swwh_10q-063009.htm

10-Q 1 swwh_10q-063009.htm QUARTERLY REPORT swwh_10q-063009.htm

United States

Securities and Exchange Commission

Washington, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2009

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

For the transition period from _________________ to _________________

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Commission File Number 000-52116

SOUND WORLDWIDE HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware		20-5153419
(State or other jurisdiction of incorporation)		(IRS Employer File Number)

Flat K, 13/F (Phase 2) Superluck Industrial Centre 57 Sha Tsui Road, Tsuen Wan, N.T. Hong Kong, China		N/A
(Address of principal executive offices)		(zip code)

(852) 2414-1831

(Registrant's telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days Yes þ No 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. See the definitions of “large accelerated filer,” “accelerated filer,” "non-accelerated filer" and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o

Smaller reporting company þ

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

APPLICABLE ONLY TO CORPORATE ISSUERS

As of June 30, 2009, 14,476,250 shares of our common stock were outstanding.

PART 1 - FINANCIAL INFORMATION

Item 1. Financial Statements.

SOUND WORLDWIDE HOLDINGS, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET

(Stated in US Dollars)

		At of
		June 30,		March 31,
		2009		2009
	Notes	$		$
ASSETS

Current assets:
Cash and cash equivalents			2,066		7,989
Accounts receivable, net of allowance	3
for doubtful accounts			1,539,530		1,538,779
Prepaid expenses and other receivables			2,856		422
Inventories	4		95,792		137,260

Total current assets			1,640,244		1,684,450

Property and equipment, net	5		1,824,427		1,891,844

TOTAL ASSETS			3,464,671		3,576,294


LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES

Current liabilities:
Accounts payable			99,092		43,178
Bank and other borrowings			65,528		340,066
Accrued expenses and other liabilities			270,898		204,506

Total current liabilities			435,518		587,750

TOTAL LIABILITIES			435,518		587,750

Commitments and contingencies

Stockholder’s equity:
Common stock (US$0.0001 par value
- authorized 20,000,000 shares;
issued and outstanding 14,476,250
shares in June 30, 2009 and
14,336,250 shares in March 31, 2009)			1,448		1,434
Additional paid-in capital			684,193		645,726
Retained earnings			2,320,877		2,321,202
Accumulated other comprehensive income			22,635		20,182

Total stockholders’ equity			3,029,153		2,988,544

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY			3,464,671		3,576,294

See accompanying notes to unaudited condensed consolidated financial statements.

SOUND WORLDWIDE HOLDINGS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Stated in US Dollars)

		Three months ended June 30,
		2009			2008
	Notes	$			$

Net sales			963,191			1,948,644
Cost of sales			(828,615	)		(1,840,909	)

Gross profit			134,576			107,735
Selling, general and administrative expenses			(109,335	)		(107,487	)
Other income			-			42

Income from operations			25,241			290
Loss on disposal of a subsidiary			-			(276,041	)
Interest expenses			(25,566	)		(8,791	)

Loss before income taxes			(325	)		(284,542	)
Income tax expenses			-			-

Net loss			(325	)		(284,542	)

Loss per share, basic and diluted	8	0.00 cents			2.04 cents

Weighted average number of common shares outstanding, basic and diluted			14,444,162			13,936,250

See accompanying notes to unaudited condensed consolidated financial statements.

SOUND WORLDWIDE HOLDINGS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

AND COMPREHENSIVE INCOME

(Stated in US Dollars)

							Accumulated
					Additional		other
	Common stock				paid-in		Comprehensive		Retained
	Shares		Amount		capital		income		earnings			Total
			$		$		$		$			$

Balance, April 1, 2009		14,336,250		1,434		645,726		20,182		2,321,202			2,988,544
Issue of shares		140,000		14		38,467		-		-			38,481
Net loss		-		-		-		-		(325	)		(325	)
Foreign currency translation adjustments		-		-		-		2,453		-			2,453
Comprehensive income		-						2,453		(325	)		40,609
Balance, June 30, 2009		14,476,250		1,448		684,193		22,635		2,320,877			3,029,153

See accompanying notes to unaudited condensed consolidated financial statements.

SOUND WORLDWIDE HOLDINGS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Stated in US Dollars)

	Three months ended June 30,
	2009			2008
	$			$

Cash flows from operating activities:
Net loss		(325	)		(284,542	)
Adjustments to reconcile net income to
Net cash provided by operating activities:
Depreciation expense		68,027			32,626
Share based compensation		38,481			-
Changes in current assets and liabilities
Accounts receivable		(254	)		677,287
Prepaid expenses and other receivables		(2,434	)		61,967
Inventories		41,513			802,417
Accounts payable		66,376			(464,822	)
Income tax payable		-			15,377
Accrued expenses and other liabilities		56,350			(105,573	)

Net cash provided by operating activities		267,284			734,737

Cash flows from investing activities:
Purchases of property and equipment		-			(236,812	)

Net cash used in investing activities		-			(236,812	)

Cash flow from financing activities:
New bank borrowings		65,528			589,059
Repayment of bank borrowings		(340,176	)		(1,302,488	)

Net cash used in financing activities		(274,648	)		(713,429	)

Effect of exchange rate changes on cash
and cash equivalents		1,441			882

Net decrease in cash and cash equivalents		(5,923	)		(214,622	)
Cash and cash equivalents at beginning of the period		7,989			288,356

Cash and cash equivalents at end of the period		2,066			73,734

Supplementary disclosures of cash flow information:
Interest paid		25,566			8,791

Income taxes paid		-			-

See accompanying notes to unaudited condensed consolidated financial statements.

SOUND WORLDWIDE HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

1.	Organization and nature of operations

Sound Worldwide Holdings, Inc. (the “Company”) and its subsidiaries (together, the “Group”) are principally engaged in manufacturing and trading of denim fabrics and garments. The Group owns production plants in Hong Kong and the People’s Republic of China (“PRC”) and its customers are mainly in the United States, Europe and Japan.

On October 25, 2007, Freedom 3, Inc. a Delaware corporation (“Freedom 3”), sold one share of its common stock to Sound Worldwide Limited (“Sound Worldwide” or “SWL”) for $1.00 and redeemed 100,000 shares of its common stock from its prior sole stockholder constituting 100% of Freedom 3’s issued and outstanding shares of its common stock prior to the sale, resulting in Sound Worldwide owning 100% of Freedom 3. After the sale and redemption by Freedom 3, Sound Worldwide and Freedom 3 entered into a Share Exchange Agreement, dated October 25, 2007, or Exchange Agreement, pursuant to which each issued and outstanding share of Sound Worldwide’s common stock and preferred stock was converted into 350 shares of Freedom 3’s common stock and preferred stock, respectively, and all of the issued and outstanding shares of Sound Worldwide’s common and preferred stock were retired and cancelled, resulting in Freedom 3 owning 100% of Sound Worldwide (the “Exchange”). This resulted in the stockholders of Sound Worldwide to become stockholders of Freedom 3. The previous stockholder of Freedom was then issued 300,000 shares of Freedom 3 as agreed previously. The one share of Freedom’s common stock held by Sound Worldwide was then cancelled and Sound Worldwide sold one share of its common stock to Freedom 3, which resulted in Freedom 3 owning 100% of Sound Worldwide. Freedom 3 then changed its name to Sound Worldwide Holdings, Inc.

For accounting purposes, the Exchange has been treated as an acquisition of Freedom 3 by Sound Worldwide and as a recapitalization of Sound Worldwide (i.e. a "reverse acquisition"), in which Sound Worldwide was deemed to be the accounting acquirer. As a result of the Exchange, the historical consolidated financial statements of the Company for periods prior to the date of the transaction are those of Sound Worldwide, as the accounting acquirer, and all references to the consolidated financial statements of the Company apply to the historical financial statements of Sound Worldwide prior to the transaction and the consolidated financial statements of the Company subsequent to the transaction. The Company’s shares have been restated retroactively to reflect the share exchange ratio as at the date of the transaction in a manner similar to a stock split.

On May 27, 2008, the Company and SWL, entered into a Share Purchase and Exchange Agreement (the “Exchange Agreement”) with Best Allied, a wholly-owned subsidiary of SWL, and Ms. Ivy S.K. Lam, a director and officer of Best Allied and a stockholder of an aggregate of 6,063,750 shares of the Company’s Common Stock. Pursuant to the Exchange Agreement, at a closing held on May 30, 2008, Ms. Lam purchased from the Company and SWL 10,000 shares of Common Stock of Best Allied owned by SWL, which constituted 100% of the issued and outstanding shares of Best Allied, in exchange for 6,063,750 shares of the Company’s Common Stock held by Ms. Lam, which constituted 100% of the shares of the Company’s Common Stock held by Ms. Lam (the “Exchange”). The effective date of the Exchange is April 1, 2008.

Pursuant to the agreement, Ms. Lam had agreed to the return and cancellation of 6,063,750 shares of our common stock held by her.

SOUND WORLDWIDE HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

1.	Organization and nature of operations (Continued)

As of June 30, 2009, the subsidiaries of the Company include the following:

Name of company	Place and date of incorporation	Attributable equity interest held	Principal activities

Sound Worldwide	BVI	100%	Investment holding
Limited (“SWL”)	July, 28th, 1999

Asian Point	BVI	100%	Manufacturing and
Investment Limited	March 26th, 1997		trading of denim fabrics
(“Asian Point”)

2.	Summary of principal accounting policies

Basis of presentation and consolidation

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America.

The consolidated financial statements include the accounts of Sound Worldwide Holdings, Inc. and its subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation.

The results of subsidiaries acquired or disposed of during the years are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal.

The Company also evaluates consolidation of entities under Financial Accounting Standards Board (FASB) Interpretation No.46, “Consolidation of Variable Interest Entities” (FIN 46). FIN 46 requires management to evaluate whether an entity or interest is a variable interest entity and whether the Company is the primary beneficiary. Consolidation is required if both of these criteria are met. The Company does not have any variable interest entities requiring consolidation.

Use of estimates

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting year. These accounts and estimates include, but are not limited to, the valuation of accounts receivable, deferred income taxes and the estimation on useful lives of plant and equipment. Actual results could differ from those estimates.

SOUND WORLDWIDE HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

2.	Summary of principal accounting policies (continued)

Cash and cash equivalents

Cash and cash equivalents include all cash, deposits in banks and other highly liquid investments with original maturities of three months or less at the date of acquisition. These investments are carried at cost, which approximates market value.

Trade accounts receivable

Accounts receivable are stated at original amount less allowance made for doubtful receivables, if any, based on a review of all outstanding amounts at the year end. An allowance is also made when there is objective evidence that the Group will not be able to collect all amounts due according to original terms of receivables. Bad debts are written off when identified. The Group extends unsecured credit to customers in the normal course of business and believes all accounts receivable in excess of the allowances for doubtful receivables to be fully collectible. The Group does not accrue interest on trade accounts receivable.

Inventory

Inventories, which primarily consist of yarns, denim fabrics, garments and other textile materials and products, are stated at the lower of cost or market. Cost is determined by the first-in, first-out method. Write down of potentially obsolete or slow-moving inventory is recorded based on management’s assumptions about future demand and market conditions.

Property and equipment

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

Depreciation of property and equipment is calculated on a straight-line method over the estimated useful lives of the assets. The estimated useful lives are as follows:-

	Office unit	5 years
	Machinery Furniture and office equipment Motor vehicles	5-10 years 5 years 5 years

Upon sale or disposition, the applicable amounts of asset cost and accumulated depreciation are removed from the accounts and the net amount less proceeds from disposal is charged or credited to income.

SOUND WORLDWIDE HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

2.	Summary of principal accounting policies(Continued)

Impairment of long-lived assets

In accordance with SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets (“SFAS No. 144”), long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposal group classified as held for sale are presented separately in the appropriate asset and liability sections of the balance sheet.

No impairment of long-lived assets was recognized for the year presented.

Revenue recognition

The Company recognized revenue when the following fundamental criteria are met: (i) persuasive evidence that an arrangement exists, (ii) delivery has occurred, (iii) our price to the customer is fixed or determinable and (iv) collection of the resulting accounts receivable is reasonably assured. These criteria are usually met at the time of product shipment. The Company does not recognize revenue until all customer acceptance requirements have been met and no significant obligations remain, when applicable. Customer purchase orders and/or contracts are generally used to determine the existence of an arrangement. Shipping documents are used to verify product delivery. The Company assesses whether a price is fixed or determinable based upon the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. The Company assesses the collectibility of the accounts receivable based primarily upon the creditworthiness of the customer as determined by credit checks and analysis, as well as the customer’s payment history.

Sales of goods represent the invoiced values of goods, net of sales returns, trade discounts and allowances. The Company records reductions to revenue for estimated product returns and pricing adjustments in the same period that the related revenue is recorded. The amount of these reductions is based on historical sales returns, analysis of credit memo data, and other factors known at the time. The amounts of reductions to revenue were $Nil and $1,490 for the three months ended June 30, 2009 and 2008, respectively.

SOUND WORLDWIDE HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

2.	Summary of principal accounting policies (Continued)

Shipping and handling fees and costs

Costs incurred by the Group for shipping and handling, including costs paid to third-party transportation companies, to transport and deliver products to customers, are included in “Selling, general and administrative expenses”. Shipping and handling fees and costs amounted to $7,754 and $5,650 for the three months ended June 30, 2009 and 2008, respectively.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of Statement of Financial Accounting Standards No. 109 (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in tax positions. This interpretation requires that an entity recognizes in the consolidated financial statements the impact of a tax position, if that position is more likely than not of being sustained upon examination, based on the technical merits of the position. The adoption of FIN 48 did not have any impact on the Group’s consolidated financial statements.

Comprehensive income

Other comprehensive income refers to revenues, expenses, gains and losses that under U.S. GAAP are included in comprehensive income but are excluded from net income as these amounts are recorded as a component of stockholders’ equity. The Company’s other comprehensive income represented foreign currency translation adjustment.

Foreign currency translation

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

SOUND WORLDWIDE HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

2.	Summary of principal accounting policies (continued)

Foreign currency translation (continued)

In translating the financial statements of the Company from its functional currency into its reporting currency of United States dollars, balance sheet accounts are translated using the closing exchange rate in effect at the balance sheet date and income and expense accounts are translated using an average exchange rate prevailing during the reporting period. Any translation adjustments resulting are not included in determining net income but are included in cumulative other comprehensive income (loss), a component of stockholders’ equity.

	June 30,		June 30,
	2009		2008
Quarter end HK$ : US$ exchange rate		7.7505		7.8070
Average quarterly HK$ : US$ exchange rate		7.7505		7.7997

Share-based compensation

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

Share-based compensation expense of $38,481 and $nil for the three month ended June, 2009 and 2008, respectively. Since share-based compensation is not tax deductible in Hong Kong, the PRC and the United States, no related tax benefit has been recognized.

Earnings per share

Basic earnings per share is computed by dividing net income attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share gives effect to all dilutive potential common shares outstanding during the year. The weighted average number of common shares outstanding is adjusted to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued.

Commitments and contingencies

Liabilities for loss contingencies arising from claims, assessments, litigation, fines and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonable estimated.

SOUND WORLDWIDE HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

2.	Summary of principal accounting policies (continued)

Recently Issued Accounting Pronouncements

FASB Statement No. 141(R) (“SFAS No. 141(R)”) and FASB Statement No. 160 (“SFAS No. 160”)

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” and SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment to ARB No. 51”. SFAS No. 141(R) and SFAS No. 160 require most identifiable assets, liabilities, noncontrolling interests and goodwill acquired in a business combination to be recorded at “full fair value” and require noncontrolling interests (previously referred to as minority interest) to be reported as a component of equity, which changes the accounting for transactions with noncontrolling interest holders. Both statements are effective for periods beginning on or after December 15, 2008, and earlier adoption is prohibited. SFAS No. 141(R) will be applied to business combinations occurring after the effective date. SFAS No. 160 will be applied prospectively to all noncontrolling interests, including any that arose before the effective date. The Company does not expect the initial adoption of SFAS No. 160 will have a material effect on the Company’s consolidated financial statements.

FASB Statement No. 165165 (“SFAS No. 165”)

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events”, SFAS No. 165 sets forth: (1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in financial statements, (2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and (3) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The Company has evaluated the period beginning July 1, 2009 through to August 14, 2009, the date unaudited condensed consolidated financial statements were issued, and concluded there were no events or transactions occurring during this period beginning July 1, 2009 through to August 14, 2009 that required recognition or disclosure in the unaudited condensed consolidated financial statements.

FASB Statement FSP FAS No. 107-1 and APB 28-1

In April 2009, the FASB issued FASB Staff Position (“FSP”) FAS No. 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” This FSP amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” and requires disclosures about fair value of financial instruments for interim reporting periods as well as in annual financial statements. Additionally, this FSP amends Accounting Principles Board (“APB”) Opinion No. 28, “Interim Financial Reporting,” to require those disclosures in summarized financial information at interim reporting periods. These disclosures are required for interim reporting periods ended after June 15, 2009. The additional disclosure requirements under FSP No. FAS 107-1 and APB No. 28-1 are included in note 10 of the unaudited condensed consolidated financial statements.

SOUND WORLDWIDE HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

3.	Accounts receivable, net

Accounts receivable consist of the following:

	As of
	June 30,		March 31,
	2009		2009
	(Unaudited)		(Audited)
	$		$

Accounts receivable		1,539,530		1,538,779
Less: allowance for doubtful accounts		-		-
		1,539,530		1,538,779

The Group has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on all customers requiring credit over a certain amount.

4.	Inventories

Inventories by major categories are summarized as follows:

	As of
	June 30,		March 31,
	2009		2009
	(Unaudited)		(Audited)
	$		$

Raw materials		75,706		53,100
Work-in-progress		-		-
Finished goods		20,086		84,160

		95,792		137,260

No inventories were written off for the three months ended June 30, 2009 and for the year ended March 31, 2009.

SOUND WORLDWIDE HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

5.	Property and equipment, net

Property and equipment consists of the following:

	As of
	June 30,			March 31,
	2009			2009
	(Unaudited)			(Audited)
	$			$

Machinery		2,738,286			2,091,586
Furniture and office equipment		593			593
Leasehold improvement		-			-
Motor vehicles		46,175			46,161
Total		2,785,054			2,138,340
Less: accumulated depreciation		(960,627	)		(246,496	)
Property and equipment, net		1,824,427			1,891,844

Depreciation expenses for the three months ended June 30, 2009 and 2008 were $68,027 and $32,626, of which $68,027 and $38,626 was included in cost of sales, and $Nil and $Nil was included in selling, general and administrative expenses for the three months ended June 30, 2009 and 2008, respectively.

6.	Bank Borrowings And Banking Facilities

At June 30, 2009, the banking facilities consisting of bank loans and other credit facilities were $567,705, of which $65,528 has been drawn down and $502,177 remains available. As of June 30, 2009, the above banking borrowings were secured by the following:

(a)

charge over properties owned by the directors of the Company; and

(b)

personal guarantee executed by the directors of the Company.

Bank loans were charged at rate 0.5% per annum below the bank’s Prime to 1% per annum above the Prime.

The interest rates of other credit facilities were at the bank’s Hong Kong Dollar Best Lending Rate or prevailing funding cost, whichever was higher, plus 0.5% to 2% per annum.

SOUND WORLDWIDE HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

7.	Share Based Compensation

On March 9, 2009, the Board of Directors adopted the 2009 Equity Incentive Plan (the “2009 Incentive Plan”) pursuant to which 6,000,000 shares of the Company’s common stock are reserved for issuance upon exercise of stock options, and for the issuance of stock appreciation rights, restricted stock awards and performance shares. The purpose of the 2009 Incentive Plan is to provide additional incentive to employees, directors, advisors and consultants. The 2009 Incentive Plan provides for a term of 10 years from the date of its adoption by the Board of Directors, after which no awards may be made, unless the 2009 Incentive Plan is early terminated by the Board.

A summary of non-vested equity share units issued under the 2009 Incentive Plan is as follows:

	Shares	Weighted average grant date fair value
		$
Balance as of April 1, 2009	220,000		0.51
Granted on April 2, 2009	20,000		0.51
Balance as of June 30, 2009	240,000		0.51

The stock awards vest equally over a period of one year from the date of grant.

8.	Loss Per Share

Basic loss per share of common stock was calculated by dividing the net loss by the weighted average number of shares of common stock outstanding for the period.

There is no dilution effect to the basic loss per share of common stock for the periods presented.

9.	Comprehensive (Loss)/Income

Other comprehensive (loss)/income refers to revenues, expenses, gains and losses that under U.S. GAAP are included in comprehensive (loss)/income but are excluded from net (loss)/income as these amounts are recorded as a component of stockholders’ equity. The Company’s other comprehensive (loss)/income represented foreign currency translation adjustment.

SOUND WORLDWIDE HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

10.	Fair Value Measurement

The fair values of accounts receivable, accounts payable, bank borrowings and other payables and accrued liabilities approximated the respective carrying amounts because of the short maturity of these instruments. The Company adopted SFAS No. 157, Fair Value Measurements, or SFAS No. 157, for the nonfinancial assets and liabilities that are remeasured at fair value on a non-recurring basis. The nonfinancial assets and liabilities that are remeasured at fair value on a non-recurring basis did not impact our financial position or results of operations; however, it could have an impact in future periods. In addition, the Company may have additional disclosure requirements in the event we incur impairment of our assets in future periods.

Item 2. Management’s Discussion and Analysis or Plan of Operation.

The following discussion and analysis is provided to increase the understanding of, and should be read in conjunction with, our unaudited financial statements and related notes included elsewhere in this Report. Historical results and percentage relationships among any amounts in these financial statements are not necessarily indicative of trends in operating results for any future period. This report contains “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The statements, which are not historical facts contained in this Report, including this Management’s discussion and analysis of financial condition and results of operation, and notes to our unaudited financial statements, particularly those that utilize terminology such as “may” “will,” “should,” “expects,” “anticipates,” “estimates,” “believes,” or “plans” or comparable terminology are forward-looking statements. Such statements are based on currently available operating, financial and competitive information, and are subject to various risks and uncertainties. Future events and our actual results may differ materially from the results reflected in these forward-looking statements. Factors that might cause such a difference include, but are not limited to, dependence on existing and future key strategic and strategic end-user customers, limited ability to establish new strategic relationships, ability to sustain and manage growth, variability of operating results, our expansion and development of new service lines, marketing and other business development initiatives, the commencement of new engagements, competition in the industry, general economic conditions, dependence on key personnel, the ability to attract, hire and retain personnel who possess the technical skills and experience necessary to meet the service requirements of our clients, the potential liability with respect to actions taken by our existing and past employees, risks associated with international sales, and other risks described herein and in our other filings with the Securities and Exchange Commission.

The safe harbor for forward-looking statements provided by Section 21E of the Securities Exchange Act of 1934 excludes issuers of “penny stock” (as defined under Rule 3a51-1 of the Securities Exchange Act of 1934). Our common stock currently falls within that definition.

All forward-looking statements in this document are based on information currently available to us as of the date of this report, and we assume no obligation to update any forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results to differ materially from any future results, performance or achievements expressed or implied by such forward looking statements.

The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and related notes appearing elsewhere in this report.

Organizational History and Operations

Sound Worldwide Holdings, Inc. (the “Company”) and its subsidiaries (together, the “Group”) are principally engaged in manufacturing and trading of denim fabrics and garments. The Group owns production plants in Hong Kong and the People’s Republic of China and its customers are mainly in the United States, Europe and Japan.

Pursuant to the agreement, Ms. Lam had agreed to the return and cancellation of 6,063,750 shares of our common stock held by her.

As of September 30, 2008, the subsidiaries of the Company include the following:

þSound Worldwide Limited (“SWL”), incorporated in the British Virgin Islands on July 28, 1999, 100% of which is owned by the Company. SWL’s primary business is as an investment holding company;

þAsian Point Investment Limited (“Asian Point”) , incorporated in the British Virgin Islands on March 26, 1997, 100% of which is owned by the Company. Asian Point’s primary business is manufacturing and trading denim fabrics.

SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America, which require 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 financial statements and reported amount of revenues and expenses during the reporting period.

Consolidation

The results of subsidiaries acquired or disposed of during the period are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal.

Revenue Recognition

The Company recognized revenue when the following fundamental criteria are met: (i) persuasive evidence that an arrangement exists, (ii) delivery has occurred, (iii) our price to the customer is fixed or determinable and (iv) collection of the resulting accounts receivable is reasonably assured. These criteria are usually met at the time of product shipment. The Company does not recognize revenue until all customer acceptance requirements have been met and no significant obligations remain, when applicable. Customer purchase orders and/or contracts are generally used to determine the existence of an arrangement. Shipping documents are used to verify product delivery. The Company assesses whether a price is fixed or determinable based upon the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. The Company assesses the collectability of the accounts receivable based primarily upon the creditworthiness of the customer as determined by credit checks and analysis, as well as the customer’s payment history.

Sales of Goods represent the invoiced values of goods, net of sales returns, trade discounts and allowances. The Company records reductions to revenue for estimated product returns and pricing adjustments in the same period that the related revenue is recorded. The amount of these reductions is based on historical sales returns, analysis of credit memo data, and other factors known at the time. The amounts of reductions to revenue were $2,571 and $27,005 for the nine months ended December 31, 2008 and 2007, respectively.

Trade Accounts Receivable

Inventory

Income Taxes

Share-based Compensation

Share-based compensation expense of $38,481 and $nil for the three months ended June 30, 2009 and 2008, respectively. Since share-based compensation is not tax deductible in Hong Kong, the PRC and the United States, no related tax benefit has been recognized.

Recently Issued Accounting Pronouncements

FASB Statement No. 141(R) (“SFAS No. 141(R)”) and FASB Statement No. 160 (“SFAS No. 160”)

FASB Statement No. 165 (“SFAS No. 165”)

FASB Statement FSP FAS No. 107-1 and APB 28-1

Item 3. Controls and Procedures.

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.

Changes in internal controls over financial reporting. There was no change in our internal controls, which are included within disclosure controls and procedures, during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls.

Item 3A(T). Controls and Procedures.

Evaluation of disclosure and controls and procedures. As of the end of the period covered by this Quarterly report, we conducted an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) of the Exchange Act). Based on this evaluation, our chief executive officer and treasurer, the sole officers and directors of the company, concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Management is responsible for establishing and maintaining adequate internal control over financial reporting. The purpose of the Company’s establishment and maintenance of such controls is to identify material weaknesses that have more than a remote likelihood of leading to a material misstatement in the financial statements. While identifying control deficiencies and significant deficiencies represents an important component of management's assessment, the overall focus of internal control reporting is on those items that could result in material errors in the Company’s financial statements. As of the end of the period covered by this report, our chief executive officer evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15b under the Securities Exchange Act of 1934. Based on his review of our disclosure controls and procedures, he concluded that our disclosure controls and procedures are effective in timely alerting him to material information relating to us that is required to be included in our periodic SEC filings. Management is in the continuing process of analyzing and adopting new policies and procedures to improve the design and operations of our disclosure controls. These efforts include identifying and tasking available staff to better segregate duties; the review and consideration of more sophisticated software and other office procedures that would aid us in timely flagging potential material information that requires staff and management review and possible action prior to filing; and consideration of hiring additional staff geared towards review of our financial data and reporting. We continue to train to our existing staff in order to achieve reasonable assurance regarding the reliability of the financial statements.

We also expect that through the natural learning process management will achieve efficiencies as they complete future assessments of internal control. For example, management's knowledge of the prior year's assessment results will impact its current year risk-based analysis of the significant accounts and the related required documentation and testing that may be necessary. Management may determine that certain controls require more extensive testing, while other controls require little testing in a given year. Additionally, in reaching its conclusion of reasonable assurance, management may find it appropriate to adjust the nature, extent and timing of testing from year to year - in some years delving deeply into selected internal control areas while performing less extensive testing in other areas and changing that focus from year to year and quarter to quarter.

In any event, we will, consistent with Section 404 of the Sarbanes-Oxley Act of 2002, implement reasonable assurance, risk-based reviews of our internal financial reporting controls; evaluate internal control deficiencies; disclose material weaknesses; review information technology issues; and seek communications with auditors in order to periodically review our control procedures, and create new controls to address perceived material issues regarding financial reporting

COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2009 AND 2008

Revenues

Our revenues decreased by $985,453, or 50.6%, from $1,948,644 in the three months ended June 30, 2008 to $963,191 in the three months ended June 30, 2009. The decrease was mainly attributable to the change in corporate sales strategy, in which we focus on the sales of higher margin products. In overall, there is a decrease in sales volume and amount.

Cost of Revenues

For the three months ended June 30, 2009, our total cost of revenues decreased by $1,012,294, or 55.0%, to $828,615 from $1,840,909 for the three months ended June 30, 2008. This decrease was primarily due to the decrease in sales volume, which resulted from the Company’s change in sales strategy.

Gross Profit

Our gross profit amount increased by $26,841, or 24.9%, from $107,735 for the three months ended June 30, 2008 to $134,576 for the three months ended June 30, 2009. Gross profit percentage recorded 14.0% and 5.5% for the quarter ended June 30, 2009 and 2008, respectively. The increased gross profit amount and percentage was mainly due to the change in sales mix, in which more high margin products were manufactured and sold as a result of the Company’s strategic focus in the high-end products.

Operating Expenses

Our total operating expenses (selling, general & administrative expenses (SG&A)) for the three months ended June 30, 2009, increased by $1,848 or 1.7%, to $109,335 from $107,487 for the three months ended June 30, 2008. The slight increase was primarily contributed by the increase in share based compensation cost.

Other Income

Our other income, mainly consisting of commission and handling income, for the three months ended June 30, 2009 and 2008 were $nil and $42, respectively. This decrease was primarily due to the decrease in provision of handling services.

Income from Operations

Our income from operations for the three months ended June 30, 2009 and 2008 were $25,241 and $290, respectively. The increase was primarily due to the increase in gross profit amount.

Loss on Disposal of Best Allied

Our loss on our disposal of Best Allied for the three months ended June 30, 2008 of $276,041 was in relation to the disposal of Best Allied on April 1, 2008.

Depreciation

Depreciation expense for office units, machinery, furniture equipment and motor vehicles, increased for the three months ended June 30, 2009 to $68,027, from $32,626 for the same period in 2008. The increase in depreciation expense was mainly due to the full period effect of the depreciation charge for three months ended June 30, 2009 as a result of the purchases of machinery made in the prior fiscal year.

Interest Expense

Interest expense, net, increased for the three months ended June 30, 2009 to $25,566 from $8,791 for the three months ended June 30, 2008. This increase was due to the increase in average bank borrowing balances.

Net Loss

We had net loss of $325 for the three months ended June 30, 2009 as compared to net loss of $284,542 for the three months ended June 30, 2008. The increased result of operations was due to an increase in gross margin and income from operations.

Accounts Receivable

Accounts receivable, increased from $1,538,779 as of March 31, 2009 to $1,539,530 as of June 30, 2009. This increase was primarily due to the grant of longer credit terms to a few major customers. The Group has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on all customers requiring credit over a certain amount.

Inventories

At June 30, 2009, we had $95,792 in inventories, compared to $137,260 at March 31, 2009. Our inventories consist of raw materials, products which are work-in-progress, and finished goods. Our raw materials increased from $53,100 at March 31, 2009 to $75,706 at June 30, 2009 primarily due to the increase in purchases during the quarter ended June 30, 2009, as compared to the last quarter ended March 31, 2009. Our Work-in-Progress inventory recorded $0 both at March 31 and June 30, 2009. Our Finished Goods decreased from $84,160 to $20,086 primarily due to more goods delivered to the customers near quarter ended June 30, 2009, as compared to the year ended March 31, 2009. No inventories were written off for the three months ended June 30, 2009.

Current Liabilities

Total current liabilities, consisting of accounts payable, bank and other borrowings and accrued expenses and other liabilities, decreased from $587,750 as of March 31, 2009 to $435,518 as of June 30, 2009. This decrease was primarily contributed by the decrease in bank borrowings.

Accounts Payable

Accounts payable, which typically operates on a monthly cycle, increased from $43,178 as of March 31, 2009 to $99,092 as of June 30, 2009. The increase was mainly due to the longer credit terms granted by the material suppliers.

Bank and Other Borrowings

Bank and other borrowings, which consist of bank overdrafts and other borrowings, decreased from $340,066 as of March 31, 2009 to $65,528 as of June 30, 2009. This decrease was primarily due to repayment of some bank borrowings for the quarter ended June 30, 2009.

Banking Facilities:

(a)

charge over properties owned by the directors of the Company; and

(b)

personal guarantee executed by the directors of the Company.

Bank loans were charged at rate 0.5% per annum below the bank’s Prime to 1% per annum above the Prime.

The interest rates of other credit facilities were at the bank’s Hong Kong Dollar Best Lending Rate or prevailing funding cost, whichever was higher, plus 0.5% to 2% per annum.

Accrued Expenses and Other Liabilities

Accrued expenses increased from $204,506 as of March 31, 2009 to $270,898 as of June 30, 2009. Accrued expenses consist of legal and professional fees, accrued staff related costs and other accruals and liabilities. Legal and professional fees decreased from $163,077 as of March 31, 2008 to $145,189 as of June 30, 2009. Accrued and staff related costs increased from $25,208 as of March 31, 2009 to $35,138 as of June 30, 2009. Other accruals and liabilities increased from $16,221 as of March 31, 2009 to $90,570 as of June 30, 2009. Other accruals and liabilities consist of payables on general administrative and selling expenses and the increase was primarily due to some invoices received and unpaid near quarter ended June 30, 2009.

LIQUIDITY AND CAPITAL RESOURCES

Operating Activities

Net cash provided by operating activities totaled $267,284 for the quarter ended June 30, 2009, which was a decrease from the net cash provided by operating activities, which totaled $734,737 for the quarter ended June 30, 2008. This net cash provided by operating activities is primarily attributable to an increase in accounts payable and a decrease in inventory level, but offset in part by an increase in accounts receivable and other receivables.

Investing Activities

Net cash used in investing activities totaled $nil for the quarter ended June 30, 2009, as compared to the net cash used in investing activities of $236,812 for the quarter ended June 30, 2008. The use of cash from investing activities represented purchases of property and equipment.

Financing Activities

Net cash used in financing activities totaled $274,648 for quarter ended June 30, 2009, as compared to $713,429 used in financing activities for the quarter ended June 30, 2008. The net cash used in financing activities was due to a net repayment of bank borrowings of $274,648 for the quarter ended June 30, 2009 as compared to a net repayment of bank borrowings of $713,429 for the quarter ended June 30, 2008.

The summary of our cash flow statement was as follows:

	For the Three Months Ended
	June 30, 2009			June 30, 2008
Net cash provided by operating activities	$	267,284		$	734,737

Net cash used in investing activities	$	-		$	(236,812	)

Net cash used in financing activities	$	(274,648	)	$	(713,429	)

Effect of exchange rate on cash	$	1,441		$	882

Net decrease in cash	$	(5,923	)	$	(214,622	)

Cash at beginning of period	$	7,989		$	288,356

Cash at end of period	$	2,066		$	73,734

Impact of Inflation and Changing Prices

We were not impacted by inflation during the past two fiscal years in any material respect. Interest rate hikes have increased the rental cost of our vault cash. As the interest rates increase and vault cash costs increase, this will have a less favorable impact on our income.

The following table sets forth the Company Contractual Payment Obligations:

Contractual Obligation	Payment by Period
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Long-Term Obligations	$	104,615	$	104,615		—		—		—
Capital Obligations		—		—		—		—		—
Operating Lease Obligations		—		—		—		—		—
Other Long—Term Liabilities Reflected on the Registrant’s Balance Sheet under GAAP		—		—		—		—		—
Total	$	104,615	$	104,615		—		—		—

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

None.

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

On June 27, 2006, Freedom issued 100,000 shares of its common stock to Getting You There, LLC, or GYT, an entity owned by Virginia K. Sourlis, Esq., the sole officer and director of Freedom, for aggregate purchase price of $2,100. The Company sold these shares of common stock under the exemption from the registration requirements of the Securities Act of 1933, as amended, afforded the company under Section 4(2) and Regulation D promulgated thereunder due to the fact that the issuance did not involve a public offering and in light of fact that Ms. Sourlis is an “accredited investor” as defined in Rule 501(a) of Regulation D promulgated under the Act. On October 25, 2007, we redeemed all of the 100,000 shares from GYT in exchange for 300,000 shares of the resultant issuer’s common stock after the merger.

In connection with its merger with SWL, on October 25, 2007, Freedom issued 350 shares of its common stock for each share of common stock held by stockholders of SWL of which 2,330,200 are being registered by the Selling Stockholders listed in this Registration Statement. The Company issued these shares under the exemption from the registration requirements of the Securities Act of 1933, as amended, afforded the company under Regulation S promulgated thereunder due to the investors were non-US residents.

As previously reported on a Current Report on Form 8-K filed with the Securities and Exchange Commission on May 30, 2008, on May 27, 2008, the Company and SWL, entered into a Share Purchase and Exchange Agreement (the “Exchange Agreement”) with Best Allied, a wholly-owned subsidiary of SWL, and Ms. Ivy S.K. Lam, a director and officer of Best Allied and a stockholder of an aggregate of 6,063,750 shares of the Company’s Common Stock. Pursuant to the Exchange Agreement, at a closing held on May 30, 2008, Ms. Lam purchased from the Company and SWL 10,000 shares of Common Stock of Best Allied owned by SWL, which constituted 100% of the issued and outstanding shares of Best Allied, in exchange for 6,063,750 shares of the Company’s Common Stock held by Ms. Lam, which constituted 100% of the shares of the Company’s Common Stock held by Ms. Lam (the “Exchange”). The effective date of the Exchange is April 1, 2008. Pursuant to the agreement, Ms Lam had agreed to the return and cancellation of 6,063,750 shares of our common stock held by her. The Company issued these shares under the exemption from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Regulation S promulgated thereunder due to the fact that Ms. Lam is not a US resident.

On September 19, 2008, the Company issued 300,000 shares of common stock to Wakabayashi Fund, LLC in consideration for services rendered. . The Company issued these shares under the exemption from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Regulation S promulgated thereunder due to the fact that none of the members of Wakabayashi Fund, LLC are non- US residents.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

Item 5. Other Information.

None.

Item 6. Exhibits

Item No.	Description	Method of Filing

31.1	Certification of Roger Kwok Wing Fan pursuant to Rule 13a-14(a).	Filed electronically herewith

32.1	Chief Executive Officer and Chief Financial Officer Certification pursuant to 18 U.S.C. § 1350 adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.	Filed electronically herewith

SIGNATURES

Dated: August 18, 2009

/s/ ROGER KWOK WING FAN

Roger Kwok Wing Fan

President and Chief Executive Officer and Chairman

(Principal Executive Officer) of Sound Worldwide Holdings, Inc.