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CNYD > SEC Filings for CNYD > Form 10-Q on 14-May-2013All Recent SEC Filings

Show all filings for CHINA YIDA HOLDING, CO. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for CHINA YIDA HOLDING, CO.


14-May-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion of our financial condition and results of operations should also be read in conjunction with our unaudited consolidated financial statements and the notes to those financial statements appearing elsewhere in this Form 10-Q. The following discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 relating to future events or our future performance. Actual results may materially differ from those projected in the forward-looking statements as a result of certain risks and uncertainties set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 2012, filed on March 25, 2013 (the "Annual Report"). Although management believes that the assumptions made and expectations reflected in the forward-looking statements are reasonable, there is no assurance that the underlying assumptions will, in fact, prove to be correct or that actual results will not be different from expectations expressed in this report.

Overview

We were formed on June 4, 1999 to serve as a vehicle to effect a merger, capital stock exchange, asset acquisition or other similar business combination with a company having its primary operations in the PRC. On November 19, 2007, we consummated the acquisition of Keenway Limited, Hong Kong Yi Tat, and the then shareholders of Keenway Limited, including Minhua Chen, Yanling Fan, Xinchen Zhang, Extra Profit International Limited, and Lucky Glory International Limited, received newly issued shares of our common stock.

We currently operate the Great Golden Lake tourist destination (Global Geo-park, World Nature Heritage), Hua'An Tulou cluster (or the "Earth Buildings") tourist destination (World Culture Heritage), and Yunding Recreational Park (Large-scale National Recreational Park), covering over 300 square kilometers in total. Our media business provides operating management service, including channel and advertisement management for the FETV since 2004 and the "Journey through China on the Train" on-board railway program ("Railway Media"). As of December 31, 2012, through our wholly owned subsidiaries in China, we have entered into four additional cooperation agreements respectively with the local Chinese government agents, namely, (i) the Anhui Province Bengbu Municipal Government; (ii) the Jiangxi Province Zhangshu Municipal Government; (iii) the Fenyi County, Xinyu City, Jiangxi Province Government; and (iv) the Fujian Education Media Limited Company, a wholly state-owned company organized by the Fujian Education Television Station ("FETV"). Under these agreements, we have obtained the right to construction and development of the Ming Dynasty Entertainment World Project
("Ming Dynasty Entertainment World") including the purchase of the forty (40)
years land use rights for a parcel of approximately 250 Mu for commercial land use purpose and another parcel of approximately 82.37 acres for industry land use purpose, as well as the construction of the Royal Hot Spring World project; the right to invest in construction and development of China Yang-sheng (Nourishing Life) Paradise Project ("Nourishing Life") (including the following projects: (i) Salt Water Hot Spring SPA & Health Center, (ii) Yang-sheng Holiday Resort, (iii) World Yang-sheng Cultural Museum, (iv) International Camphor Tree Garden, (v) Chinese Medicine and Herb Museum, (vi) Yang-sheng Sports Club, (vii) Old Town of Chinese Traditional Medicine, and (viii) various other Yang-sheng related projects and tourism real estate projects) with a forty (40) year exclusive right to develop, operate and manage a variety of caves, hot springs and other natural and cultural tourist resources identified in the Meng Mountain area, and various caves and tourist resources of the Dagang Mountain located in Fenyi County, Xinyu City, Jiangxi Province ("City of Caves"); and the five years (three year agreement with two year renewal) of exclusive management rights for the operation of the FETV channel ("FETV").

We expect that our tourism business will be the primary source of our revenue over the next few years. Advertising business has been our primary source of revenue for the last two years because the tourism business has experienced serious flooding and weather and the advertisement restriction was not executed by the local government. The revenue from advertising will decrease because of the new restriction on the advertisement and we expect that the revenue from tourism will increase. However, any increase in revenue will depend on the recovery of Great Golden Lake and the progress we make in our other tourist destinations. This expectation is also based on our new projects and construction of tourism destinations. We have completed the 2nd phase of Yunding Park by the end of 2012. Our advertising and tourism businesses are not seasonal. We have visitors to our parks throughout the year. In 2013, at Great Golden Lake and at Hua'an Tulou, we do not anticipate much new construction as we are maintaining our existing operations and restoring what is already built and in operation. We do not expect any construction or restoration to affect our operations.

We are subject to risks common to companies operating in China, including risks inherent in our distribution and commercialization efforts, uncertainty of foreign regulatory approvals and laws, the need for future capital and retention of key employees. We cannot provide assurance that we will generate revenues or achieve and sustain profitability in the future.

Factors Affecting Our Performance

Advertising Business

For the advertising business, our advertising revenue is driven by the popularity of our television programs and the number of viewers tuning into our television station. If more people tune into our station, we will be able to attract more advertisers and charge more for each advertising spot. This will increase our revenues. We strive to keep our audience rating high in order to be able to sell all our advertising air time.


We generate our advertising revenue by selling air time to sponsors and companies that are interested in marketing their products to our television viewers. We incur administrative fees, business traveling fees, salaries, depreciation, automobile, and interest costs in operating the advertising business.

The new PRC regulations set forth by the State Administration for Radio, Film and Television which bans certain television and radio advertisements has had a negative effect on our revenues and certain clients have not continued to advertise. Accordingly, we expect our revenues to decline.

Tourism Business

For the tourism business, our revenue is driven by the reputation of our tourist destinations. We strive to offer quality tourist attractions that offer our visitors diverse entertainment, including catering, hotel, transportation, and shopping. We generate our revenue from our visitors and tourists who are looking to enjoy our tourist location. We incur many costs associated with operating the tourist business, including, administration fees, business traveling fees, land use rights fees, and revenue sharing fees.

We entered into tourism management revenue sharing agreement with the Taining government with respect to the Great Golden Lake resort. We have contracted to share the revenue over the course of the agreement as follows: (i) from 2001 to 2006 we received 92% of the revenue and the Taining government received 8% of the revenue; (ii) from 2006 to 2012 we received 90% of the revenue and the Taining government received 10% of the revenue; (iii) from 2012 to 2016 we will receive 88% of the revenue and the Taining government will receive 12% of the revenue; (iv) from 2016 to 2022 we will receive 86% of the revenue and the Taining government will receive 14% of the revenue; (v) from 2022 to 2026 we will receive 84% of the revenue and the Taining government will receive 16% of the revenue; and (vi) from 2026 to 2032 we will receive 82% of the revenue and the Taining government will receive 18% of the revenue. Because of the decreasing revenue share that we will receive from the Great Golden Lake resort and the resort has not been fully recovered to its previous level due to the flood, we may not be able to maintain our revenues from Great Golden Lake.

However, with the recovery of Great Golden Lake and the expected grand openings of three new tourism projects in the future, we believe that we will be able to generate more revenues in order to maintain the high gross profit margins in the tourism segment.

We expect our tourism business to be our primary source of revenue over the next few years. Although Ming Dynasty, Yang-Sheng Paradise, and City of Caves are not yet operating, we expect them to be opened by the 3rd quarter of 2013 and to start generating revenue by the 4th quarter of 2013. Also, we expect Yunding to continue to grow and Great Golden Lake to recover completely from the flooding.

Results of Operations

Results of Operations for the three months ended March 31, 2013 and 2012

The Company is organized into two main business segments, tourism and
advertisement. The following table presents a summary of operating information
for the three months ended March 31, 2013 and 2012:

                                                                                                 Increase/
(All amounts, other than                      For The Three Months             Increase/         (Decrease)
percentage, in U.S.                             Ended March 31,               (Decrease)         Percentage
Dollar)                                       2013            2012          U.S. Dollar ($)         (%)
Net revenue
Advertisement                              $  1,599,811     $ 6,194,519      $     (4,594,708 )       (74.17 )
Tourism                                       2,098,237       1,536,190               562,047          36.59
Total net revenue                             3,698,048       7,730,709            (4,032,661 )       (52.16 )

Cost of revenue
Advertisement                                   919,144       1,559,000              (639,856 )       (41.04 )
Tourism                                       1,469,626       1,267,593               202,033          15.94
Total cost of revenue                         2,388,770       2,826,593              (437,823 )       (15.49 )

Gross profit                                  1,309,278       4,904,116            (3,594,838 )       (73.30 )

Selling expenses                              2,391,508       1,142,965             1,248,543         109.24
General and administrative expenses           1,662,661       1,279,748               382,913          29.92
Income from operations                       (2,744,891 )     2,481,403            (5,226,294 )      (210.62 )
Other expense, net                              (48,013 )       (38,709 )              (9,304 )        24.04
Interest income                                  10,175           6,714                 3,461          51.55
Interest expense                                (23,597 )       (64,260 )              40,663         (63.28 )
Less: Provision for income tax                  130,926       1,286,188            (1,155,262 )       (89.82 )
Net income                                   (2,937,251 )     1,098,960            (4,036,211 )      (367.28 )
Net loss attributable to non-controlling
interest                                         22,851          67,303               (44,452 )       (66.05 )
Net income attributable to China Yida
Holding Co.                                $ (2,914,400 )   $ 1,166,263      $     (4,080,663 )      (349.89 )


Net Revenue

Net revenue decreased by approximately $4.03 million or approximately 52.16%, from approximately $7.73 million for the three months ended March 31, 2012 to approximately $3.7 million for the three months ended March 31, 2013. The decrease in net revenue was primarily due to the decrease in the revenue from advertisement.

Advertisement

Advertisement revenue decreased by approximately $4.6 million or approximately 74.17%, from approximately $6.2 million for the three months ended March 31, 2012 to approximately $1.6 million for the three months ended March 31, 2013.

This decrease was primarily due to the instability of the railway media broadcast revenue. Instability means that the program is broadcasting manually by the train attendant, we cannot monitor how he/she broadcasts the tape, or whether he/she has inserted the program tape or not. Railway program is a 20 minute infomercial program, the content of the programs are tourism news and information. Advertising clients choose the length of the advertisement during the program, and the period of time they want the advertisement to be broadcasted. Recently some clients decide to purchase less advertisement from the company, and they may consider give up the railway promotion and terminate the cooperation with the company due to the instability of the railway program. The operators determine in their sole discretion to broadcast the railway program or not. We cannot monitor the operator's daily work. The advertisers were concerned about our lack of control over the frequency of program broadcasting and therefore purchased fewer advertising spots from us which resulted in the decrease of revenue from railway media broadcast.

We generate revenue from the "Journey through China on the Train" program which is the only railway media broadcast we produced so far. In February 2009, our wholly-owned subsidiary, Fuzhou Fuyu Advertising Co., Ltd., entered into a six-year exclusive agreement with China's Railway Media Center to create an infomercial program named "Journey through China on the Train", pursuant to which we produce 20-minute monthly episodes focused on tourist destinations around China and travel ideas and tips with product placement advertisements. The infomercial program is broadcasted on all high speed motor trains in China with TV panels made available by the Ministry of Railways of PRC and cable TV channels. We agree to pay an annual fee of approximately $47,873 or RMB 300,000 to Railway Media Center for the first three years and approximately $55,852 or RMB 350,000 for the second three years. We generate revenue from selling product placement advertisements. However, since the program is broadcasted manually by train attendants, we have no control over the frequency of program broadcasting, which results in the substantial instability of our railway media revenue. We generated approximately $0.06 million from the "Journey through China on the Train" program for the three months ended March 31, 2013 as compared to approximately $0.14 million for the three months ended March 31, 2012.

During this period, advertisement revenue from FETV also has experienced a decrease of 74.51% from $6.05 million to $1.54 million due to actions by domestic media authorities restricting the broadcasting manner and content of TV advertising. The new restricting content of TV advertising included shopping programs, mini ads and certain medical advertisements. On August 1, 2010, Fuyu, our wholly-owned subsidiary, entered into a Fujian Education Television Channel Project Management Agreement (the "Agreement"), with Fujian Education Media Limited Company, a wholly state-owned company organized by the Fujian Education TV Station under the laws of the People's Republic of China ("Fujian Education Media"), pursuant to which, Fujian Education Media granted to us five years of exclusive management rights for the FETV channel from August 1, 2010 to July 31, 2015. Under the management contract, we obtained the full rights to provide programming and content management services and to re-sell all advertising airtime of FETV. We have leveraged the FETV assets to produce high quality TV programming focused on tourism, successfully promoting our own tourist attractions branding the FETV station around the tourism theme and creating a network of potential partners for our tourism business, including hotels, travel agents, and entertainment resorts.


Tourism

Tourism revenue increased by approximately $0.56 million or approximately 36.59% from approximately $1.54 million for the three months ended March 31, 2012 to approximately $2.1 million for the three months ended March 31, 2013, including approximately $0.55 million from Great Golden Lake resort, $1.37 million from Yunding Park, and $0.18 million from Hua'an Tulou. The primary resources of the revenues are entrance fees, tour shuttle bus fees, and restaurants. The increase in tourism business was primarily due to the revenue increase at Yunding Park due to effective marketing promotion activities and advertisement in China that led to an increase in number of tourists.

Cost of Revenue

Cost of revenues decreased by approximately $0.44 million or approximately 15.49%, from approximately $2.83 million for the three months ended March 31, 2012 to approximately $2.39 million for the three months ended March 31, 2013. The decrease in cost of revenue was primarily due to a decrease in cost of revenue of advertisement, partially offset by an increase in cost of revenue of tourism.

Advertisement

Cost of revenue from advertisement decreased by approximately $0.64 million or approximately 41.04%, from approximately $1.56 million for the three months ended March 31, 2012 to approximately $0.92 million for the three months ended March 31, 2013. The Railway media clients demanded less broadcast programs due to the instability of the railway broadcasting, so the decrease in cost of media businesses was primarily due to the decrease of railway program productions. Also the business tax decreased along with the decrease in the Company's advertising revenue.

Tourism

Cost of revenue from tourism increased by approximately $0.2 million or approximately 15.94%, from approximately $1.27 million for the three months ended March 31, 2012 to approximately $1.47 million for the three months ended March 31, 2013. The increase was primarily due to the increase in depreciation cost for the new construction completed for tourism destinations.

Gross profit

Gross profit decreased approximately $3.59 million, or approximately 73.3%, from approximately $4.9 million for the three months ended March 31, 2012 to approximately $1.31 million for the three months ended March 31, 2013. Our gross profit margin was approximately 35.4% for the three months ended March 31, 2013, compared to approximately 63.44% for the three months ended March 31, 2012, representing a decrease of approximately 28 percentage points.

Advertisement

Gross profit from advertisement decreased by approximately $3.95 million, or approximately 85.32%, from approximately $4.64 million for the three months ended March 31, 2012 to approximately $0.68 million for the three months ended March 31, 2013. Gross profit margin from advertisement was approximately 42.55% for the three months ended March 31, 2013, compared to approximately 74.83% for the three months ended March 31, 2012. This decrease was primarily attributable to the instability of revenue generated from the railway media broadcasts during the three months ended March 31, 2013, as compared with that of the three months ended March 31, 2012 and that the fixed costs associated with FETV's commercial airtime remained constant.

Tourism

Gross profit from tourism increased by approximately $0.36 million, or approximately 134.03%, from approximately $0.27 million for the three months ended March 31, 2012 to approximately $0.63 million for the three months ended March 31, 2013. Gross profit margin from tourism was approximately 29.96% for the three months ended March 31, 2013, compared to approximately 17.48% for the three months ended March 31, 2012. The increase of gross profit margin was primarily attributable to the significant revenue increase at Yunding Park which offset the decrease of the revenue of Tulou.

Selling Expenses

Selling expenses were approximately $2.39 million for the three months ended March 31, 2013, compared to approximately $1.14 million for the three months ended March 31, 2012, which represents an increase of approximately $1.25 million, or approximately 109.24%. The increase in selling expense was primarily due to the increase in variable costs associated with the expansions at Yunding Park during the three months ended March 31, 2013.

General and Administrative Expenses

General and administrative expenses were approximately $1.66 million for the three months ended March 31, 2013, compared to approximately $1.28 million for the three months ended March 31, 2012, which represents an increase of approximately $0.38 million, or approximately 29.92%. This increase was due to the increase of administrative expenses for the operation of new tourism destinations.


Income Tax

Income tax was approximately $0.13 million for the three months ended March 31, 2013, representing a decrease of approximately $1.16 million or approximately 89.82%, compared to the approximately $1.29 million income tax for the three months ended March 31, 2012. The decrease was primarily attributable to the lower revenue generated from the Tulou tourism destination, as well as the decrease in the railway media revenue for the three months ended March 31, 2013 as compared with the three months ended March 31, 2012. The provision for income tax for the three months ended March 31, 2013 was mainly derived from the net income before tax of the advertisement segment.

Net Income

As a result of the above factors, we have net loss of approximately $2.91 million for the three months ended March 31, 2013 as compared to net income of approximately $1.17 million for the three months ended March 31, 2012, representing a decrease of approximately $4.08 million or approximately 349.89%. The decrease was primarily attributable to the lower revenue generated from the Tulou tourism destination, as well as the decrease of the railway media revenue for the three months ended March 31, 2013 as compared with the three months ended March 31, 2012.

Liquidity and Capital Resources

Our principal sources of liquidity the three months ended March 31, 2013, include cash from operations and proceeds from long-term loans.

As of March 31, 2013, we had cash and cash equivalents of approximately $9.46 million as compared to approximately $6.57 million as of December 31, 2012, representing an increase of $2.89 million. Our principal sources of liquidity during the three months ended March 31, 2013 include cash from operations and proceeds from loans. Net proceeds from long-term loans for the three months ended March 31, 2013 and 2012 were approximately $51.46 million and $5.52 million, respectively.

As of March 31, 2013, our working capital was approximately $1.23 million, compared to the working capital deficit of approximately $2.25 million as of December 31, 2012.

The following table sets forth a summary of our cash flows for the years indicated:

                                                                   For the Three Months Ended March 31,
                                                                      2013                      2012

Net cash provided by (used in) operating activities            $        (2,395,049 )     $        1,787,909
Net cash used in investing activities                          $       (46,190,020 )     $       (7,661,745 )
Net cash provided by financing activities                      $        51,427,206       $        4,290,115

Net cash used in operating activities was approximately $2.4 million for the three months ended March 31, 2013, compared to net cash provided by operating activities of approximately $1.8 million for the three months ended March 31, 2012. The decrease of $4.2 million was primarily due to the net loss of $2.94 million for the three months ended March 31, 2013 as compared to the net income of $1.1 million for the three months ended March 31, 2012.

Net cash used in investing activities was approximately $46.19 million for the three months ended March 31, 2013, compared to approximately $7.66 million for the three months ended March 31, 2012. The increase of $38.53 million in net cash used in investing activities was primarily due to the increase in the construction cost related to China Yang-sheng Paradise.

Net cash provided by financing activities amounted to approximately $51.43 million for the three months ended March 31, 2013, compared to approximately $4.29 million for the three months ended March 31, 2012, representing an increase of approximately $47.14 million. The increase in net cash provided by financing activities was mainly because of the higher amount of bank loans obtained during the three months ended March 31, 2013 as compared to the three months ended March 31, 2012.


Bank loans

As of March 31, 2013, the Company had six bank loans from three institutional lenders for the development of the tourism destinations.

1. A loan for approximately $1.6 million from Fujian Haixia Bank (formerly known as Merchant bank of Fuzhou). The loan bears interest at 8.4% per annum, and is due August 16, 2013. It is guaranteed by Fujian Jintai Tourism Development Co. Ltd. and Yida Travel Service Co., Ltd.

2. A loan for approximately $52.66 million from China Minsheng Banking Corp, Ltd. It bears interest rate at 9% per annum. $7,978,808 (RMB 50,000,000), $7,978,808 (RMB 50,000,000), $12,766,093 (RMB 80,000,000) and $23,936,425 (RMB 150,000,000) will be due in each twelve-month period as of March 31, 2017, 2018, 2019 and 2020 respectively. It is secured by the land use right of Jiangxi Zhangshu, collateralized by the personal guarantees by two of the Company's directors.

3. A loan for approximately $11.9 million from Industrial and Commercial Bank of China Limited. The loan bears interest at 7.76% per annum. $1,981,936 (RMB 12,420,000) will be due in each twelve-month period as of March 31, 2014, 2015, 2016, 2017 and 2018 respectively and $1,990,144 (RMB 12,480,000) will be due in the twelve-month period as of March 31, 2019. It is collateralized by the right to collect ticket sales at the Great Golden Lake.

4. A loan for approximately $9.26 million from Industrial and Commercial Bank of China Limited. It bears interest at 6.40% per annum. $1,755,338 (RMB 11,000,000), $1,914,914 (RMB 12,000,000), $2,234,066 (RMB 14,000,000), $2,393,642 (RMB 15,000,000), and $957,457 (RMB 6,000,000) will be due in each twelve-month period as of March 31, 2014, 2015, 2016, 2017 and 2018 respectively. It is secured by credit guarantee of Fujian Jintai and the right to collect ticket sales at Yunding Park as additional collateral.

5. A Loan for approximately $23.94 million from China Minsheng Banking Corp, Ltd. The loan bears interest rate at 12.50% per annum. $23,936,425 (RMB 150,000,000) will be due in twelve-month period as of March 31, 2015. It is secured by secured by the land use rights of Fujian Yida and the right to collect resort ticket sales at Yunding resort as additional collateral.

6. A loan for approximately $9.57 million from China Minsheng Banking Corp, Ltd. The loan bears interest at 11.97% per annum. $4,148,980 (RMB 26,000,000) and $5,425,590 (RMB 34,000,000) will be due in each twelve-month period as of March 31, 2014 and 2015, respectively. It is 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.

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