WASHINGTON, D.C. 20549
Amendment No. 1 to
For the transition period from ______to______.
China Yida Holding, Co.
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):
State the number of shares outstanding of each of the issuer’s classes of common equity, as of May 8, 2008: 68,084,487 shares
China Yida Holding, Co.
CHINA YIDA HOLDING CO. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
China Yida Holding Co. (“the Company”, “we”, “us”, “our”) was formerly a provider of commercial reservation systems and integrated software solutions for low fare, regional, and mid-sized airlines. On November 17, 2006, subject to the terms of the Court Order issued by the Court of Queen's Bench of the Province of New Brunswick, all assets of the Canadian Subsidiaries were sold to 627450 New Brunswick Inc.
We were originally incorporated on June 4, 1999 as Apta Holdings, Inc. (“Apta”) in the State of Delaware. In August of 2003, the Company changed its name from Apta Holdings, Inc. to InteliSys Aviation Systems of America Inc ("IASA"), pursuant to a consent of the Company's shareholders, to better reflect its new business activities.
IASA was incorporated on June 4, 1999 in the State of Delaware. IASA was formerly engaged in two lines of business: owning and operating income producing real estate, and a finance business which originated and serviced loans to individuals and to businesses. The real estate business was spun off in 2000. The finance business was sold prior to December 31, 2002.
On December 31, 2002, IASA acquired 100% of the issued and outstanding common stock of CONVERGix, Inc. ("CONVERGix"), a Canadian corporation, pursuant to a share exchange agreement dated November 22, 2002. Under the share exchange agreement, IASA issued 3,295,000 shares of its common stock plus 21,788,333 of Class B Special "exchangeable shares" of Intelisys Acquisition, Inc., a 100% owned subsidiary of IASA. The exchangeable shares have equal voting rights and equal economic value as IASA common stock. These exchangeable shares may be exchanged by the holder at any time on a one-for-one basis for IASA common stock, and if not exchanged prior to December 31, 2012, will be exchanged for IASA common stock on that date. As a result of the merger, the shareholders of CONVERGix are now shareholders of IASA. In conjunction with the merger, all of the directors and officers of IASA resigned and the shareholders have appointed a new board of directors and officers, which consists of the directors and officers of CONVERGix.
The merger was accounted for as a reverse acquisition and resulted in CONVERGix becoming the accounting acquirer, whereby the historical financial statements of IASA have become those of CONVERGix.
In conjunction with the merger and recapitalization of CONVERGix, CONVERGix's 25,083,333 issued and outstanding common stock were reclassified into common stock of IASA or exchangeable shares of Intelisys Acquistion Inc., which represent IASA common stock equivalents. Because IASA was inactive at December 31, 2002, net assets acquired were Nil.
CONVERGix is incorporated under the New Brunswick Business Corporations Act in Canada and is a holding company, which holds investments in two subsidiary companies whose business activities include developing, marketing, installation and support of a suite of aviation enterprise software for the global market.
CONVERGix was incorporated on January 18, 2001 in connection with a corporate reorganization of its two subsidiary companies, Cynaptec Information Systems Inc. and InteliSys Aviation Systems Inc. Following this reorganization, CONVERGix owns 100% of the issued and outstanding common shares of Cynaptec Information Systems Inc. and 53% of the issued and outstanding common shares of InteliSys Aviation Systems Inc. On March 31, 2001, the Company abandoned its operations in Cynaptec information Systems Inc. in order to concentrate on the development and marketing of the "Amelia" software product developed by Intelisys Aviation Systems Inc.
Cynaptec Information Systems Inc. owns 47% of the issued and outstanding common shares of InteliSys Aviation Systems Inc.
CHINA YIDA HOLDING CO. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The reorganization on January 18, 2001 did not result in a change of control of Cynaptec Information Systems Inc. and InteliSys Aviation Systems Inc.
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and include the following significant accounting policies:
On June 29, 2006, all subsidiaries of the Company (the "Registrant") which were incorporated in Canada filed with the Queens Bench of the Province of New Brunswick, Canada, a Notice of Intention to make a Proposal under the Canadian Bankruptcy and Insolvency Act (the "Notice of Intention"). Such subsidiaries were the following (the "Canadian Subsidiaries"): Convergix Inc.; Cynaptec Information Systems Inc.; InteliSys Aviation Systems Inc.; InteliSys Acquisition Inc.; and InteliSys (NS) Co.
On October 4, 2006, the proposal submitted by InteliSys Aviation Systems of America Inc. (the "Registrant") and its subsidiaries in the Court of Queen's Bench of the Province of New Brunswick, Canada was approved by the Court. Pursuant to such proposal, a new company consisting of the existing employees of the Registrant and a group of new equity investors ("Newco") acquired all the assets of the subsidiaries of the Registrant (the "Subsidiaries"). The consideration for such purchase consisted of $200,000 CDN in cash and $250,000 CDN in 3-year 8% notes issued by Newco (the "Newco Notes"). Such notes were secured by all the assets of Newco.
In accordance with the terms of the proposal, the secured claims of the creditors of the Subsidiaries were assumed by Newco (there were no secured creditors of the Registrant). The unsecured claims of the creditors of the Registrant received $1,250 CDN within two months of court approval of the proposal. After the payment of fees and any taxes owed pursuant to the Income Tax Act (Canada), the Class A Unsecured Creditors of the Subsidiaries received $150 CDN in cash for each claim, the balance of cash from the sale of assets after payment to secured creditors and the balance thereof by having their respective proportion share of the Newco Notes. The Class B Creditor (the Registrant) did not receive any cash or Newco notes from the sale of the subsidiaries. The Class C creditors (the employees of the subsidiaries) received $50,000 CDN in Newco notes distributed on a prorata basis.
As a result of the approval of the proposal by the Court of Queen's Bench of the Province of New Brunswick, Canada, on October 6, 2006 the Court issued a Court Order ordering the sale of all assets of the subsidiaries to Newco subject to conditions of the proposal.
On November 17, 2006, subject to the terms of the Court Order issued by the Court of Queen's Bench of the Province of New Brunswick, all assets of the Canadian Subsidiaries were sold to 627450 New Brunswick Inc. The Company has started the process of dissolving the Canadian Subsidiary companies.
On May 17, 2007 Shareholders of Special Class B "Exchangeable Shares" in IYSA's wholly owned subsidiary Intelisys Acquisition Inc were exchanged on a one-for-one basis for IYSA common shares. A total of 20,288,333 IYSA common shares were issued.
On May 3, 2007 the Company filed a Preliminary Proxy Statement to notify shareholders of a Special Meeting. The purpose of the meeting was to vote on the following matters: (1)To grant discretionary authority to our board of directors to implement a reverse stock split of our common stock on the basis of one post-consolidation share for up to each [ten] pre-consolidation shares to occur at some time within twelve months of the date of the meeting, with the exact amount and time of the reverse split to be determined by the Board of Directors; and (2) to transact such other business as may properly be brought before a special meeting of the shareholders of our Company or any adjournment thereof.
CHINA YIDA HOLDING CO. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The Special Meeting of the stockholders of Intelisys Aviation Systems of America Inc. (the "Company") was held at 815 Bombardier Street, Shediac, New Brunswick, Canada, E4P1H9 on June 20, 2007 at 10:00 a.m. local time pursuant to notice given in accordance with the by-laws of the Company, the applicable rules and regulations of the Delaware General Corporation Law and the Securities and Exchange Commission. The Chair requested that the Secretary report on whether notice had been properly given in accordance with the bylaws. The Secretary reported that the meeting was held pursuant to printed notice mailed on May 21, 2007 to each stockholder of record of the Company as of May 18, 2007, who is entitled to vote. The Chair requested that the Secretary report as to whether a quorum existed. The Secretary reported that the record date for the Meeting had been previously established by the Board as May 18, 2007 (the "Record Date"), and that on the Record Date, an aggregate of 90,967,531 votes (the "Voting Shares") were entitled to be cast by shareholders at the Meeting. The Secretary further reported that the Voting Shares are comprised of 90,967,531 shares of the Company's Common Stock that were issued and outstanding as of the Record Date which are entitled at the Meeting to one vote for each share of Common Stock held on the Record Date.
The Secretary then reported that 59,755,906 Voting Shares of the Company were represented at the Meeting in person or by proxy, which shares constituted 65.69% of the issued and outstanding Voting Shares. The Secretary then declared that a quorum was present and that the meeting was duly constituted and should proceed.
57,822,757 Voting Shares, representing 63.56% of the issued and outstanding share capital of the Company, voted to approve the resolution set forth below, and 1,841,514 Voting Shares, representing 2.02% of the issued and outstanding share capital, voted against the resolution set forth below: Accordingly, the following resolution is hereby approved:
"RESOLVED, that the Board is granted discretionary authority to implement a reverse stock split of our common stock on the basis of one post-consolidation share for up to each ten pre-consolidation shares to occur at some time within twelve months of the date of the meeting, with the exact amount and time of the reverse split to be determined by the Board of Directors."
Keenway Limited was incorporated under the laws of the Cayman Islands on May 9, 2007 for the purpose of functioning as an off-shore holding company to obtain ownership interests in Hong Kong Yi Tat International Investment Co., Ltd. Its registration number is CR-187088, and its registered address of Scotia Centre, 4th Floor, P. O. Box 2804, George Town, Grand, Cayman, KY1-1112, Cayman Islands.
On November 19, 2007, Chen Minhua, Fan Yanling, Extra Profit International Limited, Luck Glory International Limited, and Zhang Xinchen (collectively, the Keenway Shareholders”), Keenway Limited, Hong Kong Yi Tat and we entered into a definitive Share Exchange Agreement (“Exchange Agreement”) which resulted in Keenway becoming our wholly owned subsidiary (the “Merger”). The Merger was accomplished by means of a share exchange in which the Keenway Shareholders exchanged all of their stock in Keenway for the transfer and additional issuance of our common stock. Under the terms of the Exchange Agreement and as a result of the Merger:
| | Keenway became our wholly owned subsidiary; |
| | In exchange for all of their shares of Keenway common stock, the Keenway Shareholders received 90,903,246 newly issued shares of our common stock and 3,641,796 shares of our common stock which was transferred from certain InteliSys Shareholders; |
| | Immediately following the closing of the Merger, the Keenway Shareholders own approximately 94.5% of our issued and outstanding shares on a fully diluted basis. |
This transaction closed on November 19, 2007.
Mr. CHEN Minhua and Ms. FAN Yanling, his spouse, were majority shareholders of Keenway, prior to the Merger.
Hongkong Yi Tat was established on July 28, 2000, under the laws of Hong Kong Special Administration Region, with its registered office at RM1302-3 13/F, Crocodile House II, 55 Connaught Road Central HK, and its certificate number of 31123140-000-07-06-7.
Fujian Jintai Tourism Developments Co.Ltd (“Jintai”) is incorporated on October 29, 2001 under the laws of PRC and located in Taining County, Fujian Province in China. It mainly engages in tourism developments, ethnic culture communication, timeshare resorts operation, souvenirs sales, and related tourism services. It has gained 30 years of management rights (from 2001 to 2031) to manage the Big Golden Lake in Fujian province, one of the 7 best Danxia landforms in China.
The Company owns 100% shares of Jintai, and holds variable interest in Fujian Jiaoguang Media Co.Ltd and holds variable interest in Fuyu through Jintai.
Fuzhou Hongda Co. Ltd. (“Hongda”) is incorporated On July 6, 2007, under the laws of PRC and located in Fuzhou City. Hongda is a 100% owned company of Jintai.
CHINA YIDA HOLDING CO. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Fuzhou Fuyu Media Co. Ltd. (“Fuyu”) is incorporated on July 31, 2007, under the laws of PRC and located in Fuzhou City. On November 5, 2007, Fuyu is acquired by Hongda which is owned Jintai, thus becomes 100% owned by the Company through Jintai.
Fujian Jiaoguang Media Co.Ltd (“Jiaoguang”) is incorporated on October 9, 2004 under the laws of PRC and located in Fuzhou City, Fujian Province in China. It mainly engages in advertisement, publishing, exhibition, cultural communication and coordinating cultural performance as an agent. Jiaoguang did not hold, lease, or otherwise account for broadcasting licenses with the Chinese government. It has gained 7 years of managing rights of Fujian Education TV advertisement (from 2003 to 2010), and has option to another 5 years’ management.
On March 20, 2008, China Yida Holding, Co. (the “Company”) incorporated a subsidiary corporation, Fujian Yintai Tourism Co. Ltd (“Yintai”) under the laws of the People Republic of China (“PRC”). Yintai is our wholly-owned subsidiary and will mainly operate a tourist attraction in Fujian.
On December 30, 2004, Jiaoguang and its shareholders entered into a set of Contractual Arrangements with the Company. The relationships with the Company and its shareholders are governed by the Contractual Arrangements.
The Contractual Arrangements are comprised of a series of agreements, including a Consulting Agreement and an Operating Agreement, through which the Company has the right to advise, consult, manage and operate Jiaoguang, and collect and own all of Jiaoguang’s respective net profits. Additionally, under a Proxy and Voting Agreement and a Voting Trust and Escrow Agreement, the shareholders of Jiaoguang have vested their voting control over Jiaoguang to the Company. In order to further reinforce the Company’s rights to control and operate Jiaoguang, Jiaoguang and its shareholders have granted the Company, under an Option Agreement, the exclusive right and option to acquire all of their equity interests in the Jiaoguang or, alternatively, all of the assets of the Jiaoguang. Further, the shareholders of Jiaoguang have pledged all of their rights, titles and interests in the Jiaoguang to the Company under an Equity Pledge Agreement.
CHINA YIDA HOLDING CO. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Because Jiaoguang and the Company’s contractual relationship comply with FIN 46R, the Company consolidated Jiaoguang’s financial statements as VIE. As of December 31, 2006, the Company has consolidated Jiaoguang’s financial statements for the two years ended December 31, 2006 and 2005 in the accompanying financial statements.
The Company consolidated the financial statements of Jiaoguang as of, and for the year ended December 31, 2007 because Jiaoguang and the Company’s contractual relationship comply with FIN 46R. Jiaoguang was authorized to acquire programs and produce programs for FETV. The costs incurred in acquiring and producing programs accounts as the Cost of Revenue and Jiaoguang did not net agency commissions against advertising revenue.
| 2. | BASIS OF PRESETATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
a. Unaudited Interim Financial Information
The accompanying unaudited consolidated financial statements have been prepared by China Yida Holding Co. pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) Form 10-QSB and Item 310 of Regulation S-B, and generally accepted accounting principles for interim financial reporting. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-KSB. The results of the three months ended March 31, 2008 are not necessarily indicative of the results to be expected for the full year ending December 31, 2008.
b. Principle of consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries Jintai, Yintai, Fuyu, Hongda, and the accounts of the variable interest entities, Jiaoguang, collectively “the Company”. All significant inter-company accounts and transactions have been eliminated in consolidation.
The Company has adopted FASB Interpretation No. 46R "Consolidation of Variable Interest Entities" ("FIN 46R"), an Interpretation of Accounting Research Bulletin No. 51. FIN 46R requires 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 VIE or is entitled to receive a majority of the VIE's residual returns. VIEs are those entities in which the Company, through contractual arrangements, bears the risks of, and enjoys the rewards normally associated with ownership of the entities, and therefore the company is the primary beneficiary of these entities. The results of subsidiaries or variable interest entities acquired during the year are included in the consolidated income statements from the effective date of acquisition.
ACCOUNTING AFTER INITIAL MEASUREMENT OF VIE - Subsequent accounting for the assets, liabilities, and non-controlling interest of a consolidated variable interest entity are accounted for as if the entity were consolidated based on voting interests and the usual accounting rules for which the VIE operates are applied as they would to a consolidated subsidiary as follows:
· carrying amounts of the VIE are consolidated into the financial statements of the Company as the primary beneficiary (referred as "Primary Beneficiary" or "PB");
· inter-company transactions and balances, such as revenues and costs, receivables and payables between or among the Primary Beneficiary and the VIE(s) are eliminated in their entirety; and
INITIAL MEASUREMENT OF VIE- The Company initially measures the assets, liabilities, and non-controlling interests of the VIEs at their fair values at the date of the acquisitions.
c.Accounts receivable
The Company's policy is to maintain reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. As of March31, 2008 and December 31, 2007, the Company had accounts receivable of $33,568 and $21,965, respectively.
CHINA YIDA HOLDING CO. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
d.Impairment
The Company applies the provisions of Statement of Financial Accounting Standard No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS No. 144"), issued by the Financial Accounting Standards Board ("FASB"). FAS No. 144 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value.
The Company tests long-lived assets, including property, plant and equipment, intangible assets and construction in progress, for recoverability at least annually or more frequently upon the occurrence of an event or when circumstances indicate that the net carrying amount is greater than its fair value. Assets are grouped and evaluated at the lowest level for their identifiable cash flows that are largely independent of the cash flows of other groups of assets. The Company considers historical performance and future estimated results in its evaluation of potential impairment and then compares the carrying amount of the asset to the future estimated cash flows expected to result from the use of the asset. If the carrying amount of the asset exceeds estimated expected undiscounted future cash flows, the Company measures the amount of impairment by comparing the carrying amount of the asset to its fair value. The estimation of fair value is generally measured by discounting expected future cash flows as the rate the Company utilizes to evaluate potential investments. The Company estimates fair value based on the information available, judgments and projections are considered necessary. There was no impairment of long-lived assets for the three month period ended March 31, 2008.
e.Revenue recognition
The Company's revenue recognition policies are in compliance with Staff accounting bulletin (SAB) 104.Sales revenue is recognized at the date of service rendered to customers when a formal arrangement exists, the price is fixed or determinable, the services rendered, no other significant obligations of the Company exist and collectibility is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue. Unearned revenue amounted to $49,050 and $135,945 respectively as of March 31, 2008 and December 31, 2007.
Revenues from advance resort ticket sales are recognized when the tickets are used. Revenues from our contractors who have tourism contracts with us are generally recognized over the period of the applicable agreements commencing with the opening of the related attraction.
The Company sells the television air time to third parties. The company records advertising sales when advertisements are aired. The Company also sells admission and activities tickets for a resort which the Company has the management right.
As of December 31, 2007, the Company did not generate revenue from ethnic culture communications, timeshare resorts operation, souvenir sales and the related tourism service.
The Company has no product return or sales discount allowance because service rendered and accepted by customers are normally not returnable and sales discount is normally not granted after service is rendered.
f.Advertising costs
The Company expenses the cost of advertising as incurred or, as appropriate, the first time the advertising takes place. Advertising costs for the three months ended March 31, 2008 and March 31, 2007 were $42,086 and $19,749, respectively.
There is a contract in force for the period of August 1, 2003 to July 31, 2010 between a related party (Xinhengji, XHJ) and a Television Station (Owned by The Chinese Government) that provides for prepaid airtime to be purchased and utilized by the related party in return for payment of RMB 5,000,000 and purchase of suitable programming for the station in the amount of an additional RMB 5,000,000 (Educational Programming). XHJ is 80% owned by a shareholder of the company and 20% owned by the shareholder’s mother.
Xinghenji has contracted with the Company to enable it to own the rights to sell commercial advertising minutes on FETV television stations. This right was acquired by the Company under the provisos of a year term with total cost of $657,393 (RMB5, 000,000). The total value of the arrangement is charged on a monthly basis, no intangible assets have been recorded in this regard. The Company records the right in the amount of $54,783 (RMB416, 667) as cost of revenue against advertisement revenue monthly.,
As a coincidental part of the arrangement the Company is obligated to purchase appropriate television programming for FETV station. XHJ is obligated to reimburse the registrant for up to $657,393 (RMB 5,000,000) for the purchase of the television programs. If the amount paid for purchasing programs is more than $657,393 (RMB 5,000,000) the Company bears the excess cost. These are the significant provisions of the contract and do not include any agency relationships.
The Company has recorded a receivable from XHJ for the amount of purchasing programs for FETV up to the aforementioned $657,393 (RMB 5,000,000). To the extent the Company has expended in excess of $657,393 (RMB 5,000,000) in connection with the purchase of programming; this amount is borne by the Company.
CHINA YIDA HOLDING CO. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
g.Income taxes
The Company accounts for income taxes using tax payable approach which did not need the recognition and measurement of deferred tax assets.
h.Segment reporting
Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosure About Segments of an Enterprise and Related Information" requires use of the "management approach" model for segment reporting. The management approach model is based on the way a company's management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.
During the three month periods ended March 31, 2008 and 2007, the Company is organized into two main business segments: tourism and advertisement. The following table presents a summary of operating information and certain year-end balance sheet information for the three months ended March 31, 2008 and 2007:
| | | Three months ended March 31, | |
| | | 2008 | | | 2007 | |
| Revenues from unaffiliated customers: | | | | | | |
| Advertisement | | $ | 5,859,330 | | | $ | 873,614 | |
| Tourism | | | 992,954 | | | | 668,142 | |
| Consolidated | | $ | 6,852,285 | | | $ | 1,541,756 | |
| | | | | | | | | |
| Operating income : | | | | | | | | |
| Advertisement | | $ | 4,291,565 | | | $ | 374,628 | |
| Tourism | | | 187,845 | | | | 441,222 | |
| Reconciling items(1) | | | (712 | ) | | | - | |
| Consolidated | | $ | 4,478,698 | | | $ | 815,850 | |
| | | | | | | | | |
| Identifiable assets: | | | | | | | | |
| advertisement | | $ | 23,765,026 | | | $ | 8,396,526 | |
| tourism | | | 17,126,251 | | | | 4,706,488 | |
| Reconciling items(1) | | | 487,807 | | | | - | |
| Consolidated | | $ | 41,379,084 | | | $ | 13,103,014 | |
| | | | | | | | | |
| Net income | | | | | | | | |
| advertisement | | $ | 4,261,766 | | | $ | 236,505 | |
| tourism | | | 50,699 | | | | 310,346 | |
| Reconciling items(1) | | | (762 | ) | | | - | |
| Consolidated | | $ | 4,311,704 | | | $ | 546,852 | |
| | | | | | | | | |
| Interest expense: | | | | | | | | |
| advertisement | | $ | 25,262 | | | $ | 21,688 | |
| tourism | | | 35,987 | | | | 43,364 | |
| Consolidated | | $ | 61,249 | | | $ | 65,052 | |
(1) The reconciling amounts include certain assets which are excluded from segments.
CHINA YIDA HOLDING CO. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
i.Recent accounting pronouncements
In September 2006, FASB issued SFAS 158 EmployersAccounting for Defined Benefit Pension and Other Postretirement Plansan amendment of FASB Statements No. 87, 88, 106, and 132(R)This Statement improves financial reporting by requiring an employer to recognize the over funded or under funded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity or changes in unrestricted net assets of a not-for-profit organization. This Statement also improves financial reporting by requiring an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. An employer with publicly traded equity securities is required to initially recognizethe funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after December 15, 2006. An employer without publicly traded equity securities is required to recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after June 15, 2007. However, an employer without publicly traded equity securities is required to disclose the followinginformation in the notes to financial statements for a fiscal year ending after December 15, 2006, but before June 16, 2007, unless it has applied the recognition provisions of this Statement in preparing those financial statements:
1) A brief description of the provisions of this Statement
2) The date that adoption is required
3) The date the employer plans to adopt the recognition provisions of this Statement, if earlier.
The requirement to measure plan assets and benefit obligations as of the date of the employers fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008. The management is currently evaluating the effect of this pronouncement on the consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business Combinations”. The objective of this statement will significantly change the accounting for business combinations. Under Statement 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition –date fair value will limited exceptions. Statement 141 applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company does not expect the adoption of SFAS No. 141R to have a material impact on the consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements-An Amendment of ARB No. 51". The objective of this statement is to establish new accounting and reporting standards for the Noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Statement 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company does not expect the adoption of SFAS No. 160 to have a material impact on the consolidated financial statements.
On March 19, 2008, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities. The new standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. "Use and complexity of derivative instruments and hedging activities have increased significantly over the past several years. This has led to concerns among investors that the existing disclosure requirements in FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, do not provide enough information about how these instruments and activities affect the entity’s financial position and performance," explained Kevin Stoklosa, project manager. "By requiring additional information about how and why derivative instruments are being used, the new standard gives investors better information upon which to base their decisions." The new standard also improves transparency about the location and amounts of derivative instruments in an entity’s financial statements; how derivative instruments and related hedged items are accounted for under Statement 133; and how derivative instruments and related hedged items affect its financial position, financial performance, and cash flows. FASB Statement No. 161 achieves these improvements by requiring disclosure of the fair values of derivative instruments and their gains and losses in a tabular format. It also provides more information about an entity’s liquidity by requiring disclosure of derivative features that are credit risk–related. Finally, it requires cross-referencing within footnotes to enable financial statement users to locate important information about derivative instruments. Management is currently evaluating the effect of this pronouncement on financial statements.
j. Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation.
CHINA YIDA HOLDING CO. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
| 3. | DUE FROM/(TO) RELATED PARTIES |
Due from related parties is receivable for normal business purposes due to Jinyang Company and Xinhengji for $294,770 and $56,680 as of December 31, 2007, respectively. Jinyang is 96% owned by 2 shareholders of the Company and Xinhengji which is 80% owned by a shareholder of the company and 20% owned by the shareholder’s mother. The amount due from Xinhengji includes the loan to Xinhengji for $606,680 minus $550,000, which is the expense Xinhengji paid for the company’s reverse merger. The amount is due on demand, unsecured and interest free. As of December 31, 2007, the amount due from related party amounted to $351,450.
The amount due from related parties has no balance as of March 31, 2008.
Due to related party is payable for normal business purposes due to Xinhengji for $1,413,774 and the expense Xinhengji paid for the company’s reverse merger for $550,000, . Xinhengji which is 80% owned by a shareholder of the company and 20% owned by the shareholder’s mother.. The amount is due on demand, unsecured and interest free.
| 4. | PROPERTY, PLANT AND EQUIPMENT |
Property, plant and equipment consist of the following as of March 31, 2008 and December 31, 2007:
| | | March 31, 2008 | | | Decemeber 31, 2007 | |
| House & Building | | $ | 8,795,767 | | | | 8,467,310 | |
| Electronic Equipments | | | 179,187 | | | | 171,893 | |
| Transportation Equipments | | | 61,638 | | | | 59,336 | |
| Office Furniture | | | 8,255 | | | | 7,946 | |
| | | | | | | | | |
| Subtotal | | | 9,044,847 | | | | 8,706,485 | |
| | | | | | | | | |
| Less: Accumulated Depreciation | | | (640,945 | ) | | | (521,939 | ) |
| | | | | | | | | |
| Total | | $ | 8,403,902 | | | | 8,184,546 | |
Depreciation expenses for the three months ended March 31, 2008 and 2007 were $96,647 and $146,608 respectively.
| 5. | CONSTRUCTION IN PROGRESS |
Construction in progress amounted to $7,847,306 and $278,803 as of March 31, 2008 and December 31, 2007 respectively and is mainly constructions for parking and boarding constructions and new landscapes in the tourist resort where the Company has management right.
The Company entered an new construction contract with an unrelated party to develop project of Zhuangyuanyan resort on January 2008. The total contract amount is $1,164,925 (RMB82.57 million) and the whole project will finish within 180 days. As of March 31, 2008, $ 6,550,654 (RMB46 million) was paid per contract.
The company acquired 30 years tourist resort management right at August, 2001 from unrelated parties by paying cash. The Company entered an agreement with one third party on February 29, 2008 and obtained five-year use rights of 30 outside advertising boards in Fuzhou city amounting to $6,408,248 (RMB45,000,000). In accordance with SFAS 142 the advertising board is a non monetary asset without physical substance that provides probable future economic benefits and has costs that can be reliably measured. An intangible asset is identifiable if it arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations.
The term of the contact is in excess of twelve months and inures exclusive operation rights for the registrant in the future 5 years. The registrant expects the future economic benefits from the advertising revenue through the 30 outside boards and the cost was prepaid in the amount to $6,408,248.
CHINA YIDA HOLDING CO. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
As of March 31, 2008 and December 31, 2007, intangible asset is as follows:
| | | March 31, 2008 | | | December 31, 2007 | |
| Intangible asset | | | | | | |
| Management right of tourist resort | | $ | 4,948,400 | | | $ | 4,798,070 | |
| Advertising board | | | 6,408,248 | | | | - | |
| Accumulated amortization | | | (986,362 | ) | | | (841,185 | ) |
| | | $ | 10,370,286 | | | $ | 3,956,885 | |
| | | | | | | | | |
Intangible assets of the Company are reviewed annually as to whether their carrying value has become impaired. The Company considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations. The Company also re-evaluates the periods of amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives. As of March 31, 2008 the Company expects these assets to be fully recoverable.
Total amortization expenses for the three months ended March 31, 2008 and 2007 amounted to $145,166 and $37,531respectively. Amortization expenses for next five years after March 31, 2008 are as follows:
1st year $ 580,706
2nd year 580,706
3rd year 580,706
4th year 580,706
5th year 580,706
After 7,466,756
Total $10,370,286
| 7. | LONG TERM PREPAID EXPENSE |
As of March 31, 2008 and December 31, 2007, the company has long term prepaid expenses amounting to $9,007,149 and $9,459,052 respectively.
Fuyu and Yintai entered two marketing promotion agreements with two tour agents (unrelated parties) for promoting the resorts the Company owns in the next three years in March 2008. The two tour agents promise to bring tourism revenue for Yintai amounting to $2,926,552 (RMB 2,1 million) annually for the next three years. At the same time, Fuyu had prepaid the special market promotion fee $5,332,166 ($1,777,389 annum) to the two contractors entirely for the next three years. Fuyu also provide 500 minutes advertisement free annually for the two contractors. The prepaid expense for the two tour agents as of March 31, 2008 and December 31, 2007 was $5,090,997 and $5,357,385 respectively. The corresponding amortization expenses for the three months ended March 31, 2008 and 2007 amounted to $452,919 and $0 respectively which were part of cost of revenue.
Fuyu entered another contract with another unrelated party for ordinary business contract. Fuyu prepaid $4,101,667 (RMB 3,000 million) to the unrelated party as of December 31, 2007 and had the prepaid balance amounting to $3,916,152 as of March 31, 2008. The amortization expenses for the three months ended March 31, 2008 and 2007 amounted to $365,912 and $0 respectively.
Amortization expenses for next three years after March 31, 2008 are as follows:
1st year $ 3,275,327
2nd year 3,275,327
3rd year 2,456,495
Total $9,007,149
CHINA YIDA HOLDING CO. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Other payables are payables due to unrelated parties other than supplier vendors. The amount is $217,981 and, $449,507 due on demand and interest free as of March 31, 2008 and as of December 31, 2007.
Tax payables consist of the following as of March 31, 2008:
| | | March 31, 2008 | | | Decemeber 31, 2007 | |
| City planning tax | | | 17,578 | | | | 50,876 | |
| Business tax payable | | | 335,648 | | | | 873,701 | |
| Individual income tax payable | | | 1,591 | | | | 667 | |
| Income tax payable | | | 249,620 | | | | 142,604 | |
| Education fee | | | 13,546 | | | | 34,911 | |
| Cultural construction fee | | | 168,568 | | | | 523,339 | |
| Total | | | 786,551 | | | | 1,626,099 | |
11. LOAN PAYABLE
As of March 31, 2008 and December 31,2007, the loan payables are as follows:
| | | March 31, 2008 | | | Decemeber 31, 2007 | |
| Fuzhou city commercial bank | | $ | 1,139,244 | | | | 1,096,702 | |
| Bank of China | | | - | | | | 822,526 | |
| Total | | | 1,139,244 | | | | 1,919,228 | |
As of March 31, 2008 and December 31,2007, the Company had a loan payable of $1,139,244 and $1,096,702 to Fuzhou Commercial Bank in China, with an annual interest rate of 6.73% from November 24, 2006 to November 23, 2007 and 8.75% from November 24, 2007 to November 16, 2008, due on November 16, 2008. The loan is guaranteed by a related party for which the same shareholder of the Company has 80% ownership.
At December 31, 2007, the Company had a loan payable of $822,526 to Bank of China Taining Branch, with an annual interest rate of 6.14%, and guaranteed by 2 shareholders and pledged by the Company’s revenue from the tourist resort. The Company paid off the entire balance on March 2008.
The interest expenses are $25,262 and $21,688 for the three months ended March 31, 2008 and 2007.
CHINA YIDA HOLDING CO. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
12. OTHER (INCOME) EXPENSES
Other (income) expenses for the three months ended March 31, 2008 and 2007 was $67,681 and $67,978 respectively.
Donation revenue represents amounts the company receives from contributions made by visitors to the facilities. These amounts are recognized as income as contributed. Donation income is cash donation to 2 donation boxes in a temple owned by the Company. For the safety purpose, the company asks its related party Jingyang to keep the cash since Jingyang has advanced security system. The related party regularly returns the money back to the Company. Jinyang is 96% owned by 2 shareholders of the Company.
13. INCOME TAXES
The Company is registered in Hong Kong, China and has operations in primarily two tax jurisdictions - the PRC and Hong Kong, China (HK). For certain operations in the HK and PRC, the Company has incurred net accumulated operating losses for income tax purposes The Company believes that it is more likely than not that these net accumulated operating losses will not be utilized in the future. Therefore, the Company has provided full valuation allowance for the deferred tax assets arising from the losses at these locations as of March 31, 2007. Accordingly, the Company has no net deferred tax assets.
| | | March 31, 2008 | | | March 31, 2007 | |
| HK Current Income Tax Expense (Benefit) | | $ | - | | | $ | - | |
| | | | | | | | | |
| PRC Current Income Expense (Benefit) | | $ | 99,313 | | | $ | 203,393 | |
| | | | | | | | | |
| Total Provision for Income Tax | | $ | 99,313 | | | $ | 203,393 | |
The following is a reconciliation of the provision for income taxes at the HK and PRC income tax rates to the income taxes reflected in the Statement of Operations:
| | March 31, 2008 | March 31, 2007 |
| Tax expense (credit) at HK | 17.5% | 17.5% |
| Changes in valuation allowance | (17.5%) | (17.5%) |
| Foreign income tax - PRC | 25% | 33% |
| Exempt from income tax due to net loss | (23%) | (6)% |
| Tax expense at actual rate | 2% | 27% |
People’s Republic of China (PRC)
Pursuant to the PRC Income Tax Laws, the Company's subsidiary is generally subject to Enterprise Income Taxes ("EIT") at a statutory rate of 33%, which comprises 30% national income tax and 3% local income tax before 2008. Beginning January 1, 2008, the new Enterprise Income Tax ("EIT") law will replace the existing laws for Domestic Enterprises ("DES") and Foreign Invested Enterprises ("FIEs"). The new standard EIT rate of 25% will replace the 33% rate currently applicable to both DES and FIEs. The Company’s applicable EIT rate under new EIT law is 25% which was approved by local Tax department.
CHINA YIDA HOLDING CO. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The applicable income tax rates for the business operation in PRC is 25% in 2008 except Fuyu. Fuyu is completely exempt of income tax for the first 2 years up to December 2008 pursuant to State Tax Except notice no 2007(19).
There were no significant book and tax basis difference.
14. MAJOR CUSTOMERS AND VENDORS
There were no major customers which accounting over 10% of the total net revenue for the three months ended March 31, 2008. There are no major vendors which accounting over 10% of the total purchase for the three months ended March 31, 2008. The Company extends credit to its customers based upon its assessment of their credit worthiness and generally does not require collateral. Credit losses have not been significant.
15. CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS
The Company’s practical operations are all carried out in the PRC. Accordingly, The Company’s business, 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's economy.
The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in the North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
16. COMMITMENTS AND LEASES
Operating Contract
Jintai entered an agreement of operating of Big Golden Lake Tourism Project with management committee of Fujian Taining Jinhu Tourism Economic Developing District on 2001. Pursuant the agreement, Jintai has the operation right of Province Park in the Big Golden Lake Tourism Project for 31 years, including the landscapes of Golden Lake, Shangqinxin, Zhuangyuanyan and etc. The transferring fee of the operation right of province park was $4,785,278 (RMB35 million). Jintai Tourism may enjoy the revenue generated from tickets sold and other income generated from the resort affiliated and services provided.
The Company booked the operation right of landscapes as intangible assets with the original cost amounting of $4,785,278 (RMB35 million). The operation right of landscape was amortized equally in 31 years started from 2001. The Company booked amortization expense under “General and Administration expense” as of March 31, 2008 and December 31, 2007.
Management contract
On December 30, 2004, shareholders of Jiaoguang Media entered into a set of Contractual Arrangements with the Company. The relationships with the Company and its shareholders are governed by the Contractual Arrangements.
The Contractual Arrangements are comprised of a series of agreements, including a Consulting Agreement and an Operating Agreement, through which the Company has the right to advise, consult, manage and operate Jiaoguang Media, and collect and own all of respective net profits of Jiaoguang Media. Additionally, under a Proxy and Voting Agreement and a Voting Trust and Escrow Agreement, the shareholders of Jiaoguang Media have vested their voting control over Jiaoguang Media to the Company. In order to further reinforce the Company’s rights to control and operate Jiaoguang Media, Jiaoguang and its shareholders have granted the Company, under an Option Agreement, the exclusive right and option to acquire all of their equity interests in the Jiaoguang Media or, alternatively, all of the assets of the Jiaoguang Media. Further, the shareholders of Jiaoguang Media have pledged all of their rights, titles and interests in the Jiaoguang Media to the Company under an Equity Pledge Agreement.
The Company has adopted FASB Interpretation No. 46R "Consolidation of Variable Interest Entities" ("FIN 46R"), an Interpretation of Accounting Research Bulletin No. 51. FIN 46R requires 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 VIE or is entitled to receive a majority of the VIE's residual returns. VIEs are those entities in which the Company, through contractual arrangements, bears the risks of, and enjoys the rewards normally associated with ownership of the entities, and therefore the company is the primary beneficiary of these entities. The results of subsidiaries or variable interest entities acquired during the year are included in the consolidated income statements from the effective date of acquisition.
CHINA YIDA HOLDING CO. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Because Jiaoguang Media and the Company’s contractual relationship comply with FIN 46R, the Company has consolidated Jiaoguang Media as VIE since 2004. The Company has consolidated Jiaoguang Media as a VIE in the 10KSB as of March 31, 2008 and December 31, 2007 filed with SEC.
Lease commitments
The Company incurred rent expenses $4,752and $1,997 for the years ended March 31, 2008, and 2007.
The Company and its subsidiaries made no commitments of leases for future. So there is no lease commitment in the future.
Guarantee
The Company has guaranteed for a $1,000,000 loan payable for a related party for which 80% ownership is held by a shareholder of the Company and 20% owned by the same shareholder’s mother. The management reviewed and believed that the chance that the Company has to pay the loan payable for the related party is remote.
17. SHAREHOLDERS’ EQUITY
Our common stock has been quoted on the OTC Bulletin Board under the symbol "IYSA.OB" since 1999. In December 2007, the symbol changed to “IAVA.OB” pursuant to a 10 for 1 reverse split. Since the end of the 2007 fiscal year and in February 2008, we effectuated another 10 for 1 reverse stock split and changed our name to China Yida Holding, Co. as a result of the reverse merger that closed on November 17, 2007. Accordingly, our symbol was changed to “CYID.OB.”
1) SHARE EXCHANGE AGREEMENT
On November 19, 2007, Chen Minhua, Fan Yanling, Extra Profit International Limited, Luck Glory International Limited, and Zhang Xinchen (collectively, the Keenway Shareholders”), Keenway Limited, Hong Kong Yi Tat and we entered into a definitive Share Exchange Agreement (“Exchange Agreement”) which resulted in Keenway becoming our wholly owned subsidiary (the “Merger”). The Merger was accomplished by means of a share exchange in which the Keenway Shareholders exchanged all of their stock in Keenway for the transfer and additional issuance of our common stock.
In exchange for all of their shares of Keenway common stock, the Keenway Shareholders received 90,903,246 newly issued shares of our common stock and 3,641,796 shares of our common stock which was transferred from certain InteliSys Shareholders; Immediately following the closing of the Merger, the Keenway Shareholders own approximately 94.5% of our issued and outstanding shares on a fully diluted basis.
As a result of the exchange agreement, the reorganization was treated as an acquisition by the accounting acquiree that is being accounted for as a recapitalization and as a reverse merger by the legal acquirer for accounting purposes. Pursuant to the recapitalization, all capital stock shares and amounts and per share data have been retroactively restated. Accordingly, the financial statements include the following:
| | | Common Shares | | | Common Stock | | | Additional Paid-in Capital | | | Total | |
| Balance, January 1, 2007 (1) | | | 94,015,167 | | | $ | 94,016 | | | $ | 8,507,831 | | | $ | 8,601,847 | |
| Recapitalization (2) | | | 5,983,580 | | | | 5,984 | | | | (5,984 | ) | | | - | |
| | | | | | | | | | | | | | | | | |
| Balance, December 31, 2007 | | | 99,999,547 | | | $ | 100,000 | | | $ | 8,501,847 | | | $ | 8,601,847 | |
| | | | | | | | | | | | | | | | | |
| (1) | The amount shown for paid in capital would be valued in terms of the issued capital of the nominal acquiree (the new subsidiary). The above amount of $8,601,847 represents the capital amount of Keenway Limited. |
| (2) | This amount represents the value of shares issued by the shell company prior to reverse acquisition recorded as a difference between the opening balance of equity of Keenway Limited as of January 1, 2007 and December 31, 2007. Any transaction after the reverse acquisition is not part of this amount. |
2) EQUITY TRANSACTIONS
Jiaoguang Media was increased its share capital amounting of $1,778,823 to $2,564,000 (RMB 2,000 million) on November 2006 by its original shareholders.
On February 29, 2008, the Company issued shares of our common stock to certain individuals and entities listed below pursuant to the terms of the Share Exchange Agreement entered into on November 19, 2007. Specifically, we issued a total of 44,751,046 shares of common stock to certain entities
On March 7, 2008, the Company entered into a Financing transaction with Pope Investments II LLC, an accredited investor, and certain other accredited investors. Pursuant to the Financing Documents, we sold units of securities that consisted of an aggregate of 13,333,334 shares of common stock and warrants exercisable into 6,666,667 shares of common stock for a total purchase price of 14,000,000. The purchase price of one unit was $1.05. The fair market value of the 6,666,667 shares of warrants was $21,999,901 as of March 7, 2008. The company paid $972,750 to the various parties as fund raising cost which was deducted directly from the fund raised amounting of 14,000,000 on March 2008.
Pursuant to terms, the warrants can be converted into 6,666,667 shares of common stock at an exercise price of $1.25 per share and can be exercised beginning on September 6, 2008 and will expire on September 6, 2011. Cashless exercise available with payment in common shares of the company if shares underlying the warrant are not registered. And Call provision (at the option of the grantor) in the warrants is available if the company attains certain EPS at December 31, 2008. The warrants are permanent in nature with no requirement on the part of the Company to redeem for cash.
CHINA YIDA HOLDING CO. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Additionally, majority shareholders of the Company and the Company entered into a Lock-Up Agreement whereby both parties agreed not to sell any securities for a period of 12 months after the initial registration statement associated with this financing is declared effective. Lastly, our Chairman and the Company entered into a Make Good Agreement whereby he has pledged 13,333,334 shares of his common stock of the Company as security for the Company reaching certain earnings thresholds for the fiscal years ended 2007 and 2008. If the Company meets these thresholds, the Make Good Shares will be released from escrow and returned to the Chairman. Alternatively, if the Company fails to meet the earnings requirements, the Make Good Shares will be released to the Investors as additional compensation.
The assumptions used for warrants issued with the share purchasing in Black Scholes calculation are as follow:
| Risk-free interest rate | 2.5% | |
| Expected life of the options | 3 year | |
| Expected volatility | 514.17% | |
| Expected dividend yield | 0 % | |
Warrants outstanding at March 31, 2008 and related weighted average price and intrinsic value are as follows:
Exercise Prices | | | Total Warrants Outstanding | | | Weighted Average Remaining Life (Years) | | | Total Weighted Average Exercise Price | | | Warrants Exercisable | | | Weighted Average Exercise Price | | | Aggegrate Intrinsic Value | |
| | | | | | | | | | | | | | | | | | | | |
| $ | 1.05 | | | | 6,666,667 | | | | 2.94 | | | $ | 1.05 | | | | 6,666,667 | | | $ | 1.05 | | | $ | 4,333,334- | |
18. OTHER COMPREHENSIVE INCOME
Balances of related after-tax components comprising accumulated other comprehensive income (loss), included in stockholders’ equity, at March 31, 2008 and December 31, 2007 are as follows:
| | | Transaltion Adjustment | |
| Balance at December 31, 2006 | | $ | 42,584 | |
| Change for 2007 | | | 961,760 | |
| Balance at December 31, 2007 | | | 1,004,344 | |
| Change for 2008 | | | 969,165 | |
| | | | | |
| Balance at March 31, 2008 | | $ | 1,973,509 | |
| | | | | |
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 relating to future events or our future performance. Actual results may materially differ from those projected in the forward-looking statements as a result of certain risks and uncertainties set forth in this prospectus. Although management believes that the assumptions made and expectations reflected in the forward-looking statements are reasonable, there is no assurance that the underlying assumptions will, in fact, prove to be correct or that actual results will not be different from expectations expressed in this report.
The following discussion and analysis contains forward-looking statements, which involve risks and uncertainties. The Company’s actual results may differ significantly from the results, expectations and plans discussed in these forward-looking statements.
We were originally incorporated on June 4, 1999 as Apta Holdings, Inc. (“Apta”) in the State of Delaware. Apta was a wholly owned subsidiary of ARCA Corp. and Apta subsequently acquired all of ARCA’s assets and liabilities as part of ARCA’s merger with another company.
On November 19, 2007, Chen Minhua, Fan Yanling, Extra Profit International Limited, Luck Glory International Limited, and Zhang Xinchen (collectively, the Keenway Shareholders”), Keenway Limited, Hong Kong Yi Tat and we entered into a definitive Share Exchange Agreement (“Exchange Agreement”) which resulted in Keenway becoming our wholly owned subsidiary (the “Merger”). The Merger was accomplished by means of a share exchange in which the Keenway Shareholders exchanged all of their stock in Keenway for the transfer and additional issuance of our common stock. Under the terms of the Exchange Agreement and as a result of the Merger:
This transaction closed on November 19, 2007.
Through Keenway’s subsidiaries and certain commercial and contractual arrangements with other Chinese companies, we operate tourism and mass media companies in China. We mainly operate in Fujian Province. Our tourism business is beginning to flourish and we provide operational and management support for tourist attractions in China. Another part of our business revolves around television media and advertising through TV. Since 2004, our company has operated tourist sites and worked with tourist attractions to provide advertising through television ads and other marketing campaigns. One of our biggest attractions is the Great Golden Lake Tourist Attraction which is a scenic area hidden in a deep mountain that consists of a world-class geological park. We have been able to help them increase tourist volume from 50,000 people in 2004 to 216,000 in 2006. Its annual operational revenue has also grown from $523,200 US in 2004 to $2,560,400 US in 2006.
We also run a television station, FETV, which is currently the fourth most viewed among the 11 provincial medias in Fujian Province. The networks annual ad income has increased in the past two years from $1 million in 2004 (when we took it over) to over $7,651,441 in 2006.
China’s tourism market is growing at a record breaking pace with no signs of a slowdown. According to predictions made by the World Trade Organization, China will become the second largest tourist destination by 2010, and will become the most popular tourist destination by 2020. According to these predictions and the Company’s own estimates, the Company expects to see unprecedented growth over the next 12 months. In addition, we expect to see similar growth in the mass media market. Over the past few years, the Chinese mass media industry has sustained a growth rate of 25%. The Company views the Chinese mass media industry as still in its infancy and will continue to grow due to Chinese emerging status as a global leader.
The tourism industry in China is highly regulated by the PRC government. However, after China granted the WTO access, China has been relaxing its regulations and the tourism industry in China is expanding rapidly and consists of almost 34% of the total tourism in the Asia-Pacific region. In addition, with the Olympics being held in Beijing in 2008, China is expected to relax its regulations even more. The Olympics will also promote tourism in China and encourage foreigners to visit which in turn will allow the Company to grow.
The Company currently generates its cash flow through operations which it believes will be sufficient to sustain current level operations for at least the next twelve months. In addition, in February 2008, we completed a $14 million financing and we intend to use the proceeds to expand our operations and improve the “Great Golden Lake” and increase the number of visitors we can attract to the destination. In 2008, we intend to continue to work to expand our tourism services and mass media outlets, including the acquisition of a provincial-level education TV station. We expect the increased tourism in China because of the Olympic Games to positively effect the number of visitors we can attract to our tourist destinations.
To the extent we are successful in rolling out our advertising campaign programs, identifying potential acquisition targets and negotiating the terms of such acquisition, and the purchase price includes a cash component, we plan to use our working capital and the proceeds of any financing to finance such acquisition costs. Our opinion concerning our liquidity is based on current information. If this information proves to be inaccurate, or if circumstances change, we may not be able to meet our liquidity needs.
Over the course of the next few years, we intend to grow and expand our tourism and mass media marketing businesses. We expect to acquire additional tourist areas that will enhance our reputation as a world-class company that develops and manages tourist attractions. These acquisitions will be financed either through revenues of the Company or by financings and sales of the Company’s stock or other securities. In addition, the Company expects to roll out a “chain” travel agency that attracts many Chinese tourists, both foreigners and Chinese natives exploring other Chinese cities, and will link each of its tourist attractions and self-promote each attraction. This will be accomplished by offering tours of multiple tourist attractions and travel between these tourist attractions.
With respect to the mass media, we expect to grow by acquiring another operating television network. We will be looking to acquire a provincial-level educational TV station.
Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.
Our significant accounting policies are summarized in Note 1 of our financial statements. While all these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our consolidated results of operations, financial position or liquidity for the periods presented in this report.
We have no off-balance sheet arrangements.
Other than the matters discussed above, there were no changes (including corrective actions with regard to significant deficiencies or material weaknesses) in the internal controls over financial reporting during the quarter ended March 31, 2008, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Currently we are not aware of any litigation pending or threatened by or against the Company.
On February 29, 2008, we issued shares of our common stock to certain individuals and entities listed below pursuant to the terms of the Share Exchange Agreement entered into on November 19, 2007. Specifically, we issued a total of 44,751,046 shares of common stock to certain entities as follows:
These shares were issued in reliance on the exemption under Section 4(2) of the Securities Act of 1933, as amended (the ‘Act’).
On March 7, 2008, we entered into certain Financing Documents with Pope Investments II LLC, an accredited investor, and certain other accredited investors. Pursuant to the Financing Documents, we sold units of securities that consisted of an aggregate of 13,333,334 shares of common stock and warrants exercisable into 6,666,667 shares of common stock for a total purchase price of $14,000,000. The purchase price of one unit was $1.05.
These shares were issued in reliance on the exemption under Section 4(2) of the Securities Act of 1933, as amended (the ‘Act’).
31.1 Certifications of Chief Executive Officer pursuant to Section 302 of Sarbanes Oxley Act of 2002
31.2 Certifications of Chief Financial Officer pursuant to Section 302 of Sarbanes Oxley Act of 2002
32.1 Certifications of Chief Executive Officer pursuant to Section 906 of Sarbanes Oxley Act of 2002
On March 6, 2008, we filed an 8-k disclosing that a 10 for 1 reverse stock split and our name change changing our name to China Yida Holding, Co. was effective as of February 28, 2008.
On March 11, 2008 we filed an 8-K disclosing the closing of financing consisting of sale of units of securities that consisted of an aggregate of 13,333,334 shares of common stock and warrants to purchase 6,666,667 shares of common stock to accredited investors for a total purchase price of $14,000,000.*
On April 17, 2008 we file an 8-K disclosing the incorporation of a subsidiary corporation, Fujian Yintai Tourism Co. Ltd (“Yintai”) under the laws of the People Republic of China (“PRC”). Yintai is our wholly-owned subsidiary and will mainly operate a tourist attraction in Fujian.*
On April 25, 2008 we filed an 8-K disclosing the appointment of Mr. Peter Zheng as our new Chief Financial Officer.*
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
