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

Show all filings for CHINA YIDA HOLDING, CO.

Form 10-Q for CHINA YIDA HOLDING, CO.


14-Nov-2013

Quarterly Report


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

The following discussion should be read in conjunction with the information contained in our unaudited consolidated financial statements and the notes thereto appearing elsewhere herein. The unaudited interim consolidated financial statements furnished in this report reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year. These unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company for the year ended December 31, 2012 and notes thereto and the Management's Discussion and Analysis set forth in our Annual Report on Form 10-K for the year ended December 31, 2012 (the "Annual Report").

Certain statements in this section contain "forward-looking statements." All statements contained in this report and not clearly historical in nature are forward-looking, and the words "may," "will," "should," "could," "would," "expects," "plans," "anticipates," "believes," "estimates," "projects," "predicts," "intends," "potential," and similar expressions (as well as other words or expressions referencing future events, conditions or circumstances) generally are intended to identify forward-looking statements. Any statements in this report that are not historical facts are forward-looking statements. Actual results may differ materially from those projected or implied in any forward-looking statements. Such statements involve risks and uncertainties, including but not limited to those relating to product and customer demand, market acceptance of our products, the ability to create new products, the ability to achieve a sustainable profitable business, the effect of economic conditions, the ability to protect our intellectual property rights, competition from other providers and products, risks in product development, our ability to raise capital to fund continuing operations, and other factors discussed from time to time in the Company's Securities and Exchange Commission filings. The Company undertakes no obligation to update or revise any forward-looking statement for events or circumstances after the date on which such statement is made except as required by law.

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 ("Hua'An Tulou" 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 September 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 ("Yang-sheng Paradise") (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").

Advertising business had been our primary source of revenue for the last two years before January 2013 because the tourism business has experienced serious disruptions from flooding and severe weather while the new advertisement regulatory restriction was not enforced by the local government. Our tourism business has become the primary source of our revenue since first quarter of 2013. The revenue from advertising has decreased as the new advertisement regulatory restriction is enforced and the revenue from tourism has been increased. However, any increase in revenue will depend on the recovery of Great Golden Lake from flooding 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, we do not anticipate significant new construction as we are focusing on maintaining and restoring our existing operations at Great Golden Lake and at Hua'an Tulou. 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 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, our revenues from the advertising business have declined significantly and the agreement with FETV expired in July 2013. We expect the advertising business will continue to decline and eventually discontinue as we will focus on the tourism business only as discussed below.

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 continues to recover 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.

Our tourism business has become the primary source of our revenue since first quarter of 2013. Yang-Sheng Paradise had grand opening and trial operation in October 2013 and we expect to open City of Caves by the second quarter of 2014. 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 RMB 60 million, 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 nine months ended September 30, 2013. During the same period in 2012, net loss from discontinued operation was $507,136.

Net loss from discontinued operation was $0 and $177,058 for the three months ended September 30, 2013 and 2012.

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.


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Results of Operations

Results of Operations for the three months ended September 30, 2013 as compared
to the three months ended September 30, 2012

During the three months ended September 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 September 30, 2013
and 2012:

                                                                                                     Increase/
(All amounts, other than                 For The Three Months Ended September       Increase/        (Decrease)
 percentage, in U.S.                                     30,                       (Decrease)        Percentage
 Dollar)                                       2013                2012          U.S. Dollar ($)        (%)
Net revenue
Advertisement                               $     318,434       $   3,168,963      $   (2,850,529 )       (89.95 )
Tourism                                         4,357,597           3,152,618           1,204,979          38.22
Total net revenue                               4,676,031           6,321,581          (1,645,550 )       (26.03 )

Cost of revenue
Advertisement                                     271,213           1,236,714            (965,501 )       (78.07 )
Tourism                                         1,893,844           1,618,473             275,371          17.01
Total cost of revenue                           2,165,057           2,855,187            (690,130 )       (24.17 )

Gross profit                                    2,510,974           3,466,394            (955,420 )       (27.56 )

Selling expenses                                2,755,654           2,104,616             651,038          30.93
General and administrative expenses             1,905,852             839,923           1,065,928         126.91
Loss (Income) from operations                  (2,150,532 )           521,855          (2,672,387 )      (512.09 )
Other expense, net                               (554,364 )           (77,124 )          (477,240 )      (618.80 )
Interest income                                     6,999               8,686              (1,687 )       (19.42 )
Interest expense                                 (929,319 )          (870,698 )           (58,621 )        (6.73 )
Less: Provision for income tax                        961             451,471            (450,510 )       (99.79 )
Net (loss) income from continuing
operations                                     (3,628,177 )          (868,752 )       ( 2,759,425 )       317.63
Gain(loss) on Discontinued Operations                   -            (177,058 )           177,058        (100.00 )

Net (loss) Income                              (3,628,177 )        (1,045,810 )        (2,582,367 )       246.93
Net loss attributed to non-controlling
interest:                                               -              70,399             (70,399 )      (100.00 )
Net (loss) income attributable to China
Yida Holding Co.                            $  (3,628,177 )     $    (975,411 )    $   (2,652,766 )       271.96

Net Revenue

Net revenue decreased by approximately $1.65 million or approximately 26.03%, from approximately $6.32 million for the three months ended September 30, 2012 to approximately $4.67 million for the three months ended September 30, 2013. The decrease in net revenue was primarily due to the decrease in the revenue from advertisement and partially offset by increase in net revenue from tourism.

Advertisement

Advertisement revenue decreased by approximately $2.85 million or approximately 89.95%, from approximately $3.17 million for the three months ended September 30, 2012 to approximately $0.32 million for the three months ended September 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 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 all the clients decided not to purchase advertisement from the company, and they are considering discontinuing the railway promotion and terminating the cooperation with the Company. The advertisers were concerned with our lack of control over the frequency of program broadcast and therefore the company has lost all the clients which resulted in the decrease of revenue from railway media broadcast. We expect our revenue from railway media broadcast will continue to decline.

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 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 agreed 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 September 30, 2013 as compared to approximately $0.11 million for the three months ended September 30, 2012.

During this period, advertisement revenue from FETV also has experienced a decrease of 89.92% from $3.06 million to $0.31 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 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 (three year agreement with two year renewal) 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. The three-year management contract expired on July 31, 2013, and we did not renew the management contract with Fujian Education Media for the following two years.

Tourism

Tourism revenue increased by approximately $1.21 million or approximately 38.22% from approximately $3.15 million for the three months ended September 30, 2012 to approximately $4.36 million for the three months ended September 30, 2013, including approximately $1.74 million from Great Golden Lake resort, a decrease of $0.29 million or 14.29%, $2.44 million from Yunding Park, an increase of $1.57 million or 180.46%, and $0.18 million from Hua'an Tulou, a decrease of $0.07 million or 28%, as compared to the same period in 2012. 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, partially offset by the decrease in revenue from Great Golden Lake resort and Hua'an Tulou. The revenue from Great Golden Lake resort decreased because we are still recovering from the severe flooding in 2011 and storm in 2012. The decrease in revenue from Hua'an Tulou was due to strong competition among the homogeneous tourism destinations, including Nanjing Tulou Cluster and Yongding Tulou Cluster. We have to provide deeper ticket discount among the strong completion and the tourist consumption was also decreased. We expect this trend to continue in the future.

Cost of Revenue

Cost of revenues decreased by approximately $0.69 million or approximately 24.17%, from approximately $2.86 million for the three months ended September 30, 2012 to approximately $2.17 million for the three months ended September 30, 2013. The decrease in cost of revenue was primarily due to a decrease in cost of revenue from advertisement, partially offset by an increase in cost of revenue of tourism.

Advertisement

Cost of revenue from advertisement decreased by approximately $0.97 million or approximately 78.07%, from approximately $1.24 million for the three months ended September 30, 2012 to approximately $0.27 million for the three months ended September 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 $0.27 million or approximately 17.01%, from approximately $1.62 million for the three months ended September 30, 2012 to approximately $1.89 million for the three months ended September 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 $0.96 million, or approximately 27.56%, from approximately $3.47 million for the three months ended September 30, 2012 to approximately $2.51 million for the three months ended September 30, 2013. Our gross profit margin was approximately 53.7% for the three months ended September 30, 2013, compared to approximately 54.83% for the three months ended September 30, 2012, representing a decrease of approximately 1%.

Advertisement

Gross profit from advertisement decreased by approximately $1.89 million, or approximately 97.56%, from approximately $1.93 million for the three months ended September 30, 2012 to approximately $0.04 million for the three months ended September 30, 2013. Gross profit margin from advertisement was approximately 14.83% for the three months ended September 30, 2013, compared to approximately 60.97% for the three months ended September 30, 2012. This decrease was primarily attributable to the decrease in revenue during the three months ended September 30, 2013 due to the instability of the railway media broadcasts while the fixed costs associated with FETV's commercial airtime stayed the same.

Tourism

Gross profit from tourism increased by approximately $0.93 million, or approximately 60.59%, from approximately $1.53 million for the three months ended September 30, 2012 to approximately $2.46 million for the three months ended September 30, 2013. Gross profit margin from tourism was approximately 56.54% for the three months ended September 30, 2013, compared to approximately 48.66% for the three months ended September 30, 2012. The increase of gross profit was primarily attributable to the significant revenue increase from Yunding Park which offset the decrease of the revenue of Hua'an Tulou.

Selling Expenses

Selling expenses were approximately $2.76 million for the three months ended September 30, 2013, compared to approximately $2.11 million for the three months ended September 30, 2012, which represents an increase of approximately $0.65 million, or approximately 30.93%. 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 September 30, 2013.

General and Administrative Expenses

General and administrative expenses were approximately $1.91 million for the three months ended September 30, 2013, compared to approximately $0.84 million for the three months ended September 30, 2012, which represents an increase of approximately $1.07 million, or approximately 126.91%. This increase was due to the increase of administrative expenses for the operation of new tourism destinations.

Interest Expense

Interest expense was approximately $0.93 million for the three months ended September 30, 2013, representing an increase of approximately $0.06 million or approximately 6.73%, compared to approximately $0.87 million interest expense for the three months ended September 30, 2012. The increase in interest expense was primarily due to increase in the total amount of loans.

Income Tax

Income tax was approximately $0.001 million for the three months ended September 30, 2013, representing a decrease of approximately $0.45 million or approximately 99.87%, compared to the approximately $0.45 million income tax for the three months ended September 30, 2012. The decrease was primarily attributable to the decrease in revenue generated from Hua'an Tulou, as well as the decrease in the railway media revenue for the three months ended September 30, 2013 as compared with the three months ended September 30, 2012. The provision for income tax for the three months ended September 30, 2013 was mainly derived from the net income before tax of the advertisement segment.

Net Loss

As a result of the above factors, we have net loss of approximately $3.63 million for the three months ended September 30, 2013 as compared to approximately $1.05 million for the three months ended September 30, 2012, representing a decrease of approximately $ 2.58 million or approximately 246.93 %. The decrease was primarily attributable to the lower revenue generated from Hua'an Tulou, as well as the decrease of the railway media revenue for the three months ended September 30, 2013 as compared with the three months ended September 30, 2012.


Results of Operations for the Nine months ended September 30, 2013 as compared to the Nine months ended September 30, 2012

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

                                                                                                           Increase/
(All amounts, other than                                                                  Increase/        (Decrease)
 percentage, in U.S.                      For The Nine Months Ended September 30,        (Decrease)        Percentage
 Dollar)                                       2013                   2012             U.S. Dollar ($)        (%)
Net revenue
. . .
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