UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-Q





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





For
the quarterly period ended June 30, 2010




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


For the transition period from
______to______.





WINLAND
ONLINE SHIPPING HOLDINGS CORPORATION


(Exact
name of registrant as specified in Charter)




TEXAS
                      
                      333-142908
                      
                      20-5933927(State
      or other jurisdiction of
                        incorporation
      or organization)
                      
                      (Commission
      File No.)
                      
                      (IRS
      Employee Identification
No.)





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





(Address
of Principal Executive Offices)





00852-28549088


(Issuer
Telephone number)




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





Check
whether the issuer (1) has filed all reports required to be filed by Section 13
or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter
period that the issuer was required to file such reports), and (2)has been
subject to such filing requirements for the past 90 days. Yes o     Nox





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).  Yes oNo o





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




Large
      Accelerated Filer o
              Accelerated
      Filer o
              Non-Accelerated
      Filer x
              Smaller
      Reporting Company o





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





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





TABLE
OF CONTENTS





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




- 2
-




PART I


FINANCIAL INFORMATION




ITEM I. FINANCIAL
STATEMENTS






WINLAND
ONLINE SHIPPING HOLDINGS CORPORATION
 AND
SUBSIDIARIES
 
 FINANCIAL
STATEMENTS
 TABLE
OF CONTENTS
 
 CONDENSED
      CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2010 (UNAUDITED) AND DECEMBER
      31, 2009
                F-2CONDENSED
      CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
      FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009
      (UNAUDITED)
                F-4CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30,
      2010 AND 2009 (UNAUDITED)
                F-5NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX
      MONTHS ENDED JUNE 30, 2010 AND 2009 (UNAUDITED)
                F-7
    F-1
  WINLAND
ONLINE SHIPPING HOLDINGS CORPORATION
 AND
SUBSIDIARIES
 CONDENSED CONSOLIDATED
BALANCE SHEETS
 
 ASSETS
 
 June 30, 2010
                  
                  
                  December 31, 2009(Unaudited)CURRENT
      ASSETSCash
      and cash equivalents
                  
                  $
                  4,511,484
                  
                  
                  $
                  3,530,724Accounts
      receivable
                  
                  
                  3,792,758
                  
                  
                  
                  1,881,584Inventories
                  
                  
                  2,285,664
                  
                  
                  
                  1,839,146Prepayments
                  
                  
                  1,880,545
                  
                  
                  
                  688,117Other
      receivables and other assets
                  
                  
                  412,162
                  
                  
                  
                  683,010Deferred
      tax assets
                  
                  
                  -
                  
                  
                  
                  1,538Due
      from related parties
                  
                  
                  2,471,163
                  
                  
                  
                  1,113,643Total
      current assets
                  
                  
                  15,353,776
                  
                  
                  
                  9,737,762Vessels,
      net
                  
                  
                  41,095,832
                  
                  
                  
                  42,597,403Vessels
      under construction
                  
                  
                  20,498,163
                  
                  
                  
                  -Fixed
      assets, net
                  
                  
                  168,750
                  
                  
                  
                  151,041Deferred
      dry dock fees, net
                  
                  
                  8,838,098
                  
                  
                  
                  9,311,647Other
      intangible assets
                  
                  
                  3,656
                  
                  
                  
                  3,657Deferred
      tax assets
                  
                  
                  33
                  
                  
                  
                  -Total
      long-term assets
                  
                  
                  70,604,532
                  
                  
                  
                  52,063,748TOTAL
      ASSETS
                  
                  $
                  85,958,308
                  
                  
                  $
                  61,801,510
 
 See
accompanying notes to condensed consolidated financial
statements.
  F-2
  WINLAND
ONLINE SHIPPING HOLDINGS CORPORATION
 AND
SUBSIDIARIES
 CONDENSED
CONSOLIDATED BALANCE SHEETS
 
 LIABILITIES AND
SHAREHOLDER’S EQUITY
 
 June 30, 2010
                  
                  
                  December 31, 2009(Unaudited)CURRENT
      LIABILITIESAccounts
      payable
                  
                  $
                  7,833,784
                  
                  
                  $
                  6,893,862Short-term
      bank loan
                  
                  
                  1,170,070
                  
                  
                  
                  1,170,070Current
      portion of long-term loans
                  
                  
                  4,626,448
                  
                  
                  
                  4,128,908Current
      portion of long-term notes payable, net of discount of $644,593
      and
                    $693,012
      at June 30, 2010 and December 31, 2009, respectively
                  
                  
                  1,542,812
                  
                  
                  
                  3,326,132Advances
      from customers
                  
                  
                  2,548,043
                  
                  
                  
                  793,334Payroll
      payable
                  
                  
                  839,765
                  
                  
                  
                  903,964Due
      to related parties
                  
                  
                  302,971
                  
                  
                  
                  20,907Payable
      to contractor
                  
                  
                  1,850,000
                  
                  
                  
                  -Taxes
      payable
                  
                  
                  5,802
                  
                  
                  
                  51,250Deferred
      revenue
                  
                  
                  157,307
                  
                  
                  
                  159,688Deferred
      tax liabilities
                  
                  
                  3,285
                  
                  
                  
                  -Other
      current liabilities and accrued liabilities
                  
                  
                  2,155,711
                  
                  
                  
                  2,375,613Total
      current liabilities
                  
                  
                  23,035,998
                  
                  
                  
                  19,823,728LONG-TERM
      LIABILITIESLong-term
      loans
                  
                  
                  15,597,521
                  
                  
                  
                  15,359,535Long-term
      notes payable, net of discount of $1,097,708 and $1,407,170
                    at
      June 30, 2010 and December 31, 2009, respectively
                  
                  
                  18,608,284
                  
                  
                  
                  2,541,441Deferred
      tax liabilities
                  
                  
                  -
                  
                  
                  
                  1,150Total
      long-term liabilities
                  
                  
                  34,205,805
                  
                  
                  
                  17,902,126TOTAL
      LIABILITIES
                  
                  
                  57,241,803
                  
                  
                  
                  37,725,854COMMITMENTS
      AND CONTINGENCIESSHAREHOLDERS’
      EQUITYPreferred
      stock, $0.001 per share;  20,000,000 shares authorized; 0 share
      issued and outstanding
                  
                  
                  -
                  
                  
                  
                  -Common
      stock, $0.001 per share; 200,000,000 shares authorized, 130,000,000 shares
      issued and outstanding
                  
                  
                  130,000
                  
                  
                  
                  130,000Additional
      paid-in capital
                  
                  
                  3,322,966
                  
                  
                  
                  3,322,966Accumulated
      other comprehensive income
                  
                  
                  735,844
                  
                  
                  
                  716,805Retained
      earnings
                  
                  
                  24,527,695
                  
                  
                  
                  19,905,885Total
      Shareholders’ Equity
                  
                  
                  28,716,505
                  
                  
                  
                  24,075,656TOTAL
      LIABILITIES AND SHAREHOLDERS’ EQUITY
                  
                  $
                  85,958,308
                  
                  
                  $
                  61,801,510
    F-3
 
 WINLAND
ONLINE SHIPPING HOLDINGS CORPORATION
 AND
SUBSIDIARIES
 CONDENSED CONSOLIDATED
STATEMENTS OF
 INCOME (LOSS) AND
COMPREHENSIVE INCOME (LOSS)
 (UNAUDITED)
  ThreeMonthsEndedJune30,
                                                
                                                
                                                SixMonthsEndedJune30,2010
                                                
                                                
                                                2009
                                                
                                                
                                                2010
                                                
                                                
                                                2009REVENUES
                                                
                                                $
                                                21,295,692
                                                
                                                
                                                $
                                                11,936,089
                                                
                                                
                                                $
                                                35,984,254
                                                
                                                
                                                $
                                                24,870,034COSTS
      AND EXPENSESVessel
      operating costs
                                                
                                                
                                                14,406,777
                                                
                                                
                                                
                                                9,843,113
                                                
                                                
                                                
                                                24,027,661
                                                
                                                
                                                
                                                21,543,075Service
      costs
                                                
                                                
                                                966,800
                                                
                                                
                                                
                                                714,473
                                                
                                                
                                                
                                                1,541,422
                                                
                                                
                                                
                                                1,982,960Depreciation
      and amortization
                                                
                                                
                                                1,710,222
                                                
                                                
                                                
                                                1,794,742
                                                
                                                
                                                
                                                3,417,318
                                                
                                                
                                                
                                                3,800,278General
      and administrative expenses
                                                
                                                
                                                809,774
                                                
                                                
                                                
                                                634,857
                                                
                                                
                                                
                                                1,489,608
                                                
                                                
                                                
                                                1,345,055Selling
      expenses
                                                
                                                
                                                81,120
                                                
                                                
                                                
                                                72,048
                                                
                                                
                                                
                                                181,334
                                                
                                                
                                                
                                                164,158TOTAL
      COSTS AND EXPENSES
                                                
                                                
                                                17,974,693
                                                
                                                
                                                
                                                13,059,233
                                                
                                                
                                                
                                                30,657,343
                                                
                                                
                                                
                                                28,835,526INCOME
      (LOSS) FROM OPERATIONS
                                                
                                                
                                                3,320,999
                                                
                                                
                                                
                                                (1,123,144
                                                )
                                                
                                                
                                                5,326,911
                                                
                                                
                                                
                                                (3,965,492
                                                )OTHER
      (EXPENSES) INCOMEInterest
      expense, net
                                                
                                                
                                                (336,148
                                                )
                                                
                                                
                                                (43,478
                                                )
                                                
                                                
                                                (679,136
                                                )
                                                
                                                
                                                (91,726
                                                )Other
      income (expense), net
                                                
                                                
                                                1,748
                                                
                                                
                                                
                                                92,433
                                                
                                                
                                                
                                                (8,942
                                                )
                                                
                                                
                                                (92,509
                                                )INCOME
      (LOSS) BEFORE INCOME TAXES
                                                
                                                
                                                2,986,599
                                                
                                                
                                                
                                                (1,074,189
                                                )
                                                
                                                
                                                4,638,833
                                                
                                                
                                                
                                                (4,149,727
                                                )INCOME
      TAX EXPENSE
                                                
                                                
                                                (9,069
                                                )
                                                
                                                
                                                (5,234
                                                )
                                                
                                                
                                                (17,023
                                                )
                                                
                                                
                                                (6,553
                                                )NET
      INCOME (LOSS)
                                                
                                                
                                                2,977,530
                                                
                                                
                                                
                                                (1,079,423
                                                )
                                                
                                                
                                                4,621,810
                                                
                                                
                                                
                                                (4,156,280
                                                )OTHER
      COMPREHENSIVE INCOMEForeign
      currency translation gain (loss)
                                                
                                                
                                                17,943
                                                
                                                
                                                
                                                492
                                                
                                                
                                                
                                                19,039
                                                
                                                
                                                
                                                (45,497
                                                )COMPREHENSIVE
      INCOME (LOSS)
                                                
                                                $
                                                2,995,473
                                                
                                                
                                                $
                                                (1,078,931
                                                )
                                                
                                                $
                                                4,640,849
                                                
                                                
                                                $
                                                (4,201,777
                                                )WEIGHTED
      AVERAGE SHARES OUTSTANDING, BASIC
      AND DILUTED
                                                
                                                
                                                130,000,000
                                                
                                                
                                                
                                                130,000,000
                                                
                                                
                                                
                                                130,000,000
                                                
                                                
                                                
                                                130,000,000NET
      INCOME (LOSS) PER SHARE,BASIC
      AND DILUTED
                                                
                                                $
                                                0.02
                                                
                                                
                                                $
                                                (0.01
                                                )
                                                
                                                $
                                                0.04
                                                
                                                
                                                $
                                                (0.03
                                                )
 
 
  F-4
  WINLAND
ONLINE SHIPPING HOLDINGS CORPORATION
 AND
SUBSIDIARIES
 CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (UNAUDITED)
  Six Months Ended June 30,2010
                  
                  
                  2009CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income (loss)
                  
                  $
                  4,621,810
                  
                  
                  $
                  (4,156,280
                  )Adjustments
      to reconcile net income (loss) to net cash provided by (used in) operating
      activities:Depreciation
                  
                  
                  1,549,214
                  
                  
                  
                  1,670,419Amortization
      of deferred dry dock fees
                  
                  
                  1,868,104
                  
                  
                  
                  2,129,859Amortization
      of  long-term note payable discount
                  
                  
                  357,881
                  
                  
                  
                  7,876Deferred
      taxes
                  
                  
                  3,640
                  
                  
                  
                  5,582Loss
      on disposal of fixed assets
                  
                  
                  (5,520
                  )
                  
                  
                  -Changes
      in operating assets and liabilities:(Increase)
      Decrease In:Accounts
      receivable
                  
                  
                  (1,911,174
                  )
                  
                  
                  (297,286
                  )Inventories
                  
                  
                  (446,518
                  )
                  
                  
                  665,314Prepayments
                  
                  
                  (1,192,428
                  )
                  
                  
                  (35,443
                  )Other
      receivables and other assets
                  
                  
                  270,995
                  
                  
                  
                  (760,170
                  )Deferred
      dry dock fees
                  
                  
                  (1,394,555
                  )
                  
                  
                  (1,661,917
                  )Increase
      (Decrease) In:Accounts
      payable
                  
                  
                  939,922
                  
                  
                  
                  768,848Advances
      from customers
                  
                  
                  1,754,709
                  
                  
                  
                  236,903Payroll
      payable
                  
                  
                  (64,199
                  )
                  
                  
                  -Taxes
      payable
                  
                  
                  (45,448
                  )
                  
                  
                  (9,707
                  )Deferred
      revenue
                  
                  
                  (2,382
                  )
                  
                  
                  23,022Other
      current liabilities and accrued liabilities
                  
                  
                  (219,902
                  )
                  
                  
                  140,317Net
      cash provided by (used in) operating activities
                  
                  
                  6,084,149
                  
                  
                  
                  (1,272,663
                  )CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchases
      of fixed assets
                  
                  
                  (59,832
                  )
                  
                  
                  (513
                  )Advances
      for vessels under construction
                  
                  
                  (18,648,163
                  )
                  
                  
                  -Deposit
      for vessel
                  
                  
                  -
                  
                  
                  
                  (2,070,000
                  )Net
      cash used in investing activities
                  
                  
                  (18,707,995
                  )
                  
                  
                  (2,070,513
                  )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from/repayments of long-term loans
                  
                  
                  735,526
                  
                  
                  
                  (1,405,836
                  )Proceeds
      from/repayments of long-term notes payable
                  
                  
                  13,925,643
                  
                  
                  
                  (191,209
                  )Repayments
      to related parties
                  
                  
                  (1,075,602
                  )
                  
                  
                  (1,916,029
                  )Advances
      from related parties
                  
                  
                  -
                  
                  
                  
                  1,118,318Net
      cash provided by (used in) financing activities
                  
                  
                  13,585,567
                  
                  
                  
                  (2,394,756
                  )
    F-5
 
 WINLAND
ONLINE SHIPPING HOLDINGS CORPORATION
 AND
SUBSIDIARIES
 CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 
 Six Months Ended June 30,2010
                          
                          
                          2009NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                          
                          
                          961,721
                          
                          
                          
                          (5,737,932
                          )Effect
      of exchange rate changes on cash
                          
                          
                          19,039
                          
                          
                          
                          (45,762
                          )Cash
      and cash equivalents at beginning of period
                          
                          
                          3,530,724
                          
                          
                          
                          8,233,588CASH AND CASH EQUIVALENTS AT END OF
      PERIOD
                          
                          $
                          4,511,484
                          
                          
                          $
                          2,449,894SUPPLEMENTARY CASH FLOW
      INFORMATION:Interest
      paid
                          
                          $
                          293,768
                          
                          
                          $
                          91,726Income
      taxes paid
                          
                          $
                          35,526
                          
                          
                          $
                          7,420
 
   F-6
  WINLAND
ONLINE SHIPPING HOLDINGS CORPORATION
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMEENTS
 FOR THE THREE AND SIX MONTHS
ENDED JUNE 30, 2010 AND 2009
 (UNAUDITED)
  1.  
ORGANIZATION AND PRINCIPAL ACTIVITIES
 
 Winland
Online Shipping Holdings Co. was incorporated under the laws of Texas on
November 17, 2006. On September 23, 2008, Trip Tech, Inc. changed its name to
Winland Online Shipping Holdings Corporation (“WLOL”).
 
 On August
12, 2008, Trip Tech, Inc. (“Trip Tech”) entered into a share exchange agreement
with SkyAce Group Limited (“SkyAce”) and Pioneer Creation Holdings Limited
(“PCH”). PCH is the sole shareholder of SkyAce. As a result of the share
exchange, Trip Tech acquired all of the issued and outstanding securities of
SkyAce from PCH in exchange for 76,925,000 newly-issued shares of Trip Tech’s
common stock, par value $0.001 per share and 1,000,000 shares of Series A
Preferred Stock, which such Preferred Shares would be converted into 30,000,000
shares of Common upon Trip Tech amending its Articles of Incorporation to
sufficiently increase the number of authorized shares of Common Stock in order
to effect such issuance. SkyAce became a wholly-owned subsidiary of WLOL. At the
time of the merger, WLOL had 23,075,000 shares of common stock. On September 23,
2008, the authorized shares were increased to 200,000,000 shares. On Octobers
23, 2008, 1,000,000 shares of preferred stock, par value of $0.001 were
converted into 30,000,000 shares of common stock. As a result, the total
outstanding shares of common stock increased to 130,000,000, and PCH owned
82.25% of the voting capital stock of WLOL.
 
 The
exchange transaction was accounted for as a reverse acquisition. The acquisition
was accounted for as the recapitalization of SkyAce. Accordingly, the condensed
consolidated and combined statements of income include the results of operations
of SkyAce from January 1, 2008, and the results of operations of WLOL from the
acquisition date through June 30, 2010.
 
 WLOL and
subsidiaries (the “Company”) is mainly engaged in a comprehensive range of
online and off-line international shipping services such as dry bulk shipping,
chartering, shipping agency, and international logistics.
 
 2.    LIQUIDITY
 
 The
Company had a working capital deficit of $7,682,222 as of June 30, 2010. As of
June 30, 2010, the Company has attained several preliminary shipping contracts
for the two new vessels which are expected to be delivered in December 2010 and
March 2011, respectively (See Note 5). To improve liquidity, the Company
obtained an extension of the due date of two notes payable to related parties
amounting to $2,961,739 to July 19, 2012. See Note 11. Also, the Company
obtained commitments from certain shareholders and related parties to provide
working capital to the Company, if needed, in the form of notes payable or
personal loans.
 
 3.  
 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 (a)  Basis
of Presentation
 
 The
unaudited condensed consolidated financial statements of Winland Online Shipping
Holdings Corporation have been prepared in accordance with U.S. generally
accepted accounting principles for interim financial information and pursuant to
the requirements for reporting on Form 10-Q, Accordingly, they do not include
all the information and footnotes required by accounting principles generally
accepted in the United States of America for annual financial statements.
However, the information included in these interim financial statements reflects
all adjustments (consisting solely of normal recurring adjustments) which are,
in the opinion of management, necessary for the fair presentation of the
consolidated financial position and the consolidated results of operations.
Results shown for interim periods are not necessarily indicative of the results
to be obtained for a full year. The condensed consolidated balance sheet
information as of December 31, 2009 was derived from the audited consolidated
financial statements included in the Company’s Annual Report on Form 10-K. These
interim financial statements should be read in conjunction with that
report.
  F-7
  WINLAND
ONLINE SHIPPING HOLDINGS CORPORATION
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMEENTS
 FOR THE THREE AND SIX MONTHS
ENDED JUNE 30, 2010 AND 2009
 (UNAUDITED)
 3.    SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 (b) 
Principles of Consolidation
 
 The
condensed consolidated financial statements include the accounts of WLOL and its
subsidiaries and variable interest entities (“VIEs”) (the “Company”) as
follows:
 
 I.
Subsidiaries and Holding Companies:
 
 a)
              SkyAce
      is wholly-owned subsidiary of WLOL and incorporated under the law of
      British Virgin islands (“BVI”).
 
 b)
              Plentimillion
      Group Limited (“PGL”) is a wholly-owned subsidiary of SkyAce and
      incorporated in BVI.
 
 c)
              Best
      Summit Enterprise Limited (“BSL”) is a wholly-owned subsidiary of SkyAce
      and incorporated in BVI.
 
 d)
              Hong
      Kong Wallis Development Limited (“Wallis”) is registered in Hong Kong and
      is a wholly-owned subsidiary of
BSL.
 
 e)
              Beijing
      Huate Xingye Technology Limited (“Huate”) was registered in the People’s
      Republic of China (“PRC”) on March 18, 2008 and is a wholly-owned
      subsidiary of Wallis.
 
 II.
Subsidiaries of PGL - Businesses in transportation and chartering:
 
 f)
              Winland
      Shipping Co., Limited, is registered in Hong
  Kong.
 
 g)
              Win
      Star Shipping Co., Limited, is incorporated and registered in St. Vincent
      and the Grenadines (“S.V.G.”).
 
 h)
              Bodar
      Shipping Co., Limited, is incorporated and registered in
      S.V.G.
 
 i)
              Winland
      Dalian Shipping S.A. is incorporated in Panama and registered in Hong
      Kong,
 
 j)
              Treasure
      Way Shipping Limited is incorporated and registered in Hong
      Kong.
 
 k)
              Win
      Eagle Shipping Co., Limited, is incorporated and registered in Valletta,
      Malta.
 
 l)
              Win
      Ever Shipping Co., Limited, is incorporated and registered in Valletta,
      Malta.
 
 m)
              Win
      Bright Shipping Co., Limited, is incorporated and registered in Valletta,
      Malta.
 
 n)
              Kinki
      International Industrial Limited is registered in Hong Kong, managing
      chartering business of vessels.
 
 o)
              Bestline
      Shipping Limited is registered in Hong Kong, managing chartering business
      of vessels.
 
 p)
              Lancrusier
      Development Co., Limited is registered in Hong Kong, management and
      accounting of the above companies.
 
 q)
              Win
      Glory S.A. is incorporated in Panama, registered in Hong
    Kong.
 
 r)
              Win
      Grace Shipping Co., Limited is incorporated and registered in
      Malta.
 
 s)
              Win
      Hope Shipping Co., Limited is incorporated and registered in
      Malta.
  F-8
  WINLAND
ONLINE SHIPPING HOLDINGS CORPORATION
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMEENTS
 FOR THE THREE AND SIX MONTHS
ENDED JUNE 30, 2010 AND 2009
 (UNAUDITED)
  3.    SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 (b) 
Principles of Consolidation (Continued)
 
 II.
Subsidiaries of PGL - Businesses in transportation and chartering
(Continued)
  t)
              Win
      Moony Shipping Co., Limited is incorporated and registered in
      Malta.
 
 u)
              Bodar
      Shipping S.A. is incorporated and registered in
  Panama.
 
 v)
              Win
      Moony Shipping S.A. is incorporated and registered in
    Panama.
 
 w)
              Bao
      Shun Shipping S.A. is incorporated and registered in
    Panama.
 
 x)
              Winland
      International Shipping Co., Limited is incorporated and registered in Hong
      Kong.
 
 y)
                Fon
      Tai Shipping Co., Limited is incorporated and registered in Hong
      Kong.z)
                Won
      Lee Shipping Co., Limited is incorporated and registered in Hong
      Kong.
 
 III. VIEs
- Businesses in Shipping Agency, Freight Forwarding and Online
Services:
 
 To comply
with the People’s Republic of China (“PRC”) laws and regulations, the Company
provides substantially all its shipping agency and freight forwarding services
and online services in China via its VIEs. These VIEs are wholly-owned by
certain related parties or directors of the Company.
 
 The
following is a summary of the VIEs of the Company:
 
 aa)
              Dalian
      Winland International Shipping Agency Co. Ltd. (“DWIS”) is incorporated
      under the laws of the PRC. The principal activity of DWIS is shipping
      agency services.
 
 bb)
              Dalian
      Winland International Logistic Co. Ltd. (“DWIL”) is incorporated under the
      laws of PRC. The principal activity of DWIL is freight forwarding
      services.
 
 cc)
              Dalian
      Shipping Online Network Co. Ltd. (“DSON” or “Shipping Online”) is
      incorporated under the laws of PRC. The principal activities of DSON are
      providing online service for the
members.
  F-9
  WINLAND
ONLINE SHIPPING HOLDINGS CORPORATION
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMEENTS
 FOR THE THREE AND SIX MONTHS
ENDED JUNE 30, 2010 AND 2009
 (UNAUDITED)
 
 3.    SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 (b) 
Principles of Consolidation (Continued)
 
 On March
31, 2008, the Company entered into exclusive technical service agreements with
DWIS, DWIL and DSON under which the Company provides technical and other
services to DWIS, DWIL and DSON in exchange for substantially all net income of
DWIS, DWIL and DSON. All voting rights of DWIS, DWIL and DSON are assigned to
the Company, and the Company has the right to appoint all directors and senior
management personnel of DWIS, DWIL and DSON. In addition, shareholders of DWIS,
DWIL and DSON have pledged their equity interests in DWIS, DWIL and DSON as
collateral to the Company for the non-payment of the fees for technical and
other services due to the Company.
 
 The
Company applied the provision of ASC 810 (formerly SFAS No. 46R, Consolidation of Variable Interest
Entities ), a variable interest entity (“VIE”) to be consolidated by a
company if that company is subject to a majority of the risk of loss for the
VIEs or is entitled to receive a majority of  the VIEs’ residual
returns. As a result, DWIS, DWIL and DSON became the Company’s VIEs since
January 1, 2008.
 
 Inter-company
balances and transactions have been eliminated in consolidation.
 
 (c) 
Concentrations
 
 The
Company’s major customers who accounted for the following percentages of total
revenue and accounts receivable are as follows:
  Sales
                  
                  
                  Accounts ReceivableMajor Customers
                  
                  For The Six
                    MonthsEnded
                    June 30,2010
                  
                  
                  For The Six
                    Months Ended
                    June 30,2009
                  
                  
                  June 30,
                    2010
                  
                  
                  December 31,
                    2009(Unaudited)
                  
                  
                  (Unaudited)
                  
                  
                  (Unaudited)Universe
      Co. Ltd. Taibei
                  
                  
                  -
                  
                  
                  
                  9.80
                  %
                  
                  
                  -
                  
                  
                  
                  -Marubeni
      Tetsugen Co., Ltd
                  
                  
                  -
                  
                  
                  
                  10.29
                  %
                  
                  
                  -
                  
                  
                  
                  -
 
 The
Company’s major oil suppliers who accounted for the following percentages of
total oil purchases and total accounts payable are as follows:
  Oil Purchases
                  
                  
                  Accounts PayableMajor Suppliers
                  
                  For The Six
                    Months Ended
                    June 30,2010
                  
                  
                  For The Six
                    Months Ended
                    June 30,2009
                  
                  
                  June 30,
                    2010
                  
                  
                  December 31,
                    2009(Unaudited)
                  
                  
                  (Unaudited)
                  
                  
                  (Unaudited)Dan-Bunkering
      Ltd.
                  
                  
                  27.24
                  %
                  
                  
                  3.44
                  %
                  
                  
                  0.93
                  %
                  
                  
                  7.31
                  %Raffles
      Bunkering Pte Ltd.
                  
                  
                  13.63
                  %
                  
                  
                  16.00
                  %
                  
                  
                  0.38
                  %
                  
                  
                  -World
      Fuel Services
                  
                  
                  12.36
                  %
                  
                  
                  -
                  
                  
                  
                  3.59
                  %
                  
                  
                  -Singapore
      Petroleum Company (Hong Kong) Limited
                  
                  
                  -
                  
                  
                  
                  10.32
                  %
                  
                  
                  -
                  
                  
                  
                  4.55
                  %
  F-10
  WINLAND
ONLINE SHIPPING HOLDINGS CORPORATION
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMEENTS
 FOR THE THREE AND SIX MONTHS
ENDED JUNE 30, 2010 AND 2009
 (UNAUDITED)
  3.    SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 (d)  Use
of Estimates
 
 The
preparation of the condensed consolidated financial statements in conformity
with generally accepted accounting principles in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting periods.
Management makes these estimates using the best information available at the
time the estimates are made. Actual results could differ materially from those
estimates.
 
 (e)
              Fair
      Value of Financial Instruments
  Fair Value of Financial Instruments- ASC 820-10 (formerly SFAS 157) establishes a three-tier fair value
hierarchy, which prioritizes the inputs used in measuring fair value. The
hierarchy prioritizes the inputs into three levels based on the extent to which
inputs used in measuring fair value are observable in the market.
  These
tiers include:
  (I)
                Level 1—defined as
      observable inputs such as quoted prices in active
      markets;
 (II)
                Level 2—defined as inputs
      other than quoted prices in active markets that are either directly or
      indirectly observable;
and
 (III)
                Level 3—defined as
      unobservable inputs in which little or no market data exists, therefore
      requiring an entity to develop its own
  assumptions.
 
 The
carrying amounts of cash and cash equivalents, accounts receivable, accounts
payable, and short-term bank loan approximate their fair values due to the
short-term nature of these instruments.
 
 The
carrying value of long-term loans and long-term notes payable approximate their
fair value due to the variable interest rates nature thereof. The fair values
are estimated based on the current rates offered to the Company for debt of
similar terms and maturities.
 
 (f)
Vessels Under Construction
 
 Vessels
under construction are stated at cost. They are not depreciated until the
vessels are completed and ready for use. Interest and finance costs relating to
vessels, barges and other equipment under construction are capitalized to
properly reflect the cost of assets acquired. The capitalized interest as part
of vessels under construction was $109,856 for the six months ended June 30,
2010.
 
 (g)
Revenue Recognition
 
 Revenue
is recognized based on the following four criteria:
 
 (I)
              The
      amount of revenue can be measured
reliably;
 
 (II)
              It
      is probable that the economic benefits will flow to the
      Company;
 
 (III)
              The
      stage of completion at the balance sheet date can be measured
      reliably;
 
 (IV)
              The
      costs incurred, or to be incurred can be measured
  reliably.
  F-11
  WINLAND
ONLINE SHIPPING HOLDINGS CORPORATION
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMEENTS
 FOR THE THREE AND SIX MONTHS
ENDED JUNE 30, 2010 AND 2009
 (UNAUDITED)
  3.    SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 (g)
Revenue Recognition (Continued)
 
 For dry
bulk shipping service, the allocation of revenue between reporting periods is
based on relative transit time in each reporting period with expenses recognized
as incurred.
 
 For
chartering brokerage services, sales are recognized when the ship leaves
port.
 
 For
shipping agency and freight forwarding services, sales are recognized when the
ship leaves port.
 
 For
online services, sales are recognized according to the stage of completion in
accordance with the service period defined in executed contracts.
 
 (h)
Income Tax
 
 Deferred
tax assets and liabilities are recognized for the future tax consequence
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to be
applied to taxable income in the years in which those temporary differences are
expected to reverse. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in the statement of income in the period that
includes the enactment date. A valuation allowance is provided for deferred tax
assets if it is more likely than not these items will either expire before the
Company is able to realize their benefits, or that future deductibility is
uncertain. See Note 13.
 
 (i)
Earnings (Loss) Per Share
 
 Basic
earnings (loss) per share are computed by dividing income (loss) available to
common shareholders by the weighted-average number of common shares outstanding
during the period. Diluted earnings (loss) per share is computed similar to
basic earnings (loss) per share except that the denominator is increased to
include the number of additional common shares that would have been outstanding
if the potential common shares had been issued and if the additional common
shares were dilutive. The Company does not have dilutive securities for the
three and six months ended June 30, 2010 and 2009.
 
 (j)
Foreign Currency Translation
 
 Assets
and liabilities of foreign subsidiaries are translated into United States
dollars at currency exchange rates in effect at period-end and revenues and
expenses are translated at average exchange rates in effect for the period.
Gains and losses resulting from foreign currency transactions are included in
results of operations. Gains and losses resulting from translation of foreign
subsidiaries balance sheets are included as a separate component of
shareholders’ equity.
  June 30, 2010
                      
                      
                      December 31, 2009
                      
                      
                      June 30, 2009Period
      end RMB: US$ exchange rate
                      
                      
                      6.8086
                      
                      
                      
                      6.8372
                      
                      
                      
                      -Average
      period RMB: US$ exchange rate
                      
                      
                      6.8229
                      
                      
                      
                      -
                      
                      
                      
                      6.8495
 
 (k)
Comprehensive Income (Loss)
 
 Comprehensive
income (loss) is defined to include all changes in equity except those resulting
from investments by owners and distributions to owners. Among other disclosures,
all items that are required to be recognized under current accounting standards
as components of comprehensive income (loss) should be reported in a financial
statement that is presented with the same prominence as other financial
statements. The Company’s only current component of comprehensive income (loss)
is the foreign currency translation adjustment.
  F-12
  WINLAND
ONLINE SHIPPING HOLDINGS CORPORATION
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMEENTS
 FOR THE THREE AND SIX MONTHS
ENDED JUNE 30, 2010 AND 2009
 (UNAUDITED)
  3.    SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 (l)
Reporting Segments
 
 Accounting
standards require public business enterprises to report information about each
of their operating business segments that exceed certain quantitative threshold
or meet certain other reporting requirements. Operating business segments have
been defined as a component of an enterprise about which separate financial
information is available and is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. The Company has determined that there are three reportable
segments: (1) Dry bulk shipping, (2) Chartering brokerage, and (3) Other
activities segment.
 
 Dry Bulk
Shipping Service - Dry bulk shipping service operates a fleet of thirteen
vessels that provides marine shipping services for dry and liquid bulk cargo
shipping. The segment contributed 62% and 49% of combined operating revenues for
the six months ended June 30, 2010 and 2009, respectively.
 
 Chartering
Brokerage Service - Chartering brokerage service provides ship chartering
services for unrelated shipping companies and shippers. The segment contributed
32% and 47% of consolidated operating revenues for the six months ended June 30,
2010 and 2009, respectively.
 
 Other
activities - Other activities segment comprises shipping agency and freight
forwarding services, and online services. Shipping agency and freight forwarding
service provides transportation and logistic services to shippers in the PRC.
Online services provide internet services for members. These operating segments
were not separately reported as they do not meet any of the quantitative
thresholds under ASC 280-10 (formerly SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information). Other activities segment contributed
6% and 4% of consolidated operating revenues for the six months ended June 30,
2010 and 2009, respectively. Also see Note 14.
 
 (m)
Recent Accounting Pronouncements
 
 Effective
January 1, 2009, the Company adopted ASC 815-10 (formerly SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities ), which amends SFAS No. 133 and
expands disclosures to include information about the fair value of derivatives,
related credit risks and a company's strategies and objectives for using
derivatives. The adoption of ASC 815-10 did not have a material effect on the
Company’s condensed consolidated financial statements as of June 30,
2010.
 
 Effective
January 1, 2009, the Company adopted ASC 815-40 (formerly Emerging Issues Task
Force (“EITF”) Issue No. 07-05, Determining Whether an Instrument
(or Embedded Feature) Is Indexed to an Entity’s Own Stock (“EITF
07-05”). ASC 815-40
addresses the determination of whether an instrument (or an embedded feature) is
indexed to an entity's own stock, which is the first part of the scope exception
in paragraph 11(a) of FASB SFAS No. 133 , Accounting for Derivative
Instruments and Hedging Activities (“SFAS 133”). If an instrument (or an
embedded feature) that has the characteristics of a derivative instrument under
paragraphs 6–9 of SFAS 133 is indexed to an entity's own stock, it is still
necessary to evaluate whether it is classified in stockholders' equity (or would
be classified in stockholders' equity if it were a freestanding instrument).
Other applicable authoritative accounting literature, including Issues EITF
00-19, Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company Own Stock, and EITF 05-2, The Meaning of “Conventional Debt
Instrument” in Issue No. 00-19, provides guidance for determining whether
an instrument (or an embedded feature) is classified in stockholders' equity (or
would be classified in stockholders' equity if it were a freestanding
instrument). ASC 815-40 does not address that second part of the scope exception
in paragraph 11(a) of SFAS 133. The adoption of ASC 815-40 did not have a
material effect on the Company’s condensed consolidated financial statements as
of June 30, 2010.
  F-13
  WINLAND
ONLINE SHIPPING HOLDINGS CORPORATION
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMEENTS
 FOR THE THREE AND SIX MONTHS
ENDED JUNE 30, 2010 AND 2009
 (UNAUDITED)
 3.    SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 (m)
Recent Accounting Pronouncements (Continued)
 
 On
April 9, 2009, the FASB also approved ASC 825-10 (formerly FSP FAS 107-1
and APB 28-1, Interim
Disclosures about Fair Value of Financial Instruments) to require
disclosures about fair value of financial instruments in interim period
financial statements of publicly traded companies and in summarized financial
information required by APB Opinion No. 28, Interim Financial Reporting .
We are required to adopt ASC 825-10 for our interim and annual reporting periods
ending after June 15, 2009. ASC 825-10 does not require disclosures for
periods presented for comparative purposes at initial adoption. ASC 825-10
requires comparative disclosures only for periods ending after initial adoption.
The adoption of ASC 825-10 did not have a material effect on the Company’s
condensed consolidated financial statements as of June 30, 2010.
 
 In April
2009, the FASB updated guidance related to fair-value measurements to clarify
the guidance related to measuring fair-value in inactive markets, to modify the
recognition and measurement of other-than-temporary impairments of debt
securities, and to require public companies to disclose the fair values of
financial instruments in interim periods. This updated guidance became effective
for the Company beginning June 1, 2009. The adoption of this guidance did not
have a material effect on the Company’s condensed consolidated financial
statements as of June 30, 2010.
 
 In June
2009, the FASB issued ASC 810-10 (formerly SFAS No. 167) Amendments to FASB
Interpretation No. 46(R), which require an enterprise to perform an analysis and
ongoing reassessments to determine whether the enterprises variable interest or
interests give it a controlling financial interest in a variable interest entity
and amends certain guidance for determining whether an entity is a variable
interest entity. It also requires enhanced disclosures that will provide users
of financial statements with more transparent information about an enterprises
involvement in a variable interest entity. ASC 810-10 is effective as of the
beginning of each reporting entity’s first annual reporting period that begins
after November 15, 2009 and for all interim reporting periods after that. The
adoption of ASC 810-10 did not have a material effect on the Company’s
condensed consolidated financial statements as of June 30, 2010.
 
 In
January 2010, the FASB issued guidance to amend the disclosure requirements
related to recurring and nonrecurring fair value measurements. The guidance
requires disclosure of transfers of assets and liabilities between Level 1 and
Level 2 of the fair value measurement hierarchy, including the reasons and the
timing of the transfers and information on purchases, sales, issuance, and
settlements on a gross basis in the reconciliation of the assets and liabilities
measured under Level 3 of the fair value measurement hierarchy. This guidance is
effective for the Company beginning March 1, 2010. The adoption of this guidance
did not have a material effect on the Company’s condensed consolidated financial
statements as of June 30, 2010.
  F-14
  WINLAND
ONLINE SHIPPING HOLDINGS CORPORATION
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMEENTS
 FOR THE THREE AND SIX MONTHS
ENDED JUNE 30, 2010 AND 2009
 (UNAUDITED)
 4.    VESSELS
 
 The
Company’s current fleet consists of thirteen vessels as bulk carriers as of June
30, 2010 and December 31, 2009. Among the thirteen vessels, two of them denoted
(a) were acquired by syndicated loans and are still under pledge, also see Note
10; nine vessels denoted (b) were acquired through capital leases; a vessel
denoted (c) was acquired through long-term notes payable from related parties,
also see Note 11; and one remaining vessel denoted (d) was acquired through a
long-term loan and a long-term note payable, also see Notes 10 and
11.
 
 The
vessels of the Company consist of the following:
 
 June30,2010
                      
                      
                      December 31, 2009(Unaudited)At
      cost:Win
      Hope
                      (b)
                      
                      
                      $
                      2,679,285
                      
                      
                      $
                      2,679,285Win
      Ever
                      (b)
                      
                      
                      
                      1,737,966
                      
                      
                      
                      1,737,966Win
      Bright
                      (b)
                      
                      
                      
                      1,739,258
                      
                      
                      
                      1,739,258Win
      Eagle
                      (b)
                      
                      
                      
                      3,560,852
                      
                      
                      
                      3,560,852Win
      Glory
                      (b)
                      
                      
                      
                      2,503,697
                      
                      
                      
                      2,503,697Win
      Grace
                      (b)
                      
                      
                      
                      3,677,861
                      
                      
                      
                      3,677,861Win
      Moony
                      (b)
                      
                      
                      
                      3,682,178
                      
                      
                      
                      3,682,178Win
      Star
                      (b)
                      
                      
                      
                      3,336,600
                      
                      
                      
                      3,336,600Winland
      Dalian
                      (a)
                      
                      
                      
                      18,243,139
                      
                      
                      
                      18,243,139Win
      Honey
                      (a)
                      
                      
                      
                      4,500,000
                      
                      
                      
                      4,500,000Bodar
                      (b)
                      
                      
                      
                      4,985,441
                      
                      
                      
                      4,985,441Andong
                      (c)
                      
                      
                      
                      2,974,180
                      
                      
                      
                      2,961,739Baoshun
                      (d)
                      
                      
                      
                      20,881,125
                      
                      
                      
                      20,881,125$
                      74,501,582
                      
                      
                      $
                      74,489,141
 
 June 30, 2010
                        
                        
                        December 31, 2009(Unaudited)Less:  Accumulated
      depreciationWin
      Hope
                        (b)
                        
                        
                        $
                        2,130,031
                        
                        
                        $
                        2,009,463Win
      Ever
                        (b)
                        
                        
                        
                        1,564,169
                        
                        
                        
                        1,564,169Win
      Bright
                        (b)
                        
                        
                        
                        1,565,332
                        
                        
                        
                        1,565,332Win
      Eagle
                        (b)
                        
                        
                        
                        3,204,767
                        
                        
                        
                        3,204,767Win
      Glory
                        (b)
                        
                        
                        
                        2,253,328
                        
                        
                        
                        2,119,201Win
      Grace
                        (b)
                        
                        
                        
                        3,310,075
                        
                        
                        
                        3,310,075Win
      Moony
                        (b)
                        
                        
                        
                        3,313,961
                        
                        
                        
                        3,313,961Win
      Star
                        (b)
                        
                        
                        
                        3,002,940
                        
                        
                        
                        3,002,940Winland
      Dalian
                        (a)
                        
                        
                        
                        5,290,510
                        
                        
                        
                        4,743,216Win
      Honey
                        (a)
                        
                        
                        
                        1,649,531
                        
                        
                        
                        1,522,969Bodar
                        (b)
                        
                        
                        
                        4,486,897
                        
                        
                        
                        4,486,897Andong
                        (c)
                        
                        
                        
                        879,133
                        
                        
                        
                        797,056Baoshun
                        (d)
                        
                        
                        
                        755,076
                        
                        
                        
                        251,692$
                        33,405,750
                        
                        
                        $
                        31,891,738Vessels,
      net
                        
                        
                        
                        $
                        41,095,832
                        
                        
                        $
                        42,597,403
 
 Vessel
depreciation expense for the six months ended June 30, 2010 and 2009 was
$1,510,499 and $1,622,934 respectively.
  The
Company pledged the following vessels as collateral against long-term loans.
Also see Note 10.
  F-15
  WINLAND
ONLINE SHIPPING HOLDINGS CORPORATION
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMEENTS
 FOR THE THREE AND SIX MONTHS
ENDED JUNE 30, 2010 AND 2009
 (UNAUDITED)
 
 4.    VESSELS
(CONTINUED)
 
 June30,2010
                      
                      
                      December 31, 2009(Unaudited)Net Book ValueWinland
      Dalian
                      
                      $
                      12,952,629
                      
                      
                      $
                      13,499,923Win
      Honey
                      
                      
                      2,850,469
                      
                      
                      
                      2,977,031Baoshun
                      
                      
                      20,126,049
                      
                      
                      
                      20,629,433Total
                      
                      $
                      35,929,147
                      
                      
                      $
                      37,106,387
 
 There are
four kinds of marine insurance for the Company which insures the vessels and
shipping business as follows:
 
 Insurance
                    
                    Coverage
                    
                    
                    Insurance Premium
                      For The Six Months Ended June 30,2010
                    
                    
                    2009(Unaudited)
                    
                    
                    (Unaudited)Hull
      insurance
                    
                    $
                    70,180,000
                    
                    
                    $
                    534,042
                    
                    
                    $
                    560,100Protection
      & indemnity insurance
                    
                    
                    98,400,000
                    
                    
                    
                    546,078
                    
                    
                    
                    503,576Freight
      demurrage and defense insurance
                    
                    
                    65,900,000
                    
                    
                    
                    53,162
                    
                    
                    
                    49,925Delay
      insurance
                    
                    
                    500,000
                    
                    
                    
                    47,494
                    
                    
                    
                    40,055Others
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    6,573Total
                    
                    
                    
                    
                    
                    $
                    1,180,776
                    
                    
                    $
                    1,160,229
 
 Insurance
costs are amortized on a straight-line basis over the beneficial periods and are
recorded in vessel expenses in the condensed consolidated statements of income
(loss) and comprehensive income (loss) for the three and six months ended June
30, 2010 and 2009. The premium expenses were $1,180,776 and $1,160,229 for the
six months ended June 30, 2010 and 2009, respectively. The prepayment for
insurance was $0 and $26,950 as of June 30, 2010 and December 31, 2009,
respectively.
 
 5.    VESSELS
UNDER CONSTRUCTION
 
 The
Company entered an agreement on May 20, 2010 to transfer two Novation Agreements
dated August 15, 2009 with reference made to two Ship Building Contracts
previously executed on December 6, 2006 between a third party and the ship
builder for the construction of vessels HT073 and HT074. The contract amount of
$29,950,000 for each vessel included the ship building contract price of
$28,500,000 due to the ship yard and a contract transfer fee of $1,450,000 due
to Rich Forth Investment Limited (“Rich”), a related party which is controlled
by the relative of the Chairman of the Company. The contract transfer fees
reimbursed Rich for costs incurred in connection with building the ships,
including a finder’s fee and interest that Rich paid to third parties for
amounts borrowed to pay the finder’s fee. The amounts shown in the accompanying
condensed consolidated balance sheets include milestone installments related to
the ship building contract term, contract transfer fees, other direct costs
incurred during the construction periods, and capitalized interest, all of which
are capitalized to properly reflect the cost of assets acquired and not
depreciated until the vessels are completed and ready for use. Vessels under
construction as of June 30, 2010 consist of the following (also see Notes 10, 11
and 12):
 
 Vessel
                        Name
                      
                      Expected
                        Delivery Date
                      
                      Contract
                        Amount
                      
                      
                      Construction
                        Costs
                      
                      
                      Other
                        Direct Costs
                      
                      
                      Finder’s
                        Fees
                      
                      
                      Capitalized
                        Interest
                      
                      
                      TotalHT073
                      
                      December
      15, 2010
                      
                      $
                      29,950,000
                      
                      
                      $
                      8,550,000
                      
                      
                      $
                      388,307
                      
                      
                      $
                      1,425,000
                      
                      
                      $
                      84,430
                      
                      
                      $
                      10,447,737HT074
                      
                      March
      15, 2011
                      
                      $
                      29,950,000
                      
                      
                      $
                      8,550,000
                      
                      
                      $
                      -
                      
                      
                      $
                      1,425,000
                      
                      
                      $
                      75,426
                      
                      
                      $
                      10,050,426Total
                      
                      
                      
                      $
                      59,900,000
                      
                      
                      $
                      17,100,000
                      
                      
                      $
                      388,307
                      
                      
                      $
                      2,850,000
                      
                      
                      
                      159,856
                      
                      
                      $
                      20,498,163
  F-16
  WINLAND
ONLINE SHIPPING HOLDINGS CORPORATION
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMEENTS
 FOR THE THREE AND SIX MONTHS
ENDED JUNE 30, 2010 AND 2009
 (UNAUDITED)
 
 6.
              FIXED
      ASSETS
 
 Fixed
assets consist of the following:
 
 June30,2010
                  
                  
                  December 31, 2009(Unaudited)At
      cost:Motor
      vehicles
                  
                  $
                  286,591
                  
                  
                  $
                  244,612Office
      equipment
                  
                  
                  204,581
                  
                  
                  
                  204,031Leasehold
      improvement
                  
                  
                  182,434
                  
                  
                  
                  181,671673,606
                  
                  
                  
                  630,314Less:  Accumulated
      depreciationMotor
      vehicles
                  
                  
                  164,528
                  
                  
                  
                  159,458Office
      equipment
                  
                  
                  175,926
                  
                  
                  
                  174,298Leasehold
      improvement
                  
                  
                  164,402
                  
                  
                  
                  145,517504,856
                  
                  
                  
                  479,273Fixed
      assets, net
                  
                  $
                  168,750
                  
                  
                  $
                  151,041
 
 Depreciation
expense for the six months ended June 30, 2010 and 2009 was $38,715 and $47,485,
respectively.
 
 7.    DEFERRED
DRY DOCK FEES
 
 Deferred
dry dock feesconsist of the
following:
 
 June30,2010
                  
                  
                  December 31, 2009(Unaudited)Cost
                  
                  $
                  19,331,801
                  
                  
                  $
                  17,608,753Less:
      Accumulated amortization
                  
                  
                  10,493,703
                  
                  
                  
                  8,297,106Deferred
      dry dock fees, net
                  
                  $
                  8,838,098
                  
                  
                  $
                  9,311,647
 
 Amortization
expense for the next five years and thereafter is as follows:
 
 Period Ended June 30,
                    
                    Amount2011
                    
                    $
                    3,078,5122012
                    
                    
                    2,818,7302013
                    
                    
                    1,763,2652014
                    
                    
                    968,1452015
                    
                    
                    209,446Total
                    
                    $
                    8,838,098
 
 The
roll-forward of the beginning and ending balance of deferred dry dock fees
consist of the following:
 
 June30,2010
                  
                  
                  December 31, 2009(Unaudited)Beginning
      balance
                  
                  $
                  9,311,647
                  
                  
                  $
                  11,034,686Addition
      of deferrals
                  
                  
                  1,394,555
                  
                  
                  
                  2,284,803Less:
      Amortization expense
                  
                  
                  (1,868,104
                  )
                  
                  
                  (4,007,842
                  )Deferred
      dry dock fees, net
                  
                  $
                  8,838,098
                  
                  
                  $
                  9,311,647
  F-17
  WINLAND
ONLINE SHIPPING HOLDINGS CORPORATION
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMEENTS
 FOR THE THREE AND SIX MONTHS
ENDED JUNE 30, 2010 AND 2009
 (UNAUDITED)
 7.    DEFERRED
DRY DOCK FEES (CONTINUED)
 
 The
Company’s vessels are required to be drydocked approximately every 60 months for
major repairs and maintenance that cannot be performed while the vessels are
operating. The Company defers the costs associated with the drydockings as they
occur and amortizes these costs on a straight-line basis over the period between
drydockings. Cost deferred as part of a vessel’s drydocking include actual costs
incurred at the drydocking yard, cost of travel, lodging and subsistence of
personnel sent to the drydocking site to supervise, and the cost of hiring a
third party to oversee the drydocking. If the vessel is drydocked earlier than
originally anticipated, any remaining deferred drydock costs that have not been
amortized are expensed at the beginning of the next drydock. Amortization
expense for drydocking for the six months ended June 30, 2010 and 2009 was
$1,868,104 and $2,129,859, respectively. All other costs incurred during
drydocking are expensed as incurred.
 
 8.    DUE
TO/FROM RELATED PARTIES
 
 Due
to/from related parties consist of the following:
 
 (I)   Due From Related Parties
                          
                          
                          
                          June30,2010
                          
                          
                          December 31, 2009(Unaudited)Winland
      Container Lines Ltd.
                          
                          a)
                          
                          $
                          2,415,793
                          
                          
                          $
                          1,097,384Dalian
      Winland Group Co., Ltd
                          
                          b)
                          
                          
                          53,500
                          
                          
                          
                          16,113Winland
      Shipping Japan Co., Ltd
                          
                          c)
                          
                          
                          1,870
                          
                          
                          
                          -Due
      from employees
                          
                          d)
                          
                          
                          -
                          
                          
                          
                          146Total
      due from related parties
                          
                          
                          
                          $
                          2,471,163
                          
                          
                          $
                          1,113,643
 
 (II)   Due To Related Parties
                      
                      
                      
                      June30,2010
                      
                      
                      December 31, 2009(Unaudited)Dalian
      Winland Shipping Co., Ltd
                      
                      e)
                      
                      
                      28,824
                      
                      
                      
                      -Dalian
      Master Well Ship Management Co., Ltd
                      
                      f)
                      
                      
                      134,888
                      
                      
                      
                      7,200Winland
      Shipping Japan Co., Ltd
                      
                      c)
                      
                      
                      -
                      
                      
                      
                      13,707Rich
      Forth Investment Limited
                      
                      g)
                      
                      
                      139,259
                      
                      
                      
                      -Total
      due to related parties
                      
                      
                      
                      $
                      302,971
                      
                      
                      $
                      20,907
 
 a)
              Winland
      Container Lines Ltd. is controlled by the Chairman and Chief Executive
      Officer of the Company. The Company provided shipping agency and freight
      forwarding services to Winland Container Lines Ltd. For the six months
      ended June 30, 2010 and 2009, the Company recognized charter income for
      the vessel Winland Dalian of $153,507 and $0, respectively; the Company
      recognized service revenues of $962,039 and $634,397, respectively. For
      the six months ended June 30, 2010 and 2009, the Company paid $14,282,873
      and $3,391,922 of expenses to related ports, and received $14,084,577 and
      $2,110,290 of payments from related ports on behalf of Winland Container
      Lines Ltd., respectively. The outstanding balances at June 30, 2010 and
      December 31, 2009 are interest-free, unsecured and they were subsequently
      settled.
  F-18
  WINLAND
ONLINE SHIPPING HOLDINGS CORPORATION
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMEENTS
 FOR THE THREE AND SIX MONTHS
ENDED JUNE 30, 2010 AND 2009
 (UNAUDITED)
  8.
              DUE
      TO/FROM RELATED PARTIES (CONTINUED)
 
 b)
              Dalian Winland Group Co., Ltd
      (“DWIG”) is controlled by the Chairman and Chief Executive Officer of the
      Company. The Company paid $5,270,054 and $15,284,499 of expenses on behalf
      of DWIG for the six months ended June 30, 2010 and 2009,
      respectively.  The Company collected $5,187,211 and $16,300,352
      on behalf of DWIG for the six months ended June 30, 2010 and 2009,
      respectively. For the six months ended June 30, 2010 and 2009, the Company
      recognized interest expense for long-term notes payable of $45,531 and
      $45,290, respectively. Also see Note 11. The outstanding balances at June
      30, 2010 and December 31, 2009 are interest-free, unsecured and have no
      fixed repayment term. They were subsequently
    settled.
 
 c)
              Winland Shipping Japan Co., Ltd
      is controlled by the Chairman and Chief Executive Officer of the Company.
      The Company recognized agency service fees of $30,743 and $87,060 for the
      six months ended June 30, 2010 and 2009, respectively. The Company paid
      $74,463 and $209,843 on behalf of Winland Shipping Japan Co., Ltd, for the
      six months ended June 30, 2010 and 2009, respectively. The Company
      collected $28,261 and $152,863 on behalf of Winland Shipping Japan Co.,
      Ltd, for the six months ended June 30, 2010 and 2009, respectively. The
      outstanding balances at June 30, 2010 and December 31, 2009 are
      interest-free, unsecured and have no fixed repayment
      term.
 
 d)
              Due from employees are
      interest-free, unsecured and have no fixed repayment terms. The amounts
      due from employees primarily represent advances to sales personnel for
      business and travel related
expenses.
 
 e)
              Dalian Winland Shipping Co., Ltd
      (“DWSC”) is controlled by the Chairman and Chief Executive Officer of the
      Company. It operates as a vessel management company for the Company. It
      operated one and two vessels for the Company for the six months ended June
      30, 2010 and 2009, respectively. The vessel management fees were $9,000
      and $18,000 for the six months ended June 30, 2010 and 2009, respectively.
      The Company also recognized service revenue of $0 and $66,780 for the six
      months ended June 30, 2010 and 2009, respectively. For the six months
      ended June 30, 2010 and 2009, on behalf of DWSC, the Company paid $9,000
      and $108,000, and received $0 and $93,910, respectively. The Company
      recognized interest expense for long-term notes payable of $28,824 and
      $28,671 for six months ended June 30, 2010 and 2009, respectively. See
      Note 11. The outstanding balance at June 30, 2010 is interest-free,
      unsecured and has no fixed repayment
  term.
 
 f)
              Dalian Master Well Ship
      Management Co., Ltd is controlled by the Chairman and Chief Executive
      Officer of the Company. It operates as a vessel management company for the
      Company. The vessel management fees for the six months ended June 30, 2010
      and 2009 were $117,000 and $129,600, respectively. The Company paid $0 and
      $132,697 on behalf of Dalian Master Well Ship Management Co., Ltd, for the
      six months ended June 30, 2010 and 2009, respectively. The Company
      collected $10,688 and $64,390 on behalf of Dalian Master Well Ship
      Management Co., Ltd, for the six months ended June 30, 2010 and 2009,
      respectively. The outstanding balances at June 30, 2010 and December 31,
      2009 are interest-free, unsecured, and have no fixed repayment
      term.
 
 g)
              Rich
      Forth Investment Limited is controlled by the relative of the Chairman of
      the Company. It operates as a vessel management company for the Company.
      The vessel management fee was $25,200 and $0 for the six months ended June
      30, 2010 and 2009, respectively. The Company paid $5,792 and $0, and
      collected $86,995 and $0 for the six months ended June 30, 2010 and 2009,
      respectively. The Company recognized interest expense for long-term notes
      payable of $32,856 and $0 for six months ended June 30, 2010 and 2009,
      respectively. See Note 11. The outstanding balance at June 30, 2010 is
      interest-free, unsecured and has no fixed repayment
  term.
  F-19
  WINLAND
ONLINE SHIPPING HOLDINGS CORPORATION
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMEENTS
 FOR THE THREE AND SIX MONTHS
ENDED JUNE 30, 2010 AND 2009
 (UNAUDITED)
 9.    SHORT-TERM
BANK LOAN
 
 The
Company obtained a short-term bank loan from Shanghai Pudong Development Bank
for $1,170,070 on July 10, 2009. The loan principal was due on July 6, 2010. The
interest payment was due quarterly at an annual interest rate of 5.31%. Interest
expense was $31,479 for the six months ended June 30, 2010. The loan was
guaranteed by the Chairman and CEO of the Company and paid on the due
date.
 
 10.   LONG-TERM
LOANS
 
 Long-term
loans consist of the following:
 June30,2010
                        
                        
                        December 31,
                          2009(Unaudited)Loans
      from Dialease Maritime S.A.:Due
      on August 1, 2011, monthly interest payment is 1-month LIBOR plus 1.75%
      per annum, and the actual rate at June 30, 2010 is 2.17%, secured by the
      vessel Winland Dalian (also see Note 4), assignment of insurance of the
      vessel, and guaranteed by the Chairman of the Company. Principal is repaid
      every month in 72 equal installments from September 2005.
                        
                        $
                        2,463,624
                        
                        
                        $
                        3,519,456Due
      on July 21, 2012, monthly interest payment is 1-month LIBOR plus 1.75% per
      annum, and the actual rate at June 30, 2010 is 2.17%, secured by the
      vessel Win Honey (also see Note 4), assignment of insurance of the vessel,
      and guaranteed by the Chairman of the Company. Principal is repaid every
      month in 72 equal installments from August 2006.
                        
                        
                        1,458,302
                        
                        
                        
                        1,808,306Due
      on October 23, 2016 with interest at the 1-month LIBOR plus 2.30% per
      annum, and the actual rate at June 30, 2010 is 2.46%, monthly payment
      principal and interest is fixed at $109,773, initial payment on October
      24, 2009, secured by the vessel Baoshun (also see Note 4).
                        
                        
                        13,502,043
                        
                        
                        
                        14,160,681Loan
      facility of $37,000,000 from China Merchants Bank Co., Ltd.
    :Drawdown
      from the loan facilities due on September 21, 2012, with interest rate at
      the 3-month LIBOR plus 1.5% per annum, and the actual rate at June 30,
      2010 is 1.92%. The principal payment is fixed at $466,667 quarterly for 6
      quarters, started from June 21, 2011. The interest is accrued from June
      29, 2010 and paid quarterly started from September 21, 2010 till the
      principal payoff. The loan is secured by the vessel HT074, and guaranteed
      by the Chairman and the CEO of the Company (also see Notes 5 and
      16).
                        
                        
                        2,800,000
                        
                        
                        
                        -Total
      long-term loans
                        
                        
                        20,223,969
                        
                        
                        
                        19,488,443Less:
      Current portion
                        
                        
                        4,626,448
                        
                        
                        
                        4,128,908Long-term
      portion
                        
                        $
                        15,597,521
                        
                        
                        $
                        15,359,535
 
 Interest
expense for the six months ended June 30, 2010 and 2009 was $215,578 and
$83,850, respectively.
  F-20
  WINLAND
ONLINE SHIPPING HOLDINGS CORPORATION
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMEENTS
 FOR THE THREE AND SIX MONTHS
ENDED JUNE 30, 2010 AND 2009
 (UNAUDITED)
  10.    LONG-TERM
LOANS (CONTINUED)
 
 The
repayment schedule for the principal amount of long-term loans is as
follows:
 
 Period Ended June 30,
                    
                    Amount2011
                    
                    $
                    4,626,4482012
                    
                    
                    4,417,5302013
                    
                    
                    1,629,7762014
                    
                    
                    1,317,2762015
                    
                    
                    1,317,276Thereafter
                    
                    
                    6,915,663Total
                    
                    $
                    20,223,969
  F-21
  WINLAND
ONLINE SHIPPING HOLDINGS CORPORATION
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMEENTS
 FOR THE THREE AND SIX MONTHS
ENDED JUNE 30, 2010 AND 2009
 (UNAUDITED)
 11.    LONG-TERM
NOTES PAYABLE
 
 Long-term
notes payable consists of the following:
 June30,2010
                            
                            
                            December 31, 2009(Unaudited)Notes
      payable to unrelated party:Sea
      Carrier Shipping Co., Ltd., net of discount of $1,742,301 and $2,100,182
      at June 30, 2010 and December 31, 2009, respectively, due September 25,
      2014, fixed repayment of $2,897 per day, monthly payment due one month in
      advance.
                            
                            a)
                            
                            $
                            2,739,357
                            
                            
                            $
                            2,905,834Sea
      Carrier Shipping Co., Ltd., Due December 31, 2015, at an interest rate of
      1% on unpaid principal balance per month, fixed monthly repayment for
      principal started at January 1, 2011, interest payment started at June 1,
      2010.
                            
                            b)
                            
                            
                            3,850,000
                            
                            
                            
                            -Sea
      Carrier Shipping Co., Ltd., Due March 31, 2016, at an interest rate of 1%
      on unpaid principal balance per month, fixed monthly repayment for
      principal started at April 1, 2011, interest payment started at June 1,
      2010.
                            
                            c)
                            
                            
                            3,850,000
                            
                            
                            
                            -Subtotal
                            
                            
                            
                            
                            10,439,357
                            
                            
                            
                            2,905,834Notes
      payable to related companies:Dalian
      Winland Shipping Co., Ltd., due July 19, 2012, at an interest rate of 5%
      per annum
                            
                            d)
                            
                            
                            1,148,131
                            
                            
                            
                            1,148,131Dalian
      Winland Group Co., Ltd., due July 19, 2012, at an interest rate of 5% per
      annum
                            
                            e)
                            
                            
                            1,813,608
                            
                            
                            
                            1,813,608Rich
      Forth Investment Limited, due December 31, 2015, at an interest rate of
      5.841% on unpaid principal balance per annum, fixed monthly repayment for
      principal started at January 1, 2011, interest payment started at June 1,
      2010.
                            
                            f)
                            
                            
                            4,300,000
                            
                            
                            
                            -Rich
      Forth Investment Limited, due March 31, 2016, at an interest rate of
      5.841% on unpaid principal balance per annum, fixed monthly repayment for
      principal started at April 1, 2011, interest payment started at June 1,
      2010.
                            
                            g)
                            
                            
                            2,450,000
                            
                            
                            
                            -Subtotal
                            
                            
                            
                            
                            9,711,739
                            
                            
                            
                            2,961,739Total
      long-term notes payable
                            
                            
                            
                            
                            20,151,096
                            
                            
                            
                            5,867,573Less:
      Current portion
                            
                            
                            
                            
                            1,542,812
                            
                            
                            
                            3,326,132Long-term
      portion
                            
                            
                            
                            $
                            18,608,284
                            
                            
                            $
                            2,541,441
 
 The
amortization of discount on note payable for the six months ended June 30, 2010
and 2009 was $357,881 and $7,876, respectively.
 
 The
long-term note denoted a) was used to purchase the vessel Baoshun (see Note 4).
The long-term notes denoted b)  and f) were used to build the vessel
HT073, c) and g) were used to build the vessel HT074 (see Note
5).
  F-22
  WINLAND
ONLINE SHIPPING HOLDINGS CORPORATION
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMEENTS
 FOR THE THREE AND SIX MONTHS
ENDED JUNE 30, 2010 AND 2009
 (UNAUDITED)
 
 11.    LONG-TERM
NOTES PAYABLE (CONTINUED)
 
 The
long-term notes obtained from DWSC and DWIG, two related parties, denoted d) and
e) were both used to purchase the vessel Andong. Also see Notes 4 and
8.
 
 Interest
expense for the six months ended June 30, 2010 and 2009 was $184,054 and
$73,911, respectively.
 
 The
repayment schedule for long-term notes payable is as follows:
 
 Period Ended June 30,
                    
                    Amount2011
                    
                    $
                    1,542,8122012
                    
                    
                    3,422,9542013
                    
                    
                    6,532,5872014
                    
                    
                    3,760,5912015
                    
                    
                    4,892,152Total
                    
                    $
                    20,151,096
 
 12.    COMMITMENTS
 
 The
Company leases office space under operating leases. Lease expense was $111,665
and $77,206 for the six months ended June 30, 2010 and 2009,
respectively.
 
 As of
June 30, 2010, future minimum payments required under non-cancelable leases
are:
 
 Period Ended June 30,
                    
                    Amount2011
                    
                    $
                    111,4922012
                    
                    
                    13,541Total
                    
                    $
                    125,033
 
 The
Company chartered a vessel on May 9, 2010 from a third party with a chartering
period of 5 months at $28,500 per day. As of June 30, 2010, chartering costs
incurred were $1,510,500. The future chartering commitment is $2,878,500 for 101
days.
 
 The
Company entered an agreement on May 20, 2010 to transfer two Novation Agreements
dated August 15, 2009 with reference made to two Ship Building Contracts
previously executed on December 6, 2006 for the construction of two vessels. As
of June 30, 2010, the future payments required for the balance of the Ship
Building Contracts are as follows:
 
 Period Ended June 30,
                  
                  HT073
                  
                  
                  HT074
                  
                  
                  Amount2011
                  
                  $
                  17,100,000
                  
                  
                  $
                  17,100,000
                  
                  
                  $
                  34,200,0002012
                  
                  
                  950,000
                  
                  
                  
                  950,000
                  
                  
                  
                  1,900,0002013
                  
                  
                  950,000
                  
                  
                  
                  950,000
                  
                  
                  
                  1,900,0002014
                  
                  
                  950,000
                  
                  
                  
                  950,000
                  
                  
                  
                  1,900,000Total
                  
                  $
                  19,950,000
                  
                  
                  $
                  19,950,000
                  
                  
                  $
                  39,900,000
 
 The
Company will substantially pay for the balance of the Ship Building Contracts
with the $37,000,000 loan facility. See Note 10.
  F-23
  WINLAND
ONLINE SHIPPING HOLDINGS CORPORATION
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMEENTS
 FOR THE THREE AND SIX MONTHS
ENDED JUNE 30, 2010 AND 2009
 (UNAUDITED)
 13.    INCOME
TAX
 
 (a) Income
Tax Expense
 
 Dalian
Winland International Shipping Agency Co. Ltd., Dalian Winland International
Logistic Co. Ltd. and Dalian Shipping Online Network Co. Ltd. are incorporated
under the laws of PRC and subjected by Chinese tax law. On March 16, 2007, the
National People’s Congress of China approved the Corporate Income Tax Law of the
People’s Republic of China (the “new CIT Law”), which was effective on January
1, 2008. Under the new CIT Law, the corporate income tax rate applicable to
these companies starting from January 1, 2008 is 25%.
 
 Winland
Shipping Co., Limited, Treasure Way Shipping Limited, Kinki International
Industrial Limited, Bestline Shipping Limited, Lancrusier Development Co.,
Limited, Winland International Shipping Co., Limited, Fon Tai Shipping Co.,
Limited and Won Lee Shipping Co., Limited are incorporated and registered in
Hong Kong. All the income derived from these companies is exempt from income tax
under the local tax law; there is no income tax expense for the six months ended
June 30, 2010 and 2009.
 
 Win Star
Shipping Co., Limited and Bodar Shipping Co., Limited are incorporated and
registered in St. Vincent and Grenadines. Win Eagle Shipping Co., Limited, Win
Ever Shipping Co., Limited, and Win Bright Shipping Co., Limited are
incorporated and registered in Valletta, Malta. These five companies obtained
tax exemptions from the local governments, so they did not have any tax expense
for the three months ended March 31, 2010 and 2009. Winland Dalian Shipping S.A.
and Win Glory S.A. are incorporated in Panama and are registered in HongKong.
Win Grace Shipping Co., Limited, Win Hope Shipping Co., Limited, Win Moony
Shipping Co., Limited are incorporated and registered in Valletta, Malta. Bodar
Shipping S.A., Win Moony Shipping S.A., and Bao Shun Shipping S.A. are
incorporated and registered in Panama. Since these companies are exempt from
income tax under the local tax law, they did not have any income tax for the six
months ended June 30, 2010 and 2009.
 
 Effective
January 1, 2007, the Company adopted ASC 740-10 (formerly FASB Interpretation
No. 48, Accounting for
Uncertainty in Income Taxes, an interpretation of FASB statement No.109,
Accounting for Income
Taxes). ASC 740-10 addresses the determination of whether tax benefits
claimed or expected to be claimed on a tax return should be recorded in the
financial statements. Under ASC 740-10, we may recognize the tax benefit from an
uncertainty tax position only if it is more likely than not that the tax
position will be sustained on examination by the taxing authorities, based on
the technical merits of the position. The tax benefits recognized in the
financial statements from such a position should be measured based on the
largest benefit that has a greater than fifty percent likelihood of being
realized upon ultimate settlement. ASC 740-10 also provides guidance on
de-recognition, classification, interest and penalties on income taxes,
accounting in interim periods and requires increased disclosures.
 Income
tax expense for the six months ended June 30, 2010 and 2009 is summarized as
follows:
 
 For The Six Months Ended June 30,2010
                    
                    
                    2009(Unaudited)
                    
                    
                    (Unaudited)Current
                    
                    $
                    (13,383
                    )
                    
                    $
                    (971
                    )Deferred
                    
                    
                    (3,640
                    )
                    
                    
                    (5,582
                    )Income
      tax expense
                    
                    $
                    (17,023
                    )
                    
                    $
                    (6,553
                    )
 
 The
Company’s income tax expense differs from the “expected” tax expense for the six
months ended June 30, 2010 and 2009 (computed by applying the Hong Kong CIT rate
of 16.5% and PRC CIT rate of 25% to income before income taxes) as
follows:
  F-24
  WINLAND
ONLINE SHIPPING HOLDINGS CORPORATION
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMEENTS
 FOR THE THREE AND SIX MONTHS
ENDED JUNE 30, 2010 AND 2009
 (UNAUDITED)
 13.    INCOME
TAX (CONTINUED)
 
 (a) Income
Tax Expense (Continued)
 
 For The Six Months Ended June 30,2010
                  
                  
                  2009(Unaudited)
                  
                  
                  (Unaudited)Computed
      “expected” (expense) benefit
                  
                  $
                  (748,024
                  )
                  
                  $
                  726,212Favorable
      tax rates
                  
                  
                  731,001
                  
                  
                  
                  (732,765
                  )Income
      tax expense
                  
                  $
                  (17,023
                  )
                  
                  $
                  (6,553
                  )
 
 The tax
effects of temporary differences that give rise to the Company’s net deferred
tax assets and liabilities as of June 30, 2010 and December 31, 2009 are as
follows:
 
 June 30, 2010
                  
                  
                  December 31, 2009(Unaudited)Deferred
      tax assets (liabilities):Current
      portion:General
      and administrative expenses
                  
                  $
                  91
                  
                  
                  $
                  -Service
      revenue and commissions
                  
                  
                  (3,376
                  )
                  
                  
                  2,434Valuation
      allowance-short term
                  
                  
                  -
                  
                  
                  
                  (732
                  )Other
      income
                  
                  
                  -
                  
                  
                  
                  (164
                  )Subtotal
                  
                  
                  (3,285
                  )
                  
                  
                  1,538Non-current
      portion:Depreciation
      expense
                  
                  
                  (43,908
                  )
                  
                  
                  (31,454
                  )Accrued
      financial expense
                  
                  
                  (3,002
                  )
                  
                  
                  -Net
      operating loss
                  
                  
                  189,696
                  
                  
                  
                  135,585Valuation
      allowance
                  
                  
                  (142,753
                  )
                  
                  
                  (105,281
                  )Subtotal
                  
                  
                  33
                  
                  
                  
                  (1,150
                  )Net
      deferred tax (liabilities) assets
                  
                  $
                  (3,252
                  )
                  
                  $
                  388
 
 (b) Tax
Holiday Effect
 
 For the
six months ended June 30, 2010 and 2009, the Hong Kong corporate income tax rate
was 16.5%. Certain subsidiaries of the Company which were registered in Hong
Kong are entitled to tax exemptions as long as they do not operate in Hong Kong
under the local tax law. Since these companies do not have operations in Hong
Kong, they did not have any income tax expense for the six months ended June 30,
2010 and 2009.
 
 The
combined effects of the income tax expense exemptions and reductions available
to the Company for the six months ended June 30, 2010 and 2009 are as
follows:
  F-25
  WINLAND
ONLINE SHIPPING HOLDINGS CORPORATION
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMEENTS
 FOR THE THREE AND SIX MONTHS
ENDED JUNE 30, 2010 AND 2009
 (UNAUDITED)
 
 13.    INCOME
TAX (CONTINUED)
 
 (b) Tax
Holiday Effect (Continued)
 
 For The Six Months Ended June 30,2010
                  
                  
                  2009(Unaudited)
                  
                  
                  (Unaudited)Tax
      holiday (benefit) expense
                  
                  $
                  (731,001
                  )
                  
                  $
                  732,765Basic
      net income (loss) per share excluding tax holiday
    effect
                  
                  $
                  0.03
                  
                  
                  $
                  (0.03
                  )
 
 14.    SEGMENT
INFORMATION
 
 The
Company determined that there are three reportable segments: (1) Dry bulk
shipping, (2) Chartering brokerage, and (3) Other activities segment. The other
activities segment comprises shipping agency, freight forwarding services and
online services. These operating segments were not separately reported as they
do not meet any of the quantitative thresholds under ASC 280-10 (formerly SFAS
No. 131, Disclosures about Segments of an Enterprise and Related
Information).
 
 The
Company's segment information as of June 30, 2010 and December 31, 2009, and for
the six months ended June 30, 2010 and 2009 are as follows:
 
 Six Months Ended
                        June 30, 2010
                        (Unaudited)
                      
                      Dry Bulk
                        Shipping
                      
                      
                      Chartering
                        Brokerage
                      
                      
                      Other
                        Activities
                      
                      
                      Corporate
                        and
                        Eliminations
                      
                      
                      ConsolidatedSales
      to unaffiliated customers
                      
                      $
                      22,205,051
                      
                      
                      $
                      11,600,708
                      
                      
                      $
                      2,178,495
                      
                      
                      $
                      -
                      
                      
                      $
                      35,984,254Intersegment
      sales
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      48,253
                      
                      
                      
                      (48,253
                      )
                      
                      
                      -Net
      sales
                      
                      
                      22,205,051
                      
                      
                      
                      11,600,708
                      
                      
                      
                      2,226,748
                      
                      
                      
                      (48,253
                      )
                      
                      
                      35,984,254Costs
                      
                      
                      14,121,869
                      
                      
                      
                      9,954,045
                      
                      
                      
                      1,541,422
                      
                      
                      
                      (48,253
                      )
                      
                      
                      25,569,083Depreciation
      and amortization
                      
                      
                      3,379,873
                      
                      
                      
                      -
                      
                      
                      
                      37,445
                      
                      
                      
                      -
                      
                      
                      
                      3,417,318Other
      operating expenses
                      
                      
                      1,345,154
                      
                      
                      
                      171,890
                      
                      
                      
                      745,976
                      
                      
                      
                      113,023
                      
                      
                      
                      2,376,043Net
      income (loss)
                      
                      $
                      3,358,155
                      
                      
                      $
                      1,474,773
                      
                      
                      $
                      (98,095
                      )
                      
                      $
                      (113,023
                      )
                      
                      $
                      4,621,810June 30, 2010 (Unaudited)Identifiable
      assets
                      
                      $
                      72,200,932
                      
                      
                      $
                      12,228,787
                      
                      
                      $
                      9,756,222
                      
                      
                      $
                      (8,227,633
                      )
                      
                      $
                      85,958,308
  F-26
  WINLAND
ONLINE SHIPPING HOLDINGS CORPORATION
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMEENTS
 FOR THE THREE AND SIX MONTHS
ENDED JUNE 30, 2010 AND 2009
 (UNAUDITED)
 
 14.    SEGMENT
INFORMATION (CONTINUED)
 
 Six Months Ended
                        June 30, 2009
                        (Unaudited)
                      
                      Dry Bulk
                        Shipping
                      
                      
                      Chartering
                        Brokerage
                      
                      
                      Other
                        Activities
                      
                      
                      Corporate
                        and
                        Eliminations
                      
                      
                      ConsolidatedSales
      to unaffiliated customers
                      
                      $
                      12,257,263
                      
                      
                      $
                      11,767,802
                      
                      
                      $
                      844,969
                      
                      
                      $
                      -
                      
                      
                      $
                      24,870,034Intersegment
      sales
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      180,383
                      
                      
                      
                      (180,383
                      )
                      
                      
                      -Net
      sales
                      
                      
                      12,257,263
                      
                      
                      
                      11,767,802
                      
                      
                      
                      1,025,352
                      
                      
                      
                      (180,383
                      )
                      
                      
                      24,870,034Costs
                      
                      
                      13,150,492
                      
                      
                      
                      10,188,932
                      
                      
                      
                      366,994
                      
                      
                      
                      (180,383
                      )
                      
                      
                      23,526,035Depreciation
      and amortization
                      
                      
                      3,691,692
                      
                      
                      
                      -
                      
                      
                      
                      108,586
                      
                      
                      
                      -
                      
                      
                      
                      3,800,278Other
      operating expenses
                      
                      
                      761,454
                      
                      
                      
                      127,028
                      
                      
                      
                      726,703
                      
                      
                      
                      84,816
                      
                      
                      
                      1,700,001Net
      (loss) income
                      
                      $
                      (5,346,375
                      )
                      
                      $
                      1,451,842
                      
                      
                      $
                      (176,931
                      )
                      
                      $
                      (84,816
                      )
                      
                      $
                      (4,156,280
                      )December 31, 2009Identifiable
      assets
                      
                      $
                      44,537,934
                      
                      
                      $
                      10,900,478
                      
                      
                      $
                      9,340,286
                      
                      
                      $
                      (2,977,188
                      )
                      
                      $
                      61,801,510
 
 Information
for Company’s sales by geographical area for the six months ended June 30, 2010
and 2009 are as follows:
 
 For The Six Months Ended June 30,2010
                    
                    
                    2009(Unaudited)
                    
                    
                    (Unaudited)Sales
      to unaffiliated customers:Japan,
      Korea and Russia
                    
                    $
                    7,196,851
                    
                    
                    $
                    12,435,017PRC
                    
                    
                    21,590,552
                    
                    
                    
                    8,704,512Southern
      and Eastern Asia
                    
                    
                    5,397,638
                    
                    
                    
                    3,233,104Mediterranean
      and Red Sea
                    
                    
                    1,079,528
                    
                    
                    
                    -Other
                    
                    
                    719,685
                    
                    
                    
                    497,401Total
                    
                    $
                    35,984,254
                    
                    
                    $
                    24,870,034
 
 15.   CONTINGENCIES
 
 The
Company signed a voyage charter contract with Sinoriches Global Ltd. on
June 11, 2007. The Company canceled the contract on June 18, 2007.
Sinoriches Global Ltd. filed an arbitration claim of $501,640 including interest
for the dispute. As of June 30, 2010, the case is in the process of exchanging
documents and evidence for arbitration. The Company does not believe the case
will result in a significant unfavorable outcome.
 
 16.   SUBSEQUENT
EVENT
 
 In July
2010, the Company borrowed an additional $5,700,000 of the $37 million loan
facility from China Merchants Bank Co., Ltd. to finance the construction of
vessels HT073 and HT074. Also see Note 10.
  F-27




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


RESULTS
OF OPERATIONS





Forward
Looking Statements





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





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





Acquisition
of SkyAce Group Limited





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





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





Prior
Operations of Trip Tech





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


- 4
-




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





Current
Operations of the Company (General Development of Business)





SkyAce





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





PGL





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





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





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





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





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





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





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





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





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





PGL acquired the following
additional entities in 2008:




(i)
            Win Eagle Shipping Co., Ltd., a
      company organized under the laws of Malta on July 29, 2002 (“Win
      Eagle”);





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




- 5
-




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





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





(m)
            Win Moony Shipping Co., Ltd., a
      company organized under the laws of Malta on September 26, 2003
      (“Win
      Moony”).




PGL acquired
the following entities in 2009:





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





(o)
            Win Hope Shipping Co., Ltd., a
      company organized under the laws of Malta on June 14, 2001 (“Win
      Hope”).




PGL established
the following entities in 2009:




(p)
            Bodar Shipping S.A. is
      incorporated and registered in Panama on February 12, 2009 (“Bodar
      Shipping”).





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





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





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





PGL
established the following entities in 2010:





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





(u)
            Won Lee Shipping Co., Limited is
      incorporated and registered in Hong Kong on March 1, 2010 (“Won
      Lee”).





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




- 6
-


BSL





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





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





Pursuant
to the Service Agreements, Beijing Huate provides on-going technical services
and other services to the VIEs in exchange for substantially all net income of
the VIEs. In addition, the stockholders of the VIEs have pledged all of their
shares in the VIEs to Beijing Huate, representing one hundred percent (100%) of
the total issued and outstanding capital stock of the VIEs, as collateral for
non-payment under the Service Agreements or for fees on technical and other
services due thereunder. Beijing Huate also has the power to appoint all
directors and senior management personnel of the VIEs.




DWIS




DWIS was incorporated under the laws of
the PRC on December 5, 2002 by three investors, namely, Dalian Winland Industry
Group Co., Ltd. (“DWIG”), Dalian
Winland Shipping Co., Ltd. (“DWSC”) and Dalian
Weihang Freight Forwarding Co., Ltd. (“DWFF”). At
establishment, the percentage of each party’s equity interest was 51%, 41.5% and
7.5%, respectively. DWIG was incorporated by Li Honglin and Xue Ying having a
60% and 40% interest, respectively. DWSC was incorporated by DWIG and Xue Ying
having a 60% and 40% interest, respectively. DWFF was incorporated by Li Honglin
and Xue Ying having a 66.7% and 33.3% interest, respectively. Thus, Li Honglin
and Xue Ying had owned a 50.5425% and 49.4575% of DWIS indirectly at
inception.  According to a share trust instrument agreement executed
in February 2005, Li Honglin transferred 0.5425% of his interest in DWIS to Xue
Ying. Thereafter, Li Honglin and Xue Ying own 50% each of DWIS as at December
31, 2009 and 2008. The principal activities of DWIS include shipping agency
services, booking cargo space, storage of goods, and declaration of customs. On
August 18, 2009, DWIS disposed of the Haoyue vessel to a related party, Dalian
Winland Shipping Co., Ltd. The net cash proceeds were $1,272,685, after
deducting tax expenses of $28,350 from the gross proceeds of
$1,301,035.





DWIL




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




- 7
-


Shipping
Online




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





Summary
of Current Business of the Company





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





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





In addition, the Company owns and
operates an industrial online portal called “Shipping Online” which is accessed
on the internet at http://www.sol.com.cn.
This website functions as a business platform, providing on-line and off-line
integrated international shipping and logistics services, such as bulk cargo
chartering, container booking, shipping agents, ship trading and building, spare
parts supplies, crew recruitment, as well as shipping news and data analysis;
the off-line operating team is made up of industrial elites and a logistics
network with branches in Beijing, Tianjin, Dalian, Yingkou, Qingdao,
Zhangjiagang, Lianyungang and Shanghai. These branches collectively provide a
full service system with a combination of integrated group and localized
branches.




Providing comprehensive shipping and
logistics services through the internet is not only the innovation and creation
of the Company, but is also the basis of the transition for the entire shipping
industry from a traditional business model to a modern business model. The
Company believes it will create a broad space for development and lead the
accelerated development of the entire shipping industry.





Our operating revenue in 2006 reached
US$59.2 million, of which the net profit was nearly US$7.4
million.  As the global shipping market experienced a breakthrough in
development, the Company achieved annual operating revenues of US$70.3 million
in 2007, net income of US$21.4 million, enjoying approximately 200% growth as
compared with 2006. The operating revenue of 2008 reached $84.2 million, net
income of $19.1 million. The operating revenue of 2009 was $50.2
million.  The operating revenue and net income for the six months
ended June 30, 2010 was $35,984,254 and $4,621,810, respectively, compared with
operating revenue of $24,870,034, a net loss of $4,156,280 for the corresponding
period of 2009, respectively.




The Company intends to steadily expand
its capacity and enlarge the size of its ocean transport fleet by constructing
new vessels and by acquiring additional vessels or businesses at lower prices in
light of the current slump in the shipping market. The Company intends to
continue to push forward with its comprehensive shipping and logistics services
with Shipping Online in order to expand its market share.





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


- 8
-


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





On March
26, 2010, the Company obtained a term loan facility of $37 million from China
Merchant Bank Co., Ltd. to finance the construction of two new vessels. As of
June 30, 2010, we drew down $2,800,000 and as of the date of this filing, we
drew down $8,500,000 from the loan facility and executed four new notes payable
totaling $14,450,000 in the aggregate for purposes of building such vessels in
June 2010.




On May
20, 2010, Fon Tai entered into a novation agreement, which was subsequently
amended on May 21, 2010, whereby Fon Tai assumed all of the rights and
obligations of Rich Forth Investments Limited ("Rich"), a related party which is
controlled by a relative of the Chairman of the Company, under a shipbuilding
contract with JiangSu Hantong Ship Heavy Industry Co., Ltd. ("JiangSu") previously
executed on December 6, 2006 for the construction of one 57,000dwt bulk carrier
vessel. The contract amount of $29,950,000 included the ship building contract
price of $28,500,000 due to JiangSu and a contract transfer fee of $1,450,000
due to Rich for reimbursement for costs incurred in connnection with the
construction. JiangSu agreed to deliver the new vessel on or before December 15,
2010.
  Also, on
May 20, 2010, Won Lee entered into a novation agreement, which was subsequently
amended on May 21, 2010, whereby Won Lee assumed all of the rights and
obligations of Rich under a shipbuilding contract with JiangSu for the
construction of one 57,000dwt bulk carrier vessel. The contract amount of
$29,950,000 included the ship building contract price of $28,500,000 due to
JiangSu and a contract transfer fee of $1,450,000 due to Rich for reimbursement
for costs incurred in connnection with the construction. JiangSu agreed to
deliver the new vessel to Won Lee on or before March 15,
2011.




Summary
of Significant Accounting Policies





Use
of Estimates





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





Revenue
Recognition





Revenue
is recognized based on the following four criteria:




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





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





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





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




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





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





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





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





Recent
Accounting Pronouncements





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


- 9
-


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





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





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





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





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


- 10
-





Results
of Operations





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





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




Revenues





Our
revenues are derived from the operation of:





            Dry
      bulk shipping;



            Chartering
      brokerage; and



            Other
      activities which represent shipping agency services, freight forwarding
      services, and online services.





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





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





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





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




- 11
-


Vessel Operating
Expenses





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





Service
Costs





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





Depreciation
and Amortization





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




General
and Administrative Expenses





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





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





Interest
Expense, Net





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





Other
Expense, Net




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





Income
Tax Expense





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





Net
Income (Loss)





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





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





Net
Income (Loss) Per Share





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





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





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




- 13
-





Revenues





Our
revenues are derived from the operation of:





            Dry
      bulk shipping;



            Chartering
      brokerage; and



            Other
      activities which represent shipping agency services, freight forwarding
      services, and online services.





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





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





Vessel Operating
Expenses





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





Service
Costs





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





Depreciation
and Amortization





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





General
and Administrative Expenses




General
and administrative expenses, which included mainly wages and professional
service fees, increased by approximately $0.17 million, or 27.6%, to $0.80
million, compared with $0.63 million for the three months ended June 30, 2010
and 2009, respectively. The increase is primarily attributable to the
supplemental charge of $0.13 million on the operations of our vessels “Andong”
and “Haoyue” for the previous years of 2007, 2008 and 2009 in compliance with
the Chinese government regulations. The increase is also due to the hiring of 6
new personnel, offset by increased public relation expense of $0.03
million.
 - 14
-





Selling
Expenses





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





Interest
Expense, Net





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





Other
Income, Net




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





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





Net
Income (Loss)





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





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





Net
Income (Loss) Per Share





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


- 15
-


Liquidity
and Capital Resources





Working
Capital





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





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





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





Operating
Activities





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





Investing
Activities





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





Financing
Activities





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





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





Capital
Expenditures





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


- 16
-


Capital
Resources





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





Material
Commitments/Tabular Disclosure of Contractual Obligations





Payments
      Due by PeriodTotal
                
                
                Less Than
                  1 Year
                
                
                1-3
                  Years
                
                
                3-5
                  Years
                
                
                More Than5
                  YearsLong-term
      loans obligations
                
                $
                20,223,969
                
                
                $
                4,626,448
                
                
                $
                6,047,306
                
                
                $
                2,634,552
                
                
                $
                6,915,663Long-term
      notes payable obligations
                
                
                20,151,096
                
                
                
                1,542,812
                
                
                
                9,955,541
                
                
                
                8,652,743
                
                
                
                -Non-cancelable
      leases obligations
                
                
                125,033
                
                
                
                111,492
                
                
                
                13,541
                
                
                
                -
                
                
                
                -Vessel
      chartering obligations
                
                
                2,878,500
                
                
                
                2,878,500
                
                
                
                -
                
                
                
                -
                
                
                
                -Shipbuilding
      obligations
                
                
                39,900,000
                
                
                
                34,200,000
                
                
                
                3,800,000
                
                
                
                1,900,000
                
                
                
                -





Off-Balance
Sheet Arrangements





None.





ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK




Interest
Rate Risk


The
Company is exposed to market risk from floating interest rates, which could
impact its results of operations and financial condition. The Company minimizes
market risk via its operating and financing activities. As of June 30, 2010, the
Company’s debt consisted of $20,223,969 in long-term loans at various
margin above the LIBOR. For the six months ended June 30, 2010, actual interest
rates on the outstanding debt ranged from 1.92% to 2.46%. The weighted
average interest rate was 2.33%.
 
 Foreign
Currency and Exchange Rate Risk
 The
shipping industry’s functional currency is the U.S. dollar. The Company
generates a majority of its revenues in U.S. dollars. The majority of the
Company’s operating expenses are in U.S. dollars, and the majority of the
Company’s investing and all of its financing activities are in U.S.
dollars.  The Company does not intend to use financial derivatives to
mitigate the risk of exchange rate fluctuations for its operating, investing and
financing activities. For the six months ended June 30, 2010, the exchange rate
for Renminbi against the U.S. dollar was in the region of RMB6.7756 to RMB6.8436
against USD1.00.  The moving average translation rate was RMB6.8347
against USD1.00.


ITEM
4. CONTROLS AND PROCEDURES





Disclosure
Controls and Procedures





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





Internal
Control over Financial Reporting





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


- 17
-


PART
II - OTHER INFORMATION





ITEM
1.  LEGAL PROCEEDINGS





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





ITEM
1A. RISK FACTORS





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





RISKS
RELATING TO THE PEOPLE’S REPUBLIC OF CHINA




The Company has operating subsidiaries
with operations conducted in the PRC. Accordingly, their businesses, financial
condition and results of operations may be influenced by the political, economic
and legal environments in the PRC and by the general state of the PRC
economy.




Certain
Political and Economic Considerations Relating to China Could Adversely Affect
Our Company.




The PRC
is transitioning from a planned economy to a market economy. While the PRC
government has pursued economic reforms since its adoption of the open-door
policy in 1978, a large portion of the PRC economy is still operating under
five-year plans and annual state plans. Through these plans and other economic
measures, such as control on foreign exchange, taxation and restrictions on
foreign participation in the domestic market of various industries, the PRC
government exerts considerable direct and indirect influence on the economy.
Many of the economic reforms carried out by the PRC government are unprecedented
or experimental, and are expected to be refined and improved.




Other
political, economic and social factors can also lead to further readjustment of
such reforms. This refining and readjustment process may not necessarily have a
positive effect on our operations or future business development. Our operating
results may be adversely affected by changes in the PRC’s economic and social
conditions as well as by changes in the policies of the PRC government, such as
changes in laws and regulations (or the official interpretation thereof),
measures which may be introduced to control inflation, changes in the interest
rate or method of taxation, and the imposition of additional restrictions on
currency conversion.




The
Chinese Government Exerts Substantial Influence Over The Manner In Which We Must
Conduct Our Business Activities Which Could Adversely Affect Our
Company.




China
only recently has permitted provincial and local economic autonomy and private
economic activities. The Chinese government has exercised and continues to
exercise substantial control over virtually every sector of the Chinese economy
through regulation and State ownership. Our ability to operate in China may be
harmed by changes in its laws and regulations, including those relating to
taxation, import and export tariffs, environmental regulations, land use rights,
property and other matters. We believe that our operations in China are in
material compliance with all applicable legal and regulatory requirements.
However, the central or local governments of these jurisdictions may impose new,
stricter regulations or interpretations of existing regulations that would
require additional expenditures and efforts on our part to ensure our compliance
with such regulations or interpretations.


- 18
-





Accordingly,
government actions in the future, including any decision not to continue to
support recent economic reforms and to return to a more centrally planned
economy or regional or local variations in the implementation of economic
policies, could have a significant effect on economic conditions in China or
particular regions thereof, and could require us to divest ourselves of any
interest we then hold in China.




The
Chinese Legal System Has Inherent Uncertainties That Could Limit The Legal
Protections Available To You.




Our
contractual arrangements with our VIEs in China are governed by the laws of the
PRC. China’s legal system is based upon written statutes. Prior court decisions
may be cited for reference but are not binding on subsequent cases and have
limited value as precedents. Since 1979, the Chinese legislative bodies have
promulgated laws and regulations dealing with economic matters such as foreign
investment, corporate organization and governance, commerce, taxation and trade.
However, because these laws and regulations are relatively new, and because of
the limited volume of published decisions and their non-binding nature, the
interpretation and enforcement of these laws and regulations involve
uncertainties, and therefore you may not have legal protections for certain
matters in China.





Even
If We Are In Compliance With Chinese Governmental Regulations Relating To
Foreign Investment Prohibitions, The Chinese Government May Prevent Us From
Advertising Or Distributing Content That It Believes Is Inappropriate And We May
Be Liable For Such Content Or We May Have To Stop Profiting From Such
Content.




China has
enacted regulations governing Internet access and the distribution of news and
other information. In the past, the Chinese government has stopped the
distribution of information over the Internet that it believes to violate
Chinese law, including content that it believes is obscene, incites violence,
endangers national security, is contrary to the national interest or is
defamatory. In addition, we may not publish certain news items without
permission from the Chinese government. Furthermore, the Ministry of Public
Security has the authority to cause any local Internet service provider to block
any web site maintained outside China at its sole discretion. Even if we comply
with Chinese governmental regulations relating to foreign investment
prohibitions, if the Chinese government were to take any action to limit or
prohibit the distribution of information through our network or to limit or
regulate any current or future content or services available to users on our
network, our business could be significantly harmed.




Because
the definition and interpretation of prohibited content is in many cases vague
and subjective, it is not always possible to determine or predict what and how
content might be prohibited under existing restrictions or restrictions that
might be imposed in the future.




We are also subject to potential
liability for content onhttp://www.sol.com.cnthat is deemed inappropriate and for
any unlawful actions of our subscribers and other users of our systems.
Furthermore, we are required to delete content that clearly violates the laws of
China and report content that we suspect may violate Chinese law. It is
difficult to determine the type of content that may result in liability for us,
and if we are wrong, we may be prevented from operating our web
sites.




Some
Of Our Assets Are Located In China, Any Dividends Of Proceeds From Liquidation
Is Subject To The Approval Of The Relevant Chinese Government
Agencies.




Some of
our assets are located inside China. Under the laws governing foreign invested
enterprises in China, dividend distribution and liquidation are allowed but
subject to special procedures under the relevant laws and rules. Any dividend
payments will be subject to the decision of our Board of Directors and subject
to foreign exchange rules governing such repatriation. Any liquidation is
subject to both the relevant government agency’s approval and supervision as
well the foreign exchange control. This may generate additional risk for our
investors in case of dividend payments and liquidation.




- 19
-


Future
Inflation In China May Inhibit Our Activity To Conduct Business In
China.




In recent
years, the Chinese economy has experienced periods of rapid expansion and high
rates of inflation, which have led to the adoption by Chinese government, from
time to time, of various corrective measures designed to restrict the
availability of credit or regulate growth and contain inflation. While inflation
has been more moderate since 1995, high inflation may in the future cause the
Chinese government to impose controls on credit and/or prices, or to take other
action, which could inhibit economic activity in China and thereby harm our
business operations.




Currency
Conversion And Exchange Rate Volatility Could Adversely Affect Our Financial
Condition.




The PRC
government imposes control over the conversion of Renminbi into foreign
currencies. Under the current unified floating exchange rate system, the
People’s Bank of China (PBOC) publishes an exchange rate, which we refer to as
the PBOC exchange rate, based on the previous day’s dealings in the inter-bank
foreign exchange market. Financial institutions authorized to deal in foreign
currency may enter into foreign exchange transactions at exchange rates within
an authorized range above or below the PBOC exchange rate according to market
conditions.




Pursuant
to the Foreign Exchange Control Regulations of the PRC issued by the State
Council which came into effect on April 1, 1996, and the Regulations on the
Administration of Foreign Exchange Settlement, Sale and Payment of the PRC which
came into effect on July 1, 1996, regarding foreign exchange control, conversion
of Renminbi into foreign exchange by Foreign Investment Enterprises (“FIEs”), for use on
current account items, including the distribution of dividends and profits to
foreign investors, is permissible. FIEs are permitted to convert their after-tax
dividends and profits to foreign exchange and remit such foreign exchange to
their foreign exchange bank accounts in the PRC. Conversion of Renminbi into
foreign currencies for capital account items, including direct investment,
loans, and security investment, is still under certain restrictions. On January
14, 1997, the State Council amended the Foreign Exchange Control Regulations and
added, among other things, an important provision, which provides that the PRC
government shall not impose restrictions on recurring international payments and
transfers under current account items.




Enterprises
in the PRC (including FIEs) which require foreign exchange for transactions
relating to current account items, may, without approval of the State
Administration of Foreign Exchange, or SAFE, effect payment from their foreign
exchange account or convert and pay at the designated foreign exchange banks by
providing valid receipts and proofs.




Convertibility
of foreign exchange in respect of capital account items, such as direct
investment and capital contribution, is still subject to certain restrictions,
and prior approval from the SAFE or its relevant branches must be
sought.




Since
1994, the exchange rate for Renminbi against the United States dollars has
remained relatively stable. However, in 2005, the Chinese government announced
that would begin pegging the exchange rate of the Chinese Renminbi against a
number of currencies, rather than just the U.S. Dollar. As our operations are
primarily in China, any significant revaluation of the Chinese Renminbi may
materially and adversely affect our cash flows, revenues and financial
condition. For example, to the extent that we need to convert United States
dollars into Chinese Renminbi for our operations, appreciation of this currency
against the United States dollar could have a material adverse effect on our
business, financial condition and results of operations. Conversely, if we
decide to convert Chinese Renminbi into United States dollars for other business
purposes and the United States dollar appreciates against this currency, the
United States dollar equivalent of the Chinese Renminbi we convert would be
reduced.




- 20
-





The
Value Of Our Securities Will Be Affected By The Foreign Exchange Rate Between
U.S. Dollars And Renminbi.





The value
of our common stock will be affected by the foreign exchange rate between U.S.
dollars and Renminbi, and between those currencies and other currencies in which
our sales may be denominated. For example, to the extent that we need to convert
U.S. dollars into Renminbi for our operational needs and should the Renminbi
appreciate against the U.S. dollar at that time, our financial position, the
business of the Company, and the price of our common stock may be harmed.
Conversely, if we decide to convert our Renminbi into U.S. dollars for the
purpose of declaring dividends on our common stock or for other business
purposes and the U.S. dollar appreciates against the Renminbi, the U.S. dollar
equivalent of our earnings from our China operations would be
reduced.





You
May Experience Difficulties In Effecting Service Of Legal Process, Enforcing
Foreign Judgments Or Bringing Original Actions In China Based On United States
Or Other Foreign Laws Against Us.




We
conduct our operations in China and some of our assets are located in China. In
addition, some of our Directors and executive officers reside within China. As a
result, it may not be possible to effect service of process within the United
States or elsewhere outside China upon such directors or executive officers,
including with respect to matters arising under U.S. federal securities laws or
applicable state securities laws. Moreover, our Chinese counsel has advised us
that China does not have treaties with the U.S. and many other countries that
provide for the reciprocal recognition and enforcement of judgment of courts. As
a result, recognition and enforcement in China of judgments of a court of the
U.S. or any other jurisdiction in relation to any matter may be difficult or
impossible.




Underdeveloped
Telecommunications Infrastructure Has Limited, And May Continue To Limit, The
Growth Of The Internet Market In China Which, In Turn, Could Limit Our Ability
To Grow Our Business.




The
telecommunications infrastructure in China is not well developed. Although
private sector ISPs do exist in China, almost all access to the Internet is
accomplished through ChinaNet, China’s primary commercial network, which is
owned and operated by China Telecom and China Netcom under the administrative
control and regulatory supervision of MII. The underdeveloped Internet
infrastructure in China has limited the growth of Internet usage in China. If
the necessary Internet infrastructure is not developed, or is not developed on a
timely basis, future growth of the Internet in China could be limited and our
business could be harmed.




Our Significant
Amount Of Deposits In Certain Banks In China May Be At Risk If These Banks Go
Bankrupt During Our Deposit Period.




We had
approximately $1,693,000 at June 30, 2010 in banks in China, which constitutes
all of our total cash. The terms of these deposits are, in general, up to twelve
(12) months. Historically, deposits in Chinese banks are secure due to the state
policy on protecting depositors’ interests. However, China promulgated a new
Bankruptcy Law in August 2006, which became effective on June 1, 2007,
which contains a separate article expressly stating that the State Council may
promulgate implementation measures for the bankruptcy of Chinese banks based on
the Bankruptcy Law. Under the new Bankruptcy Law, a Chinese bank may go
bankrupt. In addition, since China’s concession to WTO, foreign banks have been
gradually permitted to operate in China and have been severe competitors against
Chinese banks in many aspects, especially since the opening of Renminbi business
to foreign banks in late 2006. Therefore, the risk of bankruptcy of those banks
in which we have deposits has increased. In the event of bankruptcy of one of
the banks which holds our deposits, we are unlikely to recover our deposits back
in full since we are unlikely to be classified as a secured creditor based on
PRC laws.




RISKS
RELATING TO OUR BUSINESS




Cyclical
Patterns In The Global Shipping Industry Will Have a Substantial Impact On Our
Overall Business Performance





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


- 21
-




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





The Internet industry is currently at
the outbreak of the growth period in China, but the related industrial
legislature is not sound, and some non-standard operations, dishonesty of
e-commerce websites had a certain negative impact on the image of industry as a
whole, resulting in strengthened supervision and administration on the Internet
e-commerce industry by state departments. Shipping Online will face more
stringent regulations which could change how we conduct our business and have a
negative impact on our business.




If
We Do Not Quickly Respond To E-Commerce Trends and Market Conditions And
Increase Our Online Transaction Volume of Business We Could Lose Strategic
Opportunities For The Rapid Promotion Of Our Services Which Could Adversely
Affect Our Business




When the Company entered the shipping
market in 1993, it experienced several ups and downs in the industry. Although
we have accumulated rich anti-risk experience and are mature and stable in the
ocean transportation for bulk cargo and associated traditional shipping
services, e-commerce provided by is still a relatively new service model in the
shipping industry. Although the Internet has already been proven in many other
fields to greatly promote the development of traditional business, as a
brand-new operation mode of the transactions, it may face some doubt from the
enterprises at the initial stage, and may also experience setbacks, exploration
and reiteration in the process of growth. Secondly, although there are higher
access barriers to conduct business, as the necessary trend in the development
of the shipping industry, fierce competition in the market is bound to affect
the industry in the future. If the Company does not quickly increase its online
transaction volume of business and localization of orders and services, it is
possible we could see losses of strategic opportunity for the rapid promotion of
services which could have an adverse effect our business.




Costs
And Revenues In The Shipping Industry Are Volatile Which Could Adversely Affect
Our Business.




The shipping industry historically has
experienced volatility in freight rates, the cost of fuel oil, the cost and
availability of crew, port charges and currency exchange rates, as well as in
vessel charter rates and values, due to changes in the level and pattern of
global economic activity and the highly competitive nature of the world shipping
industry. Changes to marine regulatory regimes in the ports at which the
Company’s vessels call also may increase the costs. The Company’s revenue is
influenced by a number of factors that are difficult to predict with certainty,
including global and regional economic conditions, developments in international
trade, changes in seaborne, and other transportation patterns, weather patterns,
port congestion, canal closures, political developments, and armed conflicts,
acts of terrorism, embargoes, and strikes. Demand for the transportation
services is influenced by the demand for the goods the Company ship, including
steel products, metal concentrates and agricultural commodities, which in turn
is affected by general economic conditions, commodity prices and competition. A
decrease in demand for these products could adversely affect the results of
operations.





High or Volatile Oil Prices Could
Adversely Affect The Global Economy And Our Results Of
Operations.




If oil prices remain high for an
extended period of time, or experience prolonged volatility, the global economy
could weaken significantly. Global recession or depression would significantly
reduce the demand for ocean freight while the fuel costs would be increasing. A
significant reduction in the demand for ocean freight would have a material and
adverse impact on the Company’s results of operations and financial condition.
In addition, the results of operations would be adversely affected if the
Company were unable to pass increased fuel costs on to our
customers.


- 22
-


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





The operation of the vessels is
affected by the requirements of the International Maritime Organization's
International Safety Management Code for the Safe Operation of Ships and
Pollution Prevention, or the ISM Code. The ISM Code requires ship owners and
bareboat chatterers to develop and maintain an extensive "Safety Management
System" that includes the adoption of a safety and environmental protection
policy setting forth instructions and procedures for safe operation and
describing procedures for dealing with emergencies. The Company’s failure to
comply with the ISM Code may subject us to increased liability, may invalidate
existing insurance or decrease available insurance coverage for the affected
vessels and may result in a denial of, access to, or detention in certain ports,
all of which could materially and adversely affect the Company’s results of
operations and liquidity.




The
Shipping Industry Has Inherent Operational Risks, And Such Risks May Not Be
Adequately Covered By Insurance Exposing Us To Risk Of Loss Of Our Vessels Which
Would Adversely Affect Our Business




The operation of any oceangoing vessel
carries with it an inherent risk of marine disaster, environmental mishaps and
collision or property losses. In the course of operating a vessel, marine
disasters such as oil spills and other environmental mishaps, cargo loss or
damage, business interruption due to political developments, labor disputes,
strikes and adverse weather conditions could result in loss of revenues,
liabilities or increased costs. The Company transports bulk cargoes such as
fertilizer, salt and coal which, if not transported properly, could pose a risk
to our vessels and to the environment. The Company cannot assure you that any
insurance they maintain would be sufficient to cover the cost of damages or the
loss of income resulting from a vessel being removed from operation or that any
insurance claims would be paid or that insurance will be obtainable at
reasonable rates in the future. Any significant loss or liability for which the
Company are not insured, or for which the insurers fail to pay the Company,
could have a material adverse effect on the Company’s financial condition. In
addition, the loss of a vessel would adversely affect the Company’s cash flows
and results of operations.





As
The Company’s Fleet Of Vessels Ages, The Risks Associated With Older Vessels
could Adversely Affect Our Business Operations.




In general, the costs to maintain an
oceangoing vessel in good operating condition increase with the age of the
vessel. As of December 31, 2009, the average age of the 13 vessels in the
Company-controlled fleet was 21.92 years. The Company estimates that the
economic useful life of most bulk carriers is approximately 25 years, however
most of the vessels in the industry are used for more than 30 years or more, if
the vessel can pass the annual survey. The length of a vessel’s useful life
depends on market conditions, the type of cargo being carried and the level of
maintenance. Some of the Company’s dry bulk carriers are used to transport
products such as coal, salt or fertilizer that may damage the vessels and reduce
their useful life, if the Company does not follow specified maintenance and
cleaning routines. Older vessels may develop unexpected mechanical and
operational problems despite adherence to regular survey schedules and proper
maintenance. Due to improvements in engine technology, older vessels typically
are less fuel-efficient than more recently constructed vessels. Cargo insurance
rates increase with the age of a vessel. Governmental regulations and safety or
other equipment standards related to the age of vessels may require expenditures
for alterations or the addition of new equipment, to the vessels and may
restrict the type of activities in which the vessels may engage. The Company
cannot assure you that they will be able to operate the vessels profitably
during the remainder of their projected useful lives or that they will be able
to sell the vessels profitably when the Company no longer can utilize them in
the fleet.




Our
Vessels May Suffer Damage Whereby Such Vessels Would Need To Be Drydocked
Unexpectedly Which Could Adversely Affect Our Cash Flows and Results of
Operations.




If a vessel suffers damage, it may need
to be repaired at a drydocking facility. The costs of drydock repairs are
unpredictable and can be substantial. The loss of earnings while the vessel is
being repaired and the repositioning of the Company’s vessels in response to the
unexpected drydocking, as well as the actual costs of the repairs, would have a
material adverse effect on our cash flows and results of operations. The Company
may not have insurance that is sufficient to cover all of these costs or
losses.


- 23
-


Risks
Associated With The Purchase And Operation Of Secondhand Vessels Could Adversely
Affect Our Future Operating Results




In
addition to constructing new vessels, the Company’s current business strategy
also partly involves growing through the purchase of secondhand vessels.
Secondhand vessels generally car: y no warranties from the sellers or
manufacturers. Although the Company inspects secondhand vessels prior to
purchase, an inspection normally would not provide the Company with the same
knowledge about their condition that the Company would have if they had been
built for and operated exclusively by the Company. Secondhand vessels may have
conditions or defects that the Company was not aware of when it bought the
vessel and that may require the Company to undertake costly repairs. These
repairs may require the Company to put a vessel into drydock, which would reduce
the fleet utilization. The costs of drydock repairs are unpredictable and can be
substantial. The loss of earnings while the vessels were being repaired and
repositioned, as well as the actual cost of those repairs, would decrease the
income from operations. The Company may not have insurance that is sufficient to
cover all of these costs or losses and may have to pay drydocking costs not
covered by our insurance. The Company’s future operating results could be
adversely affected if some of the secondhand vessels do not perform as we
expect.




In
Order To Comply With PRC Regulatory Requirements, We Operate Our Main Business
Through A Company With Which We Have A Contractual Relationship (the VIEs) But
In Which We Do Not Have Controlling Ownership. If The PRC Government Determines
That Our Agreements With the VIEs Are Not In Compliance With
Applicable Regulations, Our Business In The PRC Could Be Adversely
Affected.




The
Chinese government restricts foreign investment in Internet-related and
advertising businesses, including Internet access, distribution of content over
the Internet and advertising via the Internet. Accordingly, we operate our
Internet-related businesses in China through Shipping Online, a VIE, which is
owned by Li Honglin and Xue Ying. We control Shipping Online and
operate its business through contractual arrangements and these individual
owners, but we have no equity control over Shipping Online. Accordingly, we
cannot be sure that the PRC government would view our operating arrangements to
be in compliance with PRC licensing, registration or other regulatory
requirements, with existing policies or with requirements or policies that may
be adopted in the future. If we are determined not to be in compliance, the PRC
government could revoke our business and operating licenses, require us to
discontinue or restrict our operations, restrict our right to collect revenues,
block our web site, require us to restructure our business, corporate structure
or operations, impose additional conditions or requirements with which we may
not be able to comply, impose restrictions on our business operations or on our
customers, or take other regulatory or enforcement actions against us that could
be harmful to our business. We may also encounter difficulties in obtaining
performance under or enforcement of related contracts.


- 24
-


We
Rely on Contractual Arrangements With the VIEs For Our Operations,
Which May Not Be As Effective In Providing Control Over This Entity As Direct
Ownership.




Because
PRC regulations restrict our ability to provide Internet content, MVAS (Mobile
Value-Added Services) and advertising services directly in China, we are
dependent on our VIEs in which we have little or no equity ownership interest
and must rely on contractual arrangements to control and operate these
businesses. These contractual arrangements may not be as effective in providing
control over these entities as direct ownership. For example, the VIEs could
fail to take actions required for our business or fail to maintain our China web
sites despite their contractual obligation to do so. These companies are able to
transact business with parties not affiliated with us. If these companies fail
to perform under their agreements with us, we may have to rely on legal remedies
under Chinese law, which we cannot be sure would be effective. In addition, we
cannot be certain that the individual equity owners of the VIEs would always act
in the best interests of the VIEs, especially if they leave the
VIEs.




Substantially
all profits generated from our VIEs are paid to the subsidiaries of ours in
China through related party transactions under contractual agreements. We
believe that the terms of these contractual agreements are in compliance with
the laws in China. The tax authorities in China have examined some of these
contractual agreements in the past and have not raised any comment. However, due
to the uncertainties surrounding the interpretation of the transfer pricing
rules relating to related party transactions in China, it is possible that in
the future tax authorities in China may challenge the transfer prices that we
have used for related party transactions among our entities in China. In the
event the tax authorities challenge our VIE structure, we may be forced to
restructure our business operation, which could have a material adverse effect
on our business.




We
Cannot Predict Whether We Will Meet Internal or External Expectations Of Future
Performance.




We
believe that our future success depends on our ability to significantly increase
revenue from the provision of our services. Accordingly, our prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies with a limited operating history. These risks include
our ability to:




·
            offer new and innovative
      services;





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





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





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





·
            attract and retain qualified
      management, consultants and
employees.




We
Cannot Assure You That Our Organic Growth Strategy Will Be
Successful.




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


- 25
-


Our
Business And Growth Could Suffer If We Are Unable To Hire And Retain Key
Personnel That Are In High Demand.




We depend
upon the continued contributions of our senior management and other key
personnel, including external experts and advisers. The loss of the services of
any of our executive officers or other key personnel could have a material
adverse effect on our business, operations, revenues or prospects. We do not
maintain key man insurance on the lives of these individuals at present. As we
plan to expand, we will have to attract managerial staff. We may not be able to
identify and retain qualified personnel due to our lack of understanding of
different cultures and lack of local contacts. This may impede any potential
expansion. Our future success will also depend on our ability to attract and
retain highly skilled and qualified technical, engineering, managerial, finance,
marketing, security and customer service personnel in China. Qualified
individuals are in high demand, and we may not be able to successfully attract,
assimilate or retain the personnel we need to succeed.




We
May Not Be Able To Manage Our Expanding Operations Effectively, Which Could Harm
Our Business.




We
anticipate expanding our business as we address growth in our customer base and
market opportunities. In addition, the geographic dispersion of our operations
as a result of overall internal growth requires significant management resources
that our locally-based competitors do not need to devote to their operations. In
order to manage the expected growth of our operations and personnel, we will be
required to improve and implement operational and financial systems, procedures
and controls, and expand, train and manage our growing employee base. Further,
our management will be required to maintain and expand our strategic
relationships necessary to our business. We cannot assure you that our current
and planned personnel, systems, procedures and controls will be adequate to
support our future operations. If we are not successful in establishing,
maintaining and managing our personnel, systems, procedures and controls, our
business will be materially and adversely affected.




If
We Need Additional Capital To Fund Our Growing Operations, We May Not Be Able To
Obtain Sufficient Capital And May Be Forced To Limit The Scope Of Our
Operations.




We may
experience increased capital needs and we may not have enough capital to fund
our future operations without additional capital investments. Our capital needs
will depend on numerous factors, including (i) our profitability; (ii) the
success of our competitors; (iii) the amount of our capital expenditures; and
(iv) new investments. We cannot assure you that we will be able to obtain
capital in the future to meet our needs.




If we
cannot obtain additional funding, we may be required to:




·
            reduce our
      investments;





·
            limit our expansion efforts;
      and





·
            decrease or eliminate capital
      expenditures.




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




- 26
-




Concerns
About The Security Of Electronic Commerce Transactions And Confidentiality Of
Information On The Internet May Reduce Use Of Our Network And Impede
Growth.




A significant barrier to electronic
commerce and communications over the Internet in general has been a public
concern over security and privacy, especially the transmission of confidential
information. If these concerns are not adequately addressed, they may inhibit
the growth of the Internet and other online services generally, especially as a
means of conducting commercial transactions. If a well-publicized Internet
breach of security were to occur, general Internet usage could decline, which
could reduce traffic to our destination sites and impede our
growth.




We
May Not Be Able To Adequately Protect Our Intellectual Property, Which Could
Cause Us To Be Less Competitive.




We rely
on a combination of trademark, patent and trade secret laws and restrictions on
disclosure to protect our intellectual property rights. Despite our efforts to
protect our proprietary rights, unauthorized parties may attempt to copy or
otherwise obtain and use our products and technology. Monitoring unauthorized
use of our products is difficult and costly, and we cannot be certain that the
steps we have taken will prevent misappropriations of our products and
technology, particularly in foreign countries where the laws may not protect our
proprietary rights as fully as in the United States. From time to time, we may
have to resort to litigation to enforce our intellectual property rights, which
could result in substantial costs and diversion of our resources.




We
May Be Exposed To Infringement Claims By Third Parties, Which, If Successful,
Could Cause Us To Pay Significant Damage Awards.




Third
parties may initiate litigation against us alleging infringement of their
proprietary rights. In the event of a successful claim of infringement and our
failure or inability to develop non-infringing products and technology or
license the infringed or similar product or technology on a timely basis, our
business could be harmed. In addition, even if we are able to license the
infringed or similar product or technology, license fees could be substantial
and may adversely affect our results of operations.





The
Law Of The Internet Remains Largely Unsettled, Which Subjects Our Business To
Legal Uncertainties That Could Harm Our Business.




Due to
the increasing popularity and use of the Internet and other online services, it
is possible that a number of laws and regulations may be adopted with respect to
the Internet or other online services covering issues such as user privacy,
pricing, content, copyrights, distribution, antitrust and characteristics and
quality of products and services. Furthermore, the growth and development of the
market for electronic commerce may prompt calls for more stringent consumer
protection laws that may impose additional burdens on companies conducting
business online. The adoption of any additional laws or regulations may decrease
the growth of the Internet or other online services, which could, in turn,
decrease the demand for our products and services and increase our cost of doing
business.




Moreover,
the applicability to the Internet and other online services of existing laws in
various jurisdictions governing issues such as property ownership, sales and
other taxes, libel and personal privacy is uncertain and may take years to
resolve. Any new legislation or regulation, the application of laws and
regulations from jurisdictions whose laws do not currently apply to our
business, or the application of existing laws and regulations to the Internet
and other online services could significantly disrupt our
operations.


- 27
-


We
May Be Subject To Claims Based On The Content We Provide Over Our Network and
the Products And Services Sold On Our Network, Which, If Successful, Could Cause
Us To Pay Significant Damage Awards.




As a
publisher and distributor of content and a provider of services over the
Internet, we face potential liability for defamation, negligence, copyright,
patent or trademark infringement and other claims based on the nature and
content of the materials that we publish or distribute; the selection of
listings that are accessible through our services and media properties, or
through content and materials that may be posted by users on our website; losses
incurred in reliance on any erroneous information published by us; unsolicited
email, lost or misdirected messages, illegal or fraudulent use of email or
interruptions or delays in email service; and product liability, warranty and
similar claims to be asserted against us by end users who purchase goods and
services through http://www.sol.com.cn
and any future e-commerce services we may offer.




We may
incur significant costs in investigating and defending any potential claims,
even if they do not result in liability. Although we carry general liability
insurance, our insurance may not cover potential claims of this type and may not
be adequate to indemnify us against all potential liabilities.




Our Operations
Could Be Disrupted By Unexpected Network Interruptions Caused By System
Failures, Natural Disasters Or Unauthorized Tampering With Our
Systems.




The continual accessibility of our
website and the performance and reliability of our network infrastructure are
critical to our reputation and our ability to attract and retain users,
advertisers and merchants. Any system failure or performance inadequacy that
causes interruptions in the availability of our services or increases the
response time of our services could reduce our appeal to advertisers and
consumers. Factors that could significantly disrupt our operations include:
system failures and outages caused by fire, floods, earthquakes, power loss,
telecommunications failures and similar events; software errors; computer
viruses, break-ins and similar disruptions from unauthorized tampering with our
computer systems; and security breaches related to the storage and transmission
of proprietary information, such as credit card numbers or other personal
information.




We have
limited backup systems and redundancy. In the past, we experienced an
unauthorized tampering of the mail server of our China website which briefly
disrupted our operations. Future disruptions or any of the foregoing factors
could damage our reputation, require us to expend significant capital and other
resources and expose us to a risk of loss or litigation and possible liability.
We do not carry sufficient business interruption insurance to compensate for
losses that may occur as a result of any of these events. Accordingly, our
revenues and results of operations may be adversely affected if any of the above
disruptions should occur.





We
May Be Classified As A Passive Foreign Investment Company, Which Could Result In
Adverse U.S. Tax Consequences To U.S. Investors.




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


- 28
-


RISKS
RELATING TO OUR COMMON STOCK




Our
common stock Price Is Volatile And Could Decline In The Future.





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




·
            announcements of technological
      innovations by us or our
competitors;





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





·
            our financial position and
      results of operations;





·
            litigation;





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





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





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





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





·
            changes in interest
      rates;





·
            changes in environmental
      standards;





·
            market conditions of securities
      traded on the OTCBB;





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





·
            general economic and other
      national conditions.




We
May Have Difficulty Raising Necessary Capital To Fund Operations As A Result Of
Market Price Volatility For Our Shares Of common stock.




In recent
years, the securities markets in the United States have experienced a high level
of price and volume volatility, and the market price of securities of many
companies have experienced wide fluctuations that have not necessarily been
related to the operations, performances, underlying asset values or prospects of
such companies. For these reasons, our shares of common stock can also be
expected to be subject to volatility resulting from purely market forces over
which we will have no control. If our business development plans are successful,
we may require additional financing to continue to develop and exploit existing
and new technologies and to expand into new markets. The exploitation of our
technologies may, therefore, be dependent upon our ability to obtain financing
through debt and equity or other means.


- 29
-


Our
common stock Is Considered A “Penny Stock” And As A Result, Related
Broker-Dealer Requirements Affect Its Trading And Liquidity.




Our
common stock is considered to be a “penny stock” since it meets one or more of
the definitions in Rules 15g-2 through 15g-6 promulgated under
Section 15(g) of the Exchange Act.  These include but are not
limited to the following: (i) the common stock trades at a price less than
$5.00 per share; (ii) the common stock is not traded on a “recognized”
national exchange; (iii) the common stock is not quoted on the NASDAQ Stock
Market, or (iv) the common stock is issued by a company with average
revenues of less than $6.0 million for the past three (3) years. The
principal result or effect of being designated a “penny stock” is that
securities broker-dealers cannot recommend our common stock to investors, thus
hampering its liquidity.




Section 15(g)
and Rule 15g-2 require broker-dealers dealing in penny stocks to provide
potential investors with documentation disclosing the risks of penny stocks and
to obtain a manually signed and dated written receipt of the documents before
effecting any transaction in a penny stock for the investor’s account. Potential
investors in our common stock are urged to obtain and read such disclosure
carefully before purchasing any of our shares.




Moreover,
Rule 15g-9 requires broker-dealers in penny stocks to approve the account
of any investor for transactions in such stocks before selling any penny stock
to that investor. This procedure requires the broker-dealer to (i) obtain
from the investor information concerning his or her financial situation,
investment experience and investment objectives; (ii) reasonably determine,
based on that information, that transactions in penny stocks are suitable for
the investor and that the investor has sufficient knowledge and experience as to
be reasonably capable of evaluating the risks of penny stock transactions;
(iii) provide the investor with a written statement setting forth the basis
on which the broker-dealer made the determination in (ii) above; and
(iv) receive a signed and dated copy of such statement from the investor,
confirming that it accurately reflects the investor’s financial situation,
investment experience and investment objectives.




Compliance
with these requirements may make it more difficult for holders of our common
stock to resell their shares to third parties or to otherwise dispose of them in
the market or otherwise.




Shares
Eligible For Future Sale May Adversely Affect The Market Price Of Our common
stock.




From time
to time, certain of our stockholders may be eligible to sell all or some of
their shares of common stock by means of ordinary brokerage transactions in the
open market pursuant to Rule 144, promulgated under the Securities Act of
1933, as amended, subject to certain limitations. Any substantial sale of our
common stock pursuant to Rule 144 may have an adverse effect on the market
price of our common stock.




One
Stockholder, Which is 50% Controlled By Our Chairman of the Board and President
and 50% Controlled By Our Chief Executive Officer and Secretary, Exercises
Significant Control Over Matters Requiring Stockholder Approval.




One
stockholder has voting power equal to eighty-two and one quarter percent
(82.25%) of our voting securities as of the date of this report. Moreover, the
stockholder is 50% controlled by Li Honglin, our Chairman of the Board and
President and 50% controlled by Xue Ying, our Chief Executive Officer and
Secretary. As a result, the Stockholder and our Chairman of the Board, through
such stock ownership, exercise control over all matters requiring stockholder
approval, including the election of directors and approval of significant
corporate transactions. This concentration of ownership in the Stockholder may
also have the effect of delaying or preventing a change in control of us that
may be otherwise viewed as beneficial by stockholders other than the
Stockholder.




We
May Incur Significant Costs To Ensure Compliance With U.S. Corporate Governance
And Accounting Requirements.




We may
incur significant costs associated with our public company reporting
requirements, costs associated with newly applicable corporate governance
requirements, including requirements under the Sarbanes-Oxley Act of 2002 and
other rules implemented by the SEC. We expect all of these applicable rules and
regulations to increase our legal and financial compliance costs and to make
some activities more time-consuming and costly. We also expect that these
applicable rules and regulations may make it more difficult and more expensive
for us to obtain director and officer liability insurance and we may be required
to accept reduced policy limits and coverage or incur substantially higher costs
to obtain the same or similar coverage. As a result, it may be more difficult
for us to attract and retain qualified individuals to serve on our Board or as
executive officers. We cannot predict or estimate the amount of additional costs
we may incur or the timing of such costs.


- 30
-





We
May Be Required To Raise Additional Financing By Issuing New Securities With
Terms Or Rights Superior To Those Of Our Shares Of common stock, Which Could
Adversely Affect The Market Price Of Our Shares Of common stock.




We may
require additional financing to fund future operations, including expansion in
current and new markets, development and acquisition, capital costs and the
costs of any necessary implementation of technological innovations or
alternative technologies. We may not be able to obtain financing on favorable
terms, if at all. If we raise additional funds by issuing equity securities, the
percentage ownership of our current stockholders will be reduced, and the
holders of the new equity securities may have rights superior to those of the
holders of shares of common stock, which could adversely affect the market price
and the voting power of shares of our common stock. If we raise additional funds
by issuing debt securities, the holders of these debt securities would similarly
have some rights senior to those of the holders of shares of common stock, and
the terms of these debt securities could impose restrictions on operations and
create a significant interest expense for us.




Standards
For Compliance With Section 404 Of The Sarbanes-Oxley Act Of 2002 Are Uncertain,
And If We Fail To Comply In A Timely Manner, Our Business Could Be Harmed And
Our Stock Price Could Decline.




Rules
adopted by the SEC, pursuant to Section 404 of the Sarbanes-Oxley Act of 2002
require annual assessment of our internal control over financial reporting, and
attestation of our assessment by our independent registered public accountants.
The standards that must be met for management to assess the internal control
over financial reporting as effective are new and complex, and require
significant documentation, testing and possible remediation to meet the detailed
standards and will impose significant additional expenses on us. We may
encounter problems or delays in completing activities necessary to make an
assessment of our internal control over financial reporting. In addition, the
attestation process by our independent registered public accountants is new and
we may encounter problems or delays in completing the implementation of any
requested improvements and receiving an attestation of our assessment by our
independent registered public accountants. If we cannot assess our internal
control over financial reporting as effective, or our independent registered
public accountants are unable to provide an unqualified attestation report on
such assessment, investor confidence and share value may be negatively
impacted.




ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS





None.





ITEM
3. DEFAULTS UPON SENIOR SECURITIES





None.





ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS





None.





ITEM
5. OTHER INFORMATION





None.




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ITEM
6. EXHIBITS





(a) Exhibits:




EXHIBIT
                          NO.
                        
                        DESCRIPTION
                        
                        LOCATION2.1
                        
                        Share
      Exchange Agreement, dated August 12, 2008, by and among Trip Tech, Inc.,
      SkyAce Group Limited and Pioneer Creation Holdings Limited
                        
                        Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on August 12, 20083.1
                        
                        Articles
      of Incorporation of Trip Tech, Inc.
                        
                        Incorporated
      by reference to Exhibit 3.1 to the Company’s Registration Statement on
      Form SB-2 as filed with the SEC on May 14, 20073.2
                        
                        Amended
      and Restated Bylaws of Trip Tech, Inc. dated as of August 27,
      2008
                        
                        Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on September 29, 20083.3
                        
                        Memorandum
      and Articles of Associationof SkyAce Group
      Limited
                        
                        Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on August 12, 20083.4
                        
                        Certificate
      of Incorporation of SkyAce Group Limited
                        
                        Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on August 12, 20083.5
                        
                        Memorandum
      and Articles of Association of Plentimillion Group Limited
                        
                        Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on August 12, 20083.6
                        
                        Certificate
      of Incorporation of Plentimilllion Group Limited
                        
                        Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on August 12, 20083.7
                        
                        Memorandum
      and Articles of Association of Best Summit Enterprises
    Limited
                        
                        Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on August 12, 20083.8
                        
                        Certificate
      of Incorporation of Best Summit Enterprises Limited
                        
                        Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on August 12, 20083.9
                        
                        Memorandum
      and Articles of Association of Wallis Development Limited
                        
                        Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on August 12, 20083.10
                        
                        Certificate
      of Incorporation of Wallis Development Limited
                        
                        Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on August 12, 20083.11
                        
                        Articles
      of Association of Beijing Huate Xingye Keji Co. Ltd.
                        
                        Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on August 12, 20083.12
                        
                        Certificate
      of Incorporation of Beijing Huate Xingye Keji Co. Ltd.
                        
                        Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on August 12, 20083.13
                        
                        Certificate
      of Correction to Trip Tech’s Articles of Incorporation, dated August 11,
      2008
                        
                        Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on August 12,
2008




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3.14
              
              Certificate
      of Amendment to Certificate of Incorporation of the Company, dated
      September 24, 2008
              
              Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on September 29, 20083.15
              
              Certificate
      of Corporate Resolutions Designating Series A Preferred Stock of the
      Company, dated August 12, 2008
              
              Incorporated
      by reference to Exhibit 3.15 to the Company’s Annual Report on Form 10-K
      as filed with the SEC on March 31, 200910.1
              
              Exclusive
      Technology Consultation Service Agreement, dated March 31, 2008, by and
      among Beijing Huate Xingye Keji Co. Ltd. and Winland
      International
              
              Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on August 12, 200810.2
              
              Exclusive
      Technology Consultation Service Agreement, dated March 31, 2008, by and
      among Beijing Huate Xingye Keji Co. Ltd. and Winland
    Logistics
              
              Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on August 12, 200810.3
              
              Exclusive
      Technology Consultation Service Agreement, dated March 31, 2008, by and
      among Beijing Huate Xingye Keji Co. Ltd. and Shipping
    Online
              
              Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on August 12, 200810.4
              
              Exclusive
      Equity Interest Purchase Agreement, dated March 31, 2008, by and among
      Wallis Development Limited, Dalian Winland International Shipping Agency
      Co., Ltd. and Dalian Winland Group Co., Ltd.
              
              Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on August 12, 200810.5
              
              Exclusive
      Equity Interest Purchase Agreement, dated March 31, 2008, by and among
      Wallis Development Limited, Dalian Winland International Shipping Agency
      Co., Ltd. and Dalian Weihang Logistic Agent Co., Ltd.
              
              Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on August 12, 200810.6
              
              Exclusive
      Equity Interest Purchase Agreement, dated March 31, 2008, by and among
      Wallis Development Limited, Dalian Winland International Shipping Agency
      Co., Ltd. and Dalian Winland Shipping Co., Ltd.
              
              Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on August 12, 200810.7
              
              Exclusive
      Equity Interest Purchase Agreement, dated March 31, 2008, by and between
      Wallis Development Limited, Dalian Winland International Logistics Co.,
      Ltd. and Dalian Winland Group Co., Ltd.
              
              Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on August 12, 200810.8
              
              Exclusive
      Equity Interest Purchase Agreement, dated March 31, 2008, by and between
      Wallis Development Limited, Dalian Winland International Logistics Co.,
      Ltd. and Dalian Winland Shipping Co., Ltd.
              
              Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on August 12, 2008


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-





10.9
              
              Exclusive
      Equity Interest Purchase Agreement, dated March 31, 2008, by and between
      Wallis Development Limited, Dalian Winland International Logistics Co.,
      Ltd. and Dalian Winland International Shipping Agency Co.,
      Ltd.
              
              Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on August 12, 200810.10
              
              Exclusive
      Equity Interest Purchase Agreement, dated March 31, 2008, by and among
      Wallis Development Limited, Dalian Shipping Online Network Co., Ltd. and
      Li Honglin
              
              Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on August 12, 200810.11
              
              Exclusive
      Equity Interest Purchase Agreement, dated March 31, 2008, by and among
      Wallis Development Limited, Dalian Shipping Online Network Co., Ltd. and
      Xue Ying
              
              Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on August 12, 200810.12
              
              Equity
      Interest Pledge Agreement, dated March 31, 2008, by and between Beijing
      Huate Xingye Keji Co. Ltd. and Dalian Winland Group Co.
              
              Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on August 12, 200810.13
              
              Equity
      Interest Pledge Agreement, dated March 31, 2008, by and between Beijing
      Huate Xingye Keji Co. Ltd. and Dalian Winland Shipping Co.,
      Ltd.
              
              Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on August 12, 200810.14
              
              Equity
      Interest Pledge Agreement, dated March 31, 2008, by and between Beijing
      Huate Xingye Keji Co. Ltd. and Dalian Weihang Logistic Agent Co.,
      Ltd.
              
              Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on August 12, 200810.15
              
              Equity
      Interest Pledge Agreement, dated March 31, 2008, by and between Beijing
      Huate Xingye Keji Co. Ltd. and Dalian Winland International Logistics Co.,
      Ltd.
              
              Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on August 12, 200810.16
              
              Equity
      Interest Pledge Agreement, dated March 31, 2008, by and between Beijing
      Huate Xingye Keji Co. Ltd. and Dalian Winland Group Co.
              
              Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on August 12, 200810.17
              
              Equity
      Interest Pledge Agreement, dated March 31, 2008, by and between Beijing
      Huate Xingye Keji Co. Ltd. and Winland Shipping Co., Ltd.
              
              Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on August 12, 200810.18
              
              Equity
      Interest Pledge Agreement, dated March 31, 2008, by and between Beijing
      Huate Xingye Keji Co. Ltd. and Li Honglin
              
              Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on August 12, 200810.19
              
              Equity
      Interest Pledge Agreement, dated March 31, 2008, by and between Beijing
      Huate Xingye Keji Co. Ltd. and Xue Ying
              
              Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on August 12, 200810.20
              
              Powers
      of Attorney, dated March 31, 2008, executed by Dalian Winland Group Co.,
      Ltd., Dalian Winland Shipping Co., Ltd. and Dalian Weihang Logistic Agent
      Co., Ltd. in favor of Beijing Huate Xingye Keji Co. Ltd. For Dalian
      Winland International Shipping Agency Co., Ltd.
              
              Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on August 12, 2008




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10.21
              
              Powers
      of Attorney, dated March 31, 2008, executed by Dalian Winland Group Co.,
      Ltd., Dalian Winland Shipping Co., Ltd. and Dalian Winland International
      Shipping Agency Co., Ltd. in favor of Beijing Huate Xingye Keji Co. Ltd.
      for Dalian Winland International Logistics Co., Ltd.
              
              Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on August 12, 200810.22
              
              Powers
      of Attorney, dated March 31, 2008, executed by Li Honglin and Xue Ying in
      favor of Beijing Huate Xingye Keji Co. Ltd. and Dalian Shipping Online
      Network Co., Ltd.
              
              Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on August 12, 200810.23
              
              Memorandum
      of Agreement, dated June 3, 2009, by and between Mario Shipping
      Corporation and Winland Shipping Co. Ltd.
              
              Incorporated
      by reference to the Company’s Quarterly Report on Form 10-Q as filed with
      the SEC on November 13, 200910.24
              
              Addendum No.
      1 to Memorandum of Agreement dated June 4, 2009 (Bao
      Shun)
              
              Incorporated
      by reference to the Company’s Quarterly Report on Form 10-Q as filed with
      the SEC on November 13, 200910.25
              
              Addendum
      No. 2 to Memorandum of Agreement dated July 14, 2009 (Bao
      Shun)
              
              Incorporated
      by reference to the Company’s Quarterly Report on Form 10-Q as filed with
      the SEC on November 13, 200910.26
              
              Loan
      Agreement (Mitsubishi UFJ Lease Finance Co., Ltd.)
              
              Incorporated
      by reference to the Company’s Quarterly Report on Form 10-Q as filed with
      the SEC on November 13, 200910.27
              
              Amendment
      to Loan Agreement (Mitsubishi UFJ Lease Finance Co., Ltd.)
              
              Incorporated
      by reference to the Company’s Quarterly Report on Form 10-Q as filed with
      the SEC on November 13, 200910.28
              
              First
      Preferred Panamanian Ship Mortgage
              
              Incorporated
      by reference to the Company’s Quarterly Report on Form 10-Q as filed with
      the SEC on November 13, 200910.29
              
              Deed
      of Guarantee
              
              Incorporated
      by reference to the Company’s Quarterly Report on Form 10-Q as filed with
      the SEC on November 13, 200921
              `
              List
      of Subsidiaries
              
              Incorporated
      by reference to Exhibit 21 to Amendment No. 1 to the Company’s Annual
      Report on Form 10-K/A as filed with the SEC on July 8,
  201031.1
              
              Certifications
      of the Chief Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002
              
              Provided
      herewith31.2
              
              Certifications
      of the Chief Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002
              
              Provided
      herewith32.1
              
              Certification
      Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of
      the Sarbanes-Oxley Act Of 2002
              
              Provided
      herewith




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32.2
              
              Certification
      Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of
      the Sarbanes-Oxley Act Of 2002
              
              Provided
      herewith99.1
              
              Audit
      Committee Charter, dated January 15, 2009
              
              Incorporated
      by reference Exhibit 99.1 to the Company’s Current Report on Form 8-K as
      filed with the SEC on January 20, 200999.2
              
              Compensation
      Committee Charter, dated January 15, 2009
              
              Incorporated
      by reference Exhibit 99.2 to the Company’s Current Report on Form 8-K as
      filed with the SEC on January 20, 200999.3
              
              Corporate
      Governance and Nominating Committee Charter, dated January 15,
      2009
              
              Incorporated
      by reference Exhibit 99.3 to the Company’s Current Report on Form 8-K as
      filed with the SEC on January 20,
2009




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SIGNATURES





Pursuant
to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this Amendment No. 1 to Form
10-Q to be signed on its behalf by the undersigned, thereunto duly
authorized.




Date: August
      10, 2010
                        By:
                        /s/
      Xue YingName:
                        Xue
      YingIts:
                        Chief
      Executive Officer, Principal Executive Officer,
                          Secretary
      and DirectorDate: August
      10, 2010
                        By:
                        /s/
      Jing YanName:
                        Jing
      YanIts:
                        Chief
      Financial Officer, Principal Financial and
                          Accounting
      Officer


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