Winland Ocean Shipping Corp

CIK:0001397966|SEC Filings

DISCONTINUED OPERATIONS

3 Months Ended

Mar. 31, 2012

10. DISCONTINUED OPERATIONS

(a) Disposition of VIEs

To comply with PRC laws and regulations, on March 18, 2008, the Company entered into exclusive technical service agreements (VIE agreements) with Dalian Winland International Shipping Agency Co., Ltd. (“DWIS”), Dalian Winland International Logistics Co., Ltd. (“DWIL”), and Dalian Shipping Online Network Co., Ltd. (“DSON” or “Shipping Online”), each VIE of which is incorporated in the PRC, pursuant to which the Company provided 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 were assigned to the Company, and the Company had the right to appoint all directors and senior management personnel of DWIS, DWIL and DSON. In addition, the shareholders of DWIS, DWIL and DSON had 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.

On February 16, 2011, the Company voluntarily entered into a Termination of Services Agreement with such VIEs (DWIS, DWIL and DSON) and the stockholders of the VIEs, whereby it voluntarily disposed of its Online Services business by terminating its control of the VIEs. The stockholders of the VIEs paid the Company a termination fee of RMB1,000,000 ($151,319) as consideration. It was the Company’s management decision to dispose of the VIEs in light of the fact that it was in the best interests of the Company to focus on its core businesses of dry bulk shipping and charter brokerage services.

After the termination of services, the VIEs are ultimately 100% controlled by Mr. Li Hong Lin and Ms. Xue Ying, the Chairman and CEO of the Company, and the majority shareholder of the Company. Such disposition is considered a transfer of a significant amount of assets based on the value of such assets at the time of disposition between entities under common control and the Company recorded the difference between the consideration given and the net assets of the VIEs of $2,752,567 from the transaction as a reduction of shareholders’ equity.

As there was no continuing cash flow from the disposed VIEs was generated by the on-going entities, and the Company did not have significant continuing involvement in the operations of the disposed VIEs after February 16, 2011, the revenues and expenses related to the operations of the VIEs was segregated from continuing operations and reported as discontinued operations for all periods in accordance with ASC 205-20 “Discontinued Operations”. The following are revenues, income from discontinued operations:

	For The Three Months Ended March 31,
	2012		2011
Revenue	$	-	$	478,301
Costs and expenses		-		541,413
Income tax expense		-		-
Loss from discontinued operations	$	-	$	(63,112	)

(b) Disposition of Vessel Win Glory

On June 10, 2011, the Company signed a Memorandum of Agreement (“MOA”) with Pacific Pty., Ltd., Belize (“Buyer”) to sell the vessel Win Glory for a cash consideration of $1,700,000. The vessel Win Glory was delivered to the buyer on August 6, 2011. The revenues and expenses related to the operations of Win Glory have been segregated from continuing operations and reported as discontinued operation for all periods in accordance with ASC 205-20 “Discontinued Operations”. Following are revenues, loss from discontinued operation for three months ended March 31, 2012 and 2011:

	For Three Months Ended March 31,
	2012		2011
Revenue	$	-	$	429,635
Costs and expenses		-		432,524
Loss from discontinued operation	$	-	$	(2,889	)

(c) Disposition of Vessel Win Star

On July 29, 2011, the Company signed a Memorandum of Agreement (“MOA”) with Greatwall Shipping Limited (“Buyer”) to sell the vessel Win Star for a cash consideration of $3,278,451. The vessel Win Star was delivered to the buyer on August 16, 2011. The revenues and expenses related to the operations of Win Star have been segregated from continuing operations and reported as discontinued operation for all periods in accordance with ASC 205-20 “Discontinued Operations”. Following are revenues, loss from discontinued operation for three months ended March 31, 2012 and 2011:

	For Three Months Ended March 31,
	2012		2011
Revenue	$	-	$	583,276
Costs and expenses		-		705,661
(Loss) income from discontinued operation	$	-	$	(122,385	)

(d) Disposition of Vessel Bodar

On September 15, 2011, the Company signed a Memorandum of Agreement (“MOA”) with Maritime Delivery Inc. (“Buyer”) to sell the vessel Bodar for a cash consideration of $3,550,823. The vessel Bodar was delivered to the buyer on September 30, 2011. The revenues and expenses related to the operations of Bodar have been segregated from continuing operations and reported as discontinued operation for all periods in accordance with ASC 205-20 “Discontinued Operations”. Following are revenues, income from discontinued operation for three months ended March 31, 2012 and 2011:

	For Three Months Ended March 31,
	2012		2011
Revenue	$	-	$	840,470
Costs and expenses		-		616,216
Income from discontinued operation	$	-	$	224,254

CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)	3 Months Ended
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)	Mar. 31, 2012	Mar. 31, 2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net income/(Loss)	$ (1,685,568)	$ 817,974
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	1,117,955	835,914
Amortization of deferred dry dock fees	486,082	796,369
Amortization of discount on long-term notes payable	216,834	158,065
Changes in operating assets and liabilities net of effects of discontinued operations:
Accounts receivable	66,068	(58,690)
Inventories	240,891	(1,345,562)
Prepayments	(603,763)	(750,575)
Other receivables and other assets	(151,269)	321,290
Deferred dry dock fees	(41,992)	(438,556)
Accounts payable	(2,160,894)	469,105
Advance from customers	105,592	1,285,397
Payroll payable	(82,460)	(133,226)
Other current and accrued liabilities	(187,478)	(58,520)
CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES	(2,680,002)	1,898,985
CASH FLOWS FROM INVESTING ACTIVITIES
Payment for vessels under construction		(5,855,262)
Purchase of fixed assets		(2,232)
VIE Spin-off		(206,124)
Collection of advances/loan to related parties	658,901
CASH PROVIDED BY/(USED IN) INVESTING ACTIVITIES	658,901	(6,063,618)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of long-term loans	(1,487,655)	(1,459,737)
Repayments of long-term notes payable	(1,087,869)	(260,730)
Proceeds from related parties	2,177,167	1,918,019
CASH PROVIDED BY/(USED IN) FINANCING ACTIVITIES	(398,357)	197,552
Effect of exchange rate changes on cash and cash equivalents	107	5,476
NET DECREASE IN CASH	(2,419,351)	(3,961,605)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR	3,297,032	8,253,476
CASH AND CASH EQUIVALENTS AT END OF PERIOD	877,681	4,291,871
Supplementary Disclosures for Cash Flow Information:
InInterest paid	$ 756,683	$ 720,529

CONSOLIDATED BALANCE SHEETS (USD $)	Mar. 31, 2012	Dec. 31, 2011
CURRENT ASSETS
Cash and cash equivalents	$ 877,681	$ 3,297,032
Accounts receivable	755,915	821,983
Inventories	2,920,506	3,161,397
Prepayments	1,128,942	525,179
Other receivables and other assets	1,042,113	890,844
Due from related parties	3,330,389	3,989,290
Total current assets	10,055,546	12,685,725
Vessels, net	93,518,419	94,634,999
Fixed assets, net	7,843	9,218
Deferred dry dock fees, net	3,636,613	4,080,703
Total long-term assets	97,162,875	98,724,920
TOTAL ASSETS	107,218,421	111,410,645
CURRENT LIABILITIES
Accounts payable	6,607,585	8,768,479
Current portion of long-term loans	5,689,730	5,923,066
Current portion of long-term notes payable, net of discount of $983,975 and $936,962 at March 31, 2012 and December 31, 2011, respectively	3,827,500	3,827,500
Advance from customers	684,544	578,952
Payroll payable	1,279,837	1,467,315
Payable to ship builder	1,900,000	1,900,000
Due to related parties	6,570,772	4,393,605
Other current and accrued liabilities	2,019,966	2,102,426
Total current liabilities	28,579,934	28,961,343
LONG-TERM LIABILITIES
Long-term loans	39,052,034	40,306,353
Long-term notes payable (including related parties), net of discount of $3,375,352 and $3,639,199 at March 31, 2012 and December 31, 2011, respectively	9,679,235	10,550,270
Payable to ship builder	3,696,491	3,696,491
Total long-term liabilities	52,427,760	54,553,114
TOTAL LIABILITIES	81,007,694	83,514,457
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, $0.001 per share; 20,000,000 shares authorized, 0 shares issued and outstanding
Common stock, $0.001 per share; 400,000,000 shares authorized, 195,000,000 shares issued and outstanding	195,000	195,000
Additional paid-in capital	1,595,276	1,595,276
Accumulated other comprehensive income	1,490	1,383
Retained earnings	24,418,961	26,104,529
Total Shareholders' Equity	26,210,727	27,896,188
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 107,218,421	$ 111,410,645