U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2009
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934
For the Transition Period From ____to _____
Commission File Number
001-10559
CHINA INTERNATIONAL TOURISM HOLDINGS, LTD.
NEVADA | 65-1021346 |
(State or other jurisdiction of | (IRS Employer identification No.) |
incorporation or organization) |
Suite 910, Yi An Plaza, 33 Jian She Liu Road, Guangzou, P.R.China 510000
(Address of principal executive offices)
(8629) 8436-8561
(Issuer's telephone number)
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Date File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ ] No [ ]
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 definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ |
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) |
Accelerated filer | ¨ |
Smaller reporting company | þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Number of shares of common stock outstanding as of May 19, 2009 : 50,245,026
Number of shares of preferred stock outstanding as of May 19, 2009: 3,295,000
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION
The discussion contained in this 10-Q under the Securities Exchange Act of 1934, as amended, contains forward-looking statements that involve risks and uncertainties. The issuer's actual results could differ significantly from those discussed herein. These include statements about our expectations, beliefs, intentions or strategies for the future, which we indicate by words or phrases such as "anticipate," "expect," "intend," "plan," "will," "we believe," "the Company believes," "management believes" and similar language, including those set forth in the discussions under "Notes to Financial Statements" and "Management's Discussion and Analysis or Plan of Operation" as well as those discussed elsewhere in this Form 10-Q. We base our forward-looking statements on information currently available to us, and we assume no obligation to update them. Statements contained in this Form 10-Q that are not historical facts are forward-looking statements that are subject to the "safe harbor" created by the Private Securities Litigation Reform Act of 1995.
PART I 160; Page No.
Item 1. Financial Statements ; 3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk ; 9
Item 4. Controls and Procedures ; 10
Item 4T. Controls and Procedures ; 10
PART II
Item 1. Legal Proceedings 0; 11
Item 1A. Risk Factors 160; 11
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds & #160; 11
Item 3. Defaults Upon Senior Securities ; 11
Item 4. Submission of Matters to a Vote of Security Holders 160; 11
Item 5. Other Information 0; 11
Item 6. Exhibits ; 11
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
Page | ||||
Consolidated Condensed Balance Sheets | F-4 | |||
Consolidated Condensed Statements of Operations And Comprehensive Loss | F-5 | |||
Consolidated Condensed Statements of Cash Flows | F-6 | |||
Notes to Consolidated Financial Statements | F-7 to F-8 | |||
CHINA INTERNATIONAL TOURISM HOLDINGS, LTD. AND SUBSIDIARY | ||||||||
Unaudited Consolidated Balance Sheets | ||||||||
As of March 31, 2009 and December 31, 2008 | ||||||||
ASSETS | March 31, 2009 | December 31, 2008 | ||||||
(Unaudited)* | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 1,611,164 | $ | 531,297 | ||||
Accounts receivable, net | 7,090,926 | 7,890,953 | ||||||
Inventory | 361,595 | 707,280 | ||||||
Prepaid expenses | 249 | 314,195 | ||||||
Other receivables | 98,780 | 113,302 | ||||||
Short term investment | 512,003 | - | ||||||
TOTAL CURRNET ASSETS | 9,674,717 | 9,557,027 | ||||||
FIXED ASSETS | ||||||||
Property, plant, and equipment | 21,885 | 21,927 | ||||||
Accumulated depreciation | (9,192 | ) | (8,355 | ) | ||||
NET FIXED ASSETS | 12,694 | 13,572 | ||||||
TOTAL ASSETS | $ | 9,687,410 | $ | 9,570,599 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable | $ | 8,239,476 | $ | 7,612,304 | ||||
Other payables and accured expenses | 104,154 | 61,852 | ||||||
Other payables-related party | 106,473 | 496,928 | ||||||
Received in advance | 151,674 | 113,915 | ||||||
Tax payable | 8,141 | 114,385 | ||||||
TOTAL CURRENT LIABILITIES | 8,609,918 | 8,399,385 | ||||||
TOTAL LIABILITIES | $ | 8,609,918 | $ | 8,399,385 | ||||
COMMITMENTS AND CONTINGENCIES | ||||||||
Redeemable preferred stock (par value $.01, 5,000,000 Shares | 32,950 | 32,950 | ||||||
authorized, 3,295,000 shares issued and outstanding | ||||||||
STOCKHOLDERS' EQUITY | ||||||||
Common stock (par $.0001, 250,000,000 authorized, | 5,024 | 5,024 | ||||||
50,245,026 shares issued and outstanding | ||||||||
Additional paid in capital | 920,375 | 999,029 | ||||||
Statutory reserves | 850 | 850 | ||||||
Accumulated other comprehensive income | 132,966 | 135,176 | ||||||
Retained earnings (deficit) | (14,673 | ) | (1,815 | ) | ||||
TOTAL STOCKHOLDERS' EQUITY | $ | 1,044,542 | $ | 1,138,264 | ||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 9,687,410 | $ | 9,570,599 | ||||
* The consolidated balance sheet as of December 31, 2008 retroactively reflected the reverse merger with Cheng Kai | ||||||||
The accompanying notes are an integral part of these financial statements. |
CHINA INTERNATIONAL TOURISM HOLDINGS, LTD. AND SUBSIDIARY | ||||||||
Unaudited Consolidated Statements of Operations | ||||||||
For the Three Months ended March 31, 2009 and 2008 | ||||||||
For the Three Months Ended | ||||||||
March 31, 2009 | March 31, 2008 | |||||||
Revenues | ||||||||
Sales | $ | 1,509,301 | $ | 2,278,209 | ||||
Cost of sales | (1,381,105 | ) | (2,103,383 | ) | ||||
Gross profits | 128,196 | 174,826 | ||||||
Operating expenses | ||||||||
Selling General and Administrative | 136,664 | 173,715 | ||||||
Income (Loss) from Operations | (8,468 | ) | 1,111 | |||||
Other income (expenses) | ||||||||
Interest income (expenses) | 170 | (282 | ) | |||||
Total other income (loss) | 170 | (282 | ) | |||||
Income (loss) from Operations | (8,298 | ) | 829 | |||||
Income taxes | 4,560 | 2,351 | ||||||
Net Income (Loss) | (12,858 | ) | (1,522 | ) | ||||
Other comprehensive income (loss) | ||||||||
Foreign currency translation gain (loss) | (2,210 | ) | 44,509 | |||||
Comprehensive income (loss) | $ | (15,068 | ) | $ | 42,987 | |||
The accompanying notes are an integral part of the financial statements |
CHINA INTERNATIONAL TOURISM HOLDINGS, LTD. AND SUBSIDIARY | ||||||||
Unaudited Consolidated Statements of Cash Flows | ||||||||
For the Three Months ended March 31, 2009 and 2008 | ||||||||
For the Three Months Ended | ||||||||
March 31, 2009 | March 31, 2008 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income (loss) | $ | (12,858 | ) | $ | (1,523 | ) | ||
Adjustments to reconcile net income (loss) to | ||||||||
net cash (used in) operating activities: | ||||||||
Depreciation | 852 | 892 | ||||||
Accounts receivable ,trade | 785,124 | (1,291,789 | ) | |||||
Other receivable | (3,734 | ) | 104,811 | |||||
Prepaid expense | 313,350 | 53,352 | ||||||
Inventory | 344,345 | 305,620 | ||||||
Accounts payable | 641,527 | (1,409,031 | ) | |||||
Tax payable | (106,027 | ) | 81,795 | |||||
Other payable | (9,341 | ) | (34,211 | ) | ||||
Others | 82,346 | (152,434 | ) | |||||
NET CASH (USED IN) OPERATING ACTIVITIES | 2,035,584 | (2,342,518 | ) | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Short-term investment | (511,995 | ) | - | |||||
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES | (511,995 | ) | - | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Due to (from) shareholders | (442,735 | ) | 307,442 | |||||
NET CASH PROVIDED BY FINANCING ACTIVITIES | (442,735 | ) | 307,442 | |||||
- | - | |||||||
FOREIGN CURRENCY TRANSLATION ADJUSTMENT | (987 | ) | 59,852 | |||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 1,079,867 | (1,975,224 | ) | |||||
CASH AND CASH EQUIVALENTS: | ||||||||
Beginning of period | 531,297 | 2,482,779 | ||||||
End of period | $ | 1,611,164 | $ | 507,554 | ||||
The accompanying notes are an integral part of these financial statements. |
CHINA INTERNATIONAL TOURISM HOLDINGS, LTD. AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
For the Three Months Ended March 31, 2009 and 2008
(Stated in US Dollars)
1. | BASIS OF PRESENTATION |
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with both generally accepted accounting principles for interim financial information, and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) that are, in the opinion of management, considered necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year.
The condensed consolidated financial statements and related disclosures have been prepared with the presumption that users of the interim financial information have read or have access to our annual audited consolidated financial statements for the preceding fiscal year. Accordingly, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the related notes thereto contained in the Annual Report on Form 10-K for the year ended December 31, 2008.
2. | ORGANIZATION BACKGROUND |
China International Tourism Holdings, Limited. (the “Company” or “CINH”) was incorporated in the State of Nevada on December 23, 1988, formerly known as Dark Dynamite, Inc., NCI Holdings, Inc., Vector Holding, Inc., and prior to June 26, 2002, Vector Aeromotive Corporation. On October 26, 2007, the Company changed its name from Dark Dynamite, Inc. to China International Tourism Holdings, Limited.
On February 18, 2009, a Plan of Exchange (the “Exchange”) was executed between and among the Company, Chengkai Logistics Co Ltd., a corporation organized under the laws of the Peoples’ Republic of China (“Chengkai”), and the shareholders of Chengkai (“Chengkai Shareholders”). The Exchange was consummated on May 19, 2009, pursuant to which 50,000,000 (after taking into account the Reverse Split) shares of the Company’s common stock were issued to the stockholder of Chengkai. Thereafter, Chengkai became the Company’s wholly-owned subsidiary.
Simultaneously, pursuant to a Purchase Agreement, the former president of the Company tendered a cash purchase price of $100 and assumed certain liabilities in exchange for all outstanding shares of Shanxi Kai Da Lv You Gu Wen Xian Gong Si, the Company’s wholly-owned subsidiary organized under the laws of the Peoples’ Republic of China ("Kai Da"). As a result of the transactions consummated at the closing, the purchase and issuance gave the former president a 'controlling interest' in Kai Da, and Kai Da was no longer a wholly-owned subsidiary of the Company.
The Exchange between the Company and Chengkai have been respectively accounted for as reverse acquisition and recapitalization of the Company and Chengkai whereby Chengkai is deemed to be the accounting acquirer (legal acquiree) and the Company to be the accounting acquiree (legal acquirer) under the Exchange. The condensed consolidated financial statements are in substance those of Chengkai, with the assets and liabilities, and revenues and expenses, of the Company being included effective from the respective consummation dates of the Exchange.
CINH and its wholly-owned subsidiary Chengkai are hereafter referred to as (the “Company”).
3. | DESCRIPTION OF BUSINESS |
The Company is a logistic company specializing in logistical services for car manufacturers, car components, food assortments, chemicals, paper, and machinery in China. The services cover various aspects of transportation management, including logistical planning, import and export management, electronic customs declaration systems, supply chain planning, transporting products from ports to warehouses or vice versa, organization of transportation, and storage and distribution of products.
The Company’s customers include international companies and domestic enterprises in China from various industries. Chengkai’s customer base has been increasing at a rapid pace, especially within the Food Industry, Paper Industry, Mechanical Industry, Garment Industry, Furniture Industry and Daily Commodity Industry.
4. | RECENTLY ISSUED ACCOUNTING STANDARS |
In May 2008, the FASB released SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States of America. SFAS No. 162 will be effective 60 days following the SEC’s approval of the PCAOB amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” The Company does not believe SFAS No. 162 will have a significant impact on the Company’s financial statements.
In April 2009, the FASB issued FSP 107-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP 107-1”), which requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. FSP 107-1 also amends APB Opinion No. 28, “Interim Financial Reporting”, to require those disclosures in summarized financial information at interim reporting. FSP 107-1 is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company is currently evaluating the potential impact of FSP 107-1 on its consolidated financial statement presentation and disclosures.
Management does not believe that any other recently issued, but not yet effective, accounting standards or pronouncements, if currently adopted, would have a material effect on the Company’s financial statements.
5. | SUPPLEMENTAL CASH FLOW INFORMATION |
Supplemental disclosures of cash flow information for the three months ended March 31, 2009 and 2008 are summarized as follows:
Cash paid during the three months ended March 31, 2009 and 2008 for interest and income taxes:
2009 2008
Income Taxes $-0- $ -0-
Interest $ - -0- $ - -0-
CHINA INTERNATIONAL TOURISM HOLDINGS, LTD. AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
For the Three Months Ended March 31, 2009 and 2008
(Stated in US Dollars)
6. | ACCOUNTS RECEIVABLE, NET |
The majority of the Company’s sales are on open credit terms and in accordance with terms specified in the contracts governing the relevant transactions. The Company evaluates the need of an allowance for doubtful accounts based on specifically identified amounts that management believes to be uncollectible. If actual collections experience changes, revisions to the allowance may be required. Based upon the aforementioned criteria, management has determined that the allowances for doubtful accounts of $39,578 and $39,653 are required as of March 31, 2009 and December 31, 2008, respectively.
March 31, 2009 | December 31, 2008 | |||||||
Accounts receivable, gross | $ | 7,130,504 | $ | 7,930,606 | ||||
Less: allowance for doubtful accounts | (39,578 | ) | (39,653 | ) | ||||
Accounts receivable, net | $ | 7,090,926 | $ | 7,890,953 |
7. | INVENTORIES |
March 31, 2009 | December 31, 2008 | |||||||
Inventories | $ | 361,595 | $ | 707,280 | ||||
There was no provision for obsolete inventories recorded by the Company as of March 31, 2009 and December 31, 2008, respectively.
8. | SHORT-TERM INVESTMENT |
The Company had a short-term investment of RMB 3,500,000, equivalent to approximately $512,000, to a non-related company. The investment will be returned in the next six months with annual interest rate of 5%.
9. | REVERSE STOCK SPLIT |
On February 18, 2009, the Board of Directors of the Company adopted a resolution approving a two hundred to one reverse split of our Common Stock. The reverse split combines the Company’s outstanding Common Stock on the basis of 200 outstanding shares being changed to 1 outstanding share. Each shareholder’s percentage ownership in the Company (and relative voting power) will remain essentially unchanged as a result of the reverse split. The reverse split took effective on April 3, 2009.
The statement of equity and the earnings per share numbers in the financial statements have been restated per FASB 128 paragraph 134.
10. | COMMON STOCK |
On April 29, 2009, the Company issued 50,000,000 shares of its common stock to the stockholders of Chengkai to consummate the Exchange (see Note 2).
The Company’s issued and outstanding number of common stock immediately prior to the Exchange was 245,026 (after taking into account the Reverse Split) shares, which had been accounted for at its net book value at the time of the Exchange.
11. CONCENTRATION AND RISK
(a) | Major customers |
For the three months ended March 31, 2009 and the year ended December 31, 2008, 100% of the Company’s assets were located in the PRC and 100% of the Company’s revenues and purchases were derived from customers and vendors located in the PRC.
The Company had one customer that individually comprised 91% and 82% of net revenue for the three months ended March 31, 2009 and the year ended December 31, 2008, respectively.
As of March 31, 2009
Customers | Revenues | Accounts Receivable | ||||||||||||
Customer A | $ | 1,373,438 | 91 | % | $ | 7,046,284 | ||||||||
Total: | $ | 1,373,438 | 91 | % | Total: | $ | 7,046,284 |
As of December 31, 2008
Customers | Revenues | Accounts Receivable | ||||||||||||
Customer A | $ | 13,365,290 | 82 | % | $ | 7,785,309 | ||||||||
Total: | $ | 13,365,290 | 82 | % | Total: | $ | 7,785,309 |
(b) Credit risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and trade accounts receivable. The Company performs ongoing credit evaluations of its customers' financial condition, but does not require collateral to support such receivables.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Management’s Discussion and Analysis contains various “forward looking statements” within regarding future events or the future financial performance of the Company that involve risks and uncertainties. Certain statements included in this 10-Q, including, without limitation, statements related to anticipated cash flow sources and uses, and words including but not limited to “anticipates”, “believes”, “plans”, “expects”, “future” and similar statements or expressions, identify forward looking statements. Any forward-looking statements herein are subject to certain risks and uncertainties in the Company’s business, including but not limited to, reliance on key customers and competition in its markets, market demand, product performance, technological developments, maintenance of relationships with key suppliers, difficulties of hiring or retaining key personnel and any changes in current accounting rules, all of which may be beyond the control of the Company. Management will elect additional changes to revenue recognition to comply with the most conservative SEC recognition on a forward going accrual basis as the model is replicated with other similar markets (i.e. SBDC). The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth therein.
Management’s Discussion and Analysis of Results of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the financial statements included herein.
HISTORY
As used in this Quarterly Report, the terms "we", "us", "our," the “Registrant,” “CINH” and the "Company" means, China International Tourism Holdings, Ltd., a Nevada corporation, formerly known as Dark Dynamite, Inc., NCI Holdings, Inc., Vector Holding, Inc., and prior to June 26, 2002, Vector Aeromotive Corporation. These terms also refer to our subsidiary corporation, Chengkai Logistics Co Ltd., a corporation organized under the laws of the Peoples’ Republic of China (“Chengkai”) acquired in February 2009.
On February 17, 2009, the Company entered into a transfer & change of control agreement with Ms. Wanwen Su (“Ms. Su”) and Mr. Ming Lei (“Mr. Lei”), pursuant to which, Ms. Su acquired from Mr. Lei 2,636,000 shares of preferred stock of the Company and received a “controlling interest” in the Company.
On February 18, 2009, our Board of Directors adopted a resolution approving a two hundred to one reverse split of our issued and outstanding Common Stock. The reverse split combined our outstanding Common Stock on the basis of 200 outstanding shares being changed to 1 outstanding share. Each shareholder’s percentage ownership in the Company (and relative voting power) remained essentially unchanged as a result of the reverse split. The reverse split was effective on April 3, 2009, and the ticker symbol of our Common Stock was changed to “CINH” accordingly.
On February 18, 2009, a Plan of Exchange (the “Exchange”) was executed between and among the Company, Chengkai Logistics Co Ltd., a corporation organized under the laws of the Peoples’ Republic of China (“Chengkai”), and the shareholders of Chengkai (“Chengkai Shareholders”). The Exchange was consummated on May 19, 2009, pursuant to which 50,000,000 (after taking into account the Reverse Split) shares of the Company’s common stock were issued to the stockholder of Chengkai. Thereafter, Chengkai became the Company’s wholly-owned subsidiary.
Simultaneously, pursuant to a Purchase Agreement, the former president of the Company tendered a cash purchase price of $100 and assumed certain liabilities in exchange for all outstanding shares of Shanxi Kai Da Lv You Gu Wen Xian Gong Si, the Company’s wholly-owned subsidiary organized under the laws of the Peoples’ Republic of China ("Kai Da"). As a result of the transactions consummated at the closing, the purchase and issuance gave the former president a 'controlling interest' in Kai Da, and Kai Da was no longer a wholly-owned subsidiary of the Company.
BUSINESS DESCRIPTION OF THE ISSUER
Since the reverse merger with Chengkai was consummated, we have continued operations of Chengkai, a logistic company specializing in logistical services for car manufacturers, car components, food assortments, chemicals, paper, and machinery in China.
Chengkai was incorporated in the PRC on October 19, 2004 as a limited liability company, with registered capital of approximately $1,200,000 as of December 31, 2007. Chengkai is located in Guangzhou City, one of the largest commercial bases in China, and a booming transportation hub with easy access to railroad, highway, and rivers. Chengkai has two logistic centers located in Baiyun Airport and the Huangpu Xingang Port in Guangzhou City, Guangdong Province, China.
Chengkai specializes in logistical services for car manufacturers, car components, food assortments, chemicals, paper, and machinery in China. The services cover various aspects of transportation management, including logistical planning, import and export management, electronic customs declaration systems, supply chain planning, transporting products from ports to warehouses or vice versa, organization of transportation, and storage and distribution of products.
Chengkai’s customers include international companies and domestic enterprises in China from various industries. Their clients from the automobile industry include Rolls Royce Automobile Accessories, Mercedes Benz Automobile Accessories, Peugeot Automobile Accessories, BMW Automobile Accessories, and Nissan Automobile Accessories. Their electronic industries clients include IBM Electronics and Creator Corporation China. Chengkai’s chemical industries clients include Korean LG Chemical Engineering Company, French Rhodia Chemical Company, Spanish Caster Rubber Company, and Korean Dongsung Chemical Co., Ltd. Chengkai’s customer base has been increasing at a rapid pace, especially within the Food Industry, Paper Industry, Mechanical Industry, Garment Industry, Furniture Industry and Daily Commodity Industry.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2009 AND 2008 (UNAUDITED)
Revenues
We had revenues of $1,509,301 and $2,278,209 for the three months ended March 31, 2009 and 2008, respectively, derived from logistic services and import / export business. The decrease by $768,908 was due primarily to the impact from the economic downturn in the US which relates directly to our exporting business. Since the US is China’s biggest export partner and we are a Chinese logistics company involved in the import and export of products to/from the US, we are greatly affected by the current economic climate.
Income / Loss
Net losses for the three months ended March 31, 2009 and 2008 were $12,858 and $1,522, respectively. The net loss during the first quarter of 2009 was due primarily to a decrease in sales revenue. As a result, the gross profit was insufficient to cover operating expenses. The net loss during the comparable period in 2008 was due primarily to the high operating expenses resulting from loading and transportation fees. The net loss increased by $11,336 in the first quarter of 2009, compared to the same period in 2008, primarily due to the decrease in sales revenues in 2009.
Expenses
Selling, general and administrative expenses for the three months ended March 31, 2009 and 2008 were $136,664 and $173,715, respectively, of which the fees paid to customs were $48,368 and $24,196 for the three months ended March 31, 2009 and 2008, respectively.
Cost of Sales
We had $1,381,105 and $2,103,383 in cost of sales, or 91.5% and 92.3% of sales revenues, during the three months ended March 31, 2009 and 2008, respectively. Cost of sales as a percentage of sales was high during both periods, which was determined by our business model. The gross margin in our import / export business was small due to intensive competition as a result of globalization. We expect cost of sales as a percentage of sales will remain at the same level for the rest of the year.
Impact of Inflation
We believe that inflation has had a negligible effect on operations during this period. We believe that we can offset inflationary increases in the cost of sales by increasing sales and improving operating efficiencies.
Liquidity and Capital Resources
Cash flows provided by operating activities were $2,035,584 for the three months ended March 31, 2009, compared to cash flows of $2,342,518 used in operating activities for the three months ended March 31, 2008. Positive cash flows from operations during the first quarter of 2009 were primarily due to effective collection in accounts receivable in the amount of $785,124, the decrease in prepaid expenses and inventory by $313,350 and $344,345, respectively, plus the increase in accounts payable by $641,527. Negative cash flows from operation during the first quarter of 2008 were primarily due to the increase in accounts receivable by $1,291,789 and the decrease in accounts payable by $1,409,031, partially offset by the strong collection efforts in other receivables in the amount of $104,811 and the decrease in inventory by $305,620.
Cash flows used in investing activities were $511,995 for the three months ended March 31, 2009, due primarily to a short-term investment in a non-related company. The investment will be returned in the next six months with an annual interest rate of 5%. We had no cash flow from investing activities for the three months ended March 31, 2008.
Cash flows used in financing activities were $442,735 for the three months ended March 31, 2009 due to the repayments to a shareholder loan, compared to cash flows of $307,442 provided by financing activities for the three months ended March 31, 2008 due to the proceeds from shareholder loans.
Overall, we have funded our cash needs from inception through March 31, 2009 with a series of debt and equity transactions, primarily with related parties. If we are unable to receive additional cash from our related parties, we may need to rely on financing from outside sources through debt or equity transactions. Our related parties are under no legal obligation to provide us with capital infusions. Failure to obtain such financing could have a material adverse effect on operations and financial condition.
We had cash of $1,611,164 on hand as of March 31, 2009. Currently, we have enough cash to fund our operations for about six months. This is based on current cash flows from operating activities and projected revenues. Also, if the projected revenues fall short of needed capital we may not be able to sustain our capital needs. We will then need to obtain additional capital through equity or debt financing to sustain operations for an additional year. Our current level of operations would require capital of approximately $700,000 per year starting in 2009. Modifications to our business plans may require additional capital for us to operate. For example, if we are unable to raise additional capital in the future we may need to curtail our number of product offers or limit our marketing efforts to the most profitable geographical areas. This may result in lower revenues and market share for us. In addition, there can be no assurance that additional capital will be available to us when needed or available on terms favorable to us.
On a long-term basis, liquidity is dependent on continuation and expansion of operations, receipt of revenues, additional infusions of capital and debt financing. However, there can be no assurance that we will be able to obtain additional equity or debt financing in the future, if at all. If we are unable to raise additional capital, our growth potential will be adversely affected. Additionally, we will have to significantly modify our business plan.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources and would be considered material to investors. Certain officers and directors of the Company have provided personal guarantees to our various lenders as required for the extension of credit to the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information to be reported under this item is not required of smaller reporting companies.
ITEM 4. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 (“Exchange Act”) is recorded, processed, summarized and reported within the specified time periods. Our Chief Executive Officer and its Chief Financial Officer (collectively, the “Certifying Officers”) are responsible for maintaining our disclosure controls and procedures. The controls and procedures established by us are designed to provide reasonable assurance that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms.
As of the end of the period covered by this report, the Certifying Officers evaluated the effectiveness of our disclosure controls and procedures. Based on the evaluation, the Certifying Officers concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including the Certifying Officers, as appropriate to allow timely decisions regarding required disclosure.
The Certifying Officers have also concluded, based on their evaluation of our controls and procedures that as of March 31, 2009, our internal controls over financial reporting are effective and provide a reasonable assurance of achieving their objective.
The Certifying Officers have also concluded that there was no change in our internal controls over financial reporting identified in connection with the evaluation that occurred during our fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 4T. CONTROLS AND PROCEDURES
(a) Conclusions regarding disclosure controls and procedures. Disclosure controls and procedures are the Company’s controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files under the Exchange Act is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Management is responsible for establishing and maintaining adequate internal control over financial reporting.
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-14(c) promulgated under the Exchange Act as of March 31, 2009, and, based on their evaluation, as of the end of such period, the our disclosure controls and procedures were effective as of the end of the period covered by the Quarterly Report,
(b) Management’s Report On Internal Control Over Financial Reporting. It is management’s responsibilities to establish and maintain adequate internal controls over the Company’s financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the issuer’s principal executive and principal financial officers and effected by the issuer’s management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
• Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer; and
• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management of the issuer; and
• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer’s assets that could have a material effect on the financial statements.
As of the end of the period covered by the Quarterly Report, an evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our internal control over financial reporting.
Management assessed the effectiveness of our internal control over financial reporting as of March 31, 2009. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework.
Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, internal controls over financial reporting were effective as of the end of the period covered by the Report.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
This Quarterly Report does not include an attestation report of our 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 us to provide only management’s report in this Quarterly Report.
(c) Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
Information regarding risk factors appears in Part I, “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the captions “General Description of Business” and “Cautionary Note Regarding Forward-Looking Statements” contained in this Quarterly Report on Form 10-Q and in “Item 1A. RISK FACTORS” of our 2008 Annual Report on Form 10-K. There have been no material changes from the risk factors previously disclosed in our 2008 Annual Report on Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On February 18, 2009, the Exchange was executed between and among the Company, Chengkai and the Chengkai Shareholders. The Exchange was consummated on May 19, 2009, pursuant to which 50,000,000 (after taking into account the Reverse Split) shares of the Company’s common stock were issued to the stockholder of Chengkai. Thereafter, Chengkai became the Company’s wholly-owned subsidiary. Please refer to our Current Report on Form 8k with the Commission on February 17, 2009 which is hereby incorporated by reference for details on the Exchange. These shares were issued under an exemption from registration pursuant to Regulation S of the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
We have not had any default upon senior securities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
We do not have any other information to report.
ITEM 6. EXHIBITS
31.2 CFO Certification Pursuant to Section 302 (included in Exhibit 31.1)
32.2 CFO Certification Pursuant to Section 906 (included in Exhibit 32.1)
Reports on Form 8-K
(1) On May 20, 2009, we filed a current report of Form 8-K/A to amend the current report on Form 8-K filed on April 17, 2009. We also announced that on April 23, 2009, the Company entered into an Agreement between and among the Registrant, Shanxi Kai Da Lv You Gu Wen Xian Gong Si, a corporation organized under the laws of the Peoples’ Republic of China (“Kai Da”), and Mr. Lei Ming, an individual, pursuant to which Kai Da was no longer a wholly-owned subsidiary of the Company.
(2) On April 17, 2009, we filed a current report on Form 8-K to announce that the Company entered into a Plan of Exchange (the “Agreement”) between and among the Company, Chengkai Logistics Co Ltd., a corporation organized under the laws of the Peoples’ Republic of China (“Chengkai”), the shareholders of Chengkai (“Chengkai Shareholders”) and Ms. Wanwen Su, our President and Director (“Ms. Su”), pursuant to which Chengkai became a wholly-owned subsidiary of the Company.
(3) On March 4, 2009, we filed a current report on Form 8-K to announce the appointment of Ms. Yanfen Su as an Independent Director to the Board of Directors.
(4) On March 3, 2009, we filed a current report on Form 8-K to announce that the Board of Directors of the Company adopted a resolution approving a two hundred to one reverse split of our issued and outstanding Common Stock. The reverse split combines our outstanding Common Stock on the basis of 200 outstanding shares being changed to 1 outstanding share. Each shareholder’s percentage ownership in the Company (and relative voting power) will remain essentially unchanged as a result of the reverse split.
(5) On February 17, 2009, we filed a current report on Form 8-K to announce the Company entered into a transfer & change of control agreement with Ms. Wanwen Su (the “Buyer”) and Mr. Ming Lei (the “Seller). Pursuant to the terms and conditions of the Agreement, the Buyer acquired from the Seller 2,636,000 shares of preferred stock of the Registrant. We also announced the appointment of Ms. Wanwen Su as President and Chairman of the Board, and Mr. Weiheng Cai as an Independent Director to the Board of Directors.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CHINA INTERNATIONAL TOURISM HOLDINGS, LTD. (Registrant) | ||
Date: May 20, 2009 | By: | /s/ Wanwen Su |
Wanwen Su President, Chief Executive Officer, and Chief Financial Officer |