SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST EFFECTIVE
AMENDMENT NO.1 to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CHINA YIDA HOLDING, CO.
(Exact name of registrant as specified in its charter)
DELAWARE (State or other jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Code Number) | 22-3662292 (I.R.S. Employer Identification Number) |
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RM 1302-3 13/F, Crocodile House II 55 Connaught Road Central, Hong Kong 86-591-28308388 (Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices) |
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Chen Minhua Chief Executive Officer RM 1302-3 13/F, Crocodile House II 55 Connaught Road Central, Hong Kong 86-591-28308388 (Name, address, including zip code, and telephone number, including area code, of agent for service) |
Copies to: Eric Stein, Esq. Anslow & Jaclin, LLP 195 Route 9 South, Suite 204 Manalapan, New Jersey 07726 (732) 409-1212 |
Approximate Date of Commencement of Proposed Sale to the Public: from time to time after the effective date of this Registration Statement as determined by market conditions and other factors.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: x
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. 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” 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 | x | |
| (Do not check if a smaller reporting company) | o |
CALCULATION OF REGISTRATION FEE
Title of EachClass Of Securities to be Registered | Amount To Be Registered | Proposed Maximum Offering Price Per Share | Proposed Maximum Aggregate Offering Price | Amount of Registration Fee |
| Common Stock, $.001 par value(1) | 7,000,000 | $1.05 | $7,350,000 | $288.86 |
| Total | 7,000,000 | $7,350,000 | $288.86 |
| (1) | Represents approximately 52.5% of the 13,333,334 common shares purchased by the Investors as set forth in the Securities Purchase Agreement dated March 7, 2008, attached hereto as an exhibit. |
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
EXPLANATORY NOTE
THIS FILING DOES NOT INVOLVE THE REGISTRATION OF ANY NEW SHARES OF COMMON STOCK. RATHER, THIS FILING UPDATES THE REGISTRATION OF THE COMMON STOCK ORIGINALLY REGISTERED ON FORM S-1 (FILE NO. 333-150665), DECLARED EFFECTIVE ON SEPTEMBER 5, 2008.
The information in this prospectus is not complete and may be changed. The selling stockholders may not sell these securities until the registration filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and neither we nor the selling stockholders are soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION DATED JUNE 10, 2009
7,000,000 shares of Common Stock
CHINA YIDA HOLDING, CO.
This prospectus relates to the sale or other disposition by the selling stockholders identified in this prospectus, or their transferees, of up to 7,000,000 shares of our common stock, which includes, 52.5% of the 13,333,334 shares of common stock and warrants to Pope Investments II LLC and the other investors (collectively, the “Investors”).
We will receive no proceeds from the sale or other disposition of the shares, or interests therein, by the selling stockholders. However, we will receive proceeds in the amount of $8,333,333.75 assuming the cash exercise of all of the warrants held by the selling stockholders, subject to certain of the warrants being exercised under a “cashless exercise” right.
Our common stock is traded on the over-the-counter electronic bulletin board. Our trading symbol is CYID. On April 17, 2008, the last bid price as reported was $1.30 per share.
The selling stockholders, and any participating broker-dealers may be deemed to be “underwriters” within the meaning of the Securities Act of 1933, and any commissions or discounts given to any such broker-dealer may be regarded as underwriting commissions or discounts under the Securities Act. The selling stockholders have informed us that they do not have any agreement or understanding, directly or indirectly, with any person to distribute their common stock.
Brokers or dealers effecting transaction in the shares should confirm the registration of these securities under the securities laws of the states in which transactions occur or the existence of our exemption from registration.
An investment in shares of our common stock involves a high degree of risk. We urge you to carefully consider the Risk Factors beginning on page 5.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The Date of this Prospectus is June 10, 2009
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This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all the information that you should consider before investing in the common stock. You should carefully read the entire prospectus, including “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements, before making an investment decision .
THE COMPANY
Background
China Yida Holdings Co. was originally incorporated on June 4, 1999 as Apta Holdings, Inc. (“Apta”) in the State of Delaware. On June 29, 2006, our predecessor and certain of its subsidiaries which were incorporated in Canada, Convergix Inc., Cynaptec Information Systems Inc., InteliSys Aviation Systems Inc., InteliSys Acquisition Inc., and InteliSys (NS) Co. (the “Canadian Subsidiaries”), 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”).
On October 4, 2006, our proposal that we submitted to the Court of Queen’s Bench of the Province of New Brunswick, Canada was approved by the Court and the court ordered the sale of all assets of the subsidiaries subject to the conditions of the proposal.
From November 17, 2006 until we closed the Reverse Merger with China Yida, we did not have any operations or revenues and had decided to attempt to acquire other assets or business operations that will maximize shareholder value.
History of Keenway Limited and China Yida
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.
Mr. CHEN Minhua and Ms. FAN Yanling, his spouse, were majority shareholders of Keenway, prior to the Merger.
Share Exchange
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.
THE MERGER
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.
Our operations are headquartered in China in Fuzhou City in Fujian Province. We are a profitable, mid-sized Chinese company that focuses primarily on two industries:
1) tourism; and
2) mass media.
Fujian Jintai Tourism Developments Co., Ltd. is an entity that was established on October 29, 2001, and is domiciled at Floor 4, 1, Helping Street, Taining County, Fujian Province. Its primary business relates to tourism and, specifically, tourism at the Great Golden Lake. The company offers bamboo rafting, parking lot service, photography services and ethnic cultural communications.
Fujian Jintai owns 100% of Fuzhou Hongda Commercial Services Co., Ltd. (“Hongda”) which was incorporated on July 6, 2007 under the laws of the PRC and is located in Fuzhou City. Hongda’s wholly owned subsidiary is Fuzhou Fuyu Advertising Co., Ltd. (“Fuyu”) which is an entity established on July 31, 2007 with its primary place of business at , No. 5 Xian Fu Road, Zhang Cheng Town, Yongtai County, China.
Fujian Jiaoguang Media Co., Ltd. is the entity that concentrates on the mass media portion of the business and was established on October 9, 2004 and is domiciled in Wangjiang Tower, 18, Longgu Holiday Inn, Langqi Economic Zone, Fuzhou City. Its primary business is focused on advertisements, including media publishing, television, cultural and artistic communication activities, and performance operation and management activities.
We do not have a direct ownership interest in Fujian Jiaoguang Media Co., Ltd. On December 30, 2004, Jiaoguang and its shareholders entered into a set of Contractual Arrangements with us. 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 Jiaoguang. Further, the shareholders of Jiaoguang have pledged all of their rights, titles and interests in Jiaoguang to the Company under an Equity Pledge Agreement. We have this organizational structure because of the Chinese limitations on foreign investments and ownership in Chinese businesses. Generally, Chinese law prohibits foreign entities from directly owning certain types of businesses, such as the media industry. We have obtained an opinion from Chinese legal counsel that this structure is legal and that the U.S. corporation can obtain the same benefits and risks with this contractual structure as they would with a direct equity ownership. The agreements and legal opinion are filed as exhibits to this Registration Statement.
These businesses of the Company provide it with a unique opportunity to integrate industries that are at the forefront of Chinese growth. The Company’s business plan focuses around the combination of tourism and mass media and creating growth through the use of relationships established by the Company.
Hong Kong Yi Tat International Investment Co., Ltd. is an entity that was created solely for the purpose of equity control of its operating entities, Fujian Jintai Tourism Industrial Development, Co, Ltd. and Fujian Jiaoguang Media, Co., Ltd. Hong Kong Yi Tat does not have any operations other than the operations of their subsidiaries. Fuzhou Fuyu Advertising Co., Ltd. is an operating entity that engages in the media industry..
Fuzhou Fuyu Advertising Co., Ltd. is the same entity as Fuzhou Fuyu Media Co., Ltd. This entity was incorporated on July 31, 2007. Before this entity was incorporated, Fujian Jiaoguang Media Co., Ltd. operated our media business. After August 1, 2007, however, Fuzhou Fuyu Advertising Co., Ltd. was the main operator of our media and advertising business.
History and Corporate Organization
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.
Mr. CHEN Minhua and Ms. FAN Yanling, his spouse, were majority shareholders of Keenway, prior to the Merger.
Merger and Revised Ownership Structure
The chart below depicts the corporate structure of the Registrant as of the date of this Registration Statement. As depicted below, pursuant to the Merger, the Registrant owns 100% of the capital stock of Keenway Limited. Keenway Limited, incorporated in the Cayman Islands, owns 100% of Hong Kong Yi Tat International Investment Co., Ltd., a company organized in Hong Kong. Hong Kong Yi Tat International Investment Co., Ltd. wholly owns Fujian Tourism Developments Co., Ltd. and has a contractual relationship for services with Fujian Jiaoguang Media Co., Ltd. (collectively, these entities shall be referred to as the “Keenway Companies”).
The current structure is:
PRINCIPAL PRODUCTS AND SERVICES
The Company is principally in the services business and does not produce or manufacture any products. Its major source of income is from services provided at tourist destinations, entrance fee, advertisement and paid-programming revenue through the following operations:
Great Golden Lake: It is located between the cities Sanming and Nanping of Fujian Province and Fuzhou of Jianxi Province. This property consists of 5 scenic areas: (1) Golden Lake; (2) Shangqing River; (3) Zhuanyuan Rock; (4) Luohan Mountain; and (5) Taining Old Town. The entire property covers more than 230 kilometers. In February of 2005, the United Nations Educational, Scientific, and Cultural Organization gave the Global Geopark title to Great Golden Lake. The major source of income at Great Golden Lake is currently from services provided at the park and park entrance fee.
Dadi Tulou (Earth Buildings): On December 26, 2008, we entered into the Dadi Tulou Tourist Resources Development Agreement with the Hua’an County People’s Government in Zhangzhou, China. Pursuant to this agreement, we have begun to develop the Dadi Tulou Tourism Destination and its surrounding scenic areas located in the Hua’an County. As a world cultural heritage, Dadi Tulou is classified as a world class tourist destination. The surrounding scenic areas include the Bamboo Plant Garden, Xianzi Lake, rivers along the Xianzi Lake, Taikou Village, Shangping Wanli Building Three, and South Mountain Palace. Dadi Tulou and its surrounding scenic areas are well-developed, and can be put into operation without extensive development. The major source of income at Dadi Tulou is currently from entrance fee.
Yunding: On November 27, 2008, we entered into the Tourist Destination Cooperative Development Agreement with the Yongtai County People’s Government in Fuzhou, China. Pursuant to the agreement, the Yongtai government shall grant us the exclusive right and special authorization to develop tourist destinations in Fuzhou located at Yongtai Beixi and Jiezhukou Lake. Accordingly, we are obligated to construct, operate and manage the two tourist destinations, subject to specific terms and conditions negotiated between us and the Yongtai government. We have the exclusive right to develop both Yongtai Beixi and Jiezhukou Lake and the Yongtai government is prohibited from granting the right of development, operation and management to any third party during the existence of our agreement. The major source of income at Mountain-top will come from services provide at Mountain-top and entrance fee after the grand-opening.
Fujian Education Television: a provincial comprehensive entertainment television channel ranked the 4th place with 92% population coverage in Fujian Province. The major source of income at Fujian Education Television is from advertising.
Railroad On-board Programming: Effective February 13, 2009, we entered into a Cooperation Agreement with Railway Media Center for the purpose of collaborating with RMC to produce programs titled “Journey through China on the Train” that will be broadcast to passengers traveling on train. Pursuant to this agreement, we are obligated to plan and film the Journey Program, and RMC shall review and broadcast the Journey Program. The content of the Journey Program will focus on introduction and preview of natural resources, culture and history of tourism destinations, tourism advertisement and travel tips. RMC will appoint the program supervisor and we will appoint all the other personnel.
We and RMC agreed that the Journey Program shall be inserted into the programs produced by RMC for train passengers and be broadcast in accordance with the following rules:
| (1) | For the train line into Tibet, the Journey Program will be limited to 20’ duration, and be inserted into the program that RMC produced by themselves. The Journey Program shall be broadcast daily on a rolling basis. |
| (2) | For the high-speed motor train unit, the Journey Program will be limited to the range of 5-20 minutes, and be broadcast daily on a rolling basis. |
| (3) | For the national broadcast channels covering 18 railway bureaus, we will produce a new 20’ episode every week with its premier broadcast on Saturday evening and replay on Sunday afternoon. |
| (4) | During the Term, if RMC increases its train TV broadcast channels, the Journey Program will be inserted into these added channels and be broadcast on a rolling basis. |
The major source of income is currently from paid-programming and other advertising revenue.
THE FINANCING
On March 7, 2008, we entered into a definitive Securities Purchase Agreement for the sale of units of securities of the Company aggregating up to a maximum of $14,000,000 (the “Securities Purchase Agreement), attached hereto as Exhibit 4.1. Each unit of securities consist of: one (1) share of Company common stock, $0.001 par value per share (the “Common Stock”); and (ii) a Class A warrant to purchase an additional number of shares equal to 50% of the Common Stock. The purchase price is $1.05 per unit. In connection with the Securities Purchase Agreement, the Company entered into (i) a Registration Rights Agreement, attached hereto as Exhibit 4.2; (ii) a Lock-Up Agreement, attached hereto as Exhibit 4.3; and (iii) a Make Good Agreement, attached hereto as Exhibit 4.4 (together with the Securities Purchase Agreement, these agreements shall be referred to as the “Financing Documents”).
The private placement closed simultaneously with the signing of the Financing Documents and the Company issuing 13,333,334 shares of common stock and warrants to Pope Investments II LLC and the other investors (collectively, the “Investors”). Pursuant to its terms, the warrants can be converted into 6,666,667 shares of common stock at an exercise price of $1.25 per share (the "Warrant"). The Warrants can be exercised beginning on September 6, 2008 and will expire on September 6, 2011. A copy of the Warrant is attached hereto as Exhibit 4.5.
In connection with the private placement and as part of the Financing Documents, we also entered into a Registration Rights Agreement, whereby, we have agreed to file a registration statement on Form S-1 (or other applicable Form) within 60 days of the close of this financing.
Additionally, our majority shareholders, Chen Minhua and Fan Yanling, and we entered into a Lock-Up Agreement whereby both Fan Yanling and Chen Minhua 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 we entered into a Make Good Agreement whereby Chairman Chen Minhua has pledged 13,333,334 shares of his common stock of the Company as security that the Company reach certain earnings thresholds for fiscal years ended 2007 and 2008 (the “Make Good Shares”). If the Company meets these thresholds, the Make Good Shares will be released from escrow and returned to Chairman Chen Minhua. Alternatively, if the Company fails to meet the earnings requirements, the Make Good Shares will be released to the Investors as additional compensation. For the fiscal year 2007, pursuant to the Make Good Agreement, the Company had to report Earnings Per Share of at least $0.084 per shares, based on 99,999,547 fully diluted shares outstanding. The Company met this earnings threshold and had Earnings Per Share of $0.12 per share. Therefore, none of the Make Good Shares were released from escrow to the investors. Pursuant to the Make Good Agreement, all of the Make Good Shares will remain in escrow until the Company states its Earnings Per Share for fiscal year 2008. For fiscal year 2008, pursuant to the Make Good Agreement, the Company has to have Earnings Per Share of $0.22 based on 68,084,333 fully diluted shares outstanding. If the Company meets this threshold for fiscal year 2008, the Make Good Shares will be released from escrow and returned to Chairman Chen Minhua. If, however, the earnings threshold is not met, the Make Good Shares will be released to the Investors on a pro rata basis and the total number of shares to be released to the Investors shall be as follows: (i) if the fiscal year 2008 earning per share is $0.11 or less, then all of the Make Good Shares will be released to the Investors (on a pro rata basis); or (ii) if the fiscal year 2008 earnings per share is greater than $0.11 but less than $0.20, then the Investors shall receive Make Good Shares equal to 1.5 times the percentage under earnings threshold; or (iii) if the Earning Per Share is greater than $0.20 then none of the Make Good Shares will be released to the Investors. It is important to note that the Company will not be issuing any additional shares if the earnings threshold is not met. The Make Good Shares are already issued to Chairman Chen and he will be transferring his shares to the Investors if the earnings threshold is not met. Therefore, this will not dilute any shareholders, other than Chairman Chen.
THE OFFERING
| Securities Covered Hereby | 7,000,000 shares of common stock to Pope Investments II LLC and the other investors (collectively, the “Investors”). |
| Common Stock Outstanding Prior to the Offering | 68,084,487 shares |
| Common Stock to be Outstanding after the Offering | 74,751,154 shares, assuming the selling stockholders exercise all their warrants, and no conversion of other series of outstanding preferred stock nor exercise of the other outstanding warrants and options. |
| The Percentage of Outstanding Stock that this Offering Represents Compared to the Total Shares Outstanding | 9.30%, assuming the selling stockholders exercise all their warrants, and no conversion of other series of outstanding preferred stock nor exercise of the other outstanding warrants and options. |
| Use of Proceeds | We will receive no proceeds from the sale or other disposition of the shares of common stock covered hereby by the selling stockholders. However, we will receive $8,333,333.75 if all of the warrants for underlying shares included in this prospectus are exercised for cash. We will use these proceeds for general corporate purposes. |
| OTC Electronic Bulletin Board Symbol | “CYID” |
FORWARD LOOKING STATEMENTS
Information included or incorporated by reference in this prospectus may contain forward-looking statements. This information may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from the future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words “may,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project” or the negative of these words or other variations on these words or comparable terminology.
This prospectus contains forward-looking statements, including statements regarding, among other things, (a) our projected sales and profitability, (b) our technology, (c) our manufacturing, (d) the regulation to which we are subject, (e) anticipated trends in our industry and (f) our needs for working capital. These statements may be found under “Management’s Discussion and Analysis or Plan of Operations” and “Business,” as well as in this prospectus generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined under “Risk Factors” and matters described in this prospectus generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this prospectus will in fact occur.
Except as otherwise required by applicable laws, we undertake no obligation to publicly update or revise any forward-looking statements or the risk factors described in the prospectus, whether as a result of new information, future events, changed circumstances or any other reason after the date of this prospectus.
AVAILABLE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the common stock offered hereby. This prospectus, which constitutes part of the registration statement, does not contain all of the information set forth in the registration statement and the exhibits and schedule thereto, certain parts of which are omitted in accordance with the rules and regulations of the SEC. For further information regarding our common stock and our company, please review the registration statement, including exhibits, schedules and reports filed as a part thereof. Statements in this prospectus as to the contents of any contract or other document filed as an exhibit to the registration statement, set forth the material terms of such contract or other document but are not necessarily complete, and in each instance reference is made to the copy of such document filed as an exhibit to the registration statement, each such statement being qualified in all respects by such reference.
We are also subject to the informational requirements of the Exchange Act which requires us to file reports, proxy statements and other information with the SEC. Such reports, proxy statements and other information along with the registration statement, including the exhibits and schedules thereto, may be inspected at public reference facilities of the SEC at 100 F Street N.E, Washington D.C. 20549. Copies of such material can be obtained from the Public Reference Section of the SEC at prescribed rates. You may call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference room. Because we file documents electronically with the SEC, you may also obtain this information by visiting the SEC’s Internet website at http://www.sec.gov.
ITEM 3. SUMMARY INFORMATION, RISK FACTORS AND RATIO OF EARNINGS TO FIXED CHARGES
The following tables set forth key components of our results of operations for the periods indicated, in dollars, and key components of our revenue for the period indicated, in dollars.
Fiscal year ended December 31, 2008 Compared to fiscal year ended December 31, 2007
| 2008 | 2007 | |||||||
| Net revenue | ||||||||
| Advertisement | $ | 23,319,235 | $ | 12,246,964 | ||||
| Tourism | 7,280,258 | 2,330,801 | ||||||
| Total net revenue | 30,599,493 | 14,577,765 | ||||||
| Cost of revenue | ||||||||
| Advertisement | 5,779,082 | 2,000,684 | ||||||
| Tourism | 1,904,329 | 70,726 | ||||||
| Total cost of revenue | (7,683,410 | ) | (2,071,409 | ) | ||||
| Gross profit | 22,916,082 | 12,506,356 | ||||||
| Operating expenses | ||||||||
| Selling expenses | 1,456,229 | 973,459 | ||||||
| Operating and administrative expenses | 2,463,201 | 2,622,417 | ||||||
| Total operating expenses | 3,919,429 | 3,595,876 | ||||||
| Income from operations | 18,996,653 | 8,910,480 | ||||||
| Other (income) expense | ||||||||
| Other income - donation income | - | (2,437,333 | ) | |||||
| Other expense, net | 22,869 | 8,869 | ||||||
| Interest expense | 37,168 | 221,058 | ||||||
| Interest income | (24,832 | ) | (1,775 | ) | ||||
| Finance expense | - | 4,742 | ||||||
| Total other expense | 35,205 | (2,204,440 | ) | |||||
| Income before income taxes | 18,961,448 | 11,114,920 | ||||||
| Provision for income taxes | 670,347 | 136,770 | ||||||
| Net income | 18,291,101 | 10,978,150 | ||||||
| Other comprehensive income | ||||||||
| Foreign currency translation gain | 2,129,733 | 961,760 | ||||||
| Other comprehensive income | $ | 20,420,834 | $ | 11,939,910 | ||||
| Basic net earnings per share | $ | 0.32 | $ | 1.16 | ||||
| Basic weighted average shares outstanding | 57,581,530 | 9,445,859 | ||||||
| Diluted net earnings per share | $ | 0.32 | $ | 1.16 | ||||
| Diluted weighted average shares outstanding | 57,581,530 | 9,445,859 | ||||||
Three months ended March 31, 2009 compared to three months ended March 31, 2008
| Three Months Ended March 31 | ||||||||
| 2009 | 2008 | |||||||
| Net revenue | ||||||||
| Advertisement | $ | 6,592,187 | $ | 5,859,330 | ||||
| Tourism | 3,230,718 | 992,954 | ||||||
| Total net revenue | 9,822,906 | 6,852,284 | ||||||
| Cost of revenue | ||||||||
| Advertisement | 1,372,523 | 1,384,565 | ||||||
| Tourism | 128,226 | 503,035 | ||||||
| Total cost of revenue | (1,500,750 | ) | (1,887,600) | |||||
| Gross profit | 8,322,156 | 4,964,684 | ||||||
| Operating expenses | ||||||||
| Selling expenses | 430,647 | 133,671 | ||||||
| Operating and administrative expenses | 1,202,198 | 352,316 | ||||||
| Total operating expenses | 1,632,845 | 485,987 | ||||||
| Income from operations | 6,689,311 | 4,478,698 | ||||||
| Other (income) expense | ||||||||
| Other expense, net | 1,269 | 7,976 | ||||||
| Interest expense | 0 | 61,249 | ||||||
| Interest income | (13,634 | ) | (1,545 | ) | ||||
| Total other expense | (12,364 | ) | 67,681 | |||||
| Income before income taxes | 6,701,675 | 4,411,017 | ||||||
| Provision for income taxes | 1,730,801 | 99,313 | ||||||
| Net income | 4,970,874 | 4,311,704 | ||||||
| Other comprehensive income | ||||||||
| Foreign currency translation gain (loss) | (13,028 | ) | 969,165 | |||||
| Comprehensive income | $ | 4,957,846 | $ | 5,280,870 | ||||
| Basic net earnings per share | $ | 0.07 | $ | 0.17 | ||||
| Basic weighted average shares outstanding | 68,084,487 | 25,489,123 | ||||||
| Diluted net earnings per share | $ | 0.07 | $ | 0.15 | ||||
| Diluted weighted average shares outstanding | 68,084,487 | 28,038,142 | ||||||
The shares of our common stock being offered for resale by the selling stockholders are highly speculative in nature, involve a high degree of risk and should be purchased only by persons who can afford to lose the entire amount invested in the common stock. Before purchasing any of the shares of common stock, you should carefully consider the following factors relating to our business and prospects. If any of the following risks actually occurs, our business, financial condition or operating results could be materially adversely affected. In such case, the trading price of our common stock could decline and you may lose all or part of your investment. The risks and uncertainties described below are not the only risks facing us.
RISK FACTORS
You should carefully consider the risks described below together with all of the other information included in this report before making an investment decision with regard to our securities. The statements contained in or incorporated into this offering that are not historic facts are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. If any of the following risks actually occurs, our business, financial condition or results of operations could be harmed. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.
Risks Relating to Our Business
| · | WE NEED TO MANAGE GROWTH IN OPERATIONS TO MAXIMIZE OUR POTENTIAL GROWTH AND ACHIEVE OUR EXPECTED REVENUES AND OUR FAILURE TO MANAGE GROWTH WILL CAUSE A DISRUPTION OF OUR OPERATIONS RESULTING IN THE FAILURE TO GENERATE REVENUE. |
In order to maximize potential growth in our current and potential markets, we believe that we must expand the scope of our services in the tourism and mass media industry. This expansion will place a significant strain on our management and our operational, accounting, and information systems. To date, we have not experienced strains from our expansion and have had all resources necessary to accommodate the growth. We expect, however, to continue to grow and in order to deal with the strain it will put on our resources, we will need to continue to improve our financial controls, operating procedures, and management information systems. We will also need to effectively train, motivate, and manage our employees. Our failure to manage our growth could disrupt our operations and ultimately prevent us from generating the revenues we expect. We do not have any current plans for expansion, however, we do anticipate that the business will continue to grow based on the current economic climate and will have to be ready to deal with the expansion and have the resources, including the infrastructure and management, in place to deal with the growth.
| · | WE CANNOT ASSURE YOU THAT OUR INTERNAL GROWTH STRATEGY WILL BE SUCCESSFUL WHICH MAY RESULT IN A NEGATIVE IMPACT ON OUR GROWTH, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND CASH FLOW. |
One of our strategies is to grow internally through increasing the customers we target for advertising campaigns and locations where we promote tourism by penetrating existing markets in PRC and entering new geographic markets in PRC as well as other parts of Asia and globally. However, many obstacles to this expansion exist, including, but not limited to, increased competition from similar businesses, international trade and tariff barriers, unexpected costs, costs associated with marketing efforts abroad and maintaining attractive foreign exchange ratios. We cannot, therefore, assure you that we will be able to successfully overcome such obstacles and establish our services in any additional markets. Our inability to implement this internal growth strategy successfully may have a negative impact on our growth, future financial condition, results of operations or cash flows.
| · | WE CANNOT ASSURE YOU THAT OUR ACQUISITION GROWTH STRATEGY WILL BE SUCCESSFUL RESULTING IN OUR FAILURE TO MEET GROWTH AND REVENUE EXPECTATIONS. |
In addition to our internal growth strategy, we have also explored the possibility of growing through strategic acquisitions. We intend to pursue opportunities to acquire businesses in PRC that are complementary or related in product lines and business structure to us. We may not be able to locate suitable acquisition candidates at prices that we consider appropriate or to finance acquisitions on terms that are satisfactory to us. If we do identify an appropriate acquisition candidate, we may not be able to negotiate successfully the terms of an acquisition, or, if the acquisition occurs, integrate the acquired business into our existing business. Acquisitions of businesses or other material operations may require debt financing or additional equity financing, resulting in leverage or dilution of ownership. Integration of acquired business operations could disrupt our business by diverting management away from day-to-day operations. The difficulties of integration may be increased by the necessity of coordinating geographically dispersed organizations, integrating personnel with disparate business backgrounds and combining different corporate cultures.
We also may not be able to maintain key employees or customers of an acquired business or realize cost efficiencies or synergies or other benefits we anticipated when selecting our acquisition candidates. In addition, we may need to record write-downs from future impairments of intangible assets, which could reduce our future reported earnings. At times, acquisition candidates may have liabilities or adverse operating issues that we fail to discover through due diligence prior to the acquisition. In addition to the above, acquisitions in PRC, including state owned businesses, will be required to comply with laws of the People's Republic of China ("PRC"), to the extent applicable. There can be no assurance that any given proposed acquisition will be able to comply with PRC requirements, rules and/or regulations, or that we will successfully obtain governmental approvals which are necessary to consummate such acquisitions, to the extent required. If our acquisition strategy is unsuccessful, we will not grow our operations and revenues at the rate that we anticipate.
| · | IF WE ARE NOT ABLE TO IMPLEMENT OUR STRATEGIES OR EXPAND OUR MEDIA OPERATIONS AND ACQUIRE ADDITIONAL TOURIST ATTRACTIONS, OUR BUSINESS OPERATIONS AND FINANCIAL PERFORMANCE MAY BE ADVERSELY AFFECTED. |
We expanded our business in 2008 by acquiring additional tourist attractions, including Yongtai Beixi and Jiezhukou Lake, Dadi Tulou, and Geart Golden Lake, and establishing collaboration with Railway Media Center to produce programs titled “Journey through China on the Train.” Our continuous business development plan is based on a further expansion of our media services and acquisition of additional tourist attractions. There is inherent risks and uncertainties involved throughout these stages of development. There is no assurance that we will be successful in continuously expanding our media operations or acquiring additional tourist attractions, or that our strategies, even if implemented, will lead to the successful achievement of our objectives. If we are not able to successfully implement these further development strategies, our business operations and financial performance may be adversely affected.
| · | TOURISM AND MEDIA ARE COMPETITVE BUSINESS ENVIRONMENTS WHICH COULD ADVERSELY AFFECT OUR FINANCIAL PERFORMANCE. |
We operate in a competitive environment and have to compete with other tourist destinations and media outlets in order to attract visitors and customers. In order to be successful in attracting visitors or customers we may be forced to lower prices or spend more money on advertising to continue to compete with our competitors. These competitive measures may result in lower net income.
| · | ECONOMIC TURMOIL OR SUPPRESSION ON INDIVIDUAL RIGHTS MAY CAUSE A DOWNTURN IN CHINA’S TOURISM INDUSTRY. |
A downturn in the world economic markets, or just the Chinese economy, may have a negative impact on our business. Consumers with a lack of disposable incomes may decide not to vacation, or travel to the Great Golden Lake, which would negatively impact our business. Additionally, the perceived suppression of individual rights by the Chinese government may deter tourists from visiting the People’s Republic of China, which may cause a decline in visitors to our attraction.
| · | OUR RELIANCE ON ONE MAJOR ATTRACTION, THE GREAT GOLDEN LAKE, IS RISKY AND COULD HAVE A NEGATIVE IMPACT ON THE COMPANY’S GROWTH. |
The Great Golden Lake is our only major attraction. A major decline in visitors to the Great Golden Lake or a natural disaster such as an earthquake would have a material adverse affect on our business, and would negatively affect our financial condition and operating results.
| · | A FAILURE TO EXPAND OUR MEDIA OPERATIONS OR GOVERNMENT REGULATIONS RESTRICTING THE MEDIA INDUSTRY IN CHINA COULD HAVE A NEGATIVE IMPACT ON OUR OPERATIONS. |
If our advertising and media operations fail to grow this would have a negative impact on our future operating results. Further, government regulations, if enacted, restricting media content would negatively affect our media operations. Any restriction on media content would limit the potential amount of customers able to use our media services and negatively impact our financial results.
| · | WE DEPEND ON OUR KEY MANAGEMENT PERSONNEL AND THE LOSS OF THEIR SERVICES COULD ADVERSELY AFFECT OUR BUSINESS. |
We place substantial reliance upon the efforts and abilities of our executive officers, Chan Minhua, our Chairman and Chief Executive Officer and Fan Yanling, our Vice President of Operations. The loss of the services of any of our executive officers could have a material adverse effect on our business, operations, revenues or prospects. We do not maintain key man life insurance on the lives of these individuals.
| · | WE MAY NEVER PAY ANY DIVIDENDS TO SHAREHOLDERS. |
We have never paid any dividends and have not declared any dividends to date in 2008. Our board of directors does not intend to distribute dividends in the near future. The declaration, payment and amount of any future dividends will be made at the discretion of the board of directors, and will depend upon, among other things, the results of our operations, cash flows and financial condition, operating and capital requirements, and other factors as the board of directors considers relevant. There is no assurance that future dividends will be paid, and, if dividends are paid, there is no assurance with respect to the amount of any such dividend.
| · | MANAGEMENT EXERCISES SIGNIFICANT CONTROL OVER MATTERS REQUIRING SHAREHOLDER APPROVAL WHICH MAY RESULT IN THE DELAY OR PREVENTION OF A CHANGE IN OUR CONTROL. |
Mr. Chen Minhua, our Chairman and Chief Executive Officer, through his common stock ownership, currently has voting power equal to approximately 32.99% of our voting securities. Ms. Fan Yanling, our Vice President of Operations, through her common stock ownership, currently has voting power equal to approximately 32.99% of our voting securities. When combined with the common stock ownership of our other officers and directors, management has combined voting power in our Company equal to approximately 65.98% of our voting securities. As a result, management through such stock ownership exercises significant control over all matters requiring shareholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership in management may also have the effect of delaying or preventing a change in control of us that may be otherwise viewed as beneficial by shareholders other than management.
| · | WE MAY INCUR SIGNIFICANT COSTS TO ENSURE COMPLIANCE WITH UNITED STATES CORPORATE GOVERNANCE AND ACCOUNTING REQUIREMENTS. |
We may incur significant costs associated with our public company reporting requirements, costs associated with newly applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the Securities and Exchange Commission. We expect all of these applicable rules and regulations to significantly increase our legal and financial compliance costs and to make some activities more time consuming and costly. We also expect that these applicable rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these newly applicable rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. Even though we have been a reporting company since 1999, this risk applies to us because we recently completed a share exchange with Keenway Limited whereby a Chinese operating company became our wholly owned subsidiary. This Chinese operating company is newly reporting and we are adjusting to the increased disclosure requirements for us to comply with corporate governance and accounting requirements.
| · | WE MAY NOT BE ABLE TO MEET THE ACCELERATED FILING AND INTERNAL CONTROL REPORTING REQUIREMENTS IMPOSED BY THE SECURITIES AND EXCHANGE COMMISSION RESULTING IN A POSSIBLE DECLINE IN THE PRICE OF OUR COMMON STOCK AND OUR INABILITY TO OBTAIN FUTURE FINANCING. |
As directed by Section 404 of the Sarbanes-Oxley Act, the Securities and Exchange Commission adopted rules requiring each public company to include a report of management on the company's internal controls over financial reporting in its annual reports. In addition, the independent registered public accounting firm auditing a company's financial statements must also attest to and report on management's assessment of the effectiveness of the company's internal controls over financial reporting as well as the operating effectiveness of the company's internal controls. While we will not be subject to these requirements for the fiscal year ended December 31, 2007, we will be subject to these requirements beginning January 1, 2008.
While we expect to expend significant resources in developing the necessary documentation and testing procedures required by Section 404 of the Sarbanes-Oxley Act, there is a risk that we may not be able to comply timely with all of the requirements imposed by this rule. In the event that we are unable to receive a positive attestation from our independent registered public accounting firm with respect to our internal controls, investors and others may lose confidence in the reliability of our financial statements and our stock price and ability to obtain equity or debt financing as needed could suffer.
In addition, in the event that our independent registered public accounting firm is unable to rely on our internal controls in connection with its audit of our financial statements, and in the further event that it is unable to devise alternative procedures in order to satisfy itself as to the material accuracy of our financial statements and related disclosures, it is possible that we would be unable to file our Annual Report on Form 10-K with the Securities and Exchange Commission, which could also adversely affect the market price of our common stock and our ability to secure additional financing as needed.
| · | WE MAY HAVE DIFFICULTY RAISING NECESSARY CAPITAL TO FUND OPERATIONS AS A RESULT OF MARKET PRICE VOLATILITY FOR OUR SHARES OF COMMON STOCK. |
In recent years, the securities markets in the United States have experienced a high level of price and volume volatility, and the market price of securities of many companies have experienced wide fluctuations that have not necessarily been related to the operations, performances, underlying asset values or prospects of such companies. For these reasons, our shares of common stock can also be expected to be subject to volatility resulting from purely market forces over which we will have no control. If our business development plans are successful, we may require additional financing to continue to develop and exploit existing and new products and services related to our industries and to expand into new markets. The exploitation of our services may, therefore, be dependent upon our ability to obtain financing through debt and equity or other means.
| · | WE HAVE A CONTRACTUAL RELATIONSHIP WITH FUJIAN JIAOGUANG MEDIA WHICH MAY BE IN NON-COMPLIANCE WITH PRC LAWS AND DOES NOT PROVIDE THE SAME OPERATIONAL CONTROL AS A DIRECT EQUITY INTEREST. |
Our contractual relationship with Fujian Jiaoguang Media was structured as a contractual relationship as opposed to a direct equity interest in order to comply with PRC law. We have received a PRC legal counsel attesting that this structure is in compliance with PRC law. However, PRC law may be subject to change or the government may review the structure and determine that this contractual relationship is not in compliance with PRC laws and force the termination of this relationship. Additionally, the contractual relationship between us and Fujian Jiaoguang Media does not provide us with the same operational control as a direct equity interest. Therefore, we are subject to the risks associated with contractual rights as opposed to owning the company. Such risks could include breach of contract or failure to honor the terms of the contract.
Risks Relating to the People's Republic of China
Our business operations take place in China. Because Chinese laws, regulations and policies are continually changing, our Chinese operations will face several risks summarized below.
| · | ANY CHANGE IN POLICY BY THE CHINESE GOVERNMENT COULD ADVERSELY AFFECT INVESTMENTS IN CHINESE BUSINESSES. |
Changes in policy could result in imposition of restrictions on currency conversion, imports or the source of suppliers, as well as new laws affecting joint ventures and foreign-owned enterprises doing business in China. Although China has been pursuing economic reforms for the past two decades, events such as a change in leadership or social disruptions that may occur upon the proposed privatization of certain state-owned industries, could significantly affect the government’s ability to continue with its reform.
| · | WE FACE ECONOMIC RISKS IN DOING BUSINESS IN CHINA. |
As a developing nation, China’s economy is more volatile than that of developed Western industrial economies. It differs significantly from that of the U.S. or a Western European country in such respects as structure, level of development, capital reinvestment, resource allocation and self-sufficiency. Only in recent years has the Chinese economy moved from what had been a command economy through the 1970s to one that during the 1990s encouraged substantial private economic activity. In 1993, the Constitution of China was amended to reinforce such economic reforms. The trends of the 1990s indicate that future policies of the Chinese government will emphasize greater utilization of market forces. For example, in 1999, the Government announced plans to amend the Chinese Constitution to recognize private property, although private business will officially remain subordinated to the state-owned companies, which are the mainstay of the Chinese economy. However, there can be no assurance that, under some circumstances, the government’s pursuit of economic reforms will not be restrained or curtailed. Actions by the central government of China could have a significant adverse effect on economic conditions in the country as a whole and on the economic prospects for our Chinese operations.
| · | THE CHINESE LEGAL AND JUDICIAL SYSTEM MAY NEGATIVELY IMPACT FOREIGN INVESTORS. |
In 1982, the National People’s Congress amended the Constitution of China to authorize foreign investment and guarantee the “lawful rights and interests” of foreign investors in China. However, China’s system of laws is not yet comprehensive. The legal and judicial systems in China are still rudimentary, and enforcement of existing laws is inconsistent.
Many judges in China lack the depth of legal training and experience that would be expected of a judge in a more developed country. Because the Chinese judiciary is relatively inexperienced in enforcing the laws that do exist, anticipation of judicial decision-making is more uncertain than would be expected in a more developed country. It may be impossible to obtain swift and equitable enforcement of laws that do exist, or to obtain enforcement of the judgment of one court by a court of another jurisdiction. China’s legal system is based on written statutes; a decision by one judge does not set a legal precedent that is required to be followed by judges in other cases. In addition, the interpretation of Chinese laws may be varied to reflect domestic political changes.
The promulgation of new laws, changes to existing laws and the pre-emption of local regulations by national laws may adversely affect foreign investors. However, the trend of legislation over the last 20 years has significantly enhanced the protection of foreign investment and allowed for more control by foreign parties of their investments in Chinese enterprises. There can be no assurance that a change in leadership, social or political disruption, or unforeseen circumstances affecting China’s political, economic or social life, will not affect the Chinese government’s ability to continue to support and pursue these reforms. Such a shift could have a material adverse effect on our business and prospects.
| · | CERTAIN POLITICAL AND ECONOMIC CONSIDERATIONS RELATING TO THE PRC COULD ADVERSELY AFFECT OUR COMPANY. |
The PRC is transitioning from a planned economy to a market economy. While the PRC government has pursued economic reforms since its adoption of the open-door policy in 1978, a large portion of the PRC economy is still operating under five-year plans and annual state plans. Through these plans and other economic measures, such as control on foreign exchange, taxation and restrictions on foreign participation in the domestic market of various industries, the PRC government exerts considerable direct and indirect influence on the economy. Many of the economic reforms carried out by the PRC government are unprecedented or experimental, and are expected to be refined and improved. Other political, economic and social factors can also lead to further readjustment of such reforms. This refining and readjustment process may not necessarily have a positive effect on our operations or future business development. Our operating results may be adversely affected by changes in the PRC's economic and social conditions as well as by changes in the policies of the PRC government, such as changes in laws and regulations (or the official interpretation thereof), measures which may be introduced to control inflation, changes in the interest rate or method of taxation, and the imposition of additional restrictions on currency conversion.
| · | THE RECENT NATURE AND UNCERTAIN APPLICATION OF MANY PRC LAWS APPLICABLE TO US CREATE AN UNCERTAIN ENVIRONMENT FOR BUSINESS OPERATIONS AND THEY COULD HAVE A NEGATIVE EFFECT ON US. |
The PRC legal system is a civil law system. Unlike the common law system, the civil law system is based on written statutes in which decided legal cases have little value as precedents. In 1979, the PRC began to promulgate a comprehensive system of laws and has since introduced many laws and regulations to provide general guidance on economic and business practices in the PRC and to regulate foreign investment. Progress has been made in the promulgation of laws and regulations dealing with economic matters such as corporate organization and governance, foreign investment, commerce, taxation and trade. The promulgation of new laws, changes of existing laws and the abrogation of local regulations by national laws could have a negative impact on our business and business prospects. In addition, as these laws, regulations and legal requirements are relatively recent, their interpretation and enforcement involve significant uncertainty.
| · | THE APPROVAL OF THE CHINESE SECURITIES REGULATORY COMMISSION (“CRSC”) MAY BE REQUIRED IN CONNECTION WITH THIS OFFERING UNDER A RECENTLY ADOPTED PRC REGULATION; SINCE THIS OFFERING DID NOT COMMENCE PRIOR TO THE EFFECTIVE DATE OF THE REGULATION, WE MAY BE REQUIRED TO OBTAIN CRSC APPROVAL FOR THIS OFFERING AND WE CAN NOT CURRENTLY PREDICT THE CONSEQUENCES OF ANY FAILURE TO OBTAIN SUCH APPROVAL. |
On August 8, 2006, six PRC regulatory agencies, including the Chinese Securities Regulatory Commission, or CSRC, promulgated a regulation that became effective on September 8, 2006. This regulation, among other things, purports to require offshore special purpose vehicles, or SPVs, formed for listing purposes through acquisitions of PRC domestic companies and controlled by PRC individuals to obtain the approval of the CSRC prior to publicly listing their securities on an overseas stock exchange. While the application of this new regulation is not yet clear, we believe, based on the advice of our PRC counsel, that CSRC approval is not required in this transaction because the Company does not control the Chinese operating entities. The PRC counsel is Steve Zhu of Allbright Law Offices in Shanghai. His consent to be named in this registration statement is filed as Exhibit 5.2. We strictly have contractual arrangements with the Chinese companies. Although the CSRC is expected to promulgate formal implementing rules and/or regulations and possibly other clarifications, the procedures, criteria and timing for obtaining any required CSRC approval have not been established and it is unclear when these will be established. Since this offering did not commence prior to the effective date of the regulation and our shares of common stock did not commence trading prior to the effective date of the regulation, if the CSRC determines that the Company exercises control over the Chinese operating entities, we may be required to obtain CSRC approval for this offering and we cannot currently predict the criteria, timing or procedures for obtaining the CSRC approval or the consequences of any failure to obtain such approval.
| · | RECENT PRC REGULATIONS RELATING TO THE ESTABLISHMENT OF OFFSHORE SPECIAL PURPOSE COMPANIES BY PRC RESIDENTS MAY SUBJECT OUR PRC RESIDENT SHAREHOLDERS TO PERSONAL LIABILITY AND LIMIT OUR ABILITY TO INJECT CAPITAL INTO OUR PRC SUBSIDIARIES, LIMIT OUR PRC SUBSIDIARIES’ ABILITY TO DISTRIBUTE PROFITS TO US, OR OTHERWISE ADVERSELY AFFECT US. |
SAFE issued a public notice in October 2005, or the SAFE notice, requiring PRC residents to register with the local SAFE branch before establishing or controlling any company outside of China for the purpose of capital financing with assets or equities of PRC companies, referred to in the notice as an “offshore special purpose company.” PRC residents that are shareholders of offshore special purpose companies established before November 1, 2005 were required to register with the local SAFE branch before March 31, 2006.The failure of our beneficial owners to timely amend their SAFE registrations pursuant to the SAFE notice or the failure of future beneficial owners of our company who are PRC residents to comply with the registration procedures set forth in the SAFE notice may subject such beneficial owners to fines and legal sanctions and may also limit our ability to contribute additional capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to distribute dividends to our company or otherwise adversely affect our business.
Other Risks
| · | CURRENCY CONVERSION AND EXCHANGE RATE VOLATILITY COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION. |
The PRC government imposes control over the conversion of Renminbi (“RMB”) into foreign currencies. Under the current unified floating exchange rate system, the People's Bank of China publishes an exchange rate, which we refer to as the PBOC exchange rate, based on the previous day's dealings in the inter-bank foreign exchange market. Financial institutions authorized to deal in foreign currency may enter into foreign exchange transactions at exchange rates within an authorized range above or below the PBOC exchange rate according to market conditions.
State Council amended the Foreign Exchange Control Regulations on August 1, 2008. The new rule tightening restrictions on foreign exchange inflow and relaxing the treatment of foreign exchange outflow, even though the fundamental framework of the foreign exchange administration remains unchanged. Enterprises in the PRC (including FIEs) which require foreign exchange for transactions relating to current account items, may, without approval of the State Administration of Foreign Exchange, or SAFE, effect payment from their foreign exchange account or convert and pay at the designated foreign exchange banks by providing valid receipts and proofs.
Convertibility of foreign exchange in respect of capital account items, such as direct investment and capital contribution, is still subject to certain restrictions, and prior approval from the SAFE or its relevant branches must be sought.
Since 1994, the exchange rate for Renminbi against the United States dollar has remained relatively stable, most of the time in the region of approximately RMB8.28 to $1.00. However, in 2005, the Chinese government announced that it would begin pegging the exchange rate of the Chinese Renminbi against a number of currencies, rather than just the U.S. dollar. As a result, the exchange rate for the Renminbi against the U.S. dollar became RMB8.02 to $1.00. As our operations are in PRC, any significant revaluation or devaluation of the Chinese Renminbi may materially and adversely affect our cash flows, revenues and financial condition. We may not be able to hedge effectively against it in any such case. For example, to the extent that we need to convert United States dollars into Chinese Renminbi for our operations, appreciation of this currency against the United States dollar could have a material adverse effect on our business, financial condition and results of operations. Conversely, if we decide to convert Chinese Renminbi into United States dollars for other business purposes and the United States dollar appreciates against this currency, the United States dollar equivalent of the Chinese Renminbi we convert would be reduced. There can be no assurance that future movements in the exchange rate of Renminbi and other currencies will not have an adverse effect on our financial condition. Our operating companies are FIEs to which the Foreign Exchange Control Regulations are applicable. There can be no assurance that we will be able to obtain sufficient foreign exchange to pay dividends or satisfy other foreign exchange requirements in the future.
| · | IT MAY BE DIFFICULT TO AFFECT SERVICE OF PROCESS AND ENFORCEMENT OF LEGAL JUDGMENTS UPON OUR COMPANY AND OUR OFFICERS AND DIRECTORS BECAUSE THEY RESIDE OUTSIDE THE UNITED STATES. |
As our operations are presently based in PRC and a majority of our directors and all of our officers reside in PRC, service of process on our company and such directors and officers may be difficult to effect within the United States. Also, our main assets are located in PRC and any judgment obtained in the United States against us may not be enforceable outside the United States.
| · | WE MAY EXPERIENCE CURRENCY FLUCTUATION AND LONGER EXCHANGE RATE PAYMENT CYCLES WHICH WILL NEGATIVELY AFFECT THE COSTS OF OUR PRODUCTS SOLD AND THE VALUE OF OUR LOCAL CURRENCY PROFITS. |
The local currencies in the countries in which we sell our products may fluctuate in value in relation to other currencies. Such fluctuations may affect the costs of our products sold and the value of our local currency profits. While we are not conducting any meaningful operations in countries other than PRC at the present time, we may expand to other countries and may then have an increased risk of exposure of our business to currency fluctuation.
| · | SINCE MOST OF OUR ASSETS ARE LOCATED IN PRC, ANY DIVIDENDS OF PROCEEDS FROM LIQUIDATION IS SUBJECT TO THE APPROVAL OF THE RELEVANT CHINESE GOVERNMENT AGENCIES. |
Our assets are predominantly located inside PRC. Under the laws governing foreign invested enterprises in PRC, dividend distribution and liquidation are allowed but subject to special procedures under the relevant laws and rules. Any dividend payment will be subject to the decision of the board of directors and subject to foreign exchange rules governing such repatriation. Any liquidation is subject to the relevant government agency's approval and supervision as well as the foreign exchange control. This may generate additional risk for our investors in case of dividend payment and liquidation.
| · | OUR SHARES OF COMMON STOCK ARE VERY THINLY TRADED, AND THE PRICE MAY NOT REFLECT OUR VALUE AND THERE CAN BE NO ASSURANCE THAT THERE WILL BE AN ACTIVE MARKET FOR OUR SHARES OF COMMON STOCK EITHER NOW OR IN THE FUTURE. |
Our shares of common stock are very thinly traded, and the price if traded may not reflect our value. There can be no assurance that there will be an active market for our shares of common stock either now or in the future. The market liquidity will be dependent on the perception of our operating business and any steps that our management might take to bring us to the awareness of investors. There can be no assurance given that there will be any awareness generated. Consequently, investors may not be able to liquidate their investment or liquidate it at a price that reflects the value of the business. If a more active market should develop, the price may be highly volatile. Because there may be a low price for our shares of common stock, many brokerage firms may not be willing to effect transactions in the securities. Even if an investor finds a broker willing to effect a transaction in the shares of our common stock, the combination of brokerage commissions, transfer fees, taxes, if any, and any other selling costs may exceed the selling price. Further, many lending institutions will not permit the use of such shares of common stock as collateral for any loans.
| · | WE ARE SUBJECT TO THE PENNY STOCK RULES WHICH WILL MAKE THE SHARES OF OUR COMMON STOCK MORE DIFFICULT TO SELL. |
We are subject now and in the future to the SEC’s “penny stock” rules if our shares of common stock sell below $5.00 per share. Penny stocks generally are equity securities with a price of less than $5.00. The penny stock rules require broker-dealers to deliver a standardized risk disclosure document prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson, and monthly account statements showing the market value of each penny stock held in the customer's account. The bid and offer quotations, and the broker-dealer and salesperson compensation information must be given to the customer orally or in writing prior to completing the transaction and must be given to the customer in writing before or with the customer's confirmation.
In addition, the penny stock rules require that prior to a transaction the broker dealer make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. The penny stock rules are burdensome and may reduce purchases of any offerings and reduce the trading activity for shares of our common stock. As long as our shares of common stock are subject to the penny stock rules, the holders of such shares of common stock may find it more difficult to sell their securities.
| · | SALES OF OUR CURRENTLY ISSUED AND OUTSTANDING STOCK MAY BECOME FREELY TRADEABLE PURSUANT TO RULE 144 AND MAY DILUTE THE MARKET FOR YOUR SHARES AND HAVE A DEPRESSIVE EFFECT ON THE PRICE OF THE SHARES OF OUR COMMON STOCK. |
A substantial majority of our outstanding shares of common stock are "restricted securities" within the meaning of Rule 144 under the Securities Act. As restricted shares, these shares may be resold only pursuant to an effective registration statement or under the requirements of Rule 144 or other applicable exemptions from registration under the Act and as required under applicable state securities laws. Rule 144 provides in essence that a non-affiliate of a reporting company may sell its securities after holding such securities for six (6) months provided that the company is current in its periodic filings. After one-year, non-afffiliates of reporting companies can sell their securities whether or not the reporting company is current in its periodic filings. Affiliates of reporting companies who held restricted securities for a period of at least six months may, under certain conditions, sell every three months, in brokerage transactions, a number of shares that does not exceed the greater of 1% of a company's outstanding shares of common stock or the average weekly trading volume during the four calendar weeks prior to the sale (the four calendar week rule does not apply to companies quoted on the OTC Bulletin Board). A sale under Rule 144 or under any other exemption from the Act, if available, or pursuant to subsequent registrations of our shares of common stock, may have a depressive effect upon the price of our shares of common stock in any active market that may develop.
| · | OUR SHAREHOLDERS WILL EXPERIENCE DILUTION AS A RESULT OF THE CONVERSION OF OUR CLASS A WARRANTS. |
As of June 10, 2009, we had warrants to purchase 3,333,336 shares of common stock (these warrants are convertible into common stock at a conversion price of $1.25 per share). To the extent such warrants are exercised and converted, there will be further dilution. In addition, in the event that any future financing should be in the form of securities convertible into, or exchangeable for, equity securities, investors may experience additional dilution upon the conversion or exchange of such securities.
ITEM 4. USE OF PROCEEDS.
We will not receive any portion of the proceeds from the sale or other disposition of the shares of common stock covered hereby, or interests therein, by the selling stockholders. We may receive proceeds of up to $4,166,670 if all the warrants held by the selling stockholders are exercised for cash. Management currently anticipates that any such proceeds will be utilized for working capital and other general corporate purposes. We cannot estimate how many, if any, warrants may be exercised as a result of this offering or that they will be exercised for cash.
We are obligated to bear the expenses of the registration of the shares. We anticipate that these expenses will be approximately $1,500.
ITEM 5. DETERMINATION OF OFFERING PRICE.
We are not selling any of the common stock that we are registering. The common stock will be sold by the selling stockholders listed in this prospectus. The selling stockholders may sell the common stock at the market price as of the date of sale or a price negotiated in a private sale. Our common stock is currently quoted on the OTC Bulletin Board under the symbol “CYID.”
ITEM 6. DILUTION.
The information in this section is not required because there is not substantial disparity between the public offering price and the effective cash cost to officers, directors, promoters and affiliated persons of common equity acquired by them in transactions during the past five years and we were subject to the reporting requirements of section 13(a) and 15(d) of the Exchange Act immediately prior to filing the registration statement.
ITEM 7. SELLING SECURITY HOLDERS.
The table below lists the selling stockholders and other information regarding the beneficial ownership of the shares of common stock by each of the selling stockholders. The second column lists the number of shares of common stock beneficially owned by each selling stockholder, based on its ownership of the common shares and warrants, as of August 1, 2008.
The third column lists the shares of common stock being offered by this prospectus by the selling stockholders.
In accordance with the terms of a registration rights agreement with the selling stockholders, this prospectus generally covers the resale of 7,000,000 shares of common stock purchased by the Investors as set forth in the Securities Purchase Agreement dated March 7, 2008. The shares constitute approximately 52.5% of the shares of common stock sold in the financing and does not include any of the warrants that were sold to the Investors. The shares being sold have been allocated pro rata to each Investor.
| Name(1) | Shares Beneficially Owned Prior To Offering(1) | Shares to be Offered | Amount Beneficially Owned After Offering(2) | Percent Beneficially Owned After Offering (3) |
Pope Investments II LLC 5100 Poplar Avenue, Suite 805 Memphis, Tennessee 38137 (4) | 14,285,715 (10) | 5,000,000 | 9,285,715 | 12.42% |
Professional Offshore Opportunity Fund, Ltd. 1400 Old Country Road, Suite 206 Westbury, New York 11590 (5) | 2,857,143 (11) | 1,000,000 | 1,857,143 | 2.4% |
Jayhawk Private Equity Fund, LP 5410 West 61st Place, Suite 100 Mission, Kansas 6605 (6) | 1,343,954 (12) | 470,384 | 873,570 | 1.16% |
Jayhawk Private Equity Co-Invest Fund, LP 5410 West 61st Place, Suite 100 Mission, Kansas 66205 (7) | 84,618 (13) | 29,616 | 55,002 | * |
Guerrilla Partners L.P. 237 Park Avenue, 9th Floor New York, New York 10017 (8) | 428,571 (14) | 150,000 | 278,571 | * |
Hua-Mei 21st Century Partners L.P. 237 Park Avenue, 9th Floor New York, New York 10017 (9) | 1,000,000 (15) | 350,000 | 650,000 | * |
| * | Less than one percent (1%). |
| ** | None of the selling shareholders are broker-dealers or affiliates of broker-dealers. |
1. Unless otherwise indicated in the footnotes to this table, the persons and entities named in the table have sole voting and sole investment power with respect to all shares beneficially owned, subject to community property laws where applicable.
2. Assumes the sale of all shares covered hereby.
3. Assumes that the selling stockholders exercise all their warrants and the shares underlying the warrants are included in this calculation.
4. William P. Wells is the natural person having voting control and investment control over the shares held by this selling shareholder.
5. Howard Berger and Marc Swickle are the natural person having voting control and investment control over the shares held by this selling shareholder.
6. Kent C. McCarthy is the natural person having voting control and investment control over the shares held by this selling shareholder.
7. Kent C. McCarthy is the natural person having voting control and investment control over the shares held by this selling shareholder.
8. Peter Siris is the natural person having voting control and investment control over the shares held by this selling shareholder.
9. Peter Siris is the natural person having voting control and investment control over the shares held by this selling shareholder.
10. This includes the 4,761,905 shares that the selling shareholder beneficially owns and has the right to acquire pursuant to the warrants but have not yet been exercised.
11. This includes the 952,381 shares that the selling shareholder beneficially owns and has the right to acquire pursuant to the warrants but have not yet been exercised.
12. This includes the 447,985 shares that the selling shareholder beneficially owns and has the right to acquire pursuant to the warrants but have not yet been exercised.
13. This includes the 28,206 shares that the selling shareholder beneficially owns and has the right to acquire pursuant to the warrants but have not yet been exercised.
14. This includes the 142,857 shares that the selling shareholder beneficially owns and has the right to acquire pursuant to the warrants but have not yet been exercised.
15. This includes the 333,333 shares that the selling shareholder beneficially owns and has the right to acquire pursuant to the warrants but have not yet been exercised.
Under the terms of the Registration Rights Agreement entered into as part of the Securities Purchase Agreement, we were obligated to file this registration statement within 60 days of the closing of the placement. In the event this registration statement is not filed timely, we are obligated to make payments of an amount in cash or shares of common stock, or a combination thereof to each of the investors in the Placement, as partial liquidated damages and not as a penalty, an amount equal to 1% of the aggregate unit purchase price paid by each Holder pursuant to the Purchase Agreement for any unregistered Registrable Securities then held by such Holder.
The Registration Rights Agreement also provides that we pay all fees and expenses incident to the registration statement, other than brokerage commissions and underwriting discounts of the selling stockholders on the sale of their shares.
We do not have any arrangement with any broker-dealer for it to act as an underwriter for the sale of the shares included herein for any of the selling stockholders. Each of the selling stockholders purchased or received the shares offered by it in this prospectus in the ordinary course of business, and at the time of purchase of such shares, it had no agreements or understandings, directly or indirectly, with any person for the distribution of such shares.
ITEM 8. PLAN OF DISTRIBUTION
Each Selling Stockholder (the “Selling Stockholders”) of the common stock and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of common stock on the OTC Bulletin Board or any other stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. A Selling Stockholder may use any one or more of the following methods when selling shares:
| · | ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; |
| · | block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; |
| · | purchases by a broker-dealer as principal and resale by the broker-dealer for its account; |
| · | an exchange distribution in accordance with the rules of the applicable exchange; |
| · | privately negotiated transactions; |
| · | settlement of short sales entered into after the effective date of the registration statement of which this prospectus is a part; |
| · | broker-dealers may agree with the Selling Stockholders to sell a specified number of such shares at a stipulated price per share; |
| · | through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; |
| · | a combination of any such methods of sale; or |
| · | any other method permitted pursuant to applicable law. |
The Selling Stockholders may also sell shares under Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”), if available, rather than under this prospectus.
Broker-dealers engaged by the Selling Stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with NASDR Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with NASDR IM-2440.
In connection with the sale of the common stock or interests therein, the Selling Stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The Selling Stockholders may also sell shares of the common stock short and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The Selling Stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
The Selling Stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each Selling Stockholder has informed the Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the Common Stock. In no event shall any broker-dealer receive fees, commissions and markups which, in the aggregate, would exceed eight percent (8%).
The Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the shares. The Company has agreed to indemnify the Selling Stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.
Because Selling Stockholders may be deemed to be “underwriters” within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act including Rule 172 thereunder. In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this prospectus. There is no underwriter or coordinating broker acting in connection with the proposed sale of the resale shares by the Selling Stockholders.
We agreed to keep this prospectus effective until the earlier of (i) the date on which the shares may be resold by the Selling Stockholders without registration and without regard to any volume limitations by reason of Rule 144(k) under the Securities Act or any other rule of similar effect or (ii) all of the shares have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale shares may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of the common stock by the Selling Stockholders or any other person. We will make copies of this prospectus available to the Selling Stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).
Shares of Common Stock
The shares of common stock being offered by the selling stockholders are those issued to the selling stockholders in connection with the private placement and as part of the financing transaction. The private placement closed and resulted in the Company issuing 13,333,334 shares of common stock and warrants to Pope Investments II LLC and the other investors (collectively, the “Investors”) as disclosed in Item 7, above.
We are registering a total of 7,000,000 shares of our common stock which includes 52.5% of the 13,333,334 shares of common stock sold pursuant to the financing with Pope and other Investors that were sold in connection with the financing. Our common stock may not be modified other than by a vote of the shares outstanding. We are not registering preferred stock. The rights of this common stock will not be limited or qualified in any way by the rights of any other authorized class of securities. Additionally, there is no provision of the registrant’s charter or by-laws that would have an effect of delaying, deferring or preventing a change in control of the registrant.
We are registering the shares of common stock in order to permit the selling stockholders to offer the shares for resale from time to time. Except for the ownership of the shares of common stock, and the warrants issued pursuant to the Securities Purchase Agreement, the selling stockholders have not had any material relationship with us within the past three years.
ITEM 10. INTERESTS OF NAMED EXPERTS AND COUNSEL.
(a) Experts
Included in the Prospectus constituting part of this Registration Statement are consolidated financial statements for fiscal 2008 and 2007, which have been audited by Kabani & Co., an independent registered public accounting firm, to the extent and for the periods set forth in their respective report appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firms as experts in accounting and auditing. Kabani & Co. has not been employed on a contingent basis nor shall Kabani & Co. receive a direct or indirect substantial interest in connection with this offering.
(b) Legal Matters
Anslow + Jaclin, LLP, Manalapan, New Jersey passed upon the validity of the common stock being offered hereby. Anslow & Jaclin, LLP has not been employed on a contingent basis nor shall Anslow & Jaclin, LLP receive a direct or indirect substantial interest in connection with this offering.
ITEM 11. INFORMATION WITH RESPECT TO THE REGISTRANT
Keenway Limited is a company incorporated under the laws of Cayman Islands and owns 100% of the issued and outstanding capital stock of Hong Kong Yi Tat International Investment Limited, a limited company incorporated under the laws of Hong Kong Special Administration Region (“Yi Tat”). Yi Tat owns 100% of the issued and outstanding capital stock of Fujian Jintai Tourism Development, a company formed under the laws of the PRC (“Fujian Jintai,” collectively, referred to herein as “Keenway” or the “Company”), and 100% of the issued and outstanding capital stock of Fujian Yunding Tourism Industrial Co. Ltd., a company formed under the law of the PRC (“Yunding Company”, collectively, referred to herein as “Keenway” or the Company), and 100% of the issued and outstanding capital stock of Fujian Yida Earth Buildings Tourism Development Co. Ltd., a company formed under the law of the PRC (“Earth Buildings Company”(, collectively, referred to herein as “Keenway” or the Company).
Business
We are one of major diversified entertainment companies in China, currently covering China’s tourism, media and other entertainment-related industries.
| 1) | Tourism; and |
| 2) | Media. |
| 3) | Other entertainment-related |
Through following subsidiaries and contractually binding entity located in China, we identify, manage, operate and promote tourist attractions, TV channels and stations, and other profitable entertainment-related operations.
Fujian Jintai Tourism Industrial Development Co., Ltd. (“Fujian Jintai”) is an entity that was established on October 29, 2001, and is domiciled at Floor 4, 1, Helping Street, Taining County, Fujian Province. Fujian Jintai is 100% owned by Yi Tat. Fujian Jintai owns 100% of Fuzhou Hongda Commercial Services Co., Ltd. (“Hongda”) which was incorporated on July 6, 2007 under the laws of the PRC and is located in Fuzhou City. Hongda’s wholly owned subsidiary is Fuzhou Fuyu Advertising Co., Ltd. (“Fuyu”) which is an entity established on July 31, 2007 with its primary place of business at , No. 5 Xian Fu Road, Zhang Cheng Town, Yongtai County, China. Fujian Jintai also owns 100% of Fujian Yintai Tourism Co., Ltd. (“Yintai”) was incorporated on March 20, 2008 and has its primary place of business at No. 5 Xianfu Road, Zhangcheng Town, Yongtai County, China..
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. 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.
Fujian Yida Earth Buildings Tourism Development Co. Ltd. (“Earth Buildings Company”) is incorporated on March 23, 2009, and is domiciled at Floor 8, 34 Nonglin Road, Postal Building, Hua’an County, Fujian Province. Fujian Jintai is 100% owned by Yi Tat.
Fujian Yunding Tourism Industrial Co. Ltd. (“Yunding Company”) is incorporated on January 21, 2009, and is domiciled at 68 Xianfu Road, Zhangcheng Town, Yongtai County, Fujian Province. Fujian Jintai is 100% owned by Yi Tat.
These subsidiaries and the contractually binding entity of the Company provide it with a unique opportunity to integrate industries that are at the forefront of Chinese growth.
History and Corporate Organization
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.
Mr. CHEN Minhua and Ms. FAN Yanling, his spouse, were majority shareholders of Keenway, prior to the Merger.
Merger and Revised Ownership Structure
The chart below depicts the corporate structure of the Registrant as of the date of this Registration Statement. As depicted below, pursuant to the Merger, the Registrant owns 100% of the capital stock of Keenway Limited. Keenway Limited, incorporated in the Cayman Islands, owns 100% of Hong Kong Yi Tat International Investment Co., Ltd., a company organized in Hong Kong. Hong Kong Yi Tat International Investment Co., Ltd. wholly owns Fujian Tourism Developments Co., Ltd. and has a contractual relationship for services with Fujian Jiaoguang Media Co., Ltd. (collectively, these entities shall be referred to as the “Keenway Companies”).
The current structure is:
THE MERGER
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.
PRINCIPAL PRODUCTS
PRINCIPAL PRODUCTS AND SERVICES
The Company is principally in the services business and does not produce or manufacture any products. Its major source of income is from services provided at tourist destinations, entrance fee, advertisement and paid-programming revenue through the following operations:
Great Golden Lake: It is located between the cities Sanming and Nanping of Fujian Province and Fuzhou of Jianxi Province. This property consists of 5 scenic areas: (1) Golden Lake; (2) Shangqing River; (3) Zhuanyuan Rock; (4) Luohan Mountain; and (5) Taining Old Town. The entire property covers more than 230 kilometers. In February of 2005, the United Nations Educational, Scientific, and Cultural Organization gave the Global Geopark title to Great Golden Lake. The major source of income at Great Golden Lake is currently from services provided at the park and park entrance fee.
Dadi Tulou (Earth Buildings): On December 26, 2008, we entered into the Dadi Tulou Tourist Resources Development Agreement with the Hua’an County People’s Government in Zhangzhou, China. Pursuant to this agreement, we have begun to develop the Dadi Tulou Tourism Destination and its surrounding scenic areas located in the Hua’an County. As a world cultural heritage, Dadi Tulou is classified as a world class tourist destination. The surrounding scenic areas include the Bamboo Plant Garden, Xianzi Lake, rivers along the Xianzi Lake, Taikou Village, Shangping Wanli Building Three, and South Mountain Palace. Dadi Tulou and its surrounding scenic areas are well-developed, and can be put into operation without extensive development. The major source of income at Dadi Tulou is currently from entrance fee.
Yunding: On November 27, 2008, we entered into the Tourist Destination Cooperative Development Agreement with the Yongtai County People’s Government in Fuzhou, China. Pursuant to the agreement, the Yongtai government shall grant us the exclusive right and special authorization to develop tourist destinations in Fuzhou located at Yongtai Beixi and Jiezhukou Lake. Accordingly, we are obligated to construct, operate and manage the two tourist destinations, subject to specific terms and conditions negotiated between us and the Yongtai government. We have the exclusive right to develop both Yongtai Beixi and Jiezhukou Lake and the Yongtai government is prohibited from granting the right of development, operation and management to any third party during the existence of our agreement. The major source of income at Mountain-top will come from services provide at Mountain-top and entrance fee after the grand-opening.
Fujian Education Television: a provincial comprehensive entertainment television channel ranked the 4th place with 92% population coverage in Fujian Province. The major source of income at Fujian Education Television is from advertising.
Railroad On-board Programming: Effective February 13, 2009, we entered into a Cooperation Agreement with Railway Media Center for the purpose of collaborating with RMC to produce programs titled “Journey through China on the Train” that will be broadcast to passengers traveling on train. Pursuant to this agreement, we are obligated to plan and film the Journey Program, and RMC shall review and broadcast the Journey Program. The content of the Journey Program will focus on introduction and preview of natural resources, culture and history of tourism destinations, tourism advertisement and travel tips. RMC will appoint the program supervisor and we will appoint all the other personnel.
We and RMC agreed that the Journey Program shall be inserted into the programs produced by RMC for train passengers and be broadcast in accordance with the following rules:
| (1) | For the train line into Tibet, the Journey Program will be limited to 20’ duration, and be inserted into the program that RMC produced by themselves. The Journey Program shall be broadcast daily on a rolling basis. |
| (2) | For the high-speed motor train unit, the Journey Program will be limited to the range of 5-20 minutes, and be broadcast daily on a rolling basis. |
| (3) | For the national broadcast channels covering 18 railway bureaus, we will produce a new 20’ episode every week with its premier broadcast on Saturday evening and replay on Sunday afternoon. |
| (4) | During the Term, if RMC increases its train TV broadcast channels, the Journey Program will be inserted into these added channels and be broadcast on a rolling basis. |
The major source of income is currently from paid-programming and other advertising revenue.
MARKETING AND DISTRIBUTION METHODS OF PRODUCTS AND SERVICES
Tourist and related Operations
The current marketing strategy of our tourist and related operations has two major promotional elements. The first is promoting the unique brand and scenic location through traditional advertisement mediums. These traditional channels include television, radio and print media. To cut costs, the Company has implemented a cost minimization plan whereby the majority of the media advertisement and promotion of the tourist destination is done through the media platforms available to the Company, including Fujian Education Television and transportation on-board programming. This cost minimization plan allows our tourist and related operations to reduce its cost of advertising while maintaining a relatively high degree of exposure through our provincial TV channel province-wide and through our transportation on-board programming nation-wide.
The second element of the Company's marketing effort of tourist and related operations is promotion of the scenic destinations through the attainment of nationally and internationally recognized merits of scenic achievement. To this end, the Great Golden Lake has received the designation of the Global Geo-park title from the UN and ranked in China’s Top 10 Most Appealing Destinations and Top 50 Places for Foreigners to Visit. During the second half of 2008, Dadi Tulou was included on the World Heritage List as part of the Hua’an Tulou Group. By achieving this high degree of recognition, the destination becomes visible on a massive scale increasing the draw of tourists from a provincial to an international level. The goal is to significantly increase the daily visitation rate through attainment of significant merit.
Each element of the marketing strategy has been developed in order to increase the international consumer awareness of the Company's tourist destinations, to reduce the associated costs of such awareness and to ultimately increase the usage rate and revenues of the park.
Because the tourist destination is a static product/service, its distribution mainly consists of the promotional strategies described in the paragraphs above. The services are promoted and distributed through traditional forms of advertising media. Information and marketing materials regarding the park services are distributed on site.
Media and related Operations
The marketing efforts of our media and related operations can also be split into two elements. The first is promoting advertising revenue through program contents with high viewing rates. The second is promoting advertising revenue through larger media coverage.
Promotion through viewing rate: Through our tourist destinations, network of partners and content exchange programs, we create and promote our own educational and entertainment contents which can increase consumer awareness of its contents. The goal of promoting its programming is to increase its daily viewing rates and in turn increase the fees it can charge to third party advertisers. By achieving high rankings in China's television statistics, the Company becomes better known by potential advertising clients. With a high degree of coverage, advertisers are willing to pay more for the Company’s services. The Company also engages in strategic partnerships with other content providers by which they share and promote each others advertising client base to one another. Oftentimes, the referring content provider will receive a finder's fee for introducing the Company to qualified advertising clients.
Promotion through media coverage: we attract a lot of our advertising clients through our media coverage. For TV channels, we hope to increase our coverage to reach a national level. Our FETV channels reach a coverage rate of 92% in Fujian Province which covers approximately 28 million people. Our on-board programming on China’s railroad system currently covers approximately 1 billion passengers a year.
STATUS OF PUBLICLY ANNOUNCED NEW PRODUCTS/SERVICES
We expect that our company will grow over the next few years. Currently, we own and operate the Great Golden Lake which is a tourist destination in Fujian Province.
On December 26, 2008, we entered into the Dadi Tulou Tourist Resources Development Agreement with the Hua’an County People’s Government in Zhangzhou, China. Pursuant to this agreement, we have begun to develop the Dadi Tulou Tourism Destination and its surrounding scenic areas located in the Hua’an County. As a world cultural heritage, Dadi Tulou is classified as a world class tourist destination. The surrounding scenic areas include the Bamboo Plant Garden, Xianzi Lake, rivers along the Xianzi Lake, Taikou Village, Shangping Wanli Building Three, and South Mountain Palace. Dadi Tulou and its surrounding scenic areas are well-developed, and can be put into operation without extensive development. The Hua’an County Government and we are jointly responsible for obtaining the approval and support from the appropriate administrative agency regarding the admission ticket price of the Dati Tulou, and its surrounding scenic areas. Our cooperation and development of the scenic areas shall strictly comply with applicable world heritage maintenance guide.
On November 27, 2008, we entered into the Tourist Destination Cooperative Development Agreement with the Yongtai County People’s Government in Fuzhou, China. Pursuant to the agreement, the Yongtai government shall grant us the exclusive right and special authorization to develop tourist destinations in Fuzhou located at Yongtai Beixi and Jiezhukou Lake. Accordingly, we are obligated to construct, operate and manage the two tourist destinations, subject to specific terms and conditions negotiated between us and the Yongtai government. We have the exclusive right to develop both Yongtai Beixi and Jiezhukou Lake and the Yongtai government is prohibited from granting the right of development, operation and management to any third party during the existence of our agreement.
Effective February 13, 2009, we entered into a Cooperation Agreement with Railway Media Center (“RMC”) for the purpose of collaborating with RMC to produce programs titled “Journey through China on the Train” that will be broadcast to passengers traveling on train. Pursuant to this agreement, we are obligated to plan and film the Journey Program, and RMC shall review and broadcast the Journey Program. The content of the Journey Program will focus on introduction and preview of natural resources, culture and history of tourism destinations, tourism advertisement and travel tips. RMC will appoint the program supervisor and we will appoint all the other personnel.
We and RMC agreed that the Journey Program shall be inserted into the programs produced by RMC for train passengers and be broadcast in accordance with the following rules:
| (1) | For the train line into Tibet, the Journey Program will be limited to 20’ duration, and be inserted into the program that RMC produced by themselves. The Journey Program shall be broadcast daily on a rolling basis. |
| (2) | For the high-speed motor train unit, the Journey Program will be limited to the range of 5-20 minutes, and be broadcast daily on a rolling basis. |
| (3) | For the national broadcast channels covering 18 railway bureaus, we will produce a new 20’ episode every week with its premier broadcast on Saturday evening and replay on Sunday afternoon. |
| (4) | During the Term, if RMC increases its train TV broadcast channels, the Journey Program will be inserted into these added channels and be broadcast on a rolling basis. |
The Company expects to acquire and develop additional tourist destinations during the next few months. In addition, the Company intends to acquire an educational based television station in China. These acquisitions will generate growth for the Company and help the Company establish itself in these industries
INDUSTRY AND COMPETITIVE FACTORS
We are currently involved in the tourism and media industries in China. Both industries are experiencing significant growth in China. New competitors are entering these industries at a record pace. Competition is increasing and it is beginning to become difficult to gain market share and grow. There are, however, certain factors that we believe will be critical for our growth:
1. Proven replicable and unique business model: cross-platform marketing/promotion system through company multi-platforms
2. Successful track record of operating both business and maintaining its leading management position
3. Experienced management team with more than 70 years of combined experience in China media, tourism and entertainment industry
OUR INTELLECTUAL PROPERTY
The Company does not nor does it intend to own any patents or have any of its products or services patented. The Company has, however, obtained a trademark and the exclusive use permission for “Great Golden Lake.” This trademark has been filed with Taining County State-owned Assets Investment Operation Co., Ltd.
In the future, we intend to acquire other trademarks from companies that we acquire or file trademarks or patents in order to protect our intellectual property.
RESEARCH AND DEVELOPMENT ACTIVITIES DURING THE PRIOR TWO FISCAL YEARS
The Keenway Companies are involved in the tourist industry and mass media markets and, as such, do not have significant research and development activities. Any research and/or development that the Company worked on over the prior two fiscal years has been in connection with analyzing market trends and methods of increasing its tourist activity. The Company did not spend significant money or resources on research and development during the prior two fiscal years.
COMPLIANCE WITH ENVIRONMENTAL LAW
We comply with the Environmental Protection Law of PRC as well as applicable local regulations. In addition to statutory and regulatory compliance, we actively ensure the environmental sustainability of our operations. Penalties would be levied upon us if we fail to adhere to and maintain certain standards. Such failure has not occurred in the past, and we generally do not anticipate that it will occur in the future, but no assurance can be given in this regard.
EMPLOYEES
As of December 31, 2008, we had approximately 385 full-time employees, including 16 senior managers. The majority of our workforce is comprised of:
We currently have one tourist destination which is known as “the Great Golden Lake.” It is located between the cities Sanming and Nanping of Fujian Province and Fuzhou of Jiangxi Province. This property consists of 5 scenic areas: (1) Golden Lake; (2) Shangqing River; (3) Zhuanyuan Rock; (4) Luohan Mountain; and (5) Taining Old Town. The entire property covers more than 230 kilometers.
In February of 2005, the United Nations Educational, Scientific, and Cultural Organization named the Great Golden Lake as the core spot at the Taining World Geology Park and is behind only the Wuyi Mountain as Fujian Province’s best tourist attractions.
As described above, we also have the rights to develop tourist destinations at two other locations. The first location is Yongtai Beixi and Jiezhukou Lake in Fuzhou. The second property is Dadi Tulou Tourism Destination and its surrounding scenic areas located in the Hua’an County.
All of our offices for our tourist and media businesses are leased from unrelated third parties. The lease for our media business is between Fujian Jiaoguang Media and Fuzhou Kai Fa Qu Langqi Si Ji Hui Yi Reception Co., Ltd. The property is located in Langqi Town, Long Gu Resort #18 Wang Jiang Lou. The lease was entered into on October 4, 2004 and is a ten-year lease expiring on October 8, 2014. The rent for the property is 1,500 RMB per year and the annual rent is due, in full, before July 1 of each year. Copy of the lease agreement between Fujian Jiaoguang Media and Fuzhou Kai Fa Qu Langqi Si Ji Hui Yi Reception Co., Ltd. is attached as Exhibit 10.8.
Neither we, nor any of our controlled affiliates, including the Keenway Companies are involved in any lawsuit outside the ordinary course of business, the disposition of which would have a material effect upon either our results of operations, financial position, or cash flows.
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON 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 2007, 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.” The following table sets forth the range of quarterly high and sales prices of the common stock as reported on March 31, 2009 for the periods indicated:
| Price Information* | |||||||||
| Financial Quarter Ended | High | Low | |||||||
| March 31, 2007 | 0.45 | 0.31 | |||||||
| June 30, 2007 | 0.25 | 1.60 | |||||||
| September 30, 2007 | 0.35 | 0.10 | |||||||
| December 31, 2007 | 4.60 | 0.10 | |||||||
| March 31, 2008 | 3.90 | 0.75 | |||||||
| June 30, 2008 | 1.95 | 1.20 | |||||||
| September 30, 2008 | 2.10 | 0.50 | |||||||
| December 31, 2008 | 1.25 | 0.15 | |||||||
| - | |||||||||
| March 31,2009 | 1.01 | 0.65 | |||||||
* The quotations do not reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. All prices quoted above are adjusted according to the 10 for 1 reverse split that occurred in November 2007 and the subsequent 10 for 1 reverse split that occurred in February 2008.
The source of the high and low sales price information is Nasdaq.com.
The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (i) that a broker or dealer approve a person’s account for transactions in penny stocks and (ii) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person’s account for transactions in penny stocks, the broker or dealer must (i) obtain financial information and investment experience and objectives of the person; and (ii) make a reasonable determination that the transactions in penny stocks are suitable for that person and that person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prepared by the Commission relating to the penny stock market, which, in highlight form, (i) sets forth the basis on which the broker or dealer made the suitability determination and (ii) that the broker or dealer received a signed, written agreement from the investor prior to the transaction. Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading, and about commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
Holders
As of March 31, 2009, 68,084,487 shares of common stock are issued and outstanding. There are approximately 173 shareholders of our common stock and each shareholder of our common stock is entitled to one vote for each share on all matters submitted to a stockholder vote.
Holders of common stock do not have cumulative voting rights.
Therefore, holders of a majority of the shares of common stock voting for the election of directors can elect all of the directors. Holders of our common stock representing a majority of the voting power of our capital stock issued and outstanding and entitled to vote, represented in person or by proxy, are necessary to constitute a quorum at any meeting of our stockholders. A vote by the holders of a majority of our outstanding shares is required to effectuate certain fundamental corporate changes such as liquidation, merger or an amendment to our Articles of Incorporation.
Although there are no provisions in our charter or by-laws that may delay, defer or prevent a change in control, we are authorized, without shareholder approval, to issue shares of preferred stock that may contain rights or restrictions that could have this effect.
Holders of common stock are entitled to share in all dividends that the board of directors, in its discretion, declares from legally available funds. In the event of liquidation, dissolution or winding up, each outstanding share entitles its holder to participate pro rata in all assets that remain after payment of liabilities and after providing for each class of stock, if any, having preference over the common stock. Holders of our common stock have no pre-emptive rights, no conversion rights and there are no redemption provisions applicable to our common stock.
Dividends
Since inception we have not paid any dividends on our common stock. We currently do not anticipate paying any cash dividends in the foreseeable future on our common stock, when issued pursuant to this offering. Although we intend to retain our earnings, if any, to finance the exploration and growth of our business, our Board of Directors will have the discretion to declare and pay dividends in the future.
Payment of dividends in the future will depend upon our earnings, capital requirements, and other factors, which our Board of Directors may deem relevant.
Recent Sales of Unregistered Securities
None.
Equity Compensation Plan Information
The following table sets forth certain information as of June 2, 2009, with respect to compensation plans under which our equity securities are authorized for issuance:
| (a) | (b) | (c) | ||
| _________________ | _________________ | _________________ | ||
| Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | ||
| Equity compensation | None | |||
| Plans approved by | ||||
| Security holders | ||||
| Equity compensation | None | |||
| Plans not approved | ||||
| By security holders | ||||
| Total |
DESCRIPTION OF SECURITIES
As of June 2, 2009, our authorized capital stock consists of 100,000,000 shares of common stock, par value $0.001 per share, and 10,000,000 shares of preferred stock, par value $0.001 per share. As of June 2, 2009, an aggregate of 68,084,487 shares of Common Stock were outstanding. There are no shares of preferred stock outstanding.
Common Stock
Subject to preferences that may apply to shares of preferred stock outstanding at the time, the holders of outstanding shares of Common Stock are entitled to receive dividends out of assets legally available at times and in amounts as our board of directors may determine. Each stockholder is entitled to one vote for each share of Common Stock held on all matters submitted to a vote of the stockholders. Cumulative voting is not provided for in our articles of incorporation or any amendments thereto, which means that the majority of the shares voted can elect all of the directors then standing for election. The Common Stock is not entitled to preemptive rights and is not subject to conversion or redemption. Upon the occurrence of a liquidation, dissolution or winding-up, the holders of shares of Common Stock are entitled to share ratably in all assets remaining after payment of liabilities and satisfaction of preferential rights of any outstanding preferred stock. There are no sinking fund provisions applicable to the Common Stock. The outstanding shares of Common Stock are, and the shares of Common Stock to be issued upon conversion of the Warrants will be, fully paid and non-assessable.
Preferred Stock
Our board of directors has the authority, within the limitations and restrictions in our amended articles of incorporation, to issue 10,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any series or the designation of any series, without further vote or action by the stockholders. The issuance of preferred stock may have the effect of delaying, deferring or preventing a change in our control without further action by the stockholders. The issuance of preferred stock with voting and conversion rights may adversely affect the voting power of the holders of Common Stock, including voting rights, of the holders of Common Stock. In some circumstances, this issuance could have the effect of decreasing the market price of the Common Stock. Prior to Closing, there was one share of preferred stock outstanding; however, that share of preferred stock was cancelled pursuant to the terms of the Share Exchange Agreement. We currently have no plans to issue any shares of preferred stock.
Transfer Agent and Registrar
American Stock Transfer is currently the transfer agent and registrar for our Common Stock. Its address is 59 Maiden Lane, Plaza Level, New York 10038. Its phone number is (212) 936-5100.
Dividend Policy
Any future determination as to the declaration and payment of dividends on shares of our Common Stock will be made at the discretion of our board of directors out of funds legally available for such purpose. We are under no contractual obligations or restrictions to declare or pay dividends on our shares of Common Stock. In addition, we currently have no plans to pay such dividends. However, even if we wish to pay dividends, because our cash flow is dependent on dividend distributions from our affiliated entities in PRC, we may be restricted from distributing dividends to our holders of shares of our common stock in the future if at the time we are unable to obtain sufficient dividend distributions from and of the Keenway Companies. Our board of directors currently intends to retain all earnings for use in the business for the foreseeable future. See “Risk Factors.”
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2009
CONTENTS
| PAGE | F-1 | CONSOLIDATED BALANCE SHEET |
| PAGE | F-2 | CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME |
| PAGE | F-3 | CONSOLIDATED STATEMENT OF CASH FLOWS |
| PAGES | F-4 - F-15 | NOTES TO FINANCIAL STATEMENTS |
| CHINA YIDA HOLDING CO. AND SUBSIDIARIES | ||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||
| (UNAUDITED) | ||||||||
| ASSETS | ||||||||
| March 31, 2009 | December 31, 2008 | |||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 9,967,084 | $ | 8,715,048 | ||||
Accounts receivable, net | 26,015 | 76,569 | ||||||
Other current assets | 705,642 | 76,759 | ||||||
Prepayments | 218,283 | 164,169 | ||||||
Total current assets | 10,917,024 | 9,032,546 | ||||||
Property, plant and equipment, net | 33,831,232 | 34,173,009 | ||||||
Construction in progress | 9,577,702 | 1,979,725 | ||||||
Intangible assets, net | 8,981,183 | 9,358,333 | ||||||
Total assets | $ | 63,307,142 | $ | 54,543,613 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
Current liabilities | ||||||||
Accounts payable and accrued expense | $ | 63,796 | $ | 65,368 | ||||
Loan payable | 1,171,989 | 1,172,591 | ||||||
Other payable | 836,334 | 456,181 | ||||||
Unearned revenue | 29,484 | 6,597 | ||||||
Tax payables | 1,963,926 | 726,524 | ||||||
Total current liabilities | 4,065,530 | 2,427,259 | ||||||
Loan payable, long term | 2,167,412 | - | ||||||
Total liabilities | 6,232,942 | 2,427,259 | ||||||
Stockholders' equity | ||||||||
Preferred stock (10,000,000 shares authorized, 1 share issued and outstanding, par value $0.001) | - | - | ||||||
Common stock (100,000,000 shares authorized and 68,084,487 and 9,999,955 issued and outstanding as of March 31 and December 31, 2008, par value $0.0001) | 27,809 | 27,809 | ||||||
Additional paid in capital | 21,601,288 | 21,601,288 | ||||||
Accumulated other comprehensive income | 3,121,049 | 3,134,077 | ||||||
Retained earning | 32,324,054 | 27,353,180 | ||||||
Total stockholders' equity | 57,074,200 | 52,116,354 | ||||||
Total liabilities and stockholders' equity | $ | 63,307,142 | $ | 54,543,613 | ||||
The accompanying notes are an integral part of these audited consolidated financial statements.
F-1
| CHINA YIDA HOLDING CO. AND SUBSIDIARIES | ||||||||
| CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME | ||||||||
| FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008 | ||||||||
| 2009 | 2008 | |||||||
Net revenue | ||||||||
Advertisement | $ | 6,592,187 | $ | 5,859,330 | ||||
Tourism | 3,230,718 | 992,954 | ||||||
Total net revenue | 9,822,906 | 6,852,284 | ||||||
Cost of revenue | ||||||||
Advertisement | 1,372,523 | 1,384,565 | ||||||
Tourism | 128,226 | 503,035 | ||||||
Total cost of revenue | (1,500,750 | ) | (1,887,600 | ) | ||||
Gross profit | 8,322,156 | 4,964,684 | ||||||
Operating expenses | ||||||||
Selling expenses | 430,647 | 133,671 | ||||||
Operating and administrative expenses | 1,202,198 | 352,316 | ||||||
Total operating expenses | 1,632,845 | 485,987 | ||||||
Income from operations | 6,689,311 | 4,478,698 | ||||||
Other (income) expense | ||||||||
Other expense, net | 1,269 | 7,976 | ||||||
Interest expense | 0 | 61,249 | ||||||
Interest income | (13,634 | ) | (1,545 | ) | ||||
Total other expense | (12,364 | ) | 67,681 | |||||
Income before income taxes | 6,701,675 | 4,411,017 | ||||||
Provision for income taxes | 1,730,801 | 99,313 | ||||||
Net income | 4,970,874 | 4,311,704 | ||||||
Other comprehensive income | ||||||||
Foreign currency translation gain (loss) | (13,028 | ) | 969,165 | |||||
Comprehensive income | $ | 4,957,846 | $ | 5,280,870 | ||||
Basic net earnings per share | $ | 0.07 | $ | 0.17 | ||||
Basic weighted average shares outstanding | 68,084,487 | 25,489,123 | ||||||
Diluted net earnings per share | $ | 0.07 | $ | 0.15 | ||||
Diluted weighted average shares outstanding | 68,084,487 | 28,038,142 | ||||||
*Weighted average number of shares used to compute basic and diluted loss per share f are the same since the effect of dilutive securities is anti-dilutive.
The accompanying notes are an integral part of these audited consolidated financial statements.
F-2
| CHINA YIDA HOLDING CO. AND SUBSIDIARIES | ||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008 | ||||||||
| 2009 | 2008 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net Income | $ | 4,970,874 | $ | 4,311,704 | ||||
Adjustments to reconcile net income to net cash | ||||||||
provided by operating activities: | ||||||||
Depreciation | 354,336 | 96,647 | ||||||
Amortization | 372,242 | 963,998 | ||||||
(Increase) / decrease in assets: | ||||||||
Accounts receivables | 50,501 | (10,521 | ) | |||||
Other receivables | (629,516 | ) | 830,029 | |||||
Prepaid expense | 497 | (5,481 | ) | |||||
Advances | (54,183 | ) | - | |||||
Accounts payable and accrued expenses | (1,538 | ) | (12,548 | ) | ||||
Tax payable | 1,236,890 | (883,320 | ) | |||||
Unearned revenue | 22,884 | (90,197 | ) | |||||
Accrued payroll | (11,746 | ) | 8,593 | |||||
Other payable | 392,545 | (291,642 | ) | |||||
Net cash provided by operating activities | 6,703,785 | 4,917,262 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Additions to property & equipment | (64,548 | ) | (613 | ) | ||||
Addition to construction in progress | (7,662,370 | ) | (7,396,037 | ) | ||||
Purchase of intangible assets | - | (6,271,183 | ) | |||||
Net cash used in investing activities | (7,726,918 | ) | (13,667,833 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Proceed from related party | - | 1,383,535 | ||||||
Issuance of shares for cash | - | 13,027,250 | ||||||
Borrowings | 2,167,545 | (836,158 | ) | |||||
Net cash provided by financing activities | 2,167,545 | 13,574,627 | ||||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS | 107,624 | (34,101 | ) | |||||
NET INCREASE IN CASH AND CASH EQUIVALENTS | 1,252,036 | 4,789,956 | ||||||
CASH AND CASH EQUIVALENTS, BEGINNING BALANCE | 8,715,048 | 726,631 | ||||||
CASH AND CASH EQUIVALENTS, ENDING BALANCE | $ | 9,967,084 | $ | 5,516,587 | ||||
SUPPLEMENTAL DISCLOSURES: | ||||||||
Cash paid during the quarter for: | ||||||||
Income tax payments | $ | 511,212 | $ | - | ||||
Interest payments | $ | 20,243 | $ | 61,249 | ||||
The accompanying notes are an integral part of these audited consolidated financial statements.
F-3
CHINA YIDA HOLDING CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
China Yida Holding Co. (“the Company”, “we”, “us”, “our”) engages in tourisim and advertisement business through its subsidiaries in Peoples Republic of China.
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.
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.
Hongkong Yi Tat was established on July 28, 2000, under the laws of Hong Kong Special Administration Region,.
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 resort 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.
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 by 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. 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 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.
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.
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.
FUJIAN YUNDING TOURISM INDUSTRIAL CO. LTD (“Yunding”) is incorporated on January 21, 2009 under the laws of PRC and located in Fujian Province in China. It mainly engages in tourism developments, ethnic culture communication, timeshare resort operation, souvenirs sales, and related tourism services. It has gained 40 years of management right (from 2009 to 2049) to manage the Yunding resort in Fujian province.
2. BASIS OF PRESETATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principle of consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries Hongkong Yida, Jintai, Yintai, Yunding, Fuyu, Hongda, and the accounts of the variable interest entity, Jiaoguang, collectively “the Company”. All significant inter-company accounts and transactions have been eliminated in consolidation.
b.Use of estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the amount of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made. However, actual results could differ materially from those results.
c.Cash and cash equivalents
For Statement of Cash Flows purposes, the Company considers all cash on hand and in banks, including accounts in book overdraft positions, certificates of deposit and other highly-liquid investments with maturities of three months or less, when purchased, to be cash and cash equivalents.
d.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 March 31, 2009 and December 31, 2008, the Company had accounts receivable of $26,015 and $76,569, respectively.
e.Prepayments
The Company advances to certain vendors for purchase of its material and necessary service. As of March 31, 2009 and December 31, 2008, the prepayments amounted to $218,283 and $164,169, respectively.
f.Property, plant and equipment
Property, plant and equipment are recorded at cost. Gains or losses on disposals are reflected as gain or loss in the year of disposal. The cost of improvements that extend the life of plant, property, and equipment are capitalized. These capitalized costs may include structural improvements, equipment, and fixtures. All ordinary repair and maintenance costs are expensed as incurred.
Depreciation for financial reporting purposes is provided using the straight-line method over the estimated useful lives of the assets: 5 to 20years for house&building; 5 to 8 years for electronic equipment, 8years for transportation equipment, 5 to 8years for office furniture, 26 years for lease improvements.
g.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 months ended March 31, 2009.
h.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 $29,484 and $6,597 as of March 31, 2009 and December 31, 2008, respectively.
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. The tourist revenue is recognized when a ticket is purchased.
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.
i.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, 2009 and 2008 were $56,892 and $42,086, 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.
XHJ has signed a contract with the Company to assign the Company to manage the commercial of the TV station. The Company is responsible for paying the air time for RMB5,000,000. XHJ is responsible for paying RMB 5,000,000 to purchase the TV programs and entitled to revenue other than the commercial revenue. It also states that if the Company helps XHJ to purchase the TV programs and if pays equaling or more than RMB 5,000,000 then the Company does not have to pay RMB 5,000,000 for airtime anymore. The amount paid over RMB 5,000,000 by the Company will be the Company’s expenses and will not be reimbursed by XHJ. The advertising costs incurred are charged as cost of sales against specific airtime segments.
j.Income taxes
The Company accounts for income taxes using tax payable approach which did not need the recognition and measurement of deferred tax assets.
k.Foreign currency translation
The Company uses the United States dollar ("U.S. dollars") for financial reporting purposes. The Company's subsidiaries maintain their books and records in their functional currency, being the primary currency of the economic environment in which their operations are conducted. In general, for consolidation purposes, the Company translates the subsidiaries' assets and liabilities into U.S. dollars using the applicable exchange rates prevailing at the balance sheet date, and the statement of income is translated at average exchange rates during the reporting period. Gain or loss on foreign currency transactions are reflected on the income statement. Gain or loss on financial statement translation from foreign currency are recorded as a separate component in the equity section of the balance sheet, as component of comprehensive income. The functional currency of the Company ‘subsidiraies in China is the Chinese Renminbi and the functional currency of the US parent is the US dollar.
l.Fair values of financial instruments
Statement of Financial Accounting Standard No. 107, "Disclosures about Fair Value of Financial Instruments", requires that the Company disclose estimated fair values of financial instruments.
The Company's financial instruments primarily consist of cash and cash equivalents, accounts receivable, other receivables, advances to suppliers, accounts payable, other payable, tax payable, and related party advances and borrowings.
As of the balance sheet dates, the estimated fair values of the financial instruments were not materially different from their carrying values as presented on the balance sheet. This is attributed to the short maturities of the instruments and that interest rates on the borrowings approximate those that would have been available for loans of similar remaining maturity and risk profile at respective balance sheet dates.
m.Earning per share (EPS)
Earnings per share is calculated in accordance with the Statement of financial accounting standards No. 128 (SFAS No. 128), Earnings per share. SFAS No. 128 superseded Accounting Principles Board Opinion No.15 (APB 15). Earnings per share for all periods presented has been restated to reflect the adoption of SFAS No. 128. Basic earnings per share is based upon the weighted average number of common shares outstanding. Diluted earnings per share is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.
Weighted average number of shares used to compute basic and diluted earnings per share for the three months ended March 31, 2009 & 2008 are the same since the effect of dilutive securities is anti-dilutive.
n.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 months ended March 31, 2009 and 2008, the Company is organized into two main business segments: tourism and advertisement. The following table presents a summary of operating information and certain balance sheet information for the three months ended March 31, 2009 and 2008:
| Three months ended March 31, | ||||||||
| 2009 | 2008 | |||||||
| Revenues from unaffiliated customers: | ||||||||
| Advertisement | $ | 6,592,187 | $ | 5,859,330 | ||||
| Tourism | 3,230,718 | 992,954 | ||||||
| Consolidated | $ | 9,822,906 | $ | 6,852,285 | ||||
| Operating income : | ||||||||
| Advertisement | $ | 5,000,517 | $ | 4,291,565 | ||||
| Tourism | 1,690,238 | 187,845 | ||||||
| Others | (1,444 | ) | (712 | ) | ||||
| Consolidated | $ | 6,689,311 | $ | 4,478,698 | ||||
| Advertisement | $ | 21,321,818 | $ | 18,154,427 | ||||
| Tourism | 41,942,378 | 17,086,237 | ||||||
| Others | 42,946 | 6,138,620 | ||||||
| Consolidated | $ | 63,307,142 | $ | 41,379,284 | ||||
| Advertisement | $ | 3,733,254 | $ | 4,261,766 | ||||
| Tourism | 1,239,247 | 50,699 | ||||||
| Others | (1,627 | ) | (762 | ) | ||||
| Consolidated | $ | 4,970,874 | $ | 4,311,704 | ||||
| Interest expense: | ||||||||
| Advertisement | $ | - | $ | 25,262 | ||||
| Tourism | - | 35,987 | ||||||
| Consolidated | $ | - | $ | 61,249 | ||||
Others include reconciling amounts including certain assets which are excluded from segments and adjustments to eliminate inter company transactions.
o.Statement of cash flows
In accordance with Statement of Financial Accounting Standards No. 95, "Statement of Cash Flows," cash flows from the Company's operations is calculated based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows may not necessarily agree with changes in the corresponding balances on the balance sheet.
p.Recent accounting pronouncements
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.
In May 2008, FASB issued SFASB No.162, “The Hierarchy of Generally Accepted Accounting Principles”. The pronouncement mandates the GAAP hierarchy reside in the accounting literature as opposed to the audit literature. This has the practical impact of elevating FASB Statements of Financial Accounting Concepts in the GAAP hierarchy. This pronouncement will become effective 60 days following SEC approval. The Company does not believe this pronouncement will impact its financial statements. In May 2008, FASB issued SFASB No. 163, “Accounting for Financial Guarantee Insurance Contracts-an interpretation of FASB Statement No. 60”. The scope of the statement is limited to financial guarantee insurance (and reinsurance) contracts. The pronouncement is effective for fiscal years beginning after December 31, 2008. The Company does not believe this pronouncement will impact its financial statements.
In June 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) Emerging Issues Task Force (EITF) No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” Under the FSP, unvested share-based payment awards that contain rights to receive nonforfeitable dividends (whether paid or unpaid) are participating securities, and should be included in the two-class method of computing EPS. This FSP is effective for us beginning July 1, 2009 and the Company does not expect that FSP EITF No. 03-6-1 would have a material impact on the financial statements.
q. Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation.
3. OTHER ASSETS
Other assets amounted to $705,642 and $76,759 as of March 31, 2009 and December 31, 2008, respectively. Other assets is mainly comprised of advances to employees and other unrelated parties, interest free, and due on demand.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following as of March 31, 2009 and December 31:
| March 31, 2009 | December 31, 2008 | |||||||
| Building | $ | 34,855,605 | $ | 34,872,855 | ||||
| Electronic Equipments | 197,353 | 193,494 | ||||||
| Transportation Equipments | 74,986 | 63,442 | ||||||
| Office Furniture | 22,511 | 8,946 | ||||||
| Subtotal | 35,150,455 | 35,103,887 | ||||||
| Less: Accumulated Depreciation | (1,319,223 | ) | (965,278 | ) | ||||
| Total | $ | 33,831,232 | $ | 34,173,009 | ||||
Depreciation expenses for the three months ended March 31, 2009 and 2008 were $354,336 and, $96,647, respectively.
5. CONSTRUCTION IN PROGRESS
Construction in progress amounted to $9,577,702 and $1,979,725 of March 31, 2009 and December 31, 2008. It is mainly constructions for the new tourist resort which the Company has acquired management right from January 2009. The amount of capitalized interest included in construction in progress amounted $20,243 and $0 for the three months ended March 31, 2009 and 2008. The Company will begin depreciating these assets when they are placed in service.
6. INTANGIBLE ASSETS
Intangible assets were as of March 31, 2009 and December 31 as follows:
| March 31, 2009 | December 31, 2008 | |||||||
| Intangible asset | ||||||||
| Management right of tourist resort | $ | 5,127,454 | $ | 5,130,084 | ||||
| Advertising board | 6,592,441 | 6,595,823 | ||||||
| Accumulated amortization | (2,738,711 | ) | (2,367,574 | ) | ||||
| Total | $ | 8,981,183 | $ | 9,358,555 | ||||
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 $6,592,441 (RMB45,000,000).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.
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.
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, 2009 the Company expects these assets to be fully recoverable.
Total amortization expenses for the three months ended ended March 31, 2009 and 2008 amounted to $372,242 and $145,166 respectively. Amortization expenses for next five years after March 31, 2009 are as follows:
| 1 year | $ | 1,097,486 | ||
| 2 year | 1,463,314 | |||
| 3 year | 1,463,314 | |||
| 4 year | 1,463,314 | |||
| 5 year | 383,820 | |||
| Thereafter | $ | 3,130,333 |
7. OTHER PAYABLE
Other payables are payables due to unrelated parties other than supplier vendors. The amount were $836,334 and $456,181, due on demand and interest free as of March 31, 2009 and December 31, 2008, respectively.
8. TAX PAYABLES
Tax payables consist of the following as of:
| March 31, 2009 | December 31, 2008 | |||||||
| City planning tax | $ | 5,181 | $ | 6,729 | ||||
| Business tax payable | 160,975 | 139,616 | ||||||
| Individual income tax payable | 1,153 | 1,136 | ||||||
| Income tax payable | 1,731,308 | 511,624 | ||||||
| Education fee | 4,719 | 5,434 | ||||||
| Cultural construction fee | 60,590 | 61,985 | ||||||
| Total | $ | 1,963,926 | $ | 726,524 | ||||
9. LOAN PAYABLE
As of March 31, 2009 and December 31, 2008, the short term loan payables were as follows:
| March 31, 2009 | December 31, 2008 | |||||||
| Merchant bank of Fuzhou | $ | 1,171,989 | $ | 1,172,591 | ||||
As of March 31, 2009 and December 31, 2008, the long term loan payables were as follows:
| March 31, 2009 | December 31, 2008 | |||||||
| Taining Credit Union | $ | 2,167,412 | $ | - | ||||
As of March 31, 2009, the Company had a loan payable of $1,171,989 to Merchant bank of Fuzhou in China, with an annual interest rate of 8.66% from November 14, 2008 to November 13, 2009. The loan is guaranteed by a related party 80% owned by the same shareholder of the Company.
As of March 31, 2009, the Company had a loan payable of $2,167,412 to Taining Credit Union in China, with an annual interest rate of 0.585%% from March 30, 2009 to March 20, 2012. The loan is guaranteed by the management right of Yunding.
There are no interest expenses for the three months ended March 31, 2009 as compared to $25,262 in the previous year 2008. The Company has paid interest $131,662 and $61,249 for the three months ended March 31, 2009 and 2008.
The entire long term loan is due on March 20, 2012.
10. OTHER (INCOME) EXPENSES
Other (income) expenses consists of the following for the three months ended March 31, 2009 and 2008:
| Other (income) expense | 2009 | 2008 | ||||||
| Other expense, net | $ | 1,269 | $ | 7,976 | ||||
| Interest expense | - | 61,249 | ||||||
| Interest income | (13,634 | ) | (1,545 | ) | ||||
| Total other expense | $ | (12,364 | ) | $ | 67,681 | |||
11. INCOME TAXES
The Company is registered in Hong Kong, China and has operations in primarily two tax jurisdictions - the PRC and 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, 2009. Accordingly, the Company has no net deferred tax assets.
The provision for income taxes from operations income consists of the following for the three months ended March 31, 2009 and 2008:
| 2009 | 2008 | ||||||
| HK Current Income Tax Expense (Benefit) | $ | - | $ | - | |||
| PRC Current Income Expense (Benefit) | $ | 1,730,801 | $ | 99,313 | |||
| Total Provision for Income Tax | $ | 1,730,801 | $ | 99,313 | |||
The following is a reconciliation of the provision for income taxes at the PR and HK tax rate to the income taxes reflected in the Statement of Operations:
| March 31, 2009 | March 31, 2008 | |
| Tax expense (credit) at statutory rate - HK | 17.5% | 17.5% |
| Changes in valuation allowance | (17.5%) | (17.5%) |
| Foreign income tax rate | 25% | 25% |
| Foreign income tax benefit - PRC | (21%) | (23%) |
| Tax expense at actual rate | 4% | 2% |
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.
The applicable income tax rate 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 September 2009. There were no significant book and tax basis difference.
12. SHAREHOLDERS’ EQUITY
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 | Common Stock | Additional Paid-in Capital | Total | ||||||||
| Shares | |||||||||||
| 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) SECURITY ISSUANCE AGREEMENT
On November 19, 2007, the Company entered into a Stock Purchase Agreement and Share Exchange with Keenway Limited and its certain shareholders (the “Stock Purchase Agreement”). At the time of the Stock Purchase Agreement, it was the intent of all the parties involved to deliver to the shareholders of Keenway 99% of the outstanding shares of the Company common stock. However, the Company had 100,000,000 shares authorized and could only issue 94,524,442 shares to the persons receiving shares in the Stock Purchase Agreement which resulted in an issuance of 94.5% of the shares to the shareholders listed in the Stock Purchase Agreement. Accordingly, following the Closing of the Stock Purchase Agreement, the Company conducted two 10-for-1 reverse stock splits in order to reduce the number of shares outstanding to be able to issue shares to the persons receiving shares under the Stock Purchase Agreement. On February 28, 2009, the Company authorized the issuance of 44,751,046 shares (in the same proportion) to the shareholders of the Stock Purchase Agreement. This was defined as a Corrective Issuance in Section 5.12 of the Securities Purchase Agreement that closed on March 7, 2009.
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 company paid $972,750 to the various parties as fund raising cost directly from the fund raised amounting of $14,000,000 which was closed on March 7, 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.
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, 2009 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 | Aggregate Intrinsic Value | ||||||||||||||||||||
| $ | 1.05 | 6,666,667 | 2.00 | $ | 1.05 | 6,666,667 | $ | 1.05 | $ | - | ||||||||||||||||
13. 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, 2009. There are no major vendors which accounting over 10% of the total purchase for the year ended March 31, 2009. 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
The Company incurred rent expenses $15,723 and $4,752 for the years ended March 31, 2009 and 2008.
The Company and its subsidiaries made no commitments of leases for future. So there is no lease commitment in the future.
CHINA YIDA HOLDING CO. AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 2008
CONTENTS
| PAGE | F-1 | REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
| PAGE | F-2 | BALANCE SHEET |
| PAGE | F-3 | STATEMENT OF OPERATIONS |
| PAGE | F-4 | STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIENCY |
| PAGE | F-5 | STATEMENT OF CASH FLOWS |
| PAGES | F-6 - F-23 | NOTES TO FINANCIAL STATEMENTS |
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders of
China Yida Holding Co. and subsidiaries
We have audited the accompanying consolidated balance sheets of China Yida Holding Co. and Subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of income, stockholders' equity, and cash flows for the two years period ended December 31, 2008. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of China Yida Holding Co. and Subsidiaries as of December 31, 2008 and 2007, and the results of their operations and their cash flows for the two years period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles.
/s/ Kabani & Company, Inc.
Certified Public Accountants
Los Angeles, California
March 25, 2009
| CHINA YIDA HOLDING CO. AND SUBSIDIARIES | ||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||
| DECEMBER 31, | ||||||||
| ASSETS | ||||||||
| 2008 | 2007 | |||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 8,715,048 | $ | 726,631 | ||||
| Accounts receivable | 76,569 | 21,965 | ||||||
| Due from related party | - | 351,450 | ||||||
| Other current assets | 76,759 | 36,532 | ||||||
| Prepayments | 164,169 | 24,173 | ||||||
| Total current assets | 9,032,546 | 1,160,751 | ||||||
| Property, plant and equipment, net | 34,173,009 | 8,184,546 | ||||||
| Construction in progress | 1,979,725 | 278,803 | ||||||
| Intangible assets, net | 9,358,333 | 3,956,885 | ||||||
| Advances | - | 9,459,052 | ||||||
| Total assets | $ | 54,543,613 | $ | 23,040,037 | ||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expense | $ | 65,368 | $ | 170,226 | ||||
| Loan payable | 1,172,591 | 1,919,228 | ||||||
| Other payable | 456,181 | 449,507 | ||||||
| Unearned revenue | 6,597 | 135,945 | ||||||
| Accrued payroll | - | 70,762 | ||||||
| Tax payables | 726,524 | 1,626,099 | ||||||
| Total current liabilities | 2,427,259 | 4,371,767 | ||||||
| Stockholders' equity | ||||||||
| Preferred stock (10,000,000 shares authorized, 1 share issued and outstanding, par value $0.001) | - | - | ||||||
| Common stock (100,000,000 shares authorized and 68,084,487 and 9,999,955issued and outstanding as of December 31, 2008 and December 31, 2007, par value $0.0001) | 27,809 | 10,000 | ||||||
| Additional paid in capital | 21,601,288 | 8,591,847 | ||||||
| Accumulated other comprehensive income | 3,134,077 | 1,004,344 | ||||||
| Retained earning | 27,353,180 | 9,062,079 | ||||||
| Total stockholders' equity | 52,116,354 | 18,668,270 | ||||||
| Total liabilities and stockholders' equity | $ | 54,543,613 | $ | 23,040,037 | ||||
The accompanying notes are an integral part of these audited consolidated financial statements.
F-2
| CHINA YIDA HOLDING CO. AND SUBSIDIARIES | ||||||||
| CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME | ||||||||
| FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 | ||||||||
| 2008 | 2007 | |||||||
| Net revenue | ||||||||
| Advertisement | $ | 23,319,235 | $ | 12,246,964 | ||||
| Tourism | 7,280,258 | 2,330,801 | ||||||
| Total net revenue | 30,599,493 | 14,577,765 | ||||||
| Cost of revenue | ||||||||
| Advertisement | 5,779,082 | 2,000,684 | ||||||
| Tourism | 1,904,329 | 70,726 | ||||||
| Total cost of revenue | (7,683,410 | ) | (2,071,409 | ) | ||||
| Gross profit | 22,916,082 | 12,506,356 | ||||||
| Operating expenses | ||||||||
| Selling expenses | 1,456,229 | 973,459 | ||||||
| Operating and administrative expenses | 2,463,201 | 2,622,417 | ||||||
| Total operating expenses | 3,919,429 | 3,595,876 | ||||||
| Income from operations | 18,996,653 | 8,910,480 | ||||||
| Other (income) expense | ||||||||
| Other income - donation income | - | (2,437,333 | ) | |||||
| Other expense, net | 22,869 | 8,869 | ||||||
| Interest expense | 37,168 | 221,058 | ||||||
| Interest income | (24,832 | ) | (1,775 | ) | ||||
| Finance expense | - | 4,742 | ||||||
| Total other expense | 35,205 | (2,204,440 | ) | |||||
| Income before income taxes | 18,961,448 | 11,114,920 | ||||||
| Provision for income taxes | 670,347 | 136,770 | ||||||
| Net income | 18,291,101 | 10,978,150 | ||||||
| Other comprehensive income | ||||||||
| Foreign currency translation gain | 2,129,733 | 961,760 | ||||||
| Other comprehensive income | $ | 20,420,834 | $ | 11,939,910 | ||||
| Basic net earnings per share | $ | 0.32 | $ | 1.16 | ||||
| Basic weighted average shares outstanding | 57,581,530 | 9,445,859 | ||||||
| Diluted net earnings per share | $ | 0.32 | $ | 1.16 | ||||
| Diluted weighted average shares outstanding | 57,581,530 | 9,445,859 | ||||||
The accompanying notes are an integral part of these audited consolidated financial statements.
F-3
| CHINA YIDA HOLDING CO. AND SUBSIDIARIES | ||||||||||||||||||||||||
| CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY | ||||||||||||||||||||||||
| FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 | ||||||||||||||||||||||||
| # of shares of common stock outstanding | Common stock | Additional paid in capital | Other comprehensive income | Retained earning (accumulated deficit) | Total | |||||||||||||||||||
| Balance at December 31, 2006 | 9,401,597 | 940 | 8,600,907 | 42,584 | (1,916,071 | ) | 6,728,360 | |||||||||||||||||
| Recapitalization | 598,358 | 60 | (60 | ) | - | - | - | |||||||||||||||||
| Foreign currency translation | - | - | - | 961,760 | - | 961,760 | ||||||||||||||||||
| Net income for the year ended December 31, 2007 | - | - | - | - | 10,978,150 | 10,978,150 | ||||||||||||||||||
| Balance at December 31, 2007 | 9,999,955 | 10,000 | 8,591,847 | 1,004,344 | 9,062,079 | 18,668,270 | ||||||||||||||||||
| Recapitalization | 44,751,046 | 4,475 | (4,475 | ) | - | - | - | |||||||||||||||||
| Shares issued for cash | 13,333,486 | 13,334 | 13,013,916 | - | - | 13,027,250 | ||||||||||||||||||
| Foreign currency translation | - | - | - | 2,129,733 | - | 2,129,733 | ||||||||||||||||||
| Net income from the year ended December 31, 2008 | - | - | - | - | 18,291,101 | 18,291,101 | ||||||||||||||||||
| Balance at December 31, 2008 | 68,084,487 | $ | 27,809 | $ | 21,601,288 | $ | 3,134,077 | $ | 27,353,180 | $ | 52,116,354 | |||||||||||||
The accompanying notes are an integral part of these audited consolidated financial statements.
F-4
| CHINA YIDA HOLDING CO. AND SUBSIDIARIES | ||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 | ||||||||
| 2008 | 2007 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net Income | $ | 18,291,101 | $ | 10,978,150 | ||||
| Adjustments to reconcile net income to net cash | ||||||||
| provided by operating activities: | ||||||||
| Depreciation | 399,884 | 357,066 | ||||||
| Amortization | 4,264,777 | 183,333 | ||||||
| (Increase) / decrease in assets: | ||||||||
| Accounts receivables | (52,128 | ) | 156,113 | |||||
| Other receivables | (1,061,873 | ) | 1,081,853 | |||||
| Prepaid expense | 79 | (17,636 | ) | |||||
| Advances | 6,932,750 | (8,812,439 | ) | |||||
| Increase/(decrease) in current liabilities: | ||||||||
| Accounts payable and accrued expenses | (114,535 | ) | (72,670 | ) | ||||
| Tax payable | (993,859 | ) | 1,031,136 | |||||
| Unearned revenue | (136,255 | ) | 101,934 | |||||
| Accrued payroll | 55,392 | 28,563 | ||||||
| Other payable | (203,257 | ) | (580,370 | ) | ||||
| Total Adjustments | 9,090,975 | (6,543,117 | ) | |||||
| Net cash provided by operating activities | 27,382,076 | 4,435,033 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Additions to property & equipment | (25,364,501 | ) | (188,013 | ) | ||||
| Proceeds from loan to related party | - | 595,290 | ||||||
| Payments for construction in progress | (1,652,510 | ) | (2,395,927 | ) | ||||
| Purchase of intangible assets | (6,476,964 | ) | - | |||||
| Net cash used in investing activities | (33,493,975 | ) | (1,988,651 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceed from related party | - | (1,748,987 | ) | |||||
| Issuance of shares for cash | 13,027,250 | - | ||||||
| Loan payments | 607,928 | (2,103,658 | ) | |||||
| Net cash provided by (used in) financing activities | 13,635,178 | (3,852,644 | ) | |||||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS | 465,139 | (83,017 | ) | |||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 7,988,417 | (1,489,279 | ) | |||||
| CASH AND CASH EQUIVALENTS, BEGINNING BALANCE | 726,631 | 2,215,910 | ||||||
| CASH AND CASH EQUIVALENTS, ENDING BALANCE | $ | 8,715,048 | $ | 726,631 | ||||
| SUPPLEMENTAL DISCLOSURES: | ||||||||
| Non-cash transaction: | ||||||||
| Transferred to fixed asset from construction in progress | $ | 25,320,569 | $ | 171,980.00 | ||||
| Cash paid during the quarter for: | ||||||||
| Income tax payments | $ | 317,668 | $ | - | ||||
| Interest payments | $ | 109,499 | $ | 221,058 | ||||
The accompanying notes are an integral part of these audited consolidated financial statements.
F-5
CHINA YIDA HOLDING CO. AND SUBSIDIARIES
NOTES TO 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 System 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.
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 considerations of 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 exchanges on a one-for-one basis for IYSA common shares. A total of 20,288,33 IYSA common shares were issued.
On June 20, 2007, the shareholders approved reverse stock split of our common stock on the basis of one post-consolidation share for up to each ten pre-consolidation shares.
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.
Hongkong Yi Tat was established on July 28, 2000, under the laws of Hong Kong Special Administration Region.
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 resort 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.
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 by 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. 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 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.
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.
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.
2. BASIS OF PRESETATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principle of consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries Jintai, 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.
b.Use of estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the amount of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made. However, actual results could differ materially from those results.
c.Cash and cash equivalents
For Statement of Cash Flows purposes, the Company considers all cash on hand and in banks, including accounts in book overdraft positions, certificates of deposit and other highly-liquid investments with maturities of three months or less, when purchased, to be cash and cash equivalents.
d.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 December 31, 2008 and 2007, the Company had accounts receivable of $76,569 and $21,965, respectively.
e.Prepayments
The Company advances to certain vendors for purchase of its material and necessary service. As of December 31, 2008 and 2007, the prepayments amounted to $164,169 and $24,173, respectively.
f.Property, plant and equipment
Property, plant and equipment are recorded at cost. Gains or losses on disposals are reflected as gain or loss in the year of disposal. The cost of improvements that extend the life of plant, property, and equipment are capitalized. These capitalized costs may include structural improvements, equipment, and fixtures. All ordinary repair and maintenance costs are expensed as incurred.
Depreciation for financial reporting purposes is provided using the straight-line method over the estimated useful lives of the assets: 5 to 20years for house&building; 5 to 8 years for electronic equipment, 8years for transportation equipment, 5 to 8years for office furniture, 26 years for lease improvements.
g.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 year ended December 31, 2008.
h.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 $6,597 and $135,946 as of December 31, 2008 and 2007, respectively.
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. The tourist revenue is recognized when a ticket is purchased.
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.
i.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 years ended December 31, 2008 and 2007 were $406,899 and $148,000, 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.
XHJ has signed a contract with the Company to assign the Company to manage the commercial of the TV station. The Company is responsible for paying the air time for RMB5,000,000. XHJ is responsible for paying RMB 5,000,000 to purchase the TV programs and entitled to revenue other than the commercial revenue. It also states that if the Company helps XHJ to purchase the TV programs and if pays equaling or more than RMB 5,000,000 then the Company does not have to pay RMB 5,000,000 for airtime anymore. The amount paid over RMB 5,000,000 by the Company will be the Company’s expenses and will not be reimbursed by XHJ. The advertising costs incurred are charged as cost of sales against specific airtime segments.
j.Income taxes
The Company accounts for income taxes using tax payable approach which did not need the recognition and measurement of deferred tax assets.
k.Foreign currency translation
The Company uses the United States dollar ("U.S. dollars") for financial reporting purposes. The Company's subsidiaries maintain their books and records in their functional currency, being the primary currency of the economic environment in which their operations are conducted. In general, for consolidation purposes, the Company translates the subsidiaries' assets and liabilities into U.S. dollars using the applicable exchange rates prevailing at the balance sheet date, and the statement of income is translated at average exchange rates during the reporting period. Gain or loss on foreign currency transactions are reflected on the income statement. Gain or loss on financial statement translation from foreign currency are recorded as a separate component in the equity section of the balance sheet, as component of comprehensive income. The functional currency of the Company is Chinese Renminbi.
l.Fair values of financial instruments
Statement of Financial Accounting Standard No. 107, "Disclosures about Fair Value of Financial Instruments", requires that the Company disclose estimated fair values of financial instruments.
The Company's financial instruments primarily consist of cash and cash equivalents, accounts receivable, other receivables, advances to suppliers, accounts payable, other payable, tax payable, and related party advances and borrowings.
As of the balance sheet dates, the estimated fair values of the financial instruments were not materially different from their carrying values as presented on the balance sheet. This is attributed to the short maturities of the instruments and that interest rates on the borrowings approximate those that would have been available for loans of similar remaining maturity and risk profile at respective balance sheet dates.
m.Earning per share (EPS)
Earnings per share is calculated in accordance with the Statement of financial accounting standards No. 128 (SFAS No. 128), Earnings per share. SFAS No. 128 superseded Accounting Principles Board Opinion No.15 (APB 15). Earnings per share for all periods presented has been restated to reflect the adoption of SFAS No. 128. Basic earnings per share is based upon the weighted average number of common shares outstanding. Diluted earnings per share is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.
Weighted average number of shares used to compute basic and diluted loss per share for the years ended December 31, 2008 & 2007 are the same since the effect of dilutive securities is anti-dilutive.
n.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 years ended December 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 years ended December 31, 2008 and 2007:
| Years ended December 31, | ||||||||
| 2008 | 2007 | |||||||
| Revenues from unaffiliated customers: | ||||||||
| Advertisement | $ | 23,319,235 | $ | 12,246,964 | ||||
| Tourism | 7,280,258 | 2,330,801 | ||||||
| Consolidated | $ | 30,599,493 | $ | 14,577,765 | ||||
| Operating income : | ||||||||
| Advertisement | $ | 16,564,398 | $ | 8,996,777 | ||||
| Tourism | 2,705,267 | 467,452 | ||||||
| Others | (273,012 | ) ) | (3,749 | ) | ||||
| Consolidated | $ | 18,996,653 | $ | 9,460,480 | ||||
| Identifiable assets: | ||||||||
| advertisement | $ | 22,327,272 | $ | 17,287,260 | ||||
| Tourism | 31,050,807 | 5,751,936 | ||||||
| Others | 1,165,534 | ) | 841 | |||||
| Consolidated | $ | 54,543,613 | $ | 23,040,037 | ||||
| Net income | ||||||||
| advertisement | $ | 16,461,954 | $ | 8,804,241 | ||||
| Tourism | 2,084,320 | 2,177,645 | ||||||
| Others | (255,173 | ) ) | (3,736 | ) | ||||
| Consolidated | $ | 18,291,101 | $ | 10,978,150 | ) | |||
| Interest expense: | ||||||||
| advertisement | $ | - | $ | 96,308 | ||||
| Tourism | 37,168 | 124,750 | ||||||
| Consolidated | $ | 37,168 | $ | 221,058 |
In accordance with Statement of Financial Accounting Standards No. 95, "Statement of Cash Flows," cash flows from the Company's operations is calculated based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows may not necessarily agree with changes in the corresponding balances on the balance sheet.
p.Recent accounting pronouncements
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.
q. Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation.
3. OTHER ASSETS
Other assets amounted to $76,759 and $36,532 as of December 31, 2008 and 2007, respectively. Other assets is mainly comprised of advances to employees and other unrelated parties, interest free, and due on demand.
4. AMOUNT DUE FROM RELATED PARTIES
Amount due from related party is receivable for normal business purposes due to Jinyang Company and Xinhengji for $294,770 and $56,680, 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 been collected as of March 26, 2008.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following as of December 31, 2008:
| 2008 | 2007 | |||||||
| Building | $ | 34,872,855 | $ | 8,467,310 | ||||
| Electronic Equipments | 193,494 | 171,893 | ||||||
| Transportation Equipments | 63,442 | 59,336 | ||||||
| Office Furniture | 8,946 | 7,946 | ||||||
| Subtotal | 35,103,887 | 8,706,485 | ||||||
| Less: Accumulated Depreciation | (965,278 | ) | (521,939 | ) | ||||
| Total | $ | 34,173,009 | $ | 8,184,546 | ||||
Depreciation expenses for the years ended December 31, 2008 and 2007 were $399,884 and, $357,066 respectively.
6. CONSTRUCTION IN PROGRESS
Construction in progress amounted to $ 1,979,725 of December 31, 2008 and is mainly constructions for a dam in the tourist resort where the Company has management right. The amount of capitalized interest included in construction in progress amounted $100,057 in the year ended December 31, 2008. The Company will begin depreciating these assets when they are placed in service.
The Company entered a construction contract with an unrelated party to develop project of Zhuangyuanyan resort on January 2008. The project costed $11,590,370 (RMB80.23 million) and was completed during the the year ended December 31, 2008,
The Company entered another construction contract with an unrelated party to develop project of Luohanshan resort on May 2008. The whole project costed $9,170,910 (RMB 63.72 million) and was completed during the year ended December 31, 2008..
The Company also entered a construction contract with an unrelated party to develop project of Jinhu Harbor resort on July 2008. The total contract amount was $4,559,290 (RMB 31,68 million) and the project completed during the year ended December 31, 2008.
Construction in progress amounted to $278,803 as of December 31, 2007 and is mainly constructions for parking and boarding constructions in the tourist resort where the Company has management right.
7. INTANGIBLE ASSETS
Intangible assets were ss of December 31 as follows:
| 2008 | 2007 | |||||||
| Intangible asset | ||||||||
| Management right of tourist resort | $ | 5,130,084 | $ | 4,798,070 | ||||
| Advertising board | 6,595,823 | - | ||||||
| Accumulated amortization | (2,367,574 | ) | (841,185 | ) | ||||
| Total | $ | 9,358,555 | $ | 3,956,885 | ||||
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 $6,595,823 (RMB45,000,000).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.
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.
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 December 31, 2008 the Company expects these assets to be fully recoverable.
Total amortization expenses for the years ended December 31, 2008 and 2007 amounted to $1,247,415 and $183,333 respectively. Amortization expenses for next five years after December 31, 2007 are as follows:
| 1 year | $ | 1,463,314 | ||
| 2 year | 1,463,314 | |||
| 3 year | 1,463,314 | |||
| 4 year | 1,463,314 | |||
| 5 year | 383,820 | |||
| Thereafter | $ | 3,130,333 |
8. ADVANCES
During December 2007, the company entered into several contracts with unrelated parties for marketing and TV programming amounting to $$9,459,052 (RMB 69,000,000). The Company amortized the service expense beginning in 2008.
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 21 million) annually for the next three years. At the same time, Fuyu had prepaid the special market promotion fee $5,346,421 ($1,782,140 annual) 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 December 31, 2007 was $- and $5,357,385 respectively.
Fuyu entered another contract with another unrelated party for purchasing TV programme . Fuyu prepaid $4,112,631 (RMB 30 million) to the unrelated party as of December 31, 2007 and the contractor promise to bring advertising revenue to Fuyu amounting to $2,741,754 (RMB 20 million) annually for the next three years. The prepaid balance for this contract was amounting to $4,101,667 as of December 31, 2007.
Total amortization expenses amounted to $3,107,362 (RMB 20,8 million).
During the year ended December 31, 2008, the Company cancelled all three contracts per above and received the rest of the prepayment amounting $ 6932750 (RMB 48.2 million) .
9. OTHER PAYABLE
Other payables are payables due to unrelated parties other than supplier vendors. The amount were $456,181 and 449,507, due on demand and interest free as of December 31, 2008 and 2007, respectively.
10. TAX PAYABLES
Tax payables consist of the following as of:
| December 31, 2008 | December 31, 2007 | |||||||
| City planning tax | $ | 6,729 | $ | 50,876 | ||||
| Business tax payable | 139,616 | 873,701 | ||||||
| Individual income tax payable | 1,136 | 667 | ||||||
| Income tax payable | 511,624 | 142,604 | ||||||
| Education fee | 5,434 | 34,911 | ||||||
| Cultural construction fee | 61,985 | 523,339 | ||||||
| Total | $ | 726,524 | $ | 1,626,099 | ||||
11. LOAN PAYABLE
As of December 31, 2008, the loan payables are as follows:
| 2008 | 2007 | |||
| Short term loan payable | ||||
| Bank of China | -- | 822,526 | ||
| Fuzhou Commerical Bank | - | 1,096,702 | ||
| Merchant bank of Fuzhou | 1,172,591 | - | ||
| Total | $ | 1,172,591 | $1,919,228 | |
As of December 31, 2008, the Company had a loan payable of $1,172,591 to Merchant bank of Fuzhou in China, with an annual interest rate of 8.66% from November 14, 2008 to November 13, 2009. The loan is guaranteed by a related party 80% owned by the same shareholder of the Company.
As of December 31, 2007, the Company had a loan payable of $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 80% owned by the same shareholder of the Company.
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. $411,263 of the loan payable is due by January 10, 2008 and the rest of $411,263 of the loan payable is due by April 28, 2008.
The interest expenses are $37,168 and $221,058 for the years ended December 31, 2008 and 2007. The Company has paid interest $109,499 and $221,058 for the years ended December 31, 2008 and 2007.
12. OTHER (INCOME) EXPENSES
Other (income) expenses consists of the following for the years ended December 31, 2008 and 2007:
| 2008 | 2007 | |||||||
| Donation income | $ | - | $ | (2,437,333 | ) | |||
| Other expenses | 22,869 | 8,869 | ||||||
| Interest expense | 137,225 | 221,058 | ||||||
| Interest income | (24,832 | ) | (1,775 | ) | ||||
| Finance costs | - | 4,742 | ||||||
| $ | 135,261 | $ | (2,204,440 | ) | ||||
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. During the year ended December 31, 2007, the company recorded $2,437,333 as donation income
The company have organized several Buddhist ceremonies in the the temple located inside of Great Golden Lake in 2007. Donation were generated from those Buddhist ceremonie. Starting from Janurary 2008, the company initiated the new constructions to expand and upgrade the Great Golden Lake destination and completed those constructions towards the end of 2008. The entrance of temple was part of constructions site and was restricted to access during the construction. Therefore, no Buddhist ceremonies could be held during 2008, and no donations were received from ceremonies.
13. INCOME TAXES
The Company is registered in Hong Kong, China and has operations in primarily two tax jurisdictions - the PRC and 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 December 31, 2008. Accordingly, the Company has no net deferred tax assets.
The provision for income taxes from operations income consists of the following for the twelve month periods ended December 31, 2008 and 2007:
| 2008 | 2007 | |||||||
| HK Current Income Tax Expense (Benefit) | $ | - | $ | - | ||||
| PRC Current Income Expense (Benefit) | $ | 670,347 | $ | 136,770 | ||||
| Total Provision for Income Tax | $ | 670,347 | $ | 136,770 | ||||
The following is a reconciliation of the provision for income taxes at the PR and HK tax rate to the income taxes reflected in the Statement of Operations:
| December 31, 2008 | December 31, 2007 | |||||||
| Tax expense (credit) at statutory rate - HK | 17.5 | % | 17.5 | % | ||||
| Changes in valuation allowance | (17.5 | %) | (17.5 | %) | ||||
| Foreign income tax rate | 25 | % | 30 | % | ||||
| Foreign income tax benefit - PRC | (21 | %) | (29 | %) | ||||
| Tax expense at actual rate | 4 | % | 1 | % | ||||
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.
The applicable income tax rate 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 September 2009.There were no significant book and tax basis difference.
14. SHAREHOLDERS’ EQUITY
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 | Common Stock | Additional Paid-in Capital | Total | ||||||||
| Shares | |||||||||||
| 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) SECURITY ISSUANCE AGREEMENT
On November 19, 2007, the Company entered into a Stock Purchase Agreement and Share Exchange with Keenway Limited and its certain shareholders (the “Stock Purchase Agreement”). At the time of the Stock Purchase Agreement, it was the intent of all the parties involved to deliver to the shareholders of Keenway 99% of the outstanding shares of the Company common stock. However, the Company had 100,000,000 shares authorized and could only issue 94,524,442 shares to the persons receiving shares in the Stock Purchase Agreement which resulted in an issuance of 94.5% of the shares to the shareholders listed in the Stock Purchase Agreement. Accordingly, following the Closing of the Stock Purchase Agreement, the Company conducted two 10-for-1 reverse stock splits in order to reduce the number of shares outstanding to be able to issue shares to the persons receiving shares under the Stock Purchase Agreement. On February 28, 2009, the Company authorized the issuance of 44,751,046 shares (in the same proportion) to the shareholders of the Stock Purchase Agreement. This was defined as a Corrective Issuance in Section 5.12 of the Securities Purchase Agreement that closed on March 7, 2009.
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 company paid $972,750 to the various parties as fund raising cost directly from the fund raised amounting of $14,000,000 which was closed on March 7, 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.
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 December 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 | 2.25 | $ | 1.05 | 6,666,667 | $ | 1.05 | $ | - | ||||||||||||||||
15. MAJOR CUSTOMERS AND VENDORS
There were no major customers which accounting over 10% of the total net revenue for the year ended December 31, 2008. There are no major vendors which accounting over 10% of the total purchase for the year ended December 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.
16. 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.
17. COMMITMENTS AND LEASES
The Company incurred rent expenses $22,066 and $8,000 for the years ended December 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.
18. SUBSEQUENT EVENTS
Railroad On-board Programming: Effective February 13, 2009, we entered into a Cooperation Agreement with Railway Media Center for the purpose of collaborating with RMC to produce programs titled “Journey through China on the Train” that will be broadcast to passengers traveling on train. Pursuant to this agreement, we are obligated to plan and film the Journey Program, and RMC shall review and broadcast the Journey Program. The content of the Journey Program will focus on introduction and preview of natural resources, culture and history of tourism destinations, tourism advertisement and travel tips. RMC will appoint the program supervisor and we will appoint all the other personnel.
We and RMC agreed that the Journey Program shall be inserted into the programs produced by RMC for train passengers and be broadcast in accordance with the following rules:
| 1. | For the train line into Tibet, the Journey Program will be limited to 20' duration, and be inserted into the program that RMC produced by themselves. The Journey Program shall be broadcast daily on a rolling basis. |
| 2. | For the high-speed motor train unit, the Journey Program will be limited to the range of 5-20 minutes, and be broadcast daily on a rolling basis. |
| 3. | For the national broadcast channels covering 18 railway bureaus, we will produce a new 20' episode every week with its premier broadcast on Saturday evening and replay on Sunday afternoon. |
| 4. | During the Term, if RMC increases its train TV broadcast channels, the Journey Program will be inserted into these added channels and be broadcast on a rolling basis. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto appearing elsewhere in this Form 10-K. 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.
Our Business
Through Keenway’s subsidiaries in China, we operate as a major diversified entertainment company in China, currently covering China’s tourism, media and other entertainment-related industries. Our business is to identify, manage, operate and promote tourist attractions, TV channels and stations, and other profitable entertainment-related operations. Since 2004, our company has operated tourist sites and worked with tourist attractions to provide advertising through television ads and other marketing campaigns.
Principal Factors Affecting our Financial Performance
We believe that the following factors affect our financial performance:
| o | Growth of Tourism and Mass Media in China |
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.
| o | PRC Regulations Promoting Tourism |
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.
Year ended December 31, 2008 compared to year ended December 31, 2007
During the years ended December 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 years ended December 31, 2008 and 2007:
| Years ended December 31, | ||||||||
| 2008 | 2007 | |||||||
| Revenues from unaffiliated customers: | ||||||||
| Advertisement | $ | 23,319,235 | $ | 12,246,964 | ||||
| Tourism | 7,280,258 | 2,330,801 | ||||||
| Consolidated | $ | 30,599,493 | $ | 14,577,765 | ||||
| Operating income : | ||||||||
| Advertisement | $ | 16,564,398 | $ | 8,996,777 | ||||
| Tourism | 2,705,267 | 467,452 | ||||||
| Others | (273,012 | ) | (3,749 | ) | ||||
| Consolidated | $ | 18,996,653 | $ | 9,460,480 | ||||
| Identifiable assets: | ||||||||
| advertisement | $ | 22,327,272 | $ | 17,287,260 | ||||
| Tourism | 31,050,807 | 5,751,936 | ||||||
| Others | 1,165,534 | ) | 841 | |||||
| Consolidated | $ | 54,543,613 | $ | 23,040,037 | ||||
| Net income | ||||||||
| advertisement | $ | 16,461,954 | $ | 8,804,241 | ||||
| Tourism | 2,084,320 | 2,177,645 | ||||||
| Others | (255,173 | ) | (3,736 | ) | ||||
| Consolidated | $ | 18,291,101 | $ | 10,978,150 | ) | |||
| Interest expense: | ||||||||
| advertisement | $ | - | $ | 96,308 | ||||
| Tourism | 37,168 | 124,750 | ||||||
| Consolidated | $ | 37,168 | $ | 221,058 | ||||
In accordance with Statement of Financial Accounting Standards No. 95, "Statement of Cash Flows," cash flows from the Company's operations is calculated based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows may not necessarily agree with changes in the corresponding balances on the balance sheet.
Net Revenue:
Net revenue increased by $16,021,728 or 109.9%, from $14,577,765 in the fiscal year ended December 31, 2007 to US$30,599,493 in the fiscal year ended December 31, 2008. Our overall net revenue increased because our company is continuing to grow, specifically, our revenue increased due to the increased revenue in our media and advertising business. We have been able to capitalize on the growing Chinese economy.
Our revenue from advertisement for the fiscal year ended December 31, 2008 was $23,319,235 and for the fiscal year ended December 31, 2007 it was $12,246,964. This was a one year increase of $11,072,271 or 90.4%. This increase was the result of FETV’s successful completion of the reconstruction of its programming. The re-programming went into effect in the last 6 months of 2007 and the audience ratings increased dramatically after this went into effect. As a result, our clients increased their advertising budgets on our programs. This led to the dramatic increase from our advertising revenue.
Our revenue for our tourism increased by $4,949,457 or 312%, from $2,330,801 in the fiscal year 2007 to $7,280,258 in the fiscal year 2008 because we finished most of the infrastructure constructions on the Great Golden Lake, and Great Golden Lake’s capacity can afford more volume of visitors. From October 2007 until February 2008 we were constructing a dam to control the water level at the tourist destination. This construction of the dam is completed and the water level is now constant. Our revenue from the advertising business increased from fiscal year 2007 to fiscal year 200 and we expect it to continue to increase due to the growing Chinese economy.
Cost of revenue:
Cost of revenue increased by $5,666,001, or 273.5%, from $2,071,409 in the fiscal year ended December 31, 2007 to $7,683,410 in the fiscal year ended December 31, 2008. The cost of revenue increased because in 2008 we had high expenses to purchase licenses of TV programs.
Our cost of revenue from media for the fiscal year ended December 31, 2008 was $5,779,082 and for the fiscal year ended December 31, 2007 it was $2,000,684. This was an increase of $3,578,898 or 178.8%. The increased was the result of our successful reconstruction of our programming which led to a reduction in the speed in purchasing TV programs.
Our cost of revenue from tourism for the fiscal year ended December 31, 2008 was $1,904,329 and for the fiscal year ended December 31, 2007 it was $70,726. This was an increase of $1,833,603 or 2,693%. The increased was the result of the increasing of the promoting cost of Great Golden Lake.
Gross profit:
Gross profit increased by $10,409,727, or 83.2%, from $12,506,356 in the fiscal year ended December 31, 2007 to $22,916,082 in the fiscal year ended December 31, 2008 mainly due to the increase in advertisement revenue and tourism revenue due to increasing promotions as described above.
Operating Expenses:
Operating expenses were $3,595,876 in the fiscal year ended December 31, 2007, compared to $3,919,429 in the fiscal year ended December 31, 2008. This represents an increase of $323,553, or 8.9%, primarily due to a large increase in operations and significant business growth. The operating expenses increased due to the increase in revenues. The increase in revenues causes the company to increase its expenses in order to keep up with the increasing revenues. This is a variable expense and should fluctuate according to our revenues.
Income from Operations:
Operating profit was $8,910,480 in the fiscal year ended December 31, 2007 and $18,996,653 in the fiscal year ended December 31, 2008. The increase of $10,086,173, or 113.1%, was primarily the result of increased gross profit. Our income from operations increased because we increased our revenue at a greater rate than our expenses from operations increased.
Net Income:
Net income was $10,978,150 in the fiscal year ended December 31, 2007, compared to $ 18,191,044 in the fiscal year ended December 31, 2008, an increase of $7,212,894 or 39.65%. Our net income increased because our revenues increased.
Three months ended March 31, 2009 compared to three months ended March 31, 2008
The following tables set forth key components of our results of operations for the periods indicated, in dollars, and key components of our revenue for the period indicated, in dollars.
| March 31 | ||||||||
| 2009 | 2008 | |||||||
| Net revenue | ||||||||
| Advertisement | $ | 6,592,187 | $ | 5,859,330 | ||||
| Tourism | 3,230,718 | 992,954 | ||||||
| Total net revenue | 9,822,906 | 6,852,284 | ||||||
| Cost of revenue | ||||||||
| Advertisement | 1,372,523 | 1,384,565 | ||||||
| Tourism | 128,226 | 503,035 | ||||||
| Total cost of revenue | (1,500,750 | ) | (1,887,600 | ) | ||||
| Gross profit | 8,322,156 | 4,964,684 | ||||||
| Operating expenses | ||||||||
| Selling expenses | 430,647 | 133,671 | ||||||
| Operating and administrative expenses | 1,202,198 | 352,316 | ||||||
| Total operating expenses | 1,632,845 | 485,987 | ||||||
| Income from operations | 6,689,311 | 4,478,698 | ||||||
| Other (income) expense | ||||||||
| Other expense, net | 1,269 | 7,976 | ||||||
| Interest expense | 0 | 61,249 | ||||||
| Interest income | (13,634 | ) | (1,545 | ) | ||||
| Total other expense | (12,364 | ) | 67,681 | |||||
| Income before income taxes | 6,701,675 | 4,411,017 | ||||||
| Provision for income taxes | 1,730,801 | 99,313 | ||||||
| Net income | 4,970,874 | 4,311,704 | ||||||
| Other comprehensive income | ||||||||
| Foreign currency translation gain | (13,028 | ) | 969,165 | |||||
| Other comprehensive income | $ | 4,957,846 | $ | 5,280,870 | ||||
In accordance with Statement of Financial Accounting Standards No. 95, "Statement of Cash Flows," cash flows from our operations is calculated based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows may not necessarily agree with changes in the corresponding balances on the balance sheet.
Net Revenue:
Net revenue increased by $2,970,622 or approximately 43.35%, from $6,852,284 for the three months ended March 31, 2008 to US$9,822,906 for the three months ended March 31, 2009. Our overall net revenue increased because we are continuing to grow, specifically, our revenue increased due to the increased revenue in our tourism business of Great Golden Lake through increased number of visitors after the completion of additional scenic site constructions. We have been able to capitalize on the growing Chinese economy.
Our revenue from advertisement for the three months ended March 31, 2009 was $6,592,187 and for the three months ended March 31, 2008, it was $5,859,330. This increase was the result of organic growth of advertising sales due to FETV’s steady growth of audience rating, which led to the dramatic increase from our advertising revenue.
Our revenue for our tourism increased by $2,237,764 or approximately 225.36%, from $992,954 for the three months in 2008 to $3,230,718 for the three months in 2009 because we finished most of the infrastructure constructions on the Great Golden Lake, and Great Golden Lake’s capacity can afford more volume of visitors. From October 2007 until February 2008 we were constructing a dam to control the water level at the tourist destination. This construction of the dam is completed and the water level is now constant. Our revenue from the advertising business increased from the three months ended 2008 to the three months ended 2009 and we expect it to continue to increase due to the growing Chinese economy.
Cost of revenue:
Cost of revenue decreased by $386,850, or approximately 20.49%, from $1,887,600 for the three months ended March 31, 2008 to $1,500,750 for the three months ended March 31, 2009. The cost of revenue decreased because no marketing campaign was planned and ran in the first quarter of 2009 as compared to the same period in 2008 when we had marketing campaign to promote our scenic sites.
Our cost of revenue from media for the three months ended March 31, 2008 was $1,384,565 and for the three months ended March 31, 2009 it was $1,372,523. This was a slight decrease of $12,042 or 0.87% arising from the operations of our ordinary business.
Our cost of revenue from tourism for the three months ended March 31, 2009 was $128,226 and for the three months ended March 31, 2008 it was $503,035. This was a decrease of $374,809 or 74.51%. The decrease was because no marketing campaign was planned and ran in the first quarter of 2009 as compared to the same period in 2008 when we had marketing campaign to promote our scenic sites.
Gross profit:
Gross profit increased by $3,357,472, or 67.63%, from $4,964,684 for the three months ended March 31, 2008 to $8,322,156 for the three months ended March 31, 2009. Our gross profit increased mainly due to the increase in the number of visitors to our Great Golden Lake tourist destination after the completion of additional scenic site constructions in 2008 and cost savings from discontinued marketing campaign on our tourism destinations in 2008.
Operating Expenses:
Operating expenses were $485,987 for the three months ended March 31, 2008, compared to $1,632,845 for the three months ended March 31, 2009. This represents an increase of $1,146,858, or 235.99%, primarily due to a large increase in operations and significant business growth. The operating expenses increased due to the increase in revenues. The increase in revenues causes the company to increase its expenses in order to keep up with the increasing revenues. This is a variable expense and should fluctuate according to our revenues.
Income from Operations:
Operating profit was $4,478,698 for the three months ended March 31, 2008 and $6,689,311 for the three months ended March 31, 2009. The increase of $2,210,613, or 49.36%, was primarily the result of increased gross profit. Our income from operations increased because we increased our revenue at a greater rate than our expenses from operations increased.
Net Income:
Net income was $4,311,704 for the three months ended March 31, 2008, compared to $4,970,874 for the three months ended March 31, 2009, an increase of $659,170 or 15.29%. Our net income increased because our revenues increased.
Critical Accounting Policies
The Company’s 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, revenue 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 if 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.
While all these significant accounting policies impact its 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 consolidated 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 results of operations, financial position or liquidity for the periods presented in this report.
Recent Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51”. This statement improves the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards that require; the ownership interests in subsidiaries held by parties other than the parent and the amount of consolidated net income attributable to the parent and to the non-controlling interest be clearly identified and presented on the face of the consolidated statement of income, changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for consistently, when a subsidiary is deconsolidated, any retained non-controlling equity investment in the former subsidiary be initially measured at fair value, entities provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. SFAS No. 160 affects those entities that have an outstanding non-controlling interest in one or more subsidiaries or that deconsolidate a subsidiary. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Early adoption is prohibited. The adoption of this statement is not expected to have a material effect on the Company's financial statements.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133” (SFAS 161). This statement is intended to improve transparency in financial reporting by requiring enhanced disclosures of an entity’s derivative instruments and hedging activities and their effects on the entity’s financial position, financial performance, and cash flows. SFAS 161 applies to all derivative instruments within the scope of SFAS 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133) as well as related hedged items, bifurcated derivatives, and nonderivative instruments that are designated and qualify as hedging instruments. Entities with instruments subject to SFAS 161 must provide more robust qualitative disclosures and expanded quantitative disclosures. SFAS 161 is effective prospectively for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application permitted. We are currently evaluating the disclosure implications of this statement.
In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” SFAS No. 162 identifies the sources of accounting principles and provides entities with a framework for selecting the principles used in preparation of financial statements that are presented in conformity with GAAP. The current GAAP hierarchy has been criticized because it is directed to the auditor rather than the entity, it is complex, and it ranks FASB Statements of Financial Accounting Concepts, which are subject to the same level of due process as FASB Statements of Financial Accounting Standards, below industry practices that are widely recognized as generally accepted but that are not subject to due process. The Board believes the GAAP hierarchy should be directed to entities because it is the entity (not its auditors) that is responsible for selecting accounting principles for financial statements that are presented in conformity with GAAP. SFAS 162 is effective 60 days following the SEC’s approval of PCAOB Auditing Standard No. 6, Evaluating Consistency of Financial Statements (AS/6). The adoption of FASB 162 is not expected to have a material impact on the Company’s financial position.
In May 2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee Insurance Contracts-an interpretation of FASB Statement No. 60.” Diversity exists in practice in accounting for financial guarantee insurance contracts by insurance enterprises under FASB Statement No. 60, Accounting and Reporting by Insurance Enterprises. This results in inconsistencies in the recognition and measurement of claim liabilities. This Statement requires that an insurance enterprise recognize a claim liability prior to an event of default (insured event) when there is evidence that credit deterioration has occurred in an insured financial obligation. This Statement requires expanded disclosures about financial guarantee insurance contracts. The accounting and disclosure requirements of the Statement will improve the quality of information provided to users of financial statements. SFAS 163 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The adoption of FASB 163 is not expected to have a material impact on the Company’s financial position.
LIQUIDITY AND CAPITAL RESOURCES
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.
2009 – 2010 Outlook
Over the course of the next few years, we intend to grow and expand our businesses in China’s tourism, media, entertainment and other related industry. 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.
With respect to the mass media, we expect to grow by acquiring another operating television network.
PLAN OF OPERATIONS
Quantitative and Qualitative Disclosures about Market Risk
Interest Rates. Our exposure to market risk for changes in interest rates relates primarily to our short-term investments and short-term obligations; thus, fluctuations in interest rates would not have a material impact on the fair value of these securities. At December 31, 2008, we had approximately $8,715,048.08 in cash and cash equivalents. A hypothetical 10% increase or decrease in interest rates would not have a material impact on our earnings or loss, or the fair market value or cash flows of these instruments.
Foreign Exchange Rates. The majority of our revenues derived and expenses and liabilities incurred are in Renminbi (the currency of the PRC). Thus, our revenues and operating results may be impacted by exchange rate fluctuations in the currency of Renminbi. We have not tried to reduce our exposure to exchange rate fluctuations by using hedging transactions. However, we may choose to do so in the future. We may not be able to do this successfully. Accordingly, we may experience economic losses and negative impacts on earnings and equity as a result of foreign exchange rate fluctuations. The effect of foreign exchange rate fluctuation during the year ended December 31, 2006 was not material to us.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities” (SPEs).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Our accountant is Kabani & Company, Inc., independent certified public accountants. We do not presently intend to change accountants. At no time have there been any disagreements with such accountants regarding any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure.
ITEM 9A(T). CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), as of December 31, 2008. Based on this evaluation, our principal executive officer and principal financial officers have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports 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.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of the Company is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act over the registrant. The Company’s internal control over financial reporting is designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements in accordance with United State’s generally accepted accounting principles (US GAAP), including those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with US GAAP and that receipts and expenditures are being made only in accordance with authorizations of management and directors of the company, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Management conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of our internal control over financial reporting. Based on this assessment, Management concluded the Company maintained effective internal control over financial reporting as of December 31, 2008.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following persons are members of the Board of Directors:
| NAME | AGE | POSITION |
| Mr. Chen Minhua (1) | 51 | Chairman and Chief Executive Officer |
| Ms. Fan Yanling (1) | 35 | Secretary and Director |
| Mr. George Wung | 35 | Chief Financial Officer and Director |
The following persons are our executive officers, with the respective titles as set forth opposite his or her name below:
| NAME | AGE | POSITION |
| Mr. Chen Minhua (1) | 51 | Chairman and Chief Executive Officer |
| Ms. Fan Yanling (1) | 35 | Secretary and Director |
| Mr. George Wung | 35 | Chief Financial Officer and Director |
(1) Chen Minhua and Fan Yangling are husband and wife. There are no other relationships between the officers or directors of the Company.
The business background descriptions of the newly appointed directors are as follows:
Chen Minhua, Chairman of Hong Kong Yitat International Investment Co., Ltd
Male, 51, Ph.D. Mr. Chen is a part-time professor at the Tourism College of Fujian Normal University and a tutor for postgraduate students. He is also the vice-president of Fujian Provincial Tourism Institute and vice-president of Fujian Advertisement Association. From 1978 to 1992, he was a news journalist and editor-in-chief of “Fujian Internal Reference,” eventually becoming the head of the journalist station of “Fujian Daily” in Sanming City and general manager of the newspaper “HK-Taiwan Information.” During that period, he was appointed as chief journalist of Fujian Province to HK, where he was in charge of news and management of the publication. During these years, several of his works in journalism received national and provincial prizes and were published in books. He received awards for “Excellent News Journalist” and “Advanced Workers of News Management.” Since the establishment of New Handsome Joint Group in 1995, he has advocated and practiced the concept of “circulating cultural economy.” In 2005, he published a scholarly treatise “General Theory of Tourism and Chinese Traditional Culture”, which has been used as the educational material for undergraduates in Tourism College of Fujian Normal University. In February 2007, he was awarded as one of the “2006 Ten Most Distinguished Persons of Fujian Economic.”
Fan Yanling, President of Hong Kong Yitat International Investment Co., Ltd , director
Female, 35 years old, MBA. From 1992 to 1994, Ms. Fan was a journalist and radio anchorwoman for the Voice of Haixia. From 1995 to 2004, she was the general manager of New Handsome Advertisement Co., Ltd. Since 2000, she has taken on the following leading posts: General Manager of New Handsome Joint Group (Fujian), General Manager of Hong Kong Yitat International Investment Co., Ltd , Chairman of Fujian Gold Lake Economy and Trading (Tourism) Development Co., Ltd., Director of Sydney Communication College (Australia), and General Manager of Fujian Education and Broadcasting Media Co., Ltd. In 2005, she was awarded “Fujian Splendid Women” and “Advanced worker of advertisement industry Fuzhou 2005.”
George Wung, Chief Financial Director of Hong Kong Yi Tat International Investment Ltd.
Male, 35 years old, He has significant experience of financing in large scale enterprises. Between February 2002 and December 2003, he was the Senior Vice President of the Global American Investments, Inc.. From January 2004 to October 2005, he worked as the director of the Prosperity Financial Group. From October 2005 to January 2009, Mr. Wung has been the managing director of Etech Securities Inc.
The Company has not entered into a formal employment arrangement with the Executive Officers. Mr. Minhua Chen and Ms. Yanling Fan have not received any salary. Mr. George Wung is earning a salary of $60,000 USD per year.
None of the directors or executive officers have been involved in: (a) bankruptcy; (b) criminal proceeding; or (c) any other legal proceeding.
Term of Office
Our directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board.
All officers and directors listed above will remain in office until the next annual meeting of our stockholders, and until their successors have been duly elected and qualified. There are no agreements with respect to the election of Directors. We have not compensated our Directors for service on our Board of Directors, any committee thereof, or reimbursed for expenses incurred for attendance at meetings of our Board of Directors and/or any committee of our Board of Directors. Officers are appointed annually by our Board of Directors and each Executive Officer serves at the discretion of our Board of Directors. We do not have any standing committees. Our Board of Directors may in the future determine to pay Directors’ fees and reimburse Directors for expenses related to their activities.
None of our Officers and/or Directors have filed any bankruptcy petition, been convicted of or been the subject of any criminal proceedings or the subject of any order, judgment or decree involving the violation of any state or federal securities laws within the past five (5) years.
Audit Committee
We do not have a standing audit committee of the Board of Directors. Management has determined not to establish an audit committee at present because of our limited resources and limited operating activities do not warrant the formation of an audit committee or the expense of doing so. We do not have a financial expert serving on the Board of Directors or employed as an officer based on management’s belief that the cost of obtaining the services of a person who meets the criteria for a financial expert under Item 401(e) of Regulation S-B is beyond its limited financial resources and the financial skills of such an expert are simply not required or necessary for us to maintain effective internal controls and procedures for financial reporting in light of the limited scope and simplicity of accounting issues raised in its financial statements at this stage of its development.
Involvement in Certain Legal Proceedings
To our knowledge, during the past five (5) years, none of our directors, executive officers, promoters, control persons, or nominees has been:
| § | the subject of any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; |
| § | convicted in a criminal proceeding or is subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); |
| § | subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or |
| § | found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law. |
Compliance With Section 16(A) Of The Exchange Act.
Section 16(a) of the Exchange Act requires the Company’s officers and directors, and persons who beneficially own more than 10% of a registered class of the Company’s equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission and are required to furnish copies to the Company. To the best of the Company’s knowledge, any reports required to be filed were timely filed in fiscal year ended December 31, 2008.
Auditors; Code of Ethics; Financial Expert
We do not have an audit committee financial expert. We do not have an audit committee financial expert because we believe the cost related to retaining a financial expert at this time is prohibitive. Furthermore, because we are only beginning our commercial operations, at the present time, we believe the services of a financial expert are not warranted.
Potential Conflicts of Interest
We are not aware of any current or potential conflicts of interest with any of our executives or directors.
Compensation of Executive Officers
The following summary compensation table sets forth all compensation awarded to, earned by, or paid to the named executive officers paid by us during the fiscal years ended December 31, 2008 and 2007 in all capacities for the accounts of our executives, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO):
SUMMARY COMPENSATION TABLE
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Non-Qualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Totals ($) | ||||||||||||||||||||||||
Chen Minhua President and CEO | 2008 | $ | 0 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 0 | ||||||||||||||||||||||
| 2007 | $ | 0 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 0 | |||||||||||||||||||||||
Fan Yanling, Secretary | 2008 | $ | 0 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 0 | ||||||||||||||||||||||
| 2007 | $ | 0 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 0 | |||||||||||||||||||||||
George Wung* CFO | 2008 | $ | 0 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 0 | ||||||||||||||||||||||
| 2007 | $ | 0 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 0 | |||||||||||||||||||||||
*George Wung was hired in January 9, 2009 and therefore did not receive any compensation in 2007 and 2008. His contract provides for a salary of $60,000 for the year 2009. A more detailed description of his employment is discussed in the Form 8-K dated January 14, 2009 and such Form 8-K is referred to and incorporated herein.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth each person known by us to be the beneficial owner of five percent or more of the Company's Common Stock, all directors individually and all directors and officers of the Company as a group. Except as noted, each person has sole voting and investment power with respect to the shares shown.
Name and Address of Beneficial Owner | Amount of Beneficial Ownership | Percentage of Class |
| Chen Minhua, President and CEO | 22,447,911 | 32.99% |
| Fan Yanling, Director Secretary | 22,447,911 | 32.99% |
| George Wung, CFO | 0 | 0% |
| All Executive Officers | 44,895,822 | 65.98% |
| and Directors as a Group | ||
| (3 people) |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Chen Minhua and Fan Yangling are husband and wife. There are no other relationships between the officers or directors of the Company.
Additionally, both Chairman Chen Minhua and Fan Yanling own 50% of Fujian Jiaoguang Media Co., Ltd. We have a contractual relationship with Fujian Jiaoguang Media Co., Ltd. which is comprised of (1) a Consulting Agreement, through which Hong Kong Yi Tat has the right to advise, consult, manage and operate Jiaoguang Company(the “Operating Company”), and collect and own all of its net profits; (2) an Operating Agreement, through which the Hong Kong Yi Tat has the right to recommend director candidates and appoint the senior executives of the Operating Company, approve any transactions that may materially affect the assets, liabilities, rights or operations of the Operating Company, and guarantee the contractual performance by the Operating Company of any agreements with third parties, in exchange for a pledge by the Operating Company of its accounts receivable assets; (3) a Proxy Agreement, under which the shareholders of the Operating Company have vested their voting control over the Operating Company to the Hong Kong Yi Tat, and will only transfer their equity interests in the Operating Company to Hong Kong Yi Tat and its designee(s); (4) an Option Agreement, under which the shareholders of the Operating Company have granted the Hong Kong Yi Tat the irrevocable right and option to acquire of their equity interests in the Operating Company, or alternatively, all of the assets of the Operating Company; and (5) an Equity Pledge Agreement, under which the shareholders of Operating Company have pledged all of their rights, titles and interests in the Operating Company to Hong Kong Yi Tat to guarantee the Operating Company’s performance of its obligations under the Consulting Service Agreement.
The Company has guaranteed the repayment of a $1,000,000 loan made to and payable by an affiliate company, Xinhengji. Chairman Chen holds an 80% equity interest in Xinhengji and Chairman Chen’s mother owns the other 20% of Xinhengji. Since the filing of the S-1, this loan has been repaid in full. Xinhengji is an advertising company in China that specializes in designing and making advertisements. It has held a quality ranking of AAA from Xinhengji’s Credit Quality Rating for the past 10 years.
Jinyang Company and Xinhengji loaned us $294,770 and $56,680, respectively. The purpose of these loans was for us to be able to solve our short-term cash flow shortage. Jinyang is 96% owned by Chairman Chen and Fan Yanling and Xinhengji which is 80% owned by Chairman Chen and 20% owned by Chairman Chen’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. As of March 26, 2008, we satisified all our obligations under these loans. The loans were the result of our efforts to solve our short-term cash flow shortage which has now been resolved and these loans were satisfied and we no longer owe any amounts on these loans.
Xinghengji, a company discussed above and which is 80% owned by our Chairman, Chen Minhua, has contracted with us to enable us to own the rights to sell commercial advertising minutes on FETV television stations. This right was purchased by us for RMB per annum. As part of the arrangement, we are obligated to purchase appropriate television programming for FETV stations. This relationship is further discussed in our consolidated financial statements for the fiscal years ended December 31, 2007.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The estimated expenses of this offering in connection with the issuance and distribution of the securities being registered, all of which are to be paid by the Registrant, are as follows:
| Registration Fee | $ | 1,500 | ||
| Legal Fees and Expenses | 75,000 | |||
| Accounting Fees and Expenses | 20,000 | |||
| Printing | 1,000 | |||
| Miscellaneous Expenses | 2,000 | |||
| Total | $ | 99,500 | ||
Item 14. Indemnification of Directors and Officers
The only statue, charter provision, by-law, contract, or other arrangement under which any controlling person, director or officers of the Registrant is insured or indemnified in any manner against any liability which he may incur in his capacity as such, is as follows:
Our certificate of incorporation limits the liability of our directors and officers to the maximum extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duties as directors, except liability for: (i) breach of the directors’ duty of loyalty; (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law, (iii) the unlawful payment of a dividend or unlawful stock purchase or redemption, and (iv) any transaction from which the director derives an improper personal benefit. Delaware law does not permit a corporation to eliminate a director’s duty of care, and this provision of our certificate of incorporation has no effect on the availability of equitable remedies, such as injunction or rescission, based upon a director’s breach of the duty of care.
The effect of the foregoing is to require us to indemnify our officers and directors for any claim arising against such persons in their official capacities if such person acted in good faith and in a manner that he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. We also maintain officers’ and directors’ liability insurance coverage.
Insofar as indemnification for liabilities may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy and is, therefore, unenforceable.
Item 15. Recent Sales of Unregistered Securities
On February 29, 2008, we issued shares of our common stock to certain individuals and entities listed below. These shares were issued as Corrective Issuances (as defined in the Financing Documents dated March 7, 2008). The Corrective Issuances were further share issuances based on the Share Exchange Agreement that was entered into on November 19, 2008. Pursuant to the Share Exchange, the shareholders of Keenway Limited and Hong Kong Yi Tat International Investments, Ltd. were entitled to a specific percentage ownership that was only achieved by conducting a reverse split post-closing of the Share Exchange and issuing corrective issuances to the entities/individuals receiving shares of the Company in the Share Exchange. Specifically, we issued a total of 44,751,046 shares of common stock to certain entities in order to bring them to the agreed upon share ownership percentage. The consideration paid for these shares was the entry into the Share Exchange Agreement. The number of shares issued is demonstrated on the following table:
| Shareholder | Number of Shares* |
| Chairman Chen Minhua | 37,724,747 shares |
| Fan Yanling | 37,724,747 shares |
| Extra Profit International Limited | 4,090,546 shares |
| Luck Glory International Limited | 4,090,546 shares |
| Zhang Xinchen | 3,636,030 shares |
| E-Tech International, Inc. | 3,636,030 shares |
* These shares were all shares issued prior to the 10-for-1 reverse split that was effective on February 28, 2008.
For more information regarding the share exchange agreement, please refer to the Form 8-k filed on November 26, 2007. Such securities were not registered under the Securities Act of 1933. The issuance of these shares was exempt from registration, in part pursuant to Regulation S and Regulation D under the Securities Act of 1933 and in part pursuant to Section 4(2) of the Securities Act of 1933. We made this determination based on the representations of the entities designated by Keenway which included, in pertinent part, that such shareholders were either (a) "accredited investors" within the meaning of Rule 501 of Regulation D promulgated under the Securities Act, or (b) not a "U.S. person" as that term is defined in Rule 902(k) of Regulation S under the Act, and that such shareholders were acquiring our common stock, for investment purposes for their own respective accounts and not as nominees or agents, and not with a view to the resale or distribution thereof, and that the entities designated by Keenway understood that the shares of our common stock may not be sold or otherwise disposed of without registration under the Securities Act or an applicable exemption therefrom. Additionally, each investor in this issuance had adequate access to information on the issuer and had the opportunity to study the books and records of the company and an opportunity to ask questions of management. These shareholders had the necessary investment intent as required by Section 4(2) since they agreed to and received share certificates bearing a legend stating that such shares are restricted pursuant to Rule 144 of the 1933 Securities Act. This restriction ensures that these shares would not be immediately redistributed into the market and therefore not be part of a ‘public offering.’ Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities Act of 1933 for this transaction.
On February 29, 2008, we issued shares of our common stock to certain individuals and entities listed below. Specifically, we issued a total of 44,751,046 shares of common stock to certain entities as follows:
| Shareholder | Number of Shares |
| Chairman Chen Minhua | 18,525,131 shares |
| Fan Yanling | 18,525,131 shares |
| Extra Profit International Limited | 2,038,442 shares |
| Luck Glory International Limited | 2,038,442 shares |
| Zhang Xinchen | 1,811,950 shares |
| E-Tech International, Inc. | 1,811,950 shares |
These shares were issued in reliance on the exemption under Section 4(2) of the Securities Act of 1933, as amended (the ‘Act’). These shares of our Common Stock qualified for exemption under Section 4(2) of the Securities Act of 1933 since the issuance shares by us did not involve a public offering. The offering was not a ‘public offering’ as defined in Section 4(2) due to the insubstantial number of persons involved in the deal, size of the offering, manner of the offering and number of shares offered. In addition, these shareholders had the necessary investment intent as required by Section 4(2) since they agreed to and received share certificates bearing a legend stating that such shares are restricted pursuant to Rule 144 of the 1933 Securities Act. This restriction ensures that these shares would not be immediately redistributed into the market and therefore not be part of a ‘public offering.’ Additionally, each investor in this issuance had adequate access to information on the issuer and had the opportunity to study the books and records of the company and an opportunity to ask questions of management. Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities Act of 1933 for this transaction.
On March 7, 2008, the Company entered into a Financing transaction with Pope Investments II LLC, an accredited investor, and five (5) 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’) and did not involve a public offering. The offering was not a ‘public offering’ as defined in Section 4(2) due to the insubstantial number of persons involved in the deal and the size of the offering, manner of the offering and number of shares offered. We did not undertake an offering in which we sold a high number of shares to a high number of investors. Each investors represented and acknowledged that it can bear the economic risk and complete loss of its investment and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment and each investor is an “accredited investors” within the meaning of Rule 501(a) of Regulation D promulgated under the 1933 Act. In addition, these shareholders had the necessary investment intent as required by Section 4(2) since they agreed to and received share certificates bearing a legend stating that such shares are restricted pursuant to Rule 144 of the 1933 Securities Act. This restriction ensures that these shares would not be immediately redistributed into the market and therefore not be part of a ‘public offering.’ The Investors received and reviewed all information related to the Company that would be disclosed in a prospectus and was provided the opportunity to ask questions and receive answers from the Company regarding the Company, its business and the terms and conditions of the offering of the Securities. Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities Act of 1933 for this transaction.
Item 16 Exhibits and Financial Statement Schedules
All references to Registrant’s Forms 8-K, 10-K, 10-QSB and 10-KSB include reference to File No. 07125548.
| Exhibit No. | Description |
| 3.1 | Certificate of Amendment to Articles of Incorporation (1) |
| 4.1 | Securities Purchase Agreement by and between the Company and the Investors dated March 7, 2008 (2) |
| 4.2 | Registration Rights Agreement by and between the Company and the Investors dated March 7, 2008, 2007 (2) |
| 4.3 | Lock-Up Agreement dated March 7, 2008 (2) |
| 4.4 | Make Good Agreement by and between the Company and the Investors dated March 7, 2008 (2) |
| 4.5 | Warrant Agreement by and between the Company and the Investors dated March 7, 2008 (2) |
| 5.1 | Legal Opinion of Anslow & Jaclin, LLP filed herewith. |
| 5.2 | Legal Opinion of Allbright Law Officer for Consent to be Named in this Registration Statement (6) |
| 10.1 | Consulting Services Agreement between Hong Kong Yi Tat and Fujian Jiaoguang Media Co., Ltd. (5) |
| 10.2 | Operating Agreement between Hong Kong Yi Tat and Fujian Jiaoguang Media Co., Ltd. (5) |
| 10.3 | Equity Pledge Agreement between Hong Kong Yi Tat and Fujian Jiaoguang Media Co., Ltd. (5) |
| 10.4 | Proxy Agreement between Hong Kong Yi Tat and Fujian Jiaoguang Media Co., Ltd. (5) |
| 10.5 | Option Agreement between Hong Kong Yi Tat and Fujian Jiaoguang Media Co., Ltd. (5) |
| 10.6 | Legal Opinion from PRC counsel on the structure of the transaction (6) |
| 10.7 | Lease Agreement between the Company and PRC government for the Great Golden Lake (translations in English also provided) (6) |
| 10.8 | Lease Agreement between Fuzhou Kai Fa Qu Langqi Si Ji Hui Yi Reception Co. Ltd. and Fujian Jiaoguang Media Co. Ltd (6) |
| 10.9 | Employment Agreement for Peter Zheng, the Chief Financial Officer of China Yida (4) |
| 10.10 | Contract between Yongli Branch and us for the construction of the Zhuangyuan Rock Resort (7) |
| 10.11 | Contract for the promotion of the Great Golden Lake (7) |
| 14.1 | Code of Ethics (3) |
| 23.1 | Consent of Kabani & Co. filed herewith |
| 23.2 | Consent of Anslow & Jaclin, LLP refer to exhibit 5.1 |
| 99.1 | 2008 Development Report of Chinese Radio Film and Television (6) |
| (1) | Incorporated herein by reference to the registrant’s Current Report on Form 8-K (file number 000-26777) filed on March 6, 2008. |
| (2) | Incorporated herein by reference to the registrant’s Current Report on Form 8-K (file number 000-26777) filed on March 11, 2008. |
| (3) | Incorporated herein by reference to the registrants Annual Report on Form 10-KSB (file number 000-26777) filed on March 27, 2008. |
| (4) | Referred to and Incorporated by reference to the registrants Form 8-k filed on April 25, 2008. |
| (5) | Referred to and Incorporated by reference to the Form 8-k filed on November 26, 2007. |
| (6) | Incorporated herein by reference to the registrants Amendment No. 2 to this Registration Statement filed on August 6, 2008 |
| (7) | Incorporated herein by reference to the registrants Amendment No. 3 to this Registration Statement filed on August 22, 2008 |
Item 17. Undertakings
The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as amended (the “Securities Act”).
(ii) to reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of a prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the change in volume and price represents no more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.
(iii) to include any additional or changed material information with respect to the plan of distribution.
(2) that, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at the time shall be deemed to be the initial bona fide offering thereof.
(3) to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) that, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:
(i) if the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions of its Certificate of Incorporation, By-Laws, the General Corporation Law of the State of Delaware or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer of controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Fujian, China, on the 10th day of June 2009.
China Yida Holding, Co. | |||
| By: | /s/ Chen Minhua | ||
Chen Minhua Chief Executive Officer | |||
Principal Executive Officers of China Yida Holding, Co. | |||
| By: | /s/ Chen Minhua | ||
Chen Minhua Chief Executive Officer | |||
| By: | /s/ George Wung | ||
George Wung Chief Financial Officer and Principal Accounting Officer | |||
| By: | /s/ Fan Yanling | ||
Fan Yanling Secretary | |||
Majority of Board of Directors of China Yida Holding, Co. | |||
| By: | /s/ Chen Minhua | ||
Chen Minhua Director | |||
| By: | /s/ Fan Yanling | ||
Fan Yanling Director | |||
| By: | /s/ Yongxi LIn | ||
Yongxi LIn Director | |||
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