NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| 1. | ORGANIZATION AND DESCRIPTION OF BUSINESS |
China Yida Holding Co. (“China Yida”) and its subsidiaries (collectively the "Company”, “we”, “us”, or “our”) engage in tourism and advertisement businesses in the People’s Republic of China.
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 (“Hong Kong Yi Tat”), a company incorporated under the laws of Hong Kong. Immediately prior to the Merger (defined below), Mr. Chen Minhua and his wife, Ms. Fan Yanling, were the majority shareholders of Keenway Limited.
On November 19, 2007, we entered into a share exchange and stock purchase agreement with Keenway Limited, Hong Kong Yi Tat, and with the shareholders of Keenway Limited at that time, including Chen Minhua, Fan Yanling, Zhang Xinchen, Extra Profit International Limited, and Lucky Glory International Limited (collectively, the “Keenway Limited Shareholders”), pursuant to which in exchange for all of their shares of Keenway Limited common stock, the Keenway Limited 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 some of our then existing shareholders (the “Merger”). As a result of the closing of the Merger, the Keenway Limited Shareholders owned approximately 94.5% of our then issued and outstanding shares on a fully diluted basis and Keenway Limited became our wholly owned subsidiary.
Hong Kong Yi Tat was incorporated as the holding company of our operating entities, Fujian Jintai Tourism Development Co., Ltd., and Fujian Jiaoguang Media Co., Ltd., Yida (Fujian) Tourism Group Limited, and Fujian Yida Tulou Tourism Development Co., Ltd. (“Tulou”). Hong Kong Yi Tat does not have any other operation.
Fujian Jintai Tourism Development Co., Ltd. (“Fujian Jintai”) has a wholly owned subsidiary, Fuzhou Hongda Commercial Services Co., Ltd., (“Hongda”). The operation of Fujian Jintai is to develop the Great Golden Lake, one of our tourism destinations.
Hongda does not have any operation except for owning 100% of the ownership interest in Fuzhou Fuyu Advertising Co., Ltd. (“Fuyu”) which is engaged in the operations of our media business. On March 15, 2010, Hongda entered into an equity transfer agreement with Fujian Yunding Tourism Industrial Co., Ltd, (currently known as Yida (Fujian) Tourism Group Limited, “Fujian Yunding”), pursuant to which Fujian Yunding acquired 100% of the issued and outstanding shares of Fuyu from Hongda at the aggregate purchase price of RMB 3,000,000. As a result, Fujian Yunding became the 100% holding company of Fuyu. Hongda ceased business and deregistered on December 2, 2011.
Fujian Jintai originally also owned 100% of the ownership interest in Fujian Yintai Tourism Co., Ltd. (“Yintai”). On March 15, 2010, Fujian Jintai entered into an equity transfer agreement with Fujian Yunding, pursuant to which Fujian Yunding acquired 100% of the issued and outstanding common stock of Yintai from Fujian Jintai at the aggregate purchase price of RMB 5,000,000. As a result, Yintai became a wholly owned subsidiary of Fujian Yunding. Yintai was deregistered on November 18, 2010.
Fujian Yida Tulou Tourism Development Co., Ltd.’s (“Tulou”) primary business relates to the operation of the Hua’An Tulou cluster, one of our tourism destinations.
On April 12, 2010, our operating subsidiary “Fujian Yunding Tourism Industrial Co., Ltd.” changed its name to “Yida (Fujian) Tourism Group Limited” for our expanding business in operations of domestic tourism destinations in China by acquiring new tourism destinations. Yida (Fujian) Tourism Group Limited’s (“Fujian Yida”) primary business relates to the operations of our Yunding tourism destination and all of our newly engaged tourism destinations, and the management of our media business.
On March 16, 2010, Fujian Yida formed a wholly owned subsidiary, Yongtai Yunding Resort Management Co., Ltd. (“Yongtai Yunding”) which currently has no material business operations. We plan to develop Yongtai Yunding into a business entity primarily focusing on the operations of our Yunding tourism destination.
Fujian Jiaoguang Media Co., Ltd. (“Fujian Jiaoguang”) and the Company’s contractual relationship comply with the requirements of the Accounting Standard Codification ("ASC") 810, to consolidate Fujian Jiaoguang’s financial statements as a Variable Interest Entity. During the current period, Fujian Jiaoguang had no material business operations.
Fuzhou Fuyu Advertising Co., Ltd. (“Fuyu”) concentrates on the mass media segment of our business. Its primary business is focused on advertisements, including media publishing, television, cultural and artistic communication activities, and performance operation and management activities.
On April 15, 2010, we entered into agreement with Anhui Xingguang Group to set up a new subsidiary – Anhui Yida Tourism Development Co., Ltd. ("Anhui Yida") by investing 60% of the equity interest, and Anhui Xingguang Group owns 40% of the equity interest of Anhui Yida. The total paid-in capital of Anhui Yida was $14,687,307 (equals RMB 100 million). Anhui Yida's primary business relates to the operation of our tourism destinations, specifically, Ming dynasty culture tourist destination.
CHINA YIDA HOLDING, CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| 1. | ORGANIZATION AND DESCRIPTION OF BUSINESS (CONTINUED) |
On July 6, 2010 Fujian Yida formed a wholly owned subsidiary, Jiangxi Zhangshu (Yida) Tourism Development Co., Ltd. (“Zhangshu Yida”) which currently has no material business operations. The initial paid-in capital of Zhangshu Yida was $2,937,461 (RMB 20 million). On July 5, 2011, Fujian Yida and Fuyu further injected capital amounted to RMB 49 million and RMB1 million, respectively, to Zhangshu Yida. On March 20, 2012, Fujian Yida and Fuyu further injected capital amounted to RMB 29.4 million and RMB 0.6 million, respectively, to Zhangshu Yida, and the total paid-in capital increased to $15,842,337 (RMB100 million). We plan to develop Zhangshu Yida into a business entity primarily focusing on the operations of our new tourist destination, specifically, a Chinese traditional culture theme resort.
On July 7, 2010 Fujian Yida formed a wholly owned subsidiary, Jiangxi Fenyi (Yida) Tourism Development Co., Ltd. (“Fenyi Yida”) which currently has no material business operations. The initial paid-in capital of Fenyi Yida was $1,762,477 (RMB 12 million). On July 7, 2011, Fujian Yida further injected capital amounted to RMB 48 million to Fenyi Yida and the total paid-in capital increased to $9,391,876 (RMB 60 million). We plan to develop Fenyi Yida into a business entity primarily focusing on the operations of our new tourist destination, specifically, a caves entertainment park.
On June 24, 2011, Fujian Yida formed a wholly owned subsidiary, Fujian Yida Travel Service Co., Ltd (the “Yida Travel”). The total paid-in capital of Yida Travel was $1,546,670 (RMB 10 million). Its primary business is to conduct domestic and international traveling services in China, including operating the direct sales of travel services for our current tourist destinations at the Great Golden Lake, Yunding Recreational Park, and Hua’An Tulou Cluster, and our three tourist destinations currently under construction, Ming Dynasty Entertainment World, China Yang-sheng (Nourishing Life) Paradise, and the City of Caves.
| 2. | BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
The unaudited condensed consolidated financial statements of China Yida Holding, Co. and Subsidiaries have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and pursuant to the requirements for reporting on Form 10-Q. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. However, the information included in these interim financial statements reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for the fair presentation of the consolidated financial position and the consolidated results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full year. The consolidated balance sheet information as of December 31, 2011 was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K. These interim financial statements should be read in conjunction with that report. Certain comparative amounts have been reclassified to conform to the current period's presentation.
a. Basis of presentation
The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. The functional currency is the Chinese Renminbi, however the accompanying condensed consolidated financial statements have been translated and presented in United States Dollars ($).
b. Principles of consolidation
The accompanying condensed consolidated financial statements include the accounts of China Yida and its wholly-owned subsidiaries Keenway Limited, Hong Kong Yi Tat, Fujian Jintai, Fuyu, Hongda, Fujian Yida, Tulou, Anhui Yida, Yongtai Yunding, Zhangshu Yida, Fenyi Yida, Yida Travel and the accounts of its variable interest entity, Fujian Jiaoguang. All significant inter-company accounts and transactions have been eliminated in consolidation.
Consolidation of Variable Interest Entities
According to the requirements of ASC 810, an Interpretation of Accounting Research Bulletin No. 51 that requires a Variable Interest Entity ("VIE"), the Company has evaluated the economic relationships of Fujian Jiaoguang which signed an exclusive right agreement with the Company. Therefore, Fujian Jiaoguang is considered to be a VIE, as defined by ASC Topic 810-10, of which the Company is the primary beneficiary.
The carrying amount and classification of Fujian Jiaoguang’s assets and liabilities included in the Condensed Consolidated Balance Sheets are as follows:
| | | March 31, 2012 | | | December 31, 2011 | |
| Total current assets * | | $ | 12,296,913 | | | $ | 12,091,197 | |
| Total assets | | $ | 12,304,422 | | | $ | 12,098,729 | |
| Total current liabilities # | | $ | 10,334,705 | | | $ | 10,011,732 | |
| Total liabilities | | $ | 10,334,705 | | | $ | 10,011,732 | |
* Including intercompany receivables of $12,286,755 and $12,090,456 as at March 31, 2012 and December 31, 2011, respectively, to be eliminated in consolidation.
# Including intercompany payables of $9,328,434 and $9,009,187 as at March 31, 2012 and December 31, 2011, respectively, to be eliminated in consolidation.
CHINA YIDA HOLDING, CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
c. Use of estimates and assumptions
The preparation of the condensed 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 condensed 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. The most significant estimates reflected in the condensed consolidated financial statements include depreciation, useful lives of property and equipment, deferred income taxes, useful life of intangible assets and contingencies. Estimates and assumptions are periodically reviewed and the effects of revisions are reflected in the condensed consolidated financial statements in the period they are determined to be necessary.
d. Cash and cash equivalents
The Company considers all cash on hand and in banks, certificates of deposit and other highly-liquid investments with original maturities of three months or less, when purchased, to be cash and cash equivalents. As of March 31, 2012 and December 31, 2011, the Company has uninsured deposits in banks of approximately $4,040,180 and $5,435,000.
e. Accounts receivable
The Company maintains 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. Based on the management’s judgment, no allowance for doubtful accounts is required at the balance sheet dates.
f. Advances and prepayments
The Company advances funds to certain vendors for purchase of its construction materials and necessary services. Based on the management’s judgment, no allowance for advances and prepayments is required at the balance sheet dates.
g. Property and equipment
Property and equipment are recorded at cost less accumulated depreciation. Gains or losses on disposals are reflected as gain or loss in the year of disposal. The cost of improvements that extends the life of 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 or lease term as follows:
| Building | 20 years |
| Electronic Equipment | 5 to 8 years |
| Transportation Equipment | 8 years |
| Office Furniture | 5 to 8 years |
| Leasehold Improvement and Attractions | Lesser of term of the lease or the estimated useful lives of the assets |
h. Intangible assets
Intangible assets consist of acquisition of management right of tourism destinations, commercial airtime rights and land use rights for tourism destinations. They are amortized on the straight line basis over their respective lease periods. The lease period of management right, commercial airtime rights and land use rights is 30 years, 3 years and 40 years, respectively.
CHINA YIDA HOLDING, CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| 2. | BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
i. Impairment
The Company reviews long-lived assets 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.
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 as of March 31, 2012 and December 31, 2011.
j. Revenue recognition
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 collectability is reasonably assured. Payments received before satisfaction of all of the relevant criteria for revenue recognition are recorded as unearned revenue.
Revenues from advance tourism destinations ticket sales are recognized when the tickets are used. Revenues from our contractors who have tourism contracts with us are generally recognized over the period of the applicable agreements commencing with the tourists visiting the tourism destinations. The Company also sells admission and activities tickets for a tourism destination which the Company has the management right.
The Company sells the television airtime to third parties. The Company records advertising sales when advertisements are aired.
The Company has no allowance for product returns or sales discounts because services that are rendered and accepted by the customers are normally not refundable and discounts are normally not granted after service has been rendered.
Profit sharing costs are recorded as cost of revenue. Profit sharing arrangements with the local governments for the management rights (see Note 15):
| For the three months ended March 31, 2012 | | | | | | |
| | | Fujian Jintai | | | Tulou | |
| Gross receipts | | $ | 525,697 | | | $ | 522,650 | |
| | | | | | | | | |
| Profit sharing costs | | | 76,766 | | | | - | |
| Nature resource compensation expenses | | | 43,093 | | | | 60,615 | |
| Total paid to the local governments | | | 119,859 | | | | 60,615 | |
| | | | | | | | | |
| Net receipts | | $ | 405,838 | | | $ | 462,035 | |
| | | | | | | | | |
| For the three months ended March 31, 2011 | | | | | | |
| | | Fujian Jintai | | | Tulou | |
| Gross receipts | | $ | 771,024 | | | $ | 897,216 | |
| | | | | | | | | |
| Profit sharing costs | | | 99,308 | | | | - | |
| Nature resource compensation expenses | | | 64,396 | | | | 103,104 | |
| Total paid to the local governments | | | 163,704 | | | | 103,104 | |
| | | | | | | | | |
| Net receipts | | $ | 607,320 | | | $ | 794,612 | |
CHINA YIDA HOLDING, CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| 2. | BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
k. 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, 2012 and 2011 were $152,822 and $60,585, respectively.
l. Post-retirement and post-employment benefits
Full time employees of subsidiaries of the Company participate in a government mandated multi-employer defined contribution plan pursuant to which certain pension benefits, medical care, employee housing, and other welfare benefits are provided to employees. Chinese labor regulations require that the subsidiaries of the Company make contributions to the government for these benefits based on a certain percentages of employees’ salaries. The Company has no legal obligation for the benefits beyond the contributions made. The total amounts for such employee benefits, which were expensed as incurred, were $53,506 and $41,963 for the three months ended March 31, 2012 and 2011, respectively. Other than the above, neither the Company nor its subsidiary provides any other post-retirement or post-employment benefits.
m. 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 dates, and the statements of income are translated at average exchange rates during the reporting periods. 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 and is included as part of accumulated other comprehensive income. The functional currency of the Company and its subsidiaries in China is the Chinese Renminbi.
n. Income taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recognized if it is more likely than not that some portion, or all, of a deferred tax asset will not be realized. The deferred income tax assets were $0 and $104,078 as March 31, 2012 and December 31, 2011, respectively.
The Company applied the provisions of ASC 740-10-50, “Accounting For Uncertainty In Income Taxes”, which provides clarification related to the process associated with accounting for uncertain tax positions recognized in our financial statements. Audit periods remain open for review until the statute of limitations has passed. The completion of review or the expiration of the statute of limitations for a given audit period could result in an adjustment to the Company’s liability for income taxes. Any such adjustment could be material to the Company’s results of operations for any given quarterly or annual period based, in part, upon the results of operations for the given period. As of March 31, 2012, management considered that the Company had no uncertain tax positions, and will continue to evaluate for uncertain positions in the future.
China Yida is subject to U.S. Federal and California state examination by tax authorities for years after 2007, and the PRC tax authority for years after 2006.
o. Fair values of financial instruments
The carrying amounts reported in the condensed consolidated financial statements for current assets and currently liabilities approximate fair value due to the short-term nature of these financial instruments. The carrying amount of long-term loans approximates fair value since the interest rate associated with the debt approximates the current market interest rate.
The Company adopted ASC 820-10, “Fair Value Measurements and Disclosures”, which establishes a single authoritative definition of fair value and a framework for measuring fair value and expands disclosure of fair value measurements for both financial and nonfinancial assets and liabilities. This standard defines fair value, provides guidance for measuring fair value and requires certain disclosures. This standard does not require any new fair value measurements, but discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flows) and the cost approach (cost to replace the service capacity of an asset or replacement cost). For purposes of ASC 820-10-15, nonfinancial assets and nonfinancial liabilities would include all assets and liabilities other than those meeting the definition of a financial asset or financial liability as defined in ASC-820-10-15-15-1A.
CHINA YIDA HOLDING, CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| 2. | BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
p. Stock-based compensation
The Company records stock-based compensation expense pursuant to ASC 718-10, "Share Based Payment Arrangement ,” which requires companies to measure compensation cost for stock-based employee compensation plans at fair value at the grant date and recognize the expense over the employee's requisite service period. The Company’s expected volatility assumption is based on the historical volatility of Company’s stock or the expected volatility of similar entities. The expected life assumption is primarily based on historical exercise patterns and employee post-vesting termination behavior. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant.
Stock-based compensation expense is recognized based on awards expected to vest, and there were no estimated forfeitures as the Company has a short history of issuing options. ASC 718-10 requires forfeitures to be estimated at the time of grant and revised in subsequent periods, if necessary, if actual forfeitures differ from those estimates.
q. Earnings per share (EPS)
Earnings per share is calculated in accordance with ASC 260. 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 instruments were converted or exercised. Options and warrants are assumed to be exercised at the beginning of the period if the average stock price for the period is greater than the exercise price of the warrants and options.
r. Statutory Reserves
In accordance with the relevant laws and regulations of the PRC and the articles of association of the Company, the Company is required to allocate 10% of their net income reported in the PRC statutory accounts, after offsetting any prior years’ losses, to the statutory surplus reserve, on an annual basis. When the balance of such reserve reaches 50% of the respective registered capital of the subsidiaries, any further allocation is optional.
As of March 31, 2012, the statutory reserve of the subsidiaries already reached 50% of the registered capital of the subsidiaries and the Company did not have any further allocation on it.
The statutory surplus reserves can be used to offset prior years’ losses, if any, and may be converted into registered capital, provided that the remaining balances of the reserve after such conversion is not less than 25% of registered capital. The statutory surplus reserve is non-distributable.
s. Segment reporting
ASC 250, "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. The Company has two reportable segments: advertisement and tourism
t. Dividend Policy
Under the laws governing foreign invested enterprises in China, dividend distribution and liquidation are allowed but subject to special procedures under the relevant laws and rules. Any dividend payments will be subject to the decision of the Board of Directors and subject to foreign exchange rules governing such repatriation. Any liquidation is subject to both the relevant government agency’s approval and supervision as well as the foreign exchange control.
u. Reclassification
Certain reclassifications have been made to the 2011 consolidated financial statements to conform to the 2012 consolidated financial statement presentation. These reclassifications had no effect on net loss or cash flows as previously reported.
CHINA YIDA HOLDING, CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| 2. | BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
v. Recent accounting pronouncements
In December 2011, the FASB issued revised guidance on “Disclosures About Offsetting Assets and Liabilities.” The revised guidance specifies that an entity should disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The revised guidance affects all entities that have financial instruments and derivative instruments. The revised guidance is effective for interim or annual periods beginning after January 1, 2013. We do not expect the adoption of this standard will have a material impact on our condensed consolidated financial statements.
In December 2011, FASB issued Accounting Standards Update No. 2011-12, Comprehensive Income (“ASU 2011-12”). Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. Among the new provisions in ASU 2011-05 was a requirement for entities to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement in which net income is presented and the statement in which other comprehensive income is presented (for both interim and annual financial statements); however this reclassification requirement is indefinitely deferred by ASU 2011-12 and will be further deliberated by the FASB at a future date.
In September 2011, the FASB has issued Accounting Standards Update (ASU) No. 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment. ASU 2011-08 is intended to simplify how entities, both public and nonpublic, test goodwill and other intangible assets such as patents for impairment. ASU 2011-08 permits an entity to first assess qualitative factors to determine whether it is "more likely than not" that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350, Intangibles-Goodwill and Other. The more-likely-than-not threshold is defined as having a likelihood of more than 50%. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The Company does not expect the adoption of ASU 2011-08 to have a material effect on the Company’s condensed consolidated financial statements.
In June 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU No. 2011-05), Presentation of Comprehensive Income, an amendment to ASC Topic 220, Comprehensive Income. Under this amendment, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The new guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in stockholders’ equity. While the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income under current accounting guidance. The guidance for public entities is effective for fiscal years or interim periods beginning after December 15, 2011 with early adoption permitted. The amendments in this update are to be applied retrospectively. The Company does not expect the adoption of ASU 2011-05 to have a material effect on the Company’s condensed consolidated financial statements.
| 3. | OTHER RECEIVABLES, NET |
Other receivables consist of the following:
| | | March 31, 2012 | | | December 31, 2011 | |
| | | | | | | |
| Refundable deposits - land use rights | | $ | 5,682,646 | | | $ | 4,718,094 | |
| Other | | | 356,398 | | | | 242,990 | |
| | | | 6,039,044 | | | | 4,961,084 | |
| Less: Allowance | | | (20,847 | ) | | | (20,695 | ) |
| | | $ | 6,018,197 | | | $ | 4,940,389 | |
Anhui Yida participated in a bid for several land use rights in Anhui Province, with the intention to develop our new tourism destination, Ming Dynasty Entertainment World. Anhui Yida deposited $4,831,913 (RMB 30.5 million) with the local government of Anhui province to participate in the bid in 2011. The deposit can be applied to payment for the land use rights if the Company wins the bid or the Company may choose to receive the deposit returned by the government and make new payment for purchasing the land use rights after winning the bid. On February 23, 2012, the local government of Anhui province refunded $2,951,427 (RMB 18.63 million) to Anhui Yida for certain of the land use rights that the Company had won the bid on.
OnMarch 31, 2012, Zhangshu Yida entered into a land use rights agreement with the local PRC government at City of Zhangshu in Jiangxi Province for the purchase of several land use rights for the development of our new tourism destination, China Yang-sheng Paradise.. Zhangshu Yida participated in a bid for those land use rights and deposited $3,802,161 (RMB 24 million) with the local government at City of Zhangshu to participate the bid during the first quarter of 2012. The deposit can be applied to payment for the land use rights if the Company wins the bid or the Company may choose to receive the deposit returned by the government and make new payment for purchasing the land use rights after winning the bid.
CHINA YIDA HOLDING, CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| 4. | ADVANCES AND PREPAYMENTS |
Advances and prepayments consist of the following:
| | | March 31, 2012 | | | December 31, 2011 | |
| | | | | | | |
| Advance payments related to land use rights | | $ | 3,981,359 | | | $ | 1,072,144 | |
| Advance payments related to hotel facilities of Yunding Park | | | 143,828 | | | | 142,781 | |
| Advance payments related to construction cost of Great Golden Lake | | | 369,686 | | | | 240,969 | |
| Other | | | 436,350 | | | | 428,631 | |
| | | | 4,931,223 | | | | 1,884,525 | |
| Less: Allowance | | | (3,121 | ) | | | (3,098 | ) |
| | | $ | 4,928,102 | | | $ | 1,881,427 | |
As of March 31, 2012, advance payments related to land use rights mainly represented the advance payments made by Fujian Yida, Zhangshu Yida, and Fenyi Yida. Fujian Yida made advance payments to the local government of Yongtai County of $701,182 (RMB 4.4million) for an acquisition of land use rights, as well as advance payments of $3,168,467 (RMB 20 million) made by Zhangshu Yida to City of Zhangshu in Jiangxi Province relating to an acquisition of several land use rights for the development of China Yang-sheng Paradise (see Note 3). Fenyi Yida made advance payments of $382,946 (RMB 2.4 million) on behalf of the local government to the existing user of the land to compensate for the acquisition of land for the development of the tourism destinations in Fenyi City. The local government repaid $271,236 (RMB 1.7 million) to the Company at the end of January, 2012.
As of December 31, 2011, advance payments related to land use rights mainly represented the advance payments made by Fujian Yida and Fenyi Yida. Fujian Yida to the local government of Yongtai province of $691,987 (RMB4.4million) for the acquisition of land use rights. Fenyi Yida made advance payment of $380,157 (RMB2.4 million) on behalf of the local government to the existing user of the land to compensate for the acquisition of land for the development of the tourism destinations in Fenyi City. The variances as compared to the amounts disclosed in the Company’s condensed consolidated financial statements as of March 31, 2012 were mainly the effect of foreign currency translation.
| 5. | PROPERTY AND EQUIPMENT, NET |
Property and equipment consist of the following:
| | | March 31, 2012 | | | December 31, 2011 | |
| | | | | | | |
| Buildings, Improvements and Attractions | | $ | 116,860,477 | | | $ | 116,009,545 | |
| Electronic Equipment | | | 557,244 | | | | 523,108 | |
| Transportation Equipment | | | 2,514,760 | | | | 2,399,339 | |
| Office Furniture | | | 55,434 | | | | 53,606 | |
| | | | 119,987,915 | | | | 118,985,598 | |
| Less: Accumulated Depreciation | | | (9,487,073 | ) | | | (8,392,018 | ) |
| Property and equipment, net | | $ | 110,500,842 | | | $ | 110,593,580 | |
For the three months ended March 31, 2012, the depreciation expense was $1,035,896, of which $1,018,248 and $17,648 was included in cost of sales and in general and administrative expenses, respectively.
For the three months ended March 31, 2011, the depreciation expense was $841,189, of which $834,920 and $6,269 was included in cost of sales and in general and administrative expenses, respectively.
CHINA YIDA HOLDING, CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| 6. | CONSTRUCTION IN PROGRESS |
The construction in progress consists of the projects related to the construction of the following:
| | | March 31, 2012 | | | December 31, 2011 | |
| | | | | | | |
| Great Golden Lake | | $ | 3,070,513 | | | $ | 2,980,653 | |
| China Yang-sheng Paradise | | | 13,386,401 | | | | 12,049,824 | |
| City of Caves | | | 12,231,103 | | | | 10,933,552 | |
| | | $ | 28,688,017 | | | $ | 25,964,029 | |
The construction in progress mainly related to the construction of new tourist resorts which the Company has developed. The estimated completion date of all these construction projects in progress will be September 30, 2012. The amount of capitalized interest included in construction in progress for the three months ended March 31, 2012 and 2011 amounted to $610,903 and $0, respectively.
Construction in progress of $0 and $14,735,861 were transferred to property and equipment during the three months ended March 31, 2012 and the year ended December 31, 2011, respectively.
| 7. | INTANGIBLE ASSETS, NET |
Intangible assets consist of the following:
| | | March 31, 2012 | | | December 31, 2011 | |
| | | | | | | |
| Management right of tourist resort | | $ | 5,544,818 | | | $ | 5,504,443 | |
| Commercial airtime rights | | | 6,664,541 | | | | 6,616,013 | |
| Land use right | | | 36,495,862 | | | | 25,334,867 | |
| | | | 48,705,221 | | | | 37,455,323 | |
| Accumulated amortization | | | (5,752,368 | ) | | | (5,100,313 | ) |
| Intangible assets, net | | $ | 42,952,853 | | | $ | 32,355,010 | |
Commercial airtime rights
On August 1, 2010, the Company entered into a commercial airtime rights agreement with a television station. Under the terms of the agreement, the Company can obtain commercial airtime and resell to advertisers from August 1, 2010 to July 31, 2013 for a monthly fee of $158,423 (RMB 1,000,000) for the period from August 1, 2010 to July 31, 2011. The fee is increased by 20% annually on every August 1. From August 1, 2011 to July 31, 2012, the monthly fee is $190,108 (RMB1,200,000). From August 31, 2012 to July 30, 2013, the monthly fee will be $228,130 (RMB1,440,000) for the period. The agreement can be renewed for two additional years, with mutual agreement between the parties. Since the Company is reselling the commercial airtime to advertisers, the Company has present-valued the monthly payments, including the 20% annual increase, using the market borrowing rate of 7% for three years and recorded $6.7 million (RMB 42,067,917) of commercial airtime rights as an intangible asset, $6.9 million (RMB 43,680,000) as an obligation under airtime rights commitment, and $253,532 (RMB 1,612,083) as deferred interest at inception.
At inception, the Company had made an initial assessment that there is no assurance the Company will exercise the option for two additional years and therefore, the Company has only considered the present value of the monthly fee for the first three years under the terms of the agreement.
Land use right
On October 31, 2010, the Company entered into an agreement with the local government in the PRC to acquire the land use rights for 40 years for the development of the Yunding Park. The purchase consideration was $2,089,470 (RMB 13,189,150).
On October 31, 2011, the Company entered into a land use rights agreements with the local PRC governments for the purchase of the land use rights in Anhui to develop Ming Dynasty Entertainment World. As of March 31, 2012, the Company paid approximately $10,639,306 (RMB 67.16 million), of which $9.13 million (RMB 58.08 million) was recorded at Long-Term Prepayments as of December 31, 2011 until the Company received the official certificates of land use rights issued by the government on February 29, 2012 and reclassified under Intangible Assets.
In November 2011, the Company obtained five land use rights certificates from the local PRC governments for the purchase of the land use rights in Zhangshu City for 40 years to develop China Yang-sheng Paradise. The total purchase consideration was $23,431,229 (RMB 147,902,605).
On December 13, 2011, the Company entered into a land use rights agreements with the local PRC governments for the purchase of the land use rights in Fenyi City to develop City of Caves. As of March 31, 2012, the Company paid approximately $335,858 (RMB 2.12 million), which was recorded at Long-Term Prepayments as of December 31, 2011 until the Company received the official certificates of land use rights issued by the government on March 20, 2012 and reclassified under Intangible Assets.
CHINA YIDA HOLDING, CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| 7. | INTANGIBLE ASSETS, NET (CONTINUED) |
Amortization expense for the three months ended March 31, 2012 and 2011 amounted to $616,069 and $930,245, respectively.
Estimated amortization for the next five years and thereafter is as follows:
| As of March 31, | | Amounts | |
| 2013 | | $ | 2,459,127 | |
| 2014 | | | 1,163,244 | |
| 2015 | | | 237,614 | |
| 2016 | | | 237,614 | |
| 2017 | | | 237,614 | |
| Thereafter | | | 38,617,640 | |
| | | $ | 42,952,853 | |
Long-term prepayments consist of the following:
| | | March 31, 2011 | | | December 31, 2011 | |
| | | | | | | |
| Prepayments for project planning, assessments and consultation fees | | $ | 2,664,517 | | | $ | 2,136,883 | |
| Prepayments for acquisition of land use right and management right of tourist resort | | | - | | | | 9,481,598 | |
| Deferred financing costs, net of accumulated amortization of $118,141 | | | 1,314,037 | | | | 846,695 | |
| Others | | | 336,990 | | | | 293,587 | |
| | | $ | 4,315,544 | | | $ | 12,758,763 | |
Prepayments for project planning, assessments and consultation fees represent advances relating to the planning, assessment and consultation for the development of other tourism destinations in Anhui province and Jiangxi province.
For the three months ended March 31, 2012 and 2011, the Company paid approximately $675,800 (RMB 4.3 million) and approximately $369,100 (RMB 2.4 million) of fees in order to obtain additional debt used to construct various resort projects. These fees are deferred and amortized on a straight line basis over the life of the debt.
Estimated amortization of the deferred financing costs for the next five years and thereafter is as follows:
| As of March 31, | | Amounts | |
| 2013 | | $ | 262,530 | |
| 2014 | | | 262,530 | |
| 2015 | | | 262,530 | |
| 2016 | | | 262,530 | |
| 2017 | | | 262,530 | |
| Thereafter | | | 318,916 | |
| Total minimum payments | | $ | 1,631,566 | |
| Current portion recorded under prepayments - current portion | | | (317,529 | ) |
| Long term portion | | $ | 1,314,037 | |
| | | | | |
CHINA YIDA HOLDING, CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Short-term loans
Short-term loans represent borrowings from commercial banks that are due within one year. These loans consisted of the following:
| | | March 31, 2012 | | | December 31, 2011 | |
| | | | | | | |
| Loan from Fujian Haixia Bank (formerly known as Merchant bank of Fuzhou), interest rate at 9.184% per annum, due November 4, 2012, guaranteed by Fujian Jintai Tourism Development Co., Ltd. | | | 950,540 | | | | 943,619 | |
| Total | | $ | 950.540 | | | $ | 943,619 | |
Interest expense for the three months ended March 31, 2012 and 2011 amounted to $22,118 and $29,531, respectively. The interest expense for the three months ended March 31, 2012 and 2011 of $22,118 and $0, respectively was capitalized as part of construction in progress.
Long-term debt
Long term debt consists of the following:
| | | March 31, 2012 | | | December 31, 2011 | |
| | | | | | | |
| Loan from Industrial and Commercial Bank of China Limited, interest rate at 7.76% per annum, final installment due October 25, 2018, collateralized by the right to collect resort ticket sales at the Great Golden Lake. (Note (a)) | | | 13,782,833 | | | | 13,682,472- | |
| | | | | | | | | |
| Loan from Industrial and Commercial Bank of China Limited, interest rate at 6.40% per annum, final installment due December 15, 2017, secured by credit guarantee of Fujian Jintai and the right to collect resort ticket sales at Yunding resort as additional collateral. (Note (b)) | | | 10,297,519 | | | | 10,615,711- | |
| | | | | | | | | |
| Loan from Industrial and Commercial Bank of China Limited, interest rate at 7.76% per annum, final installment due November 22, 2018, collateralized by the right to collect resort ticket sales at the Tulou resort, secured by the fixed assets of Fujian Tulou and personal guarantees by two of the Company’s directors as additional collateral. (Note (c)) | | | 5,346,789 | | | | 5,504,443- | |
| | | | | | | | | |
Loan from China Minsheng Banking Corp, Ltd., interest rate at 11.97% per annum, final installment due November 20, 2014, secured by credit guarantee of Fujian Jintai, collateralized by the fixed assets of Fujian Yida and personal guarantees by two of the Company’s directors as additional collateral. (Note (d)) | | | 6,099,300 | | | | - | |
| | | | 35,526,440 | | | | 29,802,626 | |
| Less: current portion | | | (5,452,932 | ) | | | (3,761,894 | ) |
| Total | | $ | 30,073,508 | | | $ | 26,040,732 | |
Note:
| (a) | $1,967,618 (RMB12,420,000) will be due in each twelve-month period as of March 31, 2013, 2014, 2015, 2016, 2017 and 2018, respectively, and $1,977,124 (RMB12,480,000) will be due in the twelve-month period as of March 31, 2019. In November 2011 and in March 2012, $475,270 and $221,714 of financing costs were paid in connection with this loan. |
CHINA YIDA HOLDING, CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| 9. | BANK LOANS (CONTINUED) |
Long-term debt (continued)
| (b) | $1,108,963 (RMB 7,000,000), $1,742,658 (RMB 11,000,000), $1,901,081 (RMB 12,000,000), $2,217,927 (RMB 14,000,000), $2,376,350 (RMB 15,000,000), and $950,539 (RMB 6,000,000) will be due in each of the twelve-month period as of March 31, 2013, 2014, 2015, 2016, 2017 and 2018, respectively. In January 2011 and in March 2012, $385,286 and $380,216 of financing costs were paid in connection with this loan. |
| (c) | $792,116 (RMB 5,000,000) will be due in each twelve-month period as of March 31, 2013, 2014, 2015, 2016, 2017 and 2018, respectively, and $594,087 (RMB 3,750,000) will be due in the twelve-month period as of March 31, 2019. In December 2011 and in January 2012, $214,901 and $72,320 of financing costs were paid in connection with this loan. |
| (d) | $1,584,233 (RMB 10,000,000), $4,119,008 (RMB 26,000,000), and $396,059 (RMB 2,500,000) will be due in each twelve-month period as of March 31, 2013, 2014, and 2015, respectively. |
Interest expense for the three months ended March 31, 2012 and 2011 amounted to $588,785 and $147,260, respectively. Interest expense for the three months ended March 31, 2012 and 2011 of $588,785 and $0, respectively was capitalized as part of construction in progress.
| 10. | OBGLIATION UNDER AIRTIME RIGHTS COMMITMENT |
Obligation under airtime rights commitment (See note 7) consists of the following:
| As of March 31, | | | |
| 2013 | | $ | 2,585,469 | |
| 2014 | | | 912,519 | |
| | | | 3,497,988 | |
| Less: Deferred interest | | | (111,996 | ) |
| | | | 3,385,992 | |
| Less: Current portion | | | (2,585,469 | ) |
| | | $ | 800,523 | |
| 11. | ACCRUED EXPENSES AND OTHER PAYABLES |
Accrued expenses and other payables consist of the following:
| | | March 31, 2012 | | | December 31, 2011 | |
| | | | | | | |
| Unearned revenue | | $ | 1,439 | | | $ | 30,155 | |
| Accrued payroll | | | 287,517 | | | | 298,810 | |
| Welfare payables | | | 23,601 | | | | 23,428 | |
| Other | | | 291,108 | | | | 285,782 | |
| | | $ | 603,665 | | | $ | 638,175 | |
The Company is subject to Hong Kong (“HK”) and People’s Republic of China (“PRC”) profit tax. For certain operations in HK and PRC, the Company has incurred net accumulated operating losses for income tax purposes.
United States
The Company is incorporated in the United States of America and is subject to United States federal taxation. No provisions for income taxes have been made as the Company has no taxable income for the year. The applicable income tax rate for the Company for the three months ended March 31, 2012 and 2011 was 35% and 35%, respectively. No tax benefit has been realized since a valuation allowance has offset the deferred tax asset resulting from the net operating losses.
Cayman Islands
Keenway Limited, a wholly owned subsidiary of the Company, is incorporated in the Cayman Islands and, under the current laws of the Cayman Islands, is not subject to income taxes.
CHINA YIDA HOLDING, CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| 12. | INCOME TAX (CONTINUED) |
Hong Kong
Hong Kong Yi Tat, a wholly owned subsidiary of the Company, is incorporated in Hong Kong. Hong Kong Yi Tat is subject to Hong Kong taxation on its activities conducted in Hong Kong and income arising in or derived from Hong Kong. No provisions for income taxes have been made as Hong Kong Yi Tat has no taxable income for the year. The applicable statutory tax rate for the subsidiary for the three months ended March 31, 2012 and 2011 was 16.5% and 16.5%, respectively.
PRC
Effective on January 1, 2008, the PRC Enterprise Income Tax Law, EIT Law, and Implementing Rules impose an unified enterprise income tax rate of 25% on all domestic-invested enterprises and foreign investment enterprises in PRC, unless they qualify under certain limited exceptions. As such, starting from January 1, 2008, the Company’s subsidiaries in PRC are subject to an enterprise income tax rate of 25%.
Provision for income tax consists of the following:
| | | For the three months Ended March 31, | |
| | | 2012 | | | 2011 | |
| | | | | | | |
| Current | | | | | | |
| USA | | $ | - | | | $ | - | |
| China | | | 1,155,317 | | | | 1,982,512 | |
| | | | 1,155,317 | | | | 1,982,512 | |
| | | | | | | | | |
| Deferred | | | | | | | | |
| USA | | | | | | | | |
| Deferred tax asset for NOL carry forwards | | | 67,936 | | | | 518,045 | |
| Valuation allowance | | | (67,936 | ) | | | (518,045 | ) |
| | | | - | | | | - | |
| China | | | | | | | | |
| Current portion | | | | | | | | |
| Temporary difference from general and administrative expenses | | | - | | | | (23 | ) |
| Net changes in deferred income tax under current portion | | | - | | | | (23 | ) |
| | | | | | | | | |
| Non-current portion | | | | | | | | |
| Deferred tax asset for NOL carry forwards | | | 658,559 | | | | 5,100 | |
Temporary difference from airtime rights expenses | | | 104,078 | | | | (23,155 | ) |
| Temporary difference from capitalized interest | | | 26,793 | | | | - | |
| Valuation allowance | | | (658,559 | ) | | | (5,100 | ) |
| Net changes in deferred income tax under non-current portion | | | 130,871 | | | | (23,155 | ) |
| | | | | | | | | |
| Net deferred income tax expenses (benefit) | | | 130,871 | | | | (23,178 | ) |
| | | | | | | | | |
| Total provision of income tax | | $ | 1,286,188 | | | $ | 2,005,690 | |
CHINA YIDA HOLDING, CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the net operating losses and temporary differences become deductible. Management considered projected future taxable income and tax planning strategies in making this assessment.
The change in total allowance for the three months ended March 31, 2012 and 2011 was an increase of $726,495 and $17,430, respectively.
STOCK-BASED COMPENSATION
On January 21, 2011 (the “CFO Stock Option Grant Date”), the Company entered into a Non-qualified Stock Option Agreement with the Company’s former Chief Financial Officer, George Wung, pursuant to which, the Company issued non-qualified stock options (the “CFO Stock Options”) to purchase a total of 75,000 shares of the Company’s common stock as compensation for his services to be rendered as the Company’s Chief Financial Officer. 15,000 CFO Stock Options vested on the CFO Stock Option Grant Date; 20,000 CFO Stock Options shall vest on the one-year anniversary of the CFO Grant Date; 20,000 CFO Stock Options shall vest on the second-year anniversary of the CFO Grant Date; and 20,000 CFO Stock Options shall vest on the third-year anniversary of the CFO Grant Date. The exercise price for all of the shares was determined as the fair value of our common stock using the closing price on the grant date.
On November 5, 2011, Mr. Wung submitted a letter of resignation resigning from his position. The resignation was effective as of December 31, 2011. Under the Non-qualified Stock Option Agreement, if CFO is removed from office for cause prior to the 21st day of January, 2012, any outstanding stock options held by him which are not vested and exercisable by him immediately prior to resignation shall terminate as of the date of removal, and any outstanding stock options held by CFO which is vested and exercisable immediately prior to removal shall be exercisable at any time prior to the expiration date of such stock option or within one-year after the date of removal, whichever is shorter. As a result, 60,000 CFO Stock Options were forfeited as of December 31, 2011. On January 6, 2012, Mr. Wung transferred options to purchase 15,000 shares to Mr. Minhua Chen, our Chairman and Chief Executive Officer, as a gift.
On January 21, 2011 (the “VPIR Stock Option Grant Date”), the Company entered into a Non-qualified Stock Option Agreement with the Company’s former Corporate Secretary and VP of Investor Relation, Wei Zhang, pursuant to which, the Company issued non-qualified stock options (the “VPIR Stock Options”) to purchase a total of 75,000 shares of the Company’s common stock as compensation for his services to be rendered as the Company’s VP of Investor Relation. 15,000 VPIR Stock Options shall vest on the VPIR Stock Option Grant Date; 20,000 VPIR Stock Options shall vest on the one-year anniversary of the VPIR Grant Date; 20,000 VPIR Stock Options shall vest on the second-year anniversary of the VPIR Grant Date; and 20,000 VPIR Stock Options shall vest on the third-year anniversary of the VPIR Grant Date. The exercise price for all of the shares was determined as the fair value of our common stock using the closing price on the grant date.
On November 5, 2011, Mr. Zhang submitted a letter of resignation resigning from his position. The resignation was effective as of December 31, 2011. Under the Non-qualified Stock Option Agreement, if VPIR is removed from office for cause prior to the 21st day of January, 2012, any outstanding stock option held by him which is not vested and exercisable by him immediately prior to resignation shall terminate as of the date of removal, and any outstanding stock options held by VPIR which is vested and exercisable immediately prior to removal shall be exercisable at any time prior to the expiration date of such stock option or within one-year after the date of removal, whichever is shorter. As a result, 60,000 VPIR Stock Options were forfeited as of December 31, 2011. On January 6, 2012, Mr. Zhang transferred options to purchase 15,000 shares to Mr. Minhua Chen, our Chairman and Chief Executive Officer, as a gift.
On March 17, 2011 (the “ID Stock Option Grant Date”), the Company entered into a Non-qualified Stock Option Agreement with the Company’s Independent Director, Michael Marks, pursuant to which, the Company issued non-qualified stock options (the “ID Stock Options”) to purchase a total of 30,000 shares of the Company’s common stock as compensation for his services to be rendered as the Company’s Independent Director. One half of the ID Stock Options vested on the ID Grant Date and the second half of ID Stock Options vested on June 10, 2011. The exercise price for all of the shares was determined as the fair value of our common stock using the closing price on the grant date.
On July 27, 2011, the Company entered into an agreement with the Company’s Independent Director, Michael Marks, pursuant to which, the Company granted 20,000 restricted shares of the Company’s common stock as compensation for his services to be rendered as the Company’s Independent Director from June 10, 2011 to June 9, 2012. The estimated value of the 20,000 shares was $73,000 on June 10, 2011. The unrecognized share based compensation expense as of March 31, 2012 and December 31, 2011 was approximately $18,250 and $36,500, respectively. As of the date of this report, the issuance of the 20,000 restricted shares has been in process.
CHINA YIDA HOLDING, CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Company valued the stock options using the Black-Scholes model with the following assumptions:
Type of Stock Option | | Number of Options | | | Expected Term | | | Expected Volatility | | | Dividend Yield | | | Risk Free Interest Rate | |
| Options to Chief Financial Officer | | | 75,000 | | | | 6.25 | | | | 60 | % | | | 0 | % | | | 3.44 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Options to VP of Investor Relation | | | 75,000 | | | | 6.25 | | | | 60 | % | | | 0 | % | | | 3.44 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Options to Independent Director | | | 30,000 | | | | 6.25 | | | | 60 | % | | | 0 | % | | | 3.25 | % |
| | | | 180,000 | | | | | | | | | | | | | | | | | |
The following is a summary of the option activity:
| | | Number of Options | |
| | | | |
| Outstanding as of December 31, 2011 | | | 90,000 | |
| Granted | | | - | |
| Exercised | | | - | |
| Forfeited | | | -- | |
| Outstanding as of March 31, 2012 | | | 90,000 | |
For the three months ended March 31, 2012 and 2011, the Company recognized approximately $18,250 and $362,331, respectively, as stock-based compensation expense, which was included in general and administrative expenses.
The total unrecognized share-based compensation expense as of March 31, 2012 was approximately $18,250 which is expected to be recognized in 3 months.
CHINA YIDA HOLDING, CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| 14. | NON-CONTROLLING INTEREST |
On April 15, 2010, the Company established a new subsidiary, Anhui Yida. The Company has a 60% interest and Anhui Xingguang Group, an unrelated entity, holds a 40% interest. Anhui Yida has not commenced operations as of March 31, 2012. Non-controlling interest consisted of the following:
| | | March 31, 2012 | | | December 31, 2011 | |
| | | | | | | |
| Balance bought forward | | $ | 6,064,267 | | | $ | 94,595 | |
| Accumulated deficits | | | (67,303 | ) | | | (195,823 | ) |
| Accumulated other comprehensive income | | | 44,637 | | | | 236,701 | ) |
| | | | 6,041,601 | | | | 135,473 | |
| Add: Repayment from non-controlling interest | | | - | | | | 5,928,794 | |
| Balance carry forward | | $ | 6,041,601 | | | $ | 6,064,267 | |
| 15. | COMMITMENTS AND CONTINGENCIES |
(1) Operating commitments
Operating commitments consist of leases for office space under various operating lease agreements which expire in April 2021.
Operating lease agreements generally contain renewal options that may be exercised at the Company’s discretion after the completion of the terms. The Company's obligations under various operating leases are as follows:
| As of March 31, | | Amounts | |
| 2013 | | $ | 333,639 | |
| 2014 | | | 280,471 | |
| 2015 | | | 273,646 | |
| 2016 | | | 266,195 | |
| 2017 | | | 271,983 | |
| Thereafter | | | 12,764,033 | |
| Total minimum payments | | $ | 14,189,967 | |
| | | | | |
The Company incurred rental expenses of $88,225 and $28,765 for the three months ended March 31, 2012 and 2011, respectively, which included $2,382 and $2,276, respectively, paid to Xin Hengji Holding Company Limited, a related party.
(2) Capital commitments
China Yang-sheng Paradise
As of March 31, 2012, the total estimated contract costs to complete China Yang-sheng Paradise are approximately $14,348,400 (RMB 90.57 million, excluding interest to be capitalized) of which the Company has completed and paid for approximately $13,386,400 (RMB 84.50 million), including capitalized interest. The remaining will be completed and paid for by the end of 2012.
City of Caves
As of March 31, 2012, the total estimated contract costs to complete City of Caves are approximately $12,868,700 (RMB 81.23 million, excluding interest to be capitalized) of which the Company has completed and paid for approximately $12,231,100 (RMB 77.21 million), including capitalized interest. The remaining will be completed and paid for by the end of 2012.
(3) Management rights commitments
In 2001, Fujian Jintai entered into a tourism management revenue sharing agreement which is related to the management rights with Fujian Taining Great Golden Lake Tourism Economic Development Zone Management Committee (“Taining government”) to operate and to manage the Great Golden Lake resort from 2001 through 2032. The Company agreed to pay (1) 8% of the revenue from 2001 to 2005; (2) 10% of the revenue from 2006 to 2010; (3)12% of the revenue from 2011 to 2015; (4) 14% of the revenue from 2016 to 2020; (5) 16% of the revenue from 2021 to 2025; 18% from 2026 to 2032 to the Taining government. The Company paid approximately $76,766 and $99,308 to the Taining government for the three months ended March 31, 2012 and 2011, respectively, and recorded as cost of revenue.
CHINA YIDA HOLDING, CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| 16. | COMMITMENTS AND CONTINGENCIES (CONTINUED) |
(4) Compensation for using nature resources commitments
In 2007, Fujiang Jintai entered into an agreement with Taining government which is related to compensation fees for using nature resources in the Great Golden Lake resort. The Company agreed to pay 10% of the revenue from sale of resort tickets after deduction of the profit sharing with Taining government (see above). The Company paid approximately $43,093 and $64,396 to the Taining government for the three months ended March 31, 2012 and 2011, respectively, and recorded as selling expenses.
In December 2008, Tulou entered into a Tourist Resources Development Agreement with Hua’an County Government (“Hua’an government”) which is related to pay compensation fees for using nature resources in Tulou. The Company agreed to pay (1) 16% of gross ticket sales in the first five years; (2) 20% of gross ticket sales in the second five years; (3) 23% of gross ticket sales in the third five years; (4) 25% of gross ticket sales in the fourth five years; (5) 28% of gross ticket sales in the fifth five years; (6) 30% in twenty six years and thereafter when the ticket price of the Tulou Clusters is RMB60 ($9.50 USD) or above per person. The Company paid approximately $60,615 and $103,104 to the Hua’an government for the three months ended March 31, 2012 and 2011, respectively, and recorded as selling expenses.
(5) Litigation
The Company’s management does not expect the legal matters involving the Company would have a material impact on the Company’s consolidated financial position or results of operations.
CHINA YIDA HOLDING, CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Basic earnings per share is computed by dividing net income attributable to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution of securities by including other potential common stock, including convertible preferred stock, stock options and warrants, in the weighted average number of common shares outstanding for the period, if dilutive. The numerators and denominators used in the computations of basic and dilutive earnings per share are presented in the following table:
| | | For The Three Months Ended March 31, | |
| | | 2012 | | | 2011 | |
| BASIC | | | | | | |
| Numerator for basic earnings per share attributable to the Company’s common stockholders: | | | | | | |
| Net income used in computing basic earnings per share | | $ | 1,166,263 | | | $ | 3,959,086 | |
| | | | | | | | | |
| Basic earnings per share | | $ | 0.06 | | | $ | 0.20 | |
| | | | | | | | | |
| Basic weighted average shares outstanding | | | 19,551,785 | | | | 19,551,785 | |
| | | For The Three Months Ended March 31, | |
| | | 2012 | | | 2011 | |
| DILUTED | | | | | | |
| Numerator for diluted earnings per share attributable to the Company’s common stockholders: | | | | | | |
| Net income used in computing diluted earnings per share | | $ | 1,166,263 | | | $ | 3,959,086 | |
| | | | | | | | | |
| Diluted earnings per share | | $ | 0.06 | | | $ | 0.20 | |
| | | | | | | | | |
| Weighted average outstanding shares of common stock | | | 19,551,785 | | | | 19,551,785 | |
| Warrants | | | - | | | | 341,739 | |
| Options | | | - | | | | 1,666 | |
| Diluted weighted average shares outstanding | | | 19,551,785 | | | | 19,895,190 | |
| | | | | | | | | |
| Potential common shares outstanding as of March 31: | | | | | | | | |
| Warrants outstanding | | | - | | | | 773,812 | |
| Options outstanding | | | 90,000 | | | | 75,000 | |
| | | | | | | | | |
For the three months ended March 31, 2012 and 2011, 90,000 and 75,000 options, respectively were not included in the diluted EPS because the average stock price was lower than the strike price of these options.
CHINA YIDA HOLDING, CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
During the three months ended March 31, 2012 and March 31, 2011, the Company is organized into two main business segments: advertisement and tourism. The primary business relates to tourism at the Great Golden Lake, Yunding Park and Tulou Cluster. The Company offers bamboo rafting, parking lot service, photography services and ethnic cultural communications. The primary business related to advertisement is focused on advertisements, including media publishing, television, cultural and artistic communication activities, and performance operation and management activities. The following table presents a summary of operating information and certain balance sheet information for the two segments for the three months ended:
| | | For The Three Months Ended March 31, | |
| | | 2012 | | | 2011 | |
| Revenues: | | | | | | |
| Advertisement | | $ | 6,194,519 | | | $ | 9,868,374 | |
| Tourism | | | 1,536,190 | | | | 1,915,103 | |
| Total | | $ | 7,730,709 | | | $ | 11,783,477 | |
| | | | | | | | | |
| Operating income (loss): | | | | | | | | |
| Advertisement | | $ | 4,473,703 | | | $ | 7,252,673 | |
| Tourism | | | (1,784,740 | ) | | | (457,086 | |
| Others | | | (207,560 | ) | | | (666,834 | ) |
| Total | | $ | 2,481,403 | | | $ | 6,128,753 | |
| | | | | | | | | |
| Net income (loss): | | | | | | | | |
| Advertisement | | $ | 3,169,670 | | | $ | 5,368,128 | |
| Tourism | | | (1,862,640 | ) | | | (730,161 | |
| Others | | | (208,070 | ) | | | (690,515 | ) |
| Total | | $ | 1,098,960 | | | $ | 3,947,452 | |
| | | | | | | | | |
| Capital expenditure: | | | | | | | | |
| Advertisement | | $ | - | | | $ | 1,356 | |
| Tourism | | | 2,669,272 | | | | 109,634 | |
| Total | | $ | 2,669,272 | | | $ | 110,990 | |
| | | | | | | | | |
| | | March 31, 2012 | | | December 31, 2011 | |
| Identifiable assets: | | | | | | | | |
| Advertisement | | $ | 3,116,536 | | | $ | 4,134,036 | |
| Tourism | | | 198,639,887 | | | | 189,882,849 | |
| Others | | | 326,902 | | | | 602,213 | |
| Total | | $ | 202,083,325 | | | $ | 194,619,098 | |
| Intangible assets: | | | | | | | | |
| Advertisement | | $ | 2,962,018 | | | $ | 3,491,785 | |
| Tourism | | | 39,990,835 | | | | 28,863,225 | |
| Total | | $ | 42,952,853 | | | $ | 32,355,010 | |
Others represent reconciling amounts including certain assets which are excluded from segments and adjustments to eliminate inter-company transactions.
The Company has evaluated events after the balance sheet date of these condensed consolidated financial statements through the date these condensed consolidated financial statements were issued. There were no other material subsequent events as of that date.
