourism Board, January, 2009.

·

Starting in July, 2002, Mainland China Visitors were allowed to exchange foreign currencies freely in unlimited amounts with commercial banks. In January 2005, the Chinese Government increased the cash limit that may be carried by visitors from Mainland China to Hong Kong from US$749 to US$2,497 (RMB 6,000 to RMB 20,000). (Exchange Rate: US$1:RMB8.01).

The “Quota System” was cancelled in January 2002 for traveling from PRC to Hong Kong. New “Travel Permits” for Mainland China Visitors was established in May 2002. New Permits are valid for 5 years with multi-purposes entries, including leisure and business visits; unlike the prior permits, which were only valid for business visits. Transit Travel Permits allow Chinese citizens to stay in Hong Kong for a maximum of 7 days. Business Travel Permits have been gradually replaced by Multi-purpose Permits, which offers more flexibility and ease of use. For visitors from the Mainland, the flexibility and convenience offered by IVS travel encourages them to make more frequent and short-stay visits to Hong Kong.

Marketing Strategies

Our goal is to create and keep customers. Our marketing strategy will reflect this goal as we build our reputation in Hong Kong and China. With our experience and network in the industry, we are growing our business to provide excellent travel solutions to customers.

Our marketing strategies include the following:

·

With the number of visitors increasing, we continue to enhance our sales volume in ticketing sales, inbound and outbound tours packages, and hotel accommodation arrangements. This allows us to negotiate competitive rates, since we are a ticket consolidator for several international airlines.

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·

We will work to take advantage of the IVS and the spectacular growth in China’s economy.

·

We will strive to improve service quality for customers, by investing in advanced computer programs, with a view to supplying innovative information technology solutions to both individual and corporate travelers.

·

To further expand our service coverage for Mainland China visitors, we plan to open a new office in Shanghai and Beijing. This office will provide complete travel services to individual and corporate customers in the Eastern and Northern area of China.

·

We plan to further expand our travel services coverage to Guangzhou and Shenzhen in Mainland China. These offices will allow us to provide superior travel services for travelers in the Southern China.

·

We also plan to operate chartered flights from Hong Kong to Mainland, Thailand and Taiwan in the future.

·

We plan to increase our coverage and our presence in China through the development of five representative sales offices in each of the five China regions, result in a total of 20 representative sales offices in China. This “well-organized network” is our planned branch in the People’s Republic of China. This will be a network that, based on the experience of our officers and directors, we plan on being well organized and efficient. We plan to set up our network in the People’s Republic of China through the retail chain which will not only contact the customer, but will also deal with the local travel companies in China to expand the sales network.

·

We plan to operate in a retail chain store format to enlarge our customer base and provide more comprehensive services in Mainland China. This “retail chain” means the company will open the branch to serve the direct customer of the Chinese agents. Currently, we provide our services to travel agencies who further sell our product to direct customers.

·

Currently, a majority of our revenues are generated from travel agencies, the rest of our revenue comes from direct corporate customers and sale of air ticket route from Hong Kong to Mainland China. Our plan is to increase the direct corporate customer business, because of its higher gross profit margin.

Marketing Techniques

Air Tickets wholesale (core business):

·

Maintain a good relationship with airlines to get competitive first tier agent air ticket price, as well as lucrative airline incentive contract.

·

Strong sales team built up a wide network within the Hong Kong travel industry over years, and kept a good reputation among Hong Kong local retail travel agents.

·

Flat organization structure enables efficient decision making and quick response to market change.

·

Distribute the competitive selling price list by electronic auto-fax and email and by physical visits to our customer.

·

Increase fixed space allotment from airlines in the travel hot season.

·

Geographically located in the heart of East Asia, the short haul travel package market in Hong Kong has great potential and a higher margin.

·

Build in house package design, combine hotel services and air flight with innovative ideas.

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Corporate travel:

Our current market techniques to promote corporate are:

·

Focus on niche market and avoid competing with giant corporate traveler company such as American Express and CWT.

·

Provide superior service to SME clients that are ignored by giant corporate travel agencies, and keep them by providing flexible service terms.

·

Recruit experienced corporate travel consultants with clients on hand, and retain them by an incentive salary structure.

·

Full decentralized corporate travel department, to enable department head full autonomy in operating the corporate travel business.

Sale of air ticket route from Hong Kong to Mainland China.

Our current market techniques to promote inbound travel are:

·

Build extensive relationships with China local hotels to obtain competitive hotel rates, and secure hotel rooms during peak season.

·

Use existing networks in mainland China and Taiwan to penetrate into those overseas markets, provide tour services, hotel, and car transfer services for Hong Kong visitors from these regions.

·

As part of our long term market strategies, the existing business in Hong Kong will build the foundation for future China development, and will integrate into future China operations.

Competition and Market Trends

There is considerable competition for consolidators and wholesale ticket sellers in China. While we have considerable experience and expertise in this field, several major competitors do exist in this market. Our competitors run similar businesses to ours.

The e-ticket is a trend that the airlines are moving towards, and consumers purchasing airline tickets and making hotel reservations via telephone or internet is a competitive force. Due to the limitations and regulations surrounding e-tickets, this is not a trend that we feel will have a significant impact on our business expansion, if at all.

Airlines are trying to build up e-ticket systems/internet booking systems, so they can reach end customers directly without the use of travel agents. However whether the e-ticket system can be successful in Hong Kong and China is still a question mark. With the limitations of e-ticketing itself, and different consumer habits in Greater China compare to developed western countries, time will tell whether e-ticket can be prevail in greater China.

Limitations & Regulations

·

E-tickets are normally non-endorsable, non-re-routable, and they lack flexibility when dealing with more complicated bookings.

·

Details are input by the end-customer, and it is very easy to create errors by those not familiar with airline coding.

·

Dependence on internet and computer system will be a disaster during system outage.

·

Reasons for E-ticket being “not a growing trend in Greater China Region on consumer end”.

·

Online credit card usage is still not prevailing in Greater China due to insecurity and fraud. In general, people’s attitude towards the use of credit cards is different in western developed countries, where the citizens are more accustomed to shopping with credit cards.

·

Fewer people in China have credit cards.

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·

As a developing country, consumers in China are not confident in internet transactions. They are more likely to accept physical human contact, or a paper ticket where they can see what they get.

Regarding the methods of competition in our industry, we release the authority to the front line staff to negotiate the deal with customers, while our competitors have more formal channels they must go through to make a decision. Thus, our turnaround is faster than our competition and more efficient.

Our competitor’s advantage is that their financial background is stronger than ours.

Our main advantage is our relatively small size which allows us to be more flexible and respond to market changes more rapidly.

Employees

We have approximately 30 employees in Hong Kong.

ITEM 1.A.  RISK FACTORS.

THERE MAY EXIST CONFLICTS OF INTEREST ON THE PART OF OUR OFFICERS AND DIRECTORS.

Our directors and officers are or may become, in their individual capacities, officers, directors, controlling shareholders and/or partners of other entities engaged in a variety of businesses. Each of our officers and directors is engaged in business activities outside of the Company. As a result of these activities, there exists potential conflicts of interest including, among other things, time, effort and business combinations with other such entities.

OUR COMMON STOCK MAY NOT BE LISTED ON NASDAQ OR ANY OTHER SECURITIES EXCHANGE.

We may seek the listing of our common stock on NASDAQ or another United States Stock Exchange. However, we may not be able to meet the initial listing standards of such an exchange, and even if we are able to obtain such a listing initially, we may not be able to maintain such listing of our common stock. Until our common stock is listed on the NASDAQ or another stock exchange, we expect that our common stock would be eligible to trade on the OTC Bulletin Board, another over-the-counter quotation system, or on the “pink sheets,” where our stockholders may find it more difficult to dispose of shares or obtain accurate quotations as to the market value of our common stock. In addition, we would be subject to an SEC rule that, if we failed to meet the criteria set forth in such rule, imposes various practice requirements on broker-dealers who sell securities governed by the rule to persons other than established customers and accredited investors. Consequently, such rule may deter broker-dealers from recommending or selling our common stock, which may further affect the liquidity of our stock. This would also make it more difficult for us to raise additional capital.

CONTROL BY MANAGEMENT.

Management currently owns the majority of the issued and outstanding capital stock of the Company. Consequently, management has the ability to influence control of the operations of the Company and, acting together, will have the ability to influence or control substantially all matters submitted to stockholders for approval, including:

●

Election of the board of directors;

●

Removal of any directors;

●

Amendment of the Company‘s certificate of incorporation or bylaws; and

●

Adoption of measures that could delay or prevent a change in control or impede a merger, takeover or other business combination.

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These stockholders will thus have substantial influence over our management and affairs, this concentration of ownership by itself may have the effect of impeding a merger, consolidation, takeover or other business consolidation, or discouraging a potential acquirer from making a tender offer for the common stock.

DOING BUSINESS IN CHINA IS SUBJECT TO LEGAL RISKS AND POLITICAL AND ECONOMIC CHANGES OVER WHICH WE HAVE NO CONTROL.

We plan to develop our business in China so China‘s policies will affect our growth.

While China‘s economy has experienced significant growth in the past twenty years, growth has been uneven, both geographically and among various sectors of the economy. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit the overall economy of China, but may also have a negative effect on us. For example, our operating results and financial condition may be adversely affected by the government control over capital investments or changes in tax regulations.

The economy of China has been transitioning from a planned economy to a market-oriented economy. In recent years the Chinese government has implemented measures emphasizing the utilization of market forces for economic reform and the reduction of state ownership of productive assets and the establishment of corporate governance in business enterprises; however, a substantial portion of productive assets in China are still owned by the Chinese government. In addition, the Chinese government continues to play a significant role in regulating industry development by imposing industrial policies. It also exercises significant control over China‘s economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies.

Capital outflow policies in the People‘s Republic of China may hamper our ability to remit income to the United States.

China has adopted currency and capital transfer regulations. These regulations may require that we comply with complex regulations for the movement of capital. If these regulations change or if the interpretation of the regulations by courts or regulatory agencies, we may not be able to remit all income earned from the sale of our services.

The monetary policy in China does not allow the local currency to be freely exchanged for foreign currency, so capital outflow is inhibited.

CURRENCY FLUCTUATIONS CAN CAUSE US SIGNIFICANT LOSSES.

Some of our costs are denominated in Chinese Renmenbi. Changes in the exchange rate between the Chinese Renminbi (“RMB”) and the United States dollars (“US$”) and Hong Kong dollars (“HK$”) may affect our costs of sales and operating margins. Some of our sales are also denominated in RMB.

Fluctuations in the value of the RMB could materially affect our financial condition and results of operations.

The value of the RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions. As some of our net revenue is denominated in RMB, any significant revaluation of the RMB may materially and adversely affect our cash flows, revenues and financial condition.

On July 21, 2005, the Chinese government changed its policy of tying the value of the RMB to the U.S. dollar. Under the new policy, the RMB is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. This change in policy has resulted in an approximately 2.0% appreciation of the RMB against the U.S. dollar. While the international reaction to the RMB revaluation generally has been positive, there remains significant international pressure on the Chinese government to adopt an even more flexible currency policy, which could result in a further and more significant appreciation of the RMB against the U.S. dollar.

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WE HAVE HISTORICALLY LOST MONEY AND MAY CONTINUE TO LOSE MONEY IN THE FUTURE; ACCORDINGLY, OUR AUDITORS HAVE EXPRESSED SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN.

We have historically incurred losses and future losses are likely to occur. Accordingly, we may experience significant liquidity and cash flow problems, because our operations may not be profitable. No assurances can be given that we will be successful in reaching or maintaining profitable operations. Because of our continuing losses from operations and lack of working capital, our auditors have expressed substantial doubt as to our ability to continue as a going concern. The financial statements do not include any adjustments that might result from the uncertainty about our ability to continue in business.

IF WE CANNOT RAISE ADDITIONAL CAPITAL TO FINANCE FUTURE OPERATIONS, WE MAY NEED TO CURTAIL OUR OPERATIONS IN THE FUTURE.

We have relied on our shareholders to fund our operations, and we plan to obtain additional capital to finance future operations. We cannot assure you that we will be able to obtain such financing on favorable terms, in sufficient amounts, or at all, when needed. Our inability to obtain sufficient financing would have an immediate material adverse affect on us, and our business, financial condition and results of operations. If we are unable to obtain adequate financing our business operations may be curtailed. Any of these events would be materially harmful to our business.

We have verbal commitments from our officers and directors to fund our operations for the next 12 months, however, we cannot be certain that additional financing beyond this point will be available when and to the extent required or that, if available, it will be on acceptable terms. If adequate funds are not available on acceptable terms, we may not be able to fund our expansion, develop or enhance our services, or respond to competitive pressures.

We may need to raise additional capital to fund our future operations.

WE DO NOT EXPECT TO PAY DIVIDENDS IN THE FORESEEABLE FUTURE.

We intend to retain any future earnings to finance the growth and development of our business. Therefore, we do not expect to pay any cash dividends in the foreseeable future. Any future dividends will depend on our earnings, if any, and our financial requirements.

We have historically lost money so we intend to retain the future profit in the company to sustain the business growth rather than pay dividends.

OUR COMMON STOCK IS DEEMED TO BE “PENNY STOCK,” WHICH MAY MAKE IT MORE DIFFICULT FOR INVESTORS TO SELL THEIR SHARES DUE TO SUITABILITY REQUIREMENTS.

Our common stock is deemed to be a “penny stock” as that term is defined in Rule 3a51-1 promulgated under the Securities Exchange Act of 1934. These requirements may reduce the potential market for our common stock by reducing the number of potential investors. This may make it more difficult for investors in our common stock to sell shares to third parties or to otherwise dispose of them.

Penny stocks are stock:

·

with a price of less than $5.00 per share;

·

that are not traded on a “recognized” national exchange;

·

whose prices are not quoted on the NASDAQ automated quotation system (NASDAQ listed stock must still have a price of not less than $5.00 per share); or

·

in issuers with net tangible assets less than $2.0 million (if the issuer has been in continuous operation

12

for at least three years) or $5.0 million (if in continuous operation for less than three years), or with average revenues of less than $6.0 million for the last three years.

The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to make a special written determination that the penny stock is a suitable investment for the purchaser and to receive the purchaser’s written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our stock as long as it is subject to the penny stock rules. In addition, holders of our shares may have difficulty selling those shares because our common stock will probably be subject to the penny stock rules.

ITEM 2.  PROPERTIES.

We do not own any real property for use in our operations or otherwise. We do rent office space from non-affiliates third parties, on the terms described more specifically below:

Name of Landlord	Property location	Rental Charges Monthly	Duration	Lease Contract Under
Wan Shinn Motors Company Limited	Room A&B, 8/F, 8 Hart Avenue, Tsim Sha Tsui, Kowloon.	$3,107	01/01/2010 - 12/31/2011	Bao Shinn International Express
Tak Shing Investment Co. Ltd.	Room 208 Tak shing House. 20 Des Voeux Road Central, Hong Kong	$4,985	28/07/2008 - 27/07/2010	Bao Shinn Holidays Limited

Twelve Months Ending December 31:	Future Minimum Lease Payments $
December 31, 2010	29,911
December 31, 2011	-

We use our facilities to house our corporate headquarters and operations and believe our facilities are suitable for such purpose. We also believe that our insurance coverage adequately covers our interest in our leased space. We have a good relationship with our landlords. We believe that these facilities will be adequate for the foreseeable future.

The Company currently has no policy with respect to investments or interests in real estate, real estate mortgages or securities or interests in, persons primarily engaged in real estate activities.

ITEM 3.  LEGAL PROCEEDINGS.

We may be subject to litigation from time to time as a result of our normal business operations. Presently, there are no material pending legal proceedings to which we are a party or as to which any of our property is subject, and no such proceedings are known to be threatened or contemplated against us.

13

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

PART II

ITEM 5.  MARKET FOR REGISTRANT‘S COMMON EQUITY, RELATED STOCKHOLDER

  MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

(a)

MARKET INFORMATION. Our common shares are quoted for trading on the OTC Bulletin Board under the symbol “BHNN”. The closing price of our common stock, as reported by the OTC Bulletin Board on December 31, 2009, was $0.02.

National Association of Securities Dealers OTC Bulletin Board*
Quarter End	High	Low
June 30, 2007	-	-
September 30, 2007	.07	.07
December 31, 2007	.21	.21
March 31, 2008	.40	.30
June 30, 2008	.39	.10
September 30, 2008	.10	.07
December 31, 2008	.21	.07
March 31, 2009	.21	.21
June 30, 2009	.21	.02
September 30, 2009	.02	.02
December 31, 2009	.02	.02

*

Over-the-counter market quotations reflects high and low bid quotations and inter-dealer prices without retail mark-up, mark-down or commission, and may not represent actual transactions.

Our transfer agent and registrar for our common stock is Madison Stock Transfer Inc. Their address is PO Box 145, Brooklyn, New York, USA 11229-0145. Their telephone number is (718) 627-4453. Their fax number is (718) 627-6341.

(b)

HOLDERS. As of December 31, 2009, we had approximately 27 shareholders of record who held 21,400,000 shares of the Company‘s common stock. This figure does not include shareholders whose shares are held in street or nominee names. We believe that as of December 31, 2009, there are approximately 75 beneficial owners of our Common Stock, when these shareholders are considered.

(c)

DIVIDEND POLICY. We have not declared or paid any cash dividends on our common stock and we do not intend to declare or pay any cash dividend in the foreseeable future.  The payment of dividends, if any, is within the discretion of our Board of Directors and will depend on our earnings, if any, our capital requirements and financial condition and such other factors as our Board of Directors may consider.

(d)

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS.

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Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights	Weighted-Average exercise Price of outstanding Options, Warrants and Rights	Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column)
Equity compensation plans approved by security holders	380,000	Nil	Nil

(e)

RECENT SALE OF UNREGISTERED SECURITIES. The Company has made no sales of unregistered securities in the last three years.

ITEM 6.  SELECTED FINANCIAL DATA.

Not Applicable.

ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

  RESULTS OF OPERATIONS.

CAUTIONARY STATEMENT FOR FORWARD-LOOKING STATEMENTS

This discussion and analysis of our financial condition and results of operations includes “forward-looking” statements that reflect our current views with respect to future events and financial performance. We use words such as “expect,” “anticipate,” “believe,” and “intend” and similar expressions to identify forward-looking statements. You should be aware that actual results may differ materially from our expressed expectations because of risks and uncertainties inherent in future events and you should not rely unduly on these forward looking statements. We disclaim any obligation to publicly update these statements, or disclose any difference between its actual results and those reflected in these statements. Reference in the following discussion to “our”, “us” and “we” refer to the operations of Baoshinn Corporation and its subsidiaries (“the Company”), except where the context otherwise indicates or requires.

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

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Change in fiscal year end

In fiscal 2008 the Company’s fiscal year end was changed from March 31 to December 31. The financial statements for that period were for nine months from April 1, 2008 to December 31, 2008.  These audited financial statements are not entirely comparable to our current audit report, which cover a period of twelve months from January 1, 2009 to December 31, 2009. For the purpose of this Management Discussion and Analysis we compare our current year ended December 31, 2009 to the twelve months ended December 31, 2008, however, the financial statements for the year ended December 31, 2008 are unaudited.

Results of operations for the year ended December 31, 2009 compared to year ended December 31, 2008

	Year ended		Year ended
	December 31, 2009		December 31, 2008
	(audited)		(unaudited)
	$		$
Retail and Corporate revenue	23,912,150		33,460,124
Commission from travel booking services	156,544		133,350
Incentive commissions	239,045		408,847
	24,307,739		34,002,321
Cost of sales	23,008,756		32,606,946
Gross profit	1,298,983		1,395,375
Other operating income	54,984		73,805
Depreciation	(27,821)		(40,215)
Administrative and other operation expenses	(1,298,752)		(1,594,494)
Income/(Loss) from operations	27,394		(165,529)
Other non-operating income/(expenses)	1,149		16,287
Interest expenses	(1,230)		(8,452)
Loss before income tax	27,313		(157,694)
Income tax	(6,176)		-
Minority interest	(15,978)		2,171
Net Income/(loss) from continuing operations	5,159		(155,523)

Going Concern

The accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern. We had a net income of $5,159 for the year ended December 31, 2009 and a net loss since inception of $1,193,172. On December 31, 2009 we had cash on hand of $260,155. These circumstances raise substantial doubt about our ability to continue as a going concern. These doubts were outlined in our independent auditor’s report on our consolidated financial statements for the year ended December 31, 2009, which are included in this annual report on Form 10-K. Although our consolidated financial statements raise substantial doubt about our ability to continue as a going concern, they do not include any adjustments relating to recoverability and classification of recorded assets, or the amounts or classifications of liabilities that might be necessary in the event we cannot continue as a going concern. The Company’s shareholders have verbally agreed to provide continuing financial support to the Company for future losses it may incur.

16

In this difficult and challenging time, it is our intention to focus first on the things that we can directly control, such as costs. It is our intention to eliminate inefficiencies in operations to mitigate losses and to improve our chances for profitability. At the same time, we are also working on new routes to generate additional revenues, without increasing our need for additional cash. We hope to generate a new segment of revenue flow, along with new routes by working with local carriers on short haul flights.

Management has reviewed its operations for the past few years and the current travel industry market conditions. Based on that review we plan to take the following actions to improve our performance and to continue as a going concern.

Staff Redundancy

The Group plans to flatten organization structure by cutting senior management staff reducing staff redundancy and decentralizing its operations. Meanwhile, support and administration staffing has also been cut to keep office costs down. Our total staff was reduced from 48 in May 2008 (highest) to 30 in December 2009. As of December 2009, 9 of the 30 staff members are non-operational staff (management and back office), and the remaining 21 are operational, plus the sales and marketing staff. In comparison in May, 2008, 9 of the 48 staff were non-operational and 39 were operational, plus the sales marketing staff.

As a result of staff cuts, the Company has been able to downsize its office space. Office rental was reduced from $11,860 per month to $7,897 in December 2009, representing a 33.4% decrease in office rental expenses.

Operations decentralized

Effective from September, 2008, management decided to decentralize operations in its main wholesale business division and corporate division. Business decisions will be made on a lower level within the business division instead of through a senior management team. Management expects the decentralization will improve flexibility and speed up the Company’s response time to market changes. Each business division head will have more discretion to make business decisions, and at the same time each division head will be more accountable for their performance.

With the senior management team’s functions being shifted to lower organization levels, the Company’s management fee has also been decreased significantly. The Company decreased its monthly management fee from $11,538 in April 2008 (highest) to zero in December 2009.

Business Strategy

As a result of increased fuel prices, airlines have become increasingly competitive in Hong Kong. Hong Kong is an international hub for long haul flights as well as short distance destinations. Popular travel destinations are becoming less profitable, because more airlines are competing for the same route. The Company, as a travel agency, is dependent on airline commissions and market conditions for ticket prices. The more competition, the less profit it can earn.

The Company has reviewed the market conditions, and decided to change its strategy by dealing with new emerging airlines with new destinations. The Company has recently developed a close relationship with Hong Kong Airlines which is primarily focused on Mainland China travel destinations. As the Hong Kong Airbus travel agency, the Company has less competition and is able to maintain a more stable profit margin.

Management believes that actions presently taken to revise the Company’s operating and financial requirements provide the opportunity for the Company to continue as a going concern. The Company’s shareholders have agreed to provide continuing financial support to the Company in the form of temporary loans. These agreements for continuing financial support are verbal.

17

Revenues

For the year ended December 31, 2009, the Company has experienced a decrease in sales revenues due to the global economic contraction, although the Company was recognized by Eva Airline as its top selling agent in Hong Kong. Eva Airlines operates both short haul routes within South East Asia and long haul routes including North America and Europe. The company has also been appointed as a first tier agent for two additional airlines, 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 year ended December 31, 2009 was $24,307,739, compared to $34,002,321 in the year ended December 31, 2008. We generate our revenues primarily from retail and corporate business. For the year ended December 31, 2009, we derived 98.4%, 0.6% and 1% 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.

	Year ended December 31, 2009	Year ended December  31, 2008
	Audited	Unaudited
	$	$
Retail and Corporate revenue	23,912,150	33,460,124
Commission from travel booking services	156,544	133,350
Incentive commissions	239,045	408,847
Total revenue	24,307,739	34,002,321

Retail and Corporate Revenue

Revenues from retail and corporate travel services are recognized when the travel service provided by the Company is completely delivered. The Company presents revenue from such transactions on a gross basis in the consolidated statements of operations, as the Company acts as a principal, assumes inventory and credit risks, and has the primary obligation to the airlines or hotels for cancelled air tickets, packaged tour products or hotel reservations. The Company also has latitude in determining the service prices. The Company changes the product by combining air ticket and hotel accommodations with local car transportation and other ancillary services to make it a holiday package or business travel solution for customers.

Referral fees for travel booking services

We receive referral fees from travel product providers for booking travel services. The itinerary and product price are generally fixed by the travel product providers and we book the travel services on behalf of the customers. Referral fees from travel booking services rendered are recognized as commissions after the services are rendered and collections are reasonably assured. We present revenues from such transactions on a net basis in the consolidated statements of operations, as we act as an agent, we do not assume any inventory and credit risks, we have no obligations for cancelled airline or hotel ticket reservations, and do not have latitude in determining the service prices.

Incentive commission from travel suppliers

We earn an incentive commission from many travel suppliers. Contracts with certain travel suppliers contain discretionary escalating commissions that are paid to us subject to achieving specific performance targets. Such discretionary escalating commissions are recognized on an accrual basis because such commissions are usually paid

18

in arrears and we can reasonably estimate such commissions. Our statement of operations presents revenues from such transactions on a net basis, because we act as an agent, we do not assume any inventory risk, and we have no obligation for cancelled airline tickets.

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 94.7% of our revenue in the year ended December 31, 2009 and 95.9% of our revenues in the year ended December 31, 2008.

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

	Year ended December 31, 2009		Year ended December 31, 2008
	Audited			Unaudited
	$			$
Total revenue	24,307,739				34,002,321
Cost of sales	(23,008,756)				(32,606,946)
Gross profit	1,298,983				1,395,375

Gross Profit and Gross Profit Margin

Our gross profit for the year ended December 31, 2009 was $1,298,983, compared to $1,395,375 in the year ended December 31, 2008. The gross profit margin rate increased from 4.1% for the year ended December 31, 2008 to 5.3% for the year ended December 31, 2009. The increasing in gross profit margin rate shows the positive affect of our new business strategy. The Company has reviewed the market conditions, and decided to change its strategy by dealing with new emerging airlines with new destinations. The Company has recently developed a close relationship with Hong Kong Airlines which is primarily focused on travel destinations in Mainland China. As the Hong Kong Airbus travel agency, the Company has less competition and is able to maintain a more stable profit margin.

Operating Expenses

Overview

Total operating expenses for the year ended December 31, 2009 were $1,298,752 or 5.3% of revenues, while the operating expenses for year ended December 31, 2008 were $1,594,494 or 4.7% of revenues. The decreases in dollar amount are mainly attributable to our cost saving strategy, which significantly reduced other salaries, commission, allowance and office rental operating expense, including entertainment, printing and communication expenses.

	Year ended December 31, 2009	% of Revenue	Year ended December 31, 2008	% of Revenue
Salaries, commission, allowance	$928,588	3.82%	$1,130,843	3.3%
Legal & Professional fees	40,635	0.17%	60,093	0.18%
Office Rental	94,772	0.39%	114,871	0.34%
Management fee	-	-	56,908	0.17%
Other operating expenses	234,757	0.96%	231,779	0.68%
	$1,298,752	5.34%	$1,594,494	4.69%

19

Salaries, Commissions and Allowances

Salaries, Commissions and Allowances has decreased from $1,046,356 for the year ended December 31, 2008 to $808,659 for the year ended December 31, 2009, The Group has flattened organization structure by cutting senior management staff reducing staff redundancy and decentralizing its operations. Meanwhile, support and administration staffing has also been cut to keep back office costs down. Our total staff was reduced from 48 in May 2008 (highest) to 30 in December 2009.

Legal and Professional Fees

Legal and professional fees for the year ended December 31, 2009 were $40,635 or 0.17% of revenues, while the legal and professional fees for year ended December 31, 2008 were $60,093 or 0.18% of revenues. The main reason for the decrease in legal fees during the year ended December 31, 2009 was due to work related to a change in the Company’s internal controls and a restatement of financial statements.

Office Rental

Office rental for the year ended December 31, 2009 was $94,772 or 0.39% of revenues, while the Office rental and building management fees for year ended December 31, 2008 was $114,781 or 0.34% of revenues.  The decrease is mainly attributable to a reduction in the amount of office space.

Management Fees

Management fees for the year ended December 31, 2009 were zero, while the management fees for year ended December 31, 2008 were $56,908 or 0.17% of revenues. The management fees were paid for financial control advice, financial reporting assistance and business strategic advice. During the year ended December 31, 2009, management decided to decentralize operations in its main wholesale business division and corporate division. Business decisions were made on a lower level within the business division instead of through a senior management team. Management expects the decentralization will improve flexibility and speed up our response time to market changes. As a result of these changes, management fees have decreased substantially.

Other General and Administration Expenses

Other expenses for the year ended December 31, 2009 were $354,686 or 1.45% of revenues, while the other expenses for year ended December 31, 2008 were $316,263 or 0.93% of revenues. The expense is consistent with last year.

Stock Based Compensation

The Company has stock option plans that allow it to grant options to its key employees. Over the course of employment, the Company may issue vested or non-vested stock options to employees. For non-vested stock options, the options have a maximum term of three years up to March 31, 2011. For vested stock options, the exercise period of the options commenced on March 31, 2008 and will expire on March 31, 2011, subject to the maximum of 30% of options to be exercised up to March 31, 2009, a maximum of 60% of options to be exercised up to March 31, 2010 and all options must be exercised prior to March 31, 2011. In the year ended March 31, 2008, a total of 300,000 vested and 80,000 non-vested options were granted to key employees of the Company at a price of $0.35 per share, exercisable for a term of three years, which vest immediately under the vesting conditions. The fair market value of these options at the date of grant was estimated to be $0.1533 and $0.1125 for vested and non-vested options per unit, respectively using the Black-Scholes option pricing model. During the year ended December 31, 2009, the Company recorded stock compensation expense of $11,500. During the year ended December 31, 2008, the Company recorded the stock compensation expense of $22,800, the amount was recorded during the quarter ended March 31, 2008 when the stock option was granted. During the year ended December 31, 2008, the Company also recorded the overprovision of $2,300 as a credit to recognize the forfeited stock option included in other non-operating income.

20

Other operating income

		Year ended		Year ended
		December 31, 2009		December 31, 2008
		Audited		Unaudited
		$		$
Commission income		1,737		5,927
Refund write back		12,153		19,923
Management service income		41,094		47,955
		54,984		73,805

Commission Income

Commission income for the year ended December 31, 2009 were $1,737 compared to $5,927 for year ended December 31, 2008. During the year ended December 31, 2009, we increased the number of tickets booked through a lower percentage commission booking system, which resulted in a lower amount of commissions.

Commission income is received by the Company from the Global Distribution Systems Supplier (GDS), which is the booking system that links airlines, IATA and travel agencies. GDS acts as an information medium between the Airlines and Travel agencies. Travel consultants check seat availability and fare conditions, and make reservations through GDS. GDS also links Airline and Travel Agencies through IATA’s Bill and Settling Plans (BSP). Once the ticket is issued from IATA through the GDS system, travel agencies will settle the payment with airlines through IATA‘s fortnightly BSP Payment.

Each GDS system has a different layout, and different user manual and command. Airlines can choose to link with one or a few GDS. The Company currently has 4 GDS‘s installed; they are “Amadeus”, “Worldspan”, “Travelsky” and “Abacus”. A GDS will normally provide equipment and install their system onsite for a travel agency. The travel agency must generally sign an agreement with each GDS supplier which details the usage and reward scheme. Some GDS suppliers require travel agencies to maintain a minimum usage volume, otherwise the travel agency will have to pay fees for the equipment. GDS suppliers also encourage travel agencies to book tickets through their system by rewarding travel agencies on the number of tickets booked in a certain period of time.

The Company encourages its consultants to use the GDS that has the best compensation structure, however, a balance between operational efficiency is also considered. Some airlines are more user friendly with a specific GDS, also with each travel consultancy’s experience with different systems, the Company leaves it to the consultant’s discretion to choose the GDS it uses.

Refund Written Back

During the year ended December 31, 2009, we recognized $12,153 in unclaimed refunds as income, compared to $19,923 for year ended December 31, 2008.

As a general travel industry practice, unclaimed refunds over 2 years old will not be recoverable by the customer. A refund takes place when a passenger wants to cancel a booking after a ticket is issued but before the flight takes off. Each airline has their own policy on cancellations, and each airfare class has different policy on refunds, cancellation or re-bookings. When a customer requires a refund, the Company charges a refund handling fee to examine the fare condition, airline refund procedure, and apply for the refund on behalf of the customer. Whether a refund can be successfully claimed is ultimately the Airline’s decision. It generally takes from six weeks to one year to obtain a refund from the airlines. The Company will contact the customers when it receives refunds from Airlines, however due to the length and uncertainty of the procedure, sometimes the Company cannot reach its customers after a refund has come back from the airlines. The Company’s policy is to recognize unclaimed refunds as income after a period of 2 years.

21

Management Service Income

Management service income represents compensation from a related party, Bao Shinn Express Company Limited (“BSEL”). BSEL currently holds 38.55% of the company’s outstanding common stock. The Company has provided management services to BSEL on business operations and general travel industry knowledge. Management service income from BSEL was $41,094 in the year ended December 31, 2009, compared to $47,955 in the year ended December 31, 2008.

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

	Year ended		Year ended
	December 31, 2009		December 31, 2008
	Audited		Unaudited
	$		$
Gain on exchange	825		3,881
Interest income	324		1,357
Sundry income	-		8,749
Reversal of stock based  compensation	-		2,300
	1,149		16,287

Exchange Gain

The exchange gain was $825 for the year ended December 31, 2009 compared to $3,881 in the year ended December 31, 2008. 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 for the year ended December 31, 2009

The Company pays overseas suppliers in their currency, and charges its customers in HK dollars, with the exchange rate determined at the point of invoicing. Because of the timing difference between payments and receipts, the Company incurs exchange differences in transactions with overseas suppliers. The Company recognizes the gain or loss as “non-operational income or expense”, as this is not from operations.

Interest Income

Interest income was $324 for the year ended December 31, 2009, compared to $1,357 for the year ended December 31, 2008. 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 year ended December 31, 2009 was mainly due to a decrease in the bank interest rate compare to the same period in 2008.

Sundry Income

Sundry income was zero for the year ended December 31, 2009, compared to $8,749 in the year ended December 31, 2008.

Sundry income is mainly from IATA BSP Fund reimbursement. IATA BSP Fund is a fund created when IATA collects $0.38 (HK $3.00) per air ticket from travel agencies at the time each travel agency issues an air ticket with IATA. IATA BSP Fund was established to protect airlines when travel agencies go bankrupt and are unable to meet the payment obligation to the airlines. The fund will be used to recover the debt to airlines from the bankrupted travel agency. IATA BSP Fund has a ceiling of $1.28M (HK $10M), when the ceiling is reached, IATA will reimburse the additional collections to all participating travel agencies proportionally. The Company’s sundry

22

income is the reimbursement from the IATA BSP Fund, and the amount is calculated monthly by IATA. The Company considers the income as non-operational income, as it is not part of its operation activities.

Interest Expense

Interest expense was $1,230 for the year ended December 31, 2009, compared to $8,452 for the year ended December 31, 2008. This was attributable to the fact that the outstanding principal balance on loans from former shareholders was significantly reduced.

Net Income/ (Loss)

Our net income was $5,159 for the year ended December 31, 2009, compared to a net loss of $155,523 for the year ended December 31, 2008. The increase in net income for the year ended December 31, 2009 compare to same period last year was mainly due to the increasing gross margin as a result of the company’s business strategy change, however increase in gross margin was offset by layoff compensation paid to employees and the additional expenses incurred to maintain the company as a US listed company. These expenses include professional and legal fees, management fees, audit fees, and consulting fees.

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, issuance of equity and debt securities. Additional issuances of equity and debt securities will result in dilution to our current common stockholders. The Company’s former shareholders agreed to provide continuing financial support to the Company in the form of a temporary loan. The agreements for continuing financial support are in verbal. These temporary loans were unsecured with no fixed term of repayment during the year ended December 31, 2009. Interest was paid at the rate of 10% per annum.

Operating Activities

Net cash provided by operating activities was $6,729 for the year ended December 31, 2009, compared to net cash used in operating activities of $74,284 for the year ended December 31, 2008. The cash provided during the year ended December 31, 2009 is mainly for the working capital. Working capital increased $55,882 from $686,182 as of December 31, 2008 to $742,064 as of December 31, 2009.

Investing Activities  

Net cash used in investing activities was $193 for the year ended December 31, 2009, compare to net cash provided by investing activities of $49,442 for the year ended December 31, 2008. The cash was mainly used for the purchase of new computer equipment and computer software for our new subsidiaries for the year ended December 31, 2009. The cash provided by investing activities during the year ended December 31, 2008 was mainly from the incorporation of a subsidiary.

Financing Activities

Net cash provided by financing activities was $34,327 for the year ended December 31, 2009, compare to $4,257 net cash used by financing activities for the year ended December 31, 2008. For the year ended December 31, 2009 and 2008, there was no financing activities, the increase is mainly due to the changes in temporary advance from directors.

23

Financing Our Capital Expenditures

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

The new flagship company will be registered in Shanghai and will serve as our China headquarters. We subsequently plan to open branch offices in Beijing, Guangzhou, Chongqing and Kunming.

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

Off-Balance Sheet Arrangements

For the year ended December 31, 2009, and the year ended December 31, 2008, 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

The amounts due to related parties, represent advances from certain directors and shareholders of the Company, are interest-bearing at the rate of 5.5% (2008: 10%) per annum, unsecured and have no fixed repayment terms. The loans are unsecured and have no fixed terms of repayment.

The amounts due from related parties, represent advances to a minority shareholder of Bao Shinn Holidays Limited (“BSHL”), is temporary advance, interest free, unsecured and is due on demand.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not Applicable.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

24

Baoshinn Corporation

Consolidated Financial Statements

For the Year Ended December 31, 2009, Nine Months Ended December 31, 2008 and Year Ended March 31, 2008

(Stated in US Dollars)

25

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Baoshinn Corporation

We have audited the accompanying consolidated balance sheet of Baoshinn Corporation (the “Company”) and its subsidiaries (collectively referred to as the “Group”) as of December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders’ equity and comprehensive income and cash flows for the year ended December 31, 2009 and nine months ended December 31, 2008 and the year ended March 31, 2008.  These consolidated financial statements are the responsibility of The Group’s management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Group and its subsidiaries as of December 31, 2009 and 2008, and the consolidated results of their operations and their cash flows for the year ended December 31, 2009, nine months ended December 31, 2008 and the year ended March 31, 2008, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that The Group will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, The Group has accumulated losses. These factors raise substantial doubt about The Group’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Dominic K.F. Chan & Co.

Certified Public Accountants

Hong Kong

March 30, 2010

26

BAOSHINN CORPORATION

CONSOLIDATED BALANCE SHEET

(Stated in US Dollars)

	At 31 December
	2009		2008
	$		$
ASSETS
Current Assets
Cash and cash equivalents	260,155		217,453
Accounts receivable	763,183		900,629
Amount due from a related party – Note 12	87,029		10,691
Deposits, prepaid expenses and other receivables – Note 9	800,482		940,238
Total Current Assets	1,910,849		2,069,011
Plant and equipment – Note 10	52,430		80,091
TOTAL ASSETS	1,963,279		2,149,102
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Current Liabilities
Accounts payable	781,494		1,103,390
Other payables and accrued liabilities – Note 11	267,566		276,601
Income tax payable	6,172		-
Amounts due to related parties – Note 12	113,553		2,838
Total current liabilities	1,168,785		1,382,829
TOTAL LIABILITIES	1,168,785		1,382,829
COMMITMENTS AND CONTINGENCIES – Note 17
STOCKHOLDERS’ EQUITY
Common stock
Par value : 2009 - US$0.001
Authorized: 2009 – 200,000,000 shares
Issued and outstanding: 2009 – 21,400,000 shares	21,400		21,400
Additional paid-in capital	1,778,263		1,766,763
Accumulated other comprehensive income	32		4,448
Accumulated deficit	(1,193,172)		(1,198,331)
TOTAL STOCKHOLDERS’ EQUITY OF THE GROUP	606,523		594,280
NON-CONTROLLING INTERESTS	187,971		171,993
TOTAL STOCKHOLDERS’ EQUITY	794,494		766,273
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	1,963,279		2,149,102

See notes to audited condensed consolidated financial statement

27

BAOSHINN CORPORATION

CONSOLIDATED INCOME STATEMENT

(Stated in US Dollars)

See notes to audited condensed consolidated financial statements

28

BAOSHINN CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

(Stated in US Dollars)

See notes to audited condensed consolidated financial statements

29

BAOSHINN CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

(Stated in US Dollars)

See notes to consolidated financial statements

30

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. During the year ended March 31, 2008, 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, 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 2009, 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.

31

BAOSHINN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

2.

Description of business (Continued)

Bao Shinn International Express Limited (“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.

BSCE offers extended travel services primarily focused on wholesale businesses and corporate clients in the Mainland China.

BSHL offers extended travel services primarily focused on corporate client in Hong Kong and the Mainland China.

3.

Going concern

These financial statements have been prepared in accordance with generally accepted principles in the United States applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Group has an accumulated deficit. The Group requires additional funds to maintain its operations.

Management has reviewed its operations for the past few years and the current travel industry market conditions. Based on that review we plan to take the following actions to improve our performance and to continue as a going concern.

Staff Redundancy

-

The Group plans to flatten organization structure by cutting senior management staff reducing staff redundancy and decentralizing its operations. Meanwhile, support and administration staffing has also been cut to keep back office costs down. Our total staff was reduced from 48 in May 2008 (highest) to 30 in December 2009. 9 of the 30 staff members are non-operational staff (management and back office), the remaining 21 are operational, plus the sales and marketing staff. In comparison to May, 2008, 9 of the 48 staff were non-operational and 39 were operational, plus the sales marketing staff.

-

As a result of staff cuts, The Group has been able to downsize its office space. Office rental was reduced from $11,860 per month to $7,897 in December 2009, representing a 33.4% decrease in office rental expense.

32

BAOSHINN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

3.

Going concern (Continued)

Operations decentralized

-

Effective from September, 2008, management decided to decentralize operations in its main wholesale business division and corporate division. Business decisions will be made on a lower level within the business division instead of through a senior management team. Management expects the decentralization will improve flexibility and speed up The Group‘s response time to market changes. Each business division head will have more discretion to make business decisions, and at the same time each division head will be more accountable for their performance.

-

With the senior management team’s functions being shifted to lower organization levels. The Group was paying a monthly management fee of $11,538 in April 2008 (highest), compare to zero currently.

Business Strategy

-

As a result of increased fuel prices, airlines have become increasingly competitive in Hong Kong. Hong Kong is an international hub for long haul flights as well as short distance destinations. Popular travel destinations are becoming less profitable, because more airlines are competing for the same route. The Group, as a travel agency, is dependent on airline commissions and market conditions for ticket prices. The more competition, the less profit it can earn.

-

The Group has reviewed the market conditions, and decided to change its strategy by dealing with new emerging airlines with new destinations. The Group has recently developed a close relationship with Hong Kong Airlines which is primarily focused on Mainland China travel destinations. As the Hong Kong Airbus travel agency, The Group has less competition and is able to maintain a more stable profit margin.

Management believes that actions presently taken to revise the Group’s operating and financial requirements provide the opportunity for the Group to continue as a going concern. The Group’s shareholders agreed to provide continuing financial supports to The Group in terms of a temporary loan. The agreements for continuing financial support are verbal.

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.

33

BAOSHINN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

4.

Summary of significant accounting policies (Continued)

On June 29, 2009, 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 Codification is effective for financial statements issued for interim and annual periods ending after September 15, 2009. 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.

34

BAOSHINN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

4.

Summary of significant accounting policies (Continued)

Concentrations of credit risk

Financial instruments that potentially subject the Group to significant concentrations of credit risk consist principally of accounts receivable.  In respect of accounts receivable, the Group extends credit based on an evaluation of the customer’s financial condition, generally without requiring collateral or other security.  In order to minimize the credit risk, the management of the Group has delegated a team responsibility for determination of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. Further, the Group reviews the recoverable amount of each individual trade debt at each balance sheet date to ensure that adequate impairment losses are made for irrecoverable amounts.  In this regard, the directors of the Group consider that the Group’s credit risk is significantly reduced.  

Concentrations of supplier risk

The Group relies on Thai Airways as its major supplier of air tickets and tour packages. If this supplier became unwilling to cooperate with the Group, the Group would have to find alternative resources, which could materially affect the Group’s ability to generate revenue and profitability.

Cash and cash equivalents

Cash and cash equivalents include all cash, deposits in banks and other highly liquid investments with initial maturities of three months or less.

Accounts receivable

Accounts receivable are stated at original amount less 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 year ended December 31, 2009 and 2008, the Group did not experience any bad debts and accordingly, did not make any allowance for doubtful debts.

35

BAOSHINN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

4.

Summary of significant accounting policies (Continued)

Plant and equipment

Plant and equipment are stated at cost less accumulated depreciation. Cost represents the purchase price of the asset and other costs incurred to bring the asset into its existing use. Maintenance, repairs and betterments, including replacement of minor items, are charged to expense; major additions to physical properties are capitalized.

Depreciation of plant and equipment is provided using the straight-line method over their estimated useful lives at the following annual rates:

Furniture and fixtures

20%

Office equipment

20%

Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated.

Revenue recognition

The Group recognizes revenue when it is earned and realizable based on the following criteria: persuasive evidence that an arrangement exists, services have been rendered, the price is fixed or determinable and collectability is reasonably assured.

The Group also evaluates the presentation of revenue on a gross versus a net basis through application of Emerging Issues Task Force No. (“EITF”) 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent. The consensus of this literature is that the presentation of revenue as “the gross amount billed to a customer because it has earned revenue from the sale of goods or services or the net amount retained (that is, the amount billed to a customer less the amount paid to a supplier) because it has earned a commission or fee” is a matter of judgment that depends on the relevant facts and circumstances. In making an evaluation of this issue, some of the factors that should be considered are: whether the Group is the primary obligor in the arrangement (strong indicator); whether it has general inventory risk (before customer order is placed or upon customer return) (strong indicator); and whether 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.

36

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 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.

37

BAOSHINN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

4.

Summary of significant accounting policies (Continued)

Advertising expenses

Advertising expenses are charged to expense as incurred.

Year Ended

9-Months Ended

Year Ended

Dec 31, 2009

Dec 31, 2008

March 31, 2008

$6,610

$1,730

$6,543

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, 2009. 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.

38

BAOSHINN CORPORATION

NOTES TO AUDITED 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.

		Year ended			9-months	Year ended
					period ended
		Dec 31, 2009			Dec 31, 2008	Mar 31, 2008
Period/year end HK$ : US$ exchange rate		7.756			7.7510	7.7860
Average periodically/yearly HK$ : US$ exchange rate		7.751			7.7802	7.7951

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.

39

BAOSHINN CORPORATION

NOTES TO 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 year ended December 31, 2009 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:

	Year Ended Dec 31, 2009		9-Months Ended Dec 31, 2008		Year Ended Mar 31, 2008
	$		$		$
Numerator for basic and diluted earnings per share:
Net Profit/(loss)	5,159		(144,173)		(345,084)
Denominator:
Basic weighted average shares	21,400,000		21,400,000		21,933,607
Effect of dilutive securities	223,860		-		-
Diluted weighted average shares1	21,623,860		21,400,000		21,933,607
Basic earnings/(loss) per share:	0.02 cents		(0.67) cents		(1.57) cents
Diluted earnings/(loss) per share:	0.02 cents		(0.67) cents		(1.57) cents

¹ Due to the net loss in the 9-months ended December 31, 2008 and year ended March 31, 2008, diluted shares used in the diluted EPS calculation represent basic shares for the nine months ended December 31, 2008 and year ended March 31, 2008. Using actual diluted shares would result in anti-dilution. There were no anti-dilutive shares for the 9-months ended December 31, 2008 and year ended March 31 2008.

40

BAOSHINN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

4.     Summary of significant accounting policies (Continued)

Stock-Based Compensation

Effective January 1, 2006, the Group adopted Statements of Financial Accounting Standards (“SFAS”) No. 123R, Share-Based Payment (“SFAS No. 123R”). Under SFAS No. 123R, the Group measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award and recognizes the costs over the period the employee is required to provide service in exchange for the award, which generally is the vesting period.

During the nine months period ended December 31, 2008, The Group recorded the overprovision of $2,300 as a credit to operations to recognize the forfeited stock option included in other non-operating income.

During the Year ended December 31, 2009 and March 31, 2008, The Group recorded stock-based compensation of 11,500 and 22,800 respectively.

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 December 2007, ASC 810, Consolidation (“ASC 810”) includes new guidance issued by the FASB governing the accounting for and reporting of non-controlling interests (previously referred to as minority interests). This guidance established reporting requirements which include, among other things, that non-controlling interests be reflected as a separate component of equity, not as a liability. It also requires that the interests of the parent and the non-controlling interest be clearly identifiable. Additionally, increases and decreases in a parent’s ownership interest that leave control intact shall be reflected as equity transactions, rather than step acquisitions or dilution gains or losses. This guidance also requires changes to the presentation of information in the financial statements and provides for additional disclosure requirements. ASC 810 was effective for fiscal years beginning on or after December 15, 2008. The Group implemented this guidance as of January 1, 2009. The effect of implementing this guidance was not material to The Group’s financial position or results of operations.

41

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 2007, ASC 805, Business Combinations (“ASC 805”) contains guidance that was issued by the FASB. It requires the acquiring entity in a business combination to recognize all assets acquired and liabilities assumed in a transaction at the acquisition-date fair value, with certain exceptions. Additionally, the guidance requires changes to the accounting treatment of acquisition related items, including, among other items, transaction costs, contingent consideration, restructuring costs, indemnification assets and tax benefits. ASC 805 also provides for a substantial number of new disclosure requirements. ASC 805 also contains guidance that was formerly issued as FSP FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies which was intended to provide additional guidance clarifying application issues regarding initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. ASC 805 was effective for business combinations initiated on or after the first annual reporting period beginning after December 15, 2008. The Group implemented this guidance effective January 1, 2009. Implementing this guidance did not have an effect on The Group’s financial position or results of operations; however it will likely have an impact on The Group’s accounting for future business combinations, but the effect is dependent upon acquisitions, if any, that are made in the future.

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 2009, 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.

In May 2009, 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

42

BAOSHINN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

4.     Summary of significant accounting policies (Continued)

Recently issued accounting pronouncements (Continued)

guidance was effective prospectively for interim or annual financial periods ending after June 15, 2009. The Group implemented the guidance included in ASC 855 as of April 1, 2009. The effect of implementing this guidance was not material to The Group’s financial position or results of operations.

In August 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-05, 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 2009. There was no material impact upon the adoption of this standard on The Group’s consolidated financial statements.

In September 2009, the FASB issued ASU 2009-06, 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, 2009. 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 2009, the FASB has published ASU 2009-12, “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, 2009. 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.

In October 2009, the FASB has published ASU 2009-13, “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, 2010. Early

43

BAOSHINN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

4.     Summary of significant accounting policies (Continued)

Recently issued accounting pronouncements (Continued)

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, 2009. The Group has implemented the guidance included in ASC 105 as of July 1, 2009. 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 January 2010, the FASB issued Accounting Standards Update No. 2010-06 (ASU 2010-06), 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 2010-06 is effective for interim and annual periods beginning after December 15, 2009, 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, 2010 (the Group’s fiscal year 2012); early adoption is permitted.  The Group is currently evaluating the impact of adopting ASU 2009-14 on its financial statements.

44

BAOSHINN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

5.

Other operating income

			Year Ended				9 Months Ended		Year Ended
			Dec 31, 2009			Dec 31, 2008				Mar 31, 2008
			$			$				$
	GDS commission income		1,737			4,277				11,033
	Refund Write back		12,153			19,923				21,157
	Management service income		41,094			33,525				44,836
			54,984			57,725				77,026

6.

Other non-operating income

			Year Ended				9 Months Ended			Year Ended
			Dec 31, 2009			Dec 31, 2008				Mar 31, 2008
			$			$				$
	Gain on exchange		825			2,907				10,102
	Interest income		324			1,357				9,774
	Sundry income		-			3,702				5,004
	Reversal of Stock Based Compensation		-			2,300				-
			1,149			10,266				24,880

7.

Interest expenses

			Year Ended				9 Months Ended	Year Ended
			Dec  31, 2009			Dec 31, 2008				Mar 31, 2008
			$			$				$
	Interest expense		1,230			8,083				33,975

8.

Income taxes

The Group was subject to Hong Kong profits or income tax at 16.5% for the year ended December 31, 2009 and 2008.

Provision for Hong Kong profits tax has been made for the year presented as the Group has assessable profits during the year.

The following table accounts for the differences between the actual tax provision and the amounts obtained by applying the applicable statutory income tax rate of 16.5%, 16.5% and 17.5% to income before taxes for the year  ended December 31, 2009, 9 months ended December 31, 2008 and year ended March 31, 2008 respectively.

45

BAOSHINN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

8.

Income taxes (Continued)

Deferred taxes are determined based on the temporary differences between the financial statement and income tax bases of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. The Group follows FASB Accounting Standard Codification Topic 740- (ASC 740) “Income taxes”, ASC 740 and requires a valuation allowance, if any, to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized, and therefore, a full valuation allowance has been provided as of December 31, 2009 and March 31, 2008. For the year ended December 31, 2009, the Group does not have any tax loss carrying-forwards, therefore does not recognize deferred tax assets.

			Year Ended		9 Months Ended		Year ended
			December 31, 2009		December 31, 2008		March 31, 2008
			$		$		$
	Deferred tax assets
	Tax loss carrying-forwards		-		26,773		48,055
	Valuation allowance		-		26,773		48,055
	Net deferred tax asset		-		-		-

9.

Deposits, prepaid expenses and other receivables

			At 31 December
			2009		2008
			$		$
	Security deposits to suppliers [1]		691,505		772,247
	Prepayments and other receivables		76,231		130,100
	Utility, rental and other deposits		32,746		37,891
			800,482		940,238

^[1] Represents a deposit with the airline companies to allow the Group to issue an agreed upon amount of air tickets per month.

46

BAOSHINN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

10.     Plant and equipment

				At 31 December,
				2009		2008
				$		$
	Cost
	Furniture and fixtures			47,934		53,392
	Office equipment			99,922		106,599
				147,856		159,991
	Accumulated depreciation
	Furniture and fixtures			21,264		17,462
	Office equipment			74,162		62,438
				95,426		79,900
	Net
	Furniture and fixtures			26,670		35,930
	Office equipment			25,760		44,161
				52,430		80,091

Depreciation expenses for the year ended December 31, 2009 are $27,821 (for the year ended March 31, 2008: $44,205, for the nine months period ended December 31, 2008: $28,866).

11.

Other payables and accrued liabilities

				At 31 December,
				2009		2008
				$		$
	Sale deposits received			102,359		88,327
	Accrued expenses			133,404		154,961
	Other payables			31,803		33,313
				267,566		276,601

47

BAOSHINN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

12.

Amounts due from/(to) related parties

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

				At 31 December
				2009		2008
				$		$
	Amounts due from related parties			87,029		10,691
	Amounts due to related parties			113,553		2,838

The amounts due from related parties, represent advances to a minority shareholder of Bao Shinn Holidays Limited (“BSHL”), is temporary advance, interest free, unsecured and due on demand.

The amounts due to related parties, represent advances from certain directors and shareholders of The Group, are interest-bearing at the rate of 5.5% (2008: 10%) per annum, unsecured and have no fixed repayment terms.

13.

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.

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 31 December, 2009 was $11,500 which was charged to the consolidated income statements and credited to contributed surplus. During the nine months ended December 31, 2008, The Group recorded the overprovision of $2,300 as a credit to recognize the forfeited stock option included in other non-operating income. During the year ended March 31, 2008, The Group recorded the stock compensation expense of $22,800, the amount was recorded during the quarter ended March 31, 2008 when the stock option was granted during the period.

48

BAOSHINN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

13.

Stock options (continued)

							Weighted
				Weighted			average
		Number of		average			remaining
		options		exercise price			life
Balance as of March 31, 2008		380,000		0.35			3
Forfeited during the period		(50,000)		0.35
Balance as of December 31, 2008		330,000		0.35			2.25
Exercisable as of March 31, 2008		170,000		0.35			3
Forfeited during the period		(15,000)		0.35
Exercisable as of December 31, 2008		155,000		0.35			2.25
Exercisable during the year		75,000		0.35
Exercisable as of December 31, 2009		230,000		0.35			1.25

14.

Concentration of credit

A substantial percentage of the Group’s sales are made to the following customers. Details of the customers accounting for 10% or more of total net revenue are as follows:

	Year ended		9 months ended			Year ended
	Dec 31, 2009			Dec 31, 2008		Mar 31, 2008
Travel Expert Limited (a Hong Kong  incorporated travel agent)	11%			13%		11%

Details of the accounts receivable from the one customer with the largest receivable balances at December 31, 2009 and December 31, 2008 are as follows:

	Percentage of account receivable
	31 December
	2009		2008
Travel Expert Limited (a Hong Kong incorporated travel agent)	17%		17%

49

BAOSHINN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

15.

Pension plans

The Group participates in a defined contribution pension scheme under the Mandatory Provident Fund Schemes Ordinance “MPF Scheme” for all its eligible employees in Hong Kong.

The MPF Scheme is available to all employees aged 18 to 64 with at least 60 days of service in the employment in Hong Kong. Contributions are made by the Group’s subsidiary operating in Hong Kong at 5% of the participants’ relevant income with a ceiling of HK$20,000. The participants are entitled to 100% of the Group’s contributions together with accrued returns irrespective of their length of service with the Group, but the benefits are required by law to be preserved until the retirement age of 65. The only obligation of the Group with respect to MPF Scheme is to make the required contributions under the plan.

The assets of the schemes are controlled by trustees and held separately from those of the Group. Total pension cost was $36,337 during year ended December 31, 2009 (for the year ended March 31, 2008: $44,237, for the nine months ended December 31, 2008: $31,813).

16.

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 adoption of ASC 820 did not have a material impact on the Group’s financial condition or results of operations.

 

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, 2009. 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.

50

BAOSHINN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

16.

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 December 31 2009 and December 31, 2008:

				Fair Value Measurements at reporting date using
		December 31, 2009		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		763,183		-		-		763,183
Prepaid expenses and other receivables		800,482		-		-		800,482
Amount due from a related party		87,029		-		-		87,029
Liabilities
Accounts payable		781,494		-		-		781,494
Other payables and accrued liabilities		267,566		-		-		267,566
Amounts due to related parties		113,553		-		-		113,553

					Fair Value Measurements at reporting date using
		December 31, 2008			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		900,629			-		-		900,629
Prepaid expenses and other receivables		940,238			-		-		940,238
Amount due from a related party		10,691			-		-		10,691
Liabilities
Accounts payable		1,103,390			-		-		1,103,390
Other payables and accrued liabilities		276,601			-		-		276,601
Amounts due to related parties		2,838			-		-		2,838

Level 3 financial assets represent the fair value of our accounts receivables.

51

BAOSHINN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

17.

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 2010 to 2011, 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 31 December, 2009 are as follows:-

December 31

$

2010

29,911

2011

          -

29,911

Rental expenses for the year ended December 31, 2009 were $94,772 (for the year ended March 31, 2008: $133,669, for the nine months ended December 31, 2008 was $84,880).

52

BAOSHINN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

18.

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.