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

Show all filings for CHINA YIDA HOLDING, CO.

Form 10-Q for CHINA YIDA HOLDING, CO.


14-Aug-2013

Quarterly Report


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

The following discussion provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our financial statements and notes thereto contained elsewhere in this Quarterly Report on Form 10-Q. The following discussion and analysis contains forward-looking statements, which involve risks and uncertainties. Our actual results may differ significantly from the results, expectations and plans discussed in these forward-looking statements.

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 International Investment Co., Ltd ("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 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 media 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 June 30, 2013, through our wholly owned subsidiaries in China, we have entered into three additional cooperation agreements respectively with the local Chinese government agents, namely, (i) the Jiangxi Province Zhangshu Municipal Government, (ii) the Fenyi County, Xinyu City, Jiangxi Province Government, and (iii) 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 (i) the right to construction and development of the Royal Hot Spring World project, (ii) the right to invest in construction and development of China Yang-sheng (Nourishing Life) Paradise Project ("Nourishing Life") (including the projects: (a) Salt Water Hot Spring SPA & Health Center, (b) Yang-sheng Holiday Resort, (c) World Yang-sheng Cultural Museum, (d) International Camphor Tree Garden, (e) Chinese Medicine and Herb Museum, (f) Yang-sheng Sports Club, (g) Old Town of Chinese Traditional Medicine, and (h) 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 (iii) 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 disruptions from flooding and weather while the new advertisement regulatory restriction was not enforced by the local government. The revenue from advertising will decrease as the new advertisement regulatory restriction is enforced 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 developing our existing and new projects in our other tourist destinations. 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 significant new construction as we are focusing on maintaining and restoring our existing operations. We do not expect any construction or restoration to affect our existing operations.

We are subject to risks common to companies operating in China, including risks inherent in our distribution and commercialization efforts, uncertainty of 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 revenue is driven by the popularity of our television programs and the number of viewers of our television station. The more people tune into our station, the more advertisers we will be able to attract and the higher we can charge for each advertising spot. We strive to keep a high audience rating in order to be able to sell 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 chosen to discontinue their advertisement with us. As a result of the new regulations, we expect our revenues from the advertising business to decline.

Tourism Business

For the tourism business, our revenue is driven by the reputation of our tourist destinations. We strive to present quality tourist attractions that offer our visitors diverse entertainment, including catering, hotel, transportation, and shopping. We generate our revenue from our visitors and tourists. 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. Due to our decreasing revenue share in the Great Golden Lake resort, combing with the fact that the resort has not been fully recovered to the state before the flood, we may not be able to maintain our revenues from Great Golden Lake at the same level as comparable periods.

However, as the Great Golden Lake resort recovers and we begin to generate revenue after the grand openings of three new tourism projects in the future, we believe that we will be able 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 Yang-Sheng Paradise and City of Caves have yet to begin their operations, we expect to open these two attractions by the third quarter of 2013 and start to generate revenue by the fourth quarter of 2013. Also, we expect Yunding to continue to grow and Great Golden Lake to recover completely from the flooding.


Discontinued Operation

On June 3, 2013, Fujian Yunding Tourism Industrial Co., Ltd. ("Fujian Yida"), our subsidiary, entered into a stock transfer agreement with Anhui Xingguang Investment Group Ltd ("Anhui Xingguang"), pursuant to which Fujian Yida agreed to transfer its 60% interest in Anhui Yida Tourism Development Co. Ltd. ("Anhui Yida") to Anhui Xingguang for 60 million RMB, or $9.72 million. Anhui Xingguang also assumed all the assets and liabilities of Anhui Yida.

Net income from discontinued operation was $743,597 for the six months ended June 30, 2013. During the same period in 2012, net loss from discontinued operation was $330,078.

Net income from discontinued operation was $800,782 for the three months ended June 30, 2013. During the same period in 2012, net loss fromdiscontinued operation was $161,821.

As a result of the share transfer described above, the Results of Operation set forth below does not reflect the operations for Anhui Yida and its wholly owned subsidiaries: Bengbu (Yida) Real Estate Development Co., Ltd. ("Bengbu Yida") and Bengbu (Yida) Investment Co., Ltd. ("Bengbu Investment"). The results of operations of Anhui Yida and its subsidiaries have been presented as discontinued operations. Therefore, management's discussion and analysis set forth herein below are based on the results of continuing operations.

Results of Operations

Results of Operations for the Three Months ended June 30, 2013 as Compared to
the Three Months ended June 30, 2012

During the three months ended June 30, 2013 and 2012, we have two main business
segments - tourism and advertisement. The following table presents a summary of
operating information for the three months ended June 30, 2013 and 2012:

                                                                                                               Increase/
                                                                                             Increase/         (Decrease)
                                              For The Three Months Ended June 30,           (Decrease)         Percentage
(All amounts, other than percentage, in
U.S.Dollar)                                      2013                    2012             U.S. Dollar ($)         (%)
Net revenue
Advertisement                             $           981,599       $       4,762,541      $     (3,780,942 )       (79.39 )
Tourism                                             4,042,327               2,652,149             1,390,178          52.42
Total net revenue                                   5,023,926               7,414,690            (2,390,764 )       (32.24 )

Cost of revenue
Advertisement                                         847,839               1,431,408              (583,569 )       (40.77 )
Tourism                                             1,682,403               1,491,741               190,662          12.78
Total cost of revenue                               2,530,241               2,923,149              (392,908 )       (13.44 )

Gross profit                                        2,493,684               4,491,541            (1,997,857 )       (44.48 )

Selling expenses                                    2,574,209               1,504,155             1,070,054          71.14
General and administrative expenses                 1,406,653                 980,367               426,286          43.48
Loss (Income) from operations                      (1,487,178 )             2,007,019            (3,494,197 )      (174.10 )
Other expense, net                                    (38,134 )               (74,247 )              36,113         (48.64 )
Interest income                                        66,504                  10,284                56,220         546.67
Interest expense                                   (2,534,826 )               (55,231 )          (2,479,595 )      4489.50
Less: Provision for income tax                            943                 720,133              (719,190 )       (99.87 )
Net (loss) income from continuing
operations                                         (3,994,577 )             1,167,692            (5,162,269 )      (442.09 )
Net income (loss) from discontinued
operations                                            800,782                (161,821 )             962,603        (594.86 )

Net (loss) Income                                  (3,193,795 )     $       1,005,871            (4,199,666 )      (417.52 )
Net loss attributed to non-controlling
interest                                               79,364                  63,911                15,453          24.18
Net (loss) income attributable to China   $        (3,114,431               1,069,782      $     (4,184,213        (391.13
Yida Holding Co.                                              )                                             )              )


Net Revenue

Net revenue decreased by approximately $2.39 million or approximately 32.24%, from approximately $7.41 million for the three months ended June 30, 2012 to approximately $5.02 million for the three months ended June 30, 2013. The decrease in net revenue was primarily due to the decrease in the revenue from advertisement.

Advertisement

Advertisement revenue decreased by approximately $3.78 million or approximately 79.39%, from approximately $4.76 million for the three months ended June 30, 2012 to approximately $0.98 million for the three months ended June 30, 2013.

This decrease was primarily due to the instability of the railway media broadcast revenue. The program is broadcasted manually by the train attendant, and therefore we cannot monitor or whether he/she has inserted the program tape or not and how he/she broadcasts the tape. Railway program is a 20 minute infomercial program with the content of 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. Due to the instability of the railway program, recently some clients decided to purchase less advertisement from the company, and they may consider discontinue the railway promotion and terminate the cooperation with the company. The advertisers were concerned with our lack of control over the frequency of program broadcasting and therefore have 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 produce 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 focusing 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 did not generate income from the "Journey through China on the Train" program for the three months ended June 30, 2013 as compared to approximately $0.13 million for the three months ended June 30, 2012.


During this period, advertisement revenue from FETV also has experienced a decrease of 78.83% from $4.63 million to $0.98 million due to actions taken by domestic media authorities to regulate the broadcasting manner and content of TV advertising. Under the new regulatory measures, shopping programs, mini ads and certain medical advertisements have become restricted. 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 re-sell all advertising airtime of FETV. We have leveraged the FETV assets to produce high quality TV programming focusing on tourism, successfully promote our own tourist attractions, improve the image of the FETV station around the tourism theme, and create a network of potential partners for our tourism business, including hotels, travel agents, and entertainment resorts.

Tourism

Tourism revenue increased by approximately $1.39 million or approximately 52.42% from approximately $2.65 million for the three months ended June 30, 2012 to approximately $4.04 million for the three months ended June 30, 2013, including approximately $1.32 million from Great Golden Lake resort, $2.57 million from Yunding Park, and $0.15 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 $0.39 million or approximately 13.44%, from approximately $2.92 million for the three months ended June 30, 2012 to approximately $2.53 million for the three months ended June 30, 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 $0.58 million or approximately 40.77%, from approximately $1.43 million for the three months ended June 30, 2012 to approximately $0.85 million for the three months ended June 30, 2013. The decrease in cost of media businesses was primarily due to the decrease of railway program productions, because the Railway media clients have chosen to use less broadcast programs due to the instability associated with the railway broadcasting. Also the business tax decreased along with the decrease in the Company's advertising revenue.


Tourism

Cost of revenue from tourism increased by approximately $0.19 million or approximately 12.78%, from approximately $1.49 million for the three months ended June 30, 2012 to approximately $1.68 million for the three months ended June 30, 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 $2 million, or approximately 44.48%, from approximately $4.49 million for the three months ended June 30, 2012 to approximately $2.49 million for the three months ended June 30, 2013. Our gross profit margin was approximately 49.64% for the three months ended June 30, 2013, compared to approximately 60.58% for the three months ended June 30, 2012, representing a decrease of approximately 11 percentage points.

Advertisement

Gross profit from advertisement decreased by approximately $3.2 million, or approximately 95.98%, from approximately $3.33 million for the three months ended June 30, 2012 to approximately $0.13 million for the three months ended June 30, 2013. Gross profit margin from advertisement was approximately 13.63% for the three months ended June 30, 2013, compared to approximately 69.94% for the three months ended June 30, 2012. This decrease was primarily attributable to the decrease in revenue during the three months ended June 30, 2013 due to the instability of the railway media broadcasts while the fixed costs associated with FETV's commercial airtime leveled.

Tourism

Gross profit from tourism increased by approximately $1.2 million, or approximately 103.37%, from approximately $1.16 million for the three months ended June 30, 2012 to approximately $2.36 million for the three months ended June 30, 2013. Gross profit margin from tourism was approximately 58.38% for the three months ended June 30, 2013, compared to approximately 43.75% for the three months ended June 30, 2012. The increase of gross profit margin was primarily attributable to the significant revenue increase from Yunding Park which offset the decrease of the revenue of Tulou.

Selling Expenses

Selling expenses were approximately $2.57 million for the three months ended June 30, 2013, compared to approximately $1.5 million for the three months ended June 30, 2012, which represents an increase of approximately $1.07 million, or approximately 71.14%. The increase in selling expense was primarily due to the increase in various costs associated with the expansions at Yunding Park during the three months ended June 30, 2013.

General and Administrative Expenses

General and administrative expenses were approximately $1.41 million for the three months ended June 30, 2013, compared to approximately $0.98 million for the three months ended June 30, 2012, which represents an increase of approximately $0.43 million, or approximately 43.48%. This increase was due to the increase of administrative expenses for the operation of new tourism destinations.

Income Tax

Income tax was approximately $0.001 million for the three months ended June 30, 2013, representing a decrease of approximately $0.719 million or approximately 99.87%, compared to the approximately $0.72 million income tax for the three months ended June 30, 2012. The decrease was primarily attributable to the decrease in revenue generated from the Tulou tourism destination, as well as the decrease in the railway media revenue for the three months ended June 30, 2013 as compared with the three months ended June 30, 2012. The provision for income tax for the three months ended June 30, 2013 was mainly derived from the net income before tax of the advertisement segment.


Net Income (Loss)

As a result of the above factors, we have net loss of approximately $3.19 million for the three months ended June 30, 2013 as compared to net income of approximately $1.01 million for the three months ended June 30, 2012, representing a decrease of approximately $4.20 million or approximately 417.52%. 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 June 30, 2013 as compared with the three months ended June 30, 2012.

Results of Operations for the Six Months ended June 30, 2013 as Compared to the
Six Months ended June 30, 2012

The following table presents a summary of operating information for the six
months ended June 30, 2013 and 2012:

                                                                                                          Increase/
                                                                                        Increase/         (Decrease)
                                            For The Six Months Ended June 30,          (Decrease)         Percentage
(All amounts, other than percentage, in
U.S. Dollar)                                     2013                 2012           U.S. Dollar ($)         (%)
Net revenue
Advertisement                               $       2,581,410       $ 10,957,060      $     (8,375,650 )       (76.44 )
Tourism                                             6,140,564          4,188,339             1,952,225          46.61
Total net revenue                                   8,721,974         15,145,399            (6,423,425 )       (42.41 )

Cost of revenue
Advertisement                                       1,766,983          2,990,408            (1,223,425 )       (40.91 )
Tourism                                             3,152,029          2,759,334               392,695          14.23
Total cost of revenue                               4,919,011          5,749,742              (830,731 )       (14.45 )

Gross profit                                        3,802,962          9,395,657            (5,592,695 )       (59.52 )

Selling expenses                                    4,965,717          2,647,120             2,318,597          87.59
General and administrative expenses                 3,011,374          2,091,284               920,090          44.00
Loss (Income) from operations                      (4,174,129 )        4,657,253            (8,831,382 )      (189.63 )
Other expense, net                                    (85,910 )         (112,882 )              26,972         (23.89 )
Interest income                                        75,688             16,350                59,338         362.92
Interest expense                                   (2,558,423 )         (119,491 )          (2,438,932 )      2041.10
Less: Provision for income tax                        131,869          2,006,321            (1,874,452 )       (93.43 )
Net (loss) income from continuing
operations                                         (6,874,643 )        2,434,909            (9,309,552 )      (382.34 )
Gain(loss) on Discontinued Operations                 743,597           (330,078 )           1,073,675        (325.28 )

Net (loss) Income                                  (6,131,046 )     $  2,104,831            (8,235,877 )      (391.28 )
Net loss attributed to non-controlling
interest:                                             102,215            131,214               (28,999 )       (22.10 )
Net (loss) income attributable to China     $      (6,028,831 )        2,236,045      $     (8,264,876 )      (369.62 )
Yida Holding Co.


Net Revenue

Net revenue decreased by approximately $6.42 million or approximately 42.41%, from approximately $15.14 million for the six months ended June 30, 2012 to approximately $8.72 million for the six months ended June 30, 2013. The decrease in net revenue was primarily due to the decrease in the revenue from advertisement.

Advertisement

Advertisement revenue decreased by approximately $8.38 million or approximately 76.44%, from approximately $10.96 million for the six months ended June 30, 2012 to approximately $2.58 million for the six months ended June 30, 2013.

This decrease was primarily due to the instability of the railway media broadcast revenue. The program is broadcasted manually by the train attendant, and therefore we cannot monitor or whether he/she has inserted the program tape or not and how he/she broadcasts the tape. Railway program is a 20 minute infomercial program with the content of tourism news and information. Advertising clients choose the length of the advertisement during the program, . . .

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