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EX-31.1 - CERTIFICATION - CHINA YIDA HOLDING, CO.f10q0610ex31i_chinayida.htm
EX-32.1 - CERTIFICATION - CHINA YIDA HOLDING, CO.f10q0610ex32i_chinayida.htm
EX-31.2 - CERTIFICATION - CHINA YIDA HOLDING, CO.f10q0610ex31ii_chinayida.htm
EX-32.2 - CERTIFICATION - CHINA YIDA HOLDING, CO.f10q0610ex32ii_chinayida.htm
 


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
 
FORM 10-Q
_____________________
 
x    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2010
 
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 For the transition period from ______to______.
 
China Yida Holding, Co.
(Exact name of registrant as specified in the Charter)
 
DELAWARE
 
000-26777
 
50-0027826
(State or other jurisdiction of
incorporation or organization)
 
(Commission File No.)
 
(IRS Employee Identification No.)

 
28/F Yifa Building
No. 111 Wusi Road
Fuzhou, Fujian, P. R. China

 (Address of Principal Executive Offices) (Zip Code)

909-843-6358
 (Registrants Telephone number including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days.
Yes x  No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 o  No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company filer.  See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):
 
Large accelerated filer
¨
Accelerated filer
¨
Non-accelerated filer
¨
Smaller reporting company
x
       

Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act.  Yes o No x
 
State the number of shares outstanding of each of the issuer’s classes of common equity, as of August 20, 2010: 19,551,785 shares of common stock.

 
 

 

 
CHINA YIDA HOLDING, CO.
FORM 10-Q
June 30, 2010
 
 
PART I— FINANCIAL INFORMATION  
     
Item 1.
Financial Statements
1
     
 
Condensed Consolidated Balance Sheets as of June 30, 2010 (Unaudited) and December 31, 2009
1
     
 
Condensed Consolidated Statements of Operations (Unaudited) for the three months and six months ended June 30, 2010 and 2009
2
     
 
Condensed Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, 2010 and 2009
3
     
 
Notes to Condensed Consolidated Financial Statements (Unaudited)
4
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
19
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
30
     
Item 4.
Controls and Procedures
30
     
PART II— OTHER INFORMATION  
     
Item 1.
Legal Proceedings
21
     
Item 1A.
Risk Factors
31
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
31
     
Item 3.
Defaults Upon Senior Securities
31
     
Item 4.
Submission of Matters to a Vote of Security Holders
32
     
Item 5.
Other Information
32
     
Item 6.
Exhibits
32
     
SIGNATURES
33
 
 
 
 

 

 
PART 1 - FINANCIAL INFORMATION
 
ITEM 1.    FINANCIAL STATEMENTS

CHINA YIDA HOLDING CO. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
   
             
   
June 30, 2010
   
December 31,
 
   
(Unaudited)
   
2009
 
             
ASSETS
 
Current assets
           
  Cash and cash equivalents
  $ 30,358,809     $ 5,776,678  
  Accounts receivable
    2,005       2,003  
  Due from related party
    5,756,478       -  
  Other receivables
    61,118       190,424  
  Advances and prepayments
    304,397       1,432,138  
    Total current assets
    36,482,807       7,401,243  
                 
  Property, and equipment, net
    34,002,130       32,995,885  
  Construction in progress
    55,669,876       36,730,184  
  Intangible assets, net
    7,137,624       7,874,938  
  Long-term prepayments
    1,013,424       1,012,230  
    Total assets
  $ 134,305,861     $ 86,014,480  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities
               
  Accounts payable
  $ 48,519     $ 57,277  
  Bank loans payable
    1,733,102       1,731,060  
  Accrued expenses and other payables
    988,008       1,145,565  
  Taxes payable
    3,230,629       2,835,655  
    Total current liabilities
    6,000,258       5,769,557  
                 
  Long-term debt
    2,499,902       2,495,190  
    Total liabilities
    8,500,160       8,264,747  
                 
Commitments and contingencies
               
                 
Stockholders' equity
               
  Preferred stock ($0.001 par value, 10,000,000 shares authorized, 1 share issued  and outstanding)
    -       -  
  Common stock ($0.0001 par value, 100,000,000 shares authorized, 19,551,785  and 17,062,064 issued and outstanding as of June 30, 2010 and    December 31, 2009, respectively)
    1,955       1,706  
  Additional paid in capital
    48,478,086       21,711,384  
  Accumulated other comprehensive income
    3,358,881       3,190,162  
  Retained earnings
    63,928,773       50,297,151  
  Statutory reserve
    4,167,131       2,549,330  
      119,934,826       77,749,733  
  Non-controlling interest
    5,870,875       -  
    Total stockholders' equity
    125,805,701       77,749,733  
    Total liabilities and stockholders' equity
  $ 134,305,861     $ 86,014,480  
                 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
 
 
-1-

 

 
CHINA YIDA HOLDING CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND
OTHER COMPREHENSIVE INCOME
(UNAUDITED)
 
                         
   
Six months ended June 30,
   
Three months ended June 30,
 
   
2010
   
2009
   
2010
   
2009
 
Net revenue
                       
Advertisement
  $ 18,094,805     $ 14,482,483     $ 9,327,521     $ 7,890,295  
Tourism
    13,083,438       8,231,542       7,047,924       5,000,825  
                                 
Total net revenue
    31,178,243       22,714,025       16,375,445       12,891,120  
                                 
Cost of revenue
                               
Advertisement
    3,736,625       3,659,674       1,910,607       1,914,909  
Tourism
    2,303,590       1,055,196       1,206,758       572,633  
Total cost of revenue
    6,040,215       4,714,870       3,117,365       2,487,542  
                                 
Gross profit
    25,138,028       17,999,155       13,258,080       10,403,578  
                                 
Operating expenses
                               
  Selling expenses
    2,235,194       1,277,450       1,256,610       846,803  
  Operating and administrative expenses
    2,295,363       1,479,927       1,011,419       1,004,307  
Total operating expenses
    4,530,557       2,757,377       2,268,029       1,851,110  
                                 
Income from operations
    20,607,471       15,241,778       10,990,051       8,552,468  
                                 
Other (income) expense
                               
  Other (income) expense, net
    (7,243 )     18,335       1,610       17,066  
  Interest income
    (23,347 )     (25,428 )     (14,376 )     (11,795 )
      (30,590 )     (7,093 )     (12,766 )     5,271  
                                 
Income before income taxes and Non-controlling
                               
  interest
    20,638,061       15,248,871       11,002,817       8,547,197  
                                 
Provision for income taxes
    5,392,670       2,837,612       2,891,474       1,594,893  
Net loss attributed to non-controlling interest
    4,033       -       4,033       -  
                                 
Net income attributable to China Yida Holding Co.
    15,249,424       12,411,259       8,115,376       6,952,304  
                                 
Other comprehensive income
                               
Foreign currency translation gain (loss)
    168,719       (42,428 )     465,485       (29,400 )
                                 
Other comprehensive income
  $ 15,418,143     $ 12,368,831     $ 8,580,861     $ 6,922,904  
                                 
Basic earnings per share
  $ 0.79     $ 0.73     $ 0.42     $ 0.41  
Basic weighted average shares outstanding
    19,239,327       17,021,447       19,551,785       17,021,447  
                                 
Diluted earnings per share
  $ 0.77     $ 0.71     $ 0.41     $ 0.39  
Diluted weighted average shares outstanding
    19,711,148       17,501,040       20,029,132       17,805,849  
                                 
                                 
The accompanying notes are an integral part of these condensed consolidated financial statements.

 
-2-

 
 
CHINA YIDA HOLDING CO. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(UNAUDITED)
 
             
   
Six months ended June 30,
 
   
2010
   
2009
 
             
CASH FLOWS FROM OPERATING ACTIVITIES
           
  Net income
  $ 15,249,424     $ 12,411,259  
  Adjustments to reconcile net income to net cash
               
    provided by operating activities:
               
  Depreciation
    721,972       714,095  
  Amortization
    743,749       743,982  
  Allowance for doubtful accounts
    -       15,565  
  Stock based compenstation
    83,994       -  
Changes in operating assets and liabilities:
               
  Accounts receivable
    -       41,479  
  Other receivables
    (151,704 )     65,398  
  Advances and prepayments
    1,126,445       (453,946 )
  Accounts payable
    (8,793 )     (2,404 )
  Taxes payable
    390,131       673,198  
  Accrued expenses and other payables
    141,716       420,805  
Net cash provided by operating activities
    18,296,934       14,629,431  
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
  Due from related party
    (5,756,478 )     -  
  Additions to property & equipment
    (1,685,590 )     (179,143 )
  Additions to construction in progress
    (18,824,089 )     (16,877,719 )
Net cash used in investing activities
    (26,266,157 )     (17,056,862 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
  Non-controlling interest
    5,870,875       -  
  Net proceeds from issuance of common stock
    26,687,556       -  
  Borrowings under loan facilities
    -       2,487,257  
Net cash provided by financing activities
    32,558,431       2,487,257  
                 
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
    (7,077 )     101,066  
                 
NET INCREASE IN CASH AND CASH EQUIVALENTS
    24,582,131       160,892  
                 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    5,776,678       8,715,048  
                 
CASH AND CASH EQUIVALENTS, END OF PERIOD
  $ 30,358,809     $ 8,875,940  
                 
SUPPLEMENTAL DISCLOSURES:
               
Cash paid during the quarter for:
               
     Income tax payments
  $ 2,501,668     $ 1,728,779  
     Interest payments
  $ 71,981     $ 20,416  
                 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
 
-3-

 
 
CHINA YIDA HOLDING CO. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
 
China Yida Holding Co. (“the Company”, “we”, “us”, “our”) engages in tourism and advertisement businesses through its subsidiaries in Peoples Republic of China.
 
Keenway Limited was incorporated under the laws of the Cayman Islands on May 9, 2007 for the purpose of functioning as an off-shore holding company to obtain ownership interests in Hong Kong Yi Tat International Investment Co., Ltd (“Hong Kong Yi Tat”), a company incorporated under the laws of Hong Kong. Immediately prior to the Merger (defined below), Mr. Chen Minhua and his wife, Ms. Fan Yanling, were the majority shareholders of Keenway Limited.
 
On November 19, 2007, we entered into a share exchange and stock purchase agreement with Keenway Limited, Hong Kong Yi Tai, and the then shareholders of Keenway Limited, including Chen Minhua, Fan Yanling, Zhang Xinchen, Extra Profit International Limited, and Lucky Glory International Limited (collectively, the “Keenway Limited Shareholders”), pursuant to which in exchange for all of their shares of Keenway Limited common stock, the Keenway Limited Shareholders received 90,903,246 newly issued shares of our common stock and 3,641,796 shares of our common stock which was transferred from some of our then existing shareholders (the “Merger”). As a result of the closing of the Merger, the Keenway Limited Shareholders owned approximately 94.5% of our then issued and outstanding shares on a fully diluted basis and Keenway Limited became our wholly owned subsidiary
 
Hong Kong Yi Tat is an entity that was created as the holding company for the operating entities, Fujian Jintai Tourism Industrial Development, Co, Ltd., and Fujian Jiaoguang Media, Co., Ltd., and Yida(Fujian) Tourism Group., Ltd., and Fujian Yida Tulou Tourism Development Co. Ltd (“Tulou”).  Hong Kong Yi Tat does not have any operations.  
 
Fujian Jintai Tourism Developments Co., Ltd. (“Fujian Jintai”) and its wholly owned subsidiary Fuzhou Hongda Commercial Services Co., Ltd, (“Hongda”) operate the Great Golden Lake, one of our tourism destinations.
 
Fujian Jintai Tourism Developments Co., Ltd. (“Fujian Jintai”) and its wholly owned subsidiary, Fuzhou Hongda Commercial Services Co., Ltd, (“Hongda”), operate the Great Golden Lake, one of our tourism destinations.
 
Hongda originally owned 100% of the ownership interest in Fuzhou Fuyu Advertising Co., Ltd. (“Fuyu”) which is engaged in the operations of our media business. On March 15, 2010, Hongda entered into an equity transfer agreement with Fujian Yunding Tourism Industrial Co., Ltd, (currently known as Yida (Fujian) Tourism Group Limited, “Fujian Yunding”), pursuant to which Fujian Yunding acquired 100% of the issued and outstanding shares of Fuyu from Hongda at the aggregate purchase price of RMB 3,000,000. As a result, Fujian Yunding became the 100% holding company of Fuyu.
 
Fujian Jintai originally also owned 100% of the ownership interest in Fujian Yintai Tourism Co., Ltd. (“Yintai”). On March 15, Fujian Jintai entered into an equity transfer agreement with Fujian Yunding, pursuant to which Fujian Yunding acquired 100% of the issued and outstanding common stock of Yintai from Fujian Jintai at the aggregate purchase price of RMB 5,000,000. As a result, Yintai became the wholly owned subsidiary of Fujian Yunding.

Fujian Yida Tulou Tourism Development Co. Ltd’s primary business relates to the operation of the Hua’An Tulou cluster, one of our tourism destinations.
 
Fujian Yunding’s primary business relates to the operations of our Yunding tourism destination and all of our newly engaged tourism destinations, and the management of our media business. 
 
On March 16, 2010 Fujian Yunding formed a wholly owned subsidiary, Yongtai Yunding Resort Management Co. (“Yongtai Yunding”) which currently has no material business operations. We plan to develop Yongtai Yunding into a business entity primarily focusing on the operations of our Yunding tourism destination.
 
Fujian Jiaoguang Media Co., Ltd. (“Fujian Jiaoguang”) concentrates on the mass media segment of our business.  Its primary business is focused on advertisements, including media publishing, television, cultural and artistic communication activities, and performance operation and management activities.
 
 
 
-4-

 
 
On April 12, 2010, we changed the company name of our operating subsidiary “Fujian Yunding Tourism Industrial Co., Ltd” to “Yida (Fujian) Tourism Group Limited” to better reflect our strategy of expanding our business operations in China by extending our business model through acquiring or collaborating with other domestic tourism destinations.

On April 15, 2010, we entered into agreement with Anhui Xingguang Group to set up a new subsidiary – Anhui Yida Tourism Development Co. Ltd by investing 60% of the equity interest, and Anhui Xingguang Group owns 40% of the equity interest of Anhui Yida. The total paid in capital of Anhui Yida is RMB 100 million (equals USD 14,687,307). Anhui Yida Tourism Development Co. Ltd (“Anhui Yida”)’s primary business relates to the operation of our tourism destinations, specifically, Ming dynasty culture tourist destination.
 
2.  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
a. Basis of presentation
 
The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America.
 
In the opinion of the Company’s management, the unaudited condensed consolidated financial statements include all adjustments necessary to present fairly the consolidated financial position, results of operations and cash flows of the Company for the periods presented. The results of operations for the three and six months ended June 30, 2010 are not necessarily indicative of operating results expected for the full year or future interim periods. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report of Form 10-K for the year ended December 31, 2009, filed on March 23, 2010 (the “Annual Report”).
 
b. Principle of consolidation
 
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries Hong Kong Yi Tat, Fujian Jintai, Fuyu, Hongda, Fujian Yunding, Tulou, Fujian Yintai, Anhui Yida, Yongtai Yunding and the accounts of its variable interest entity, Fujian Jiaoguang, collectively “the Company”. All significant inter-company accounts and transactions have been eliminated in consolidation.
 
The Company has adopted Accounting Standards codification (“ASC”) 810, an Interpretation of Accounting Research Bulletin No. 51 that requires a Variable Interest Entity (VIE) to be consolidated by a company if that company is subject to a majority of the risk of loss for the VIE or is entitled to receive a majority of the VIE's residual returns. VIEs are those entities in which the Company, through contractual arrangements, bears the risks of, and enjoys the rewards normally associated with ownership of the entities, and therefore the company is the primary beneficiary of these entities. The results of subsidiaries or variable interest entities acquired during the year are included in the consolidated income statements from the effective date of acquisition.
 
ACCOUNTING AFTER INITIAL MEASUREMENT OF VIE - Subsequent accounting for the assets, liabilities, and non-controlling interest of a consolidated variable interest entity are accounted for as if the entity were consolidated based on voting interests and the usual accounting rules for which the VIE operates are applied as they would to a consolidated subsidiary as follows:
 
 
 
-5-

 
 
carrying amounts of the VIE are consolidated into the financial statements of the Company as the primary beneficiary (referred as "Primary Beneficiary" or "PB");
 
inter-company transactions and balances, such as revenues and costs, receivables and payables between or among the Primary Beneficiary and the VIE are eliminated in their entirety; and
 
INITIAL MEASUREMENT OF VIE- The Company initially measures the assets, liabilities, and non-controlling interests of the VIE at their fair values at the date as it became a VIE..
 
Because Fujian Jiaoguang and the Company’s contractual relationship comply with ASC 810, the Company consolidated Jiaoguang’s financial statements as VIE.
 
The carrying amount and classification of Fujian Jiaoguang’s asssets and liabilities included in the Condensed Consolidated Balance Sheets are as follows:
 
   
June 30
2010
   
December 31,
2009
 
Total Current Assets
  $ 2,147,257     $ 2,140,905  
Total Assets
    9,600,195       2,140,905  
Total Current Liabilities
    8,138,645       8,051,051  
Total Liabilities
    8,138,645       8,051,051  
 
c. Use of estimates
 
The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the amount of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made. However, actual results could differ materially from those results.
 
d. Cash and cash equivalents
 
The Company considers all cash on hand and in banks, certificates of deposit and other highly-liquid investments with original maturities of three months or less, when purchased, to be cash and cash equivalents.
 
e. Accounts receivable
 
The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Based on the management’s judgment, no allowance for doubtful accounts is required at the balance sheet dates.
 
 
 
-6-

 
 
f. Advances and Prepayments
 
The Company advances to certain vendors for purchase of its construction material and necessary service.
 
g. Property and equipment
 
Property and equipment are recorded at cost. Gains or losses on disposals are reflected as gain or loss in the year of disposal. The cost of improvements that extend the life of property, and equipment are capitalized. These capitalized costs may include structural improvements, equipment, and fixtures. All ordinary repair and maintenance costs are expensed as incurred.
 
Depreciation for financial reporting purposes is provided using the straight-line method over the estimated useful lives of the assets: 5 to 20 years for house & building; 5 to 8 years for equipment and furniture; 26 years for lease improvements.
 
h. Impairment
 
The Company applies the provisions of ASC 360 which requires long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value.
 
The Company tests long-lived assets, including property and equipment, intangible assets and construction in progress, for recoverability at least annually or more frequently upon the occurrence of an event or when circumstances indicate that the net carrying amount is greater than its fair value. Assets are grouped and evaluated at the lowest level for their identifiable cash flows that are largely independent of the cash flows of other groups of assets. The Company considers historical performance and future estimated results in its evaluation of potential impairment and then compares the carrying amount of the asset to the future estimated cash flows expected to result from the use of the asset. If the carrying amount of the asset exceeds estimated expected undiscounted future cash flows, the Company measures the amount of impairment by comparing the carrying amount of the asset to its fair value. The estimation of fair value is generally measured by discounting expected future cash flows as the rate the Company utilizes to evaluate potential investments. The Company estimates fair value based on the information available, judgments and projections are considered necessary. There was no impairment of long-lived assets as of June 30, 2010 and December 31, 2009.
 
i. Revenue recognition
 
Sales revenue is recognized at the date of service rendered to customers when a formal arrangement exists, the price is fixed or determinable, the services rendered, no other significant obligations of the Company exist and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue. Unearned revenue was $5,825 and $73,914 at June 30, 2010 and December 31, 2009, respectively, which was included in the accrued expenses and other payables.

Net revenue represents gross revenue net of Value Added Tax (“VAT”).
 
Revenues from advance resort ticket sales are recognized when the tickets are used. Revenues from our contractors who have tourism contracts with us are generally recognized over the period of the applicable agreements commencing with the tourists visit the resort.
 
The Company sells the television air time to third parties. The Company records advertising sales when advertisements are aired. The Company also sells admission and activities tickets for a resort which the Company has the management right.
 
 
-7-

 
 
The Company has no allowance for product returns or sales discounts because services that are rendered and accepted by the customers are normally not refundable and discounts are normally not granted after service is rendered.
 
j. Advertising costs
 
The Company expenses the cost of advertising as incurred or, as appropriate, the first time the advertising takes place. Advertising costs for the six months ended June 30, 2010 and 2009 were $392,845 and $187,919, respectively. Advertising costs for the three months ended June 30, 2010 and 2009 were $286,541 and $131,027, respectively.
 
There is a contract in force for the period of August 1, 2003 to July 31, 2010 between a related party (Xinhengji, XHJ) and a Television Station (Owned by The Chinese Government) that provides for prepaid airtime to be purchased and utilized by the related party in return for payment of RMB 5,000,000 and purchase of suitable programming for the station in the amount of an additional RMB 5,000,000 (Educational Programming). XHJ is 80% owned by a shareholder of the company and 20% owned by the shareholder’s mother.
 
XHJ has assigned the rights of the above contract to the Company to manage the commercial air time of the TV station. The Company is responsible for paying the air time of RMB 5,000,000. XHJ is responsible for paying RMB 5,000,000 to purchase the TV programs and entitled to revenue other than the commercial revenue. It also states that if the Company helps XHJ to purchase the TV programs and if pays equaling or more than RMB 5,000,000 then the Company does not have to pay RMB 5,000,000 for air time anymore. The amount paid over RMB 5,000,000 by the Company will be the Company’s expenses and will not be reimbursed by XHJ. The advertising costs incurred are charged as cost of sales against specific airtime segments.
 
The above agreement expired on July 31, 2010 without renewal.
 
k. Income taxes
 
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. There were no deferred income tax assets or liabilities at the balance sheet dates
 
l. Foreign currency translation
 
The Company uses the United States dollar ("U.S. dollars") for financial reporting purposes. The Company's subsidiaries maintain their books and records in their functional currency, being the primary currency of the economic environment in which their operations are conducted. In general, for consolidation purposes, the Company translates the subsidiaries' assets and liabilities into U.S. dollars using the applicable exchange rates prevailing at the balance sheet dates, and the statements of income are translated at average exchange rates during the reporting periods. Gain or loss on foreign currency transactions are reflected on the income statement. Gain or loss on financial statement translation from foreign currency are recorded as a separate component in the equity section of the balance sheet and is included as part of accumulated other comprehensive income. The functional currency of the Company ’subsidiaries in China is the Chinese Renminbi and the functional currency of the US parent is the US dollar.
 
m. Fair values of financial instruments
 
The carrying amounts reported in the condensed consolidated financial statements for current assets and currently liabilities approximate fair value due to the short-term nature of these financial instruments.
 
 
 
-8-

 
 
In 2008, the Company adopted ASC 820-10, “Fair Value Measurements and Disclosures”, which establishes a single authoritative definition of fair value and a framework for measuring fair value and expands disclosure of fair value measurements for both financial and nonfinancial assets and liabilities. This standard defines fair value, provides guidance for measuring fair value and requires certain disclosures. This standard does not require any new fair value measurements, but discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flows) and the cost approach (cost to replace the service capacity of an asset or replacement cost). For purposes of ASC 820-10-15, nonfinancial assets and nonfinancial liabilities would include all assets and liabilities other than those meeting the definition of a financial asset or financial liability as defined in ASC-820-10-15-15-1A. Management elected the deferral option available for one year for nonfinancial assets and liabilities as permitted by ASC-820-10.
 
On August 26, 2009, the FASB issued Accounting Standard Update (ASU) 2009-05, Measuring Liabilities at Fair Value, to clarify how entities should estimate the fair value of liabilities under the FASB ASC Topic 820, Fair Value Measurements and Disclosures. The amendments in ASU 2009-05 reduce potential ambiguity in financial reporting when measuring the fair value of liabilities. Therefore, preparers, investors, and other users of financial statements will have a better understanding of how the fair value of liabilities was measured, helping to improve consistency in the application of Topic 820. The FASB issued ASU 2009-05 as a result of expressed concern that there may be a lack of observable market information to measure the fair value of a liability. For example, in the hypothetical transfer of an asset subject to a restriction there will be no observable data available to measure the liability because it is restricted from being transferred. This guidance is effective for the first reporting period (including interim periods) beginning after issuance.
 
n. Stock-based compensation
 
The Company records stock-based compensation expense pursuant to ASC 718-10, "Share Based Payment Arrangement,” which requires companies to measure compensation cost for stock-based employee compensation plans at fair value at the grant date and recognize the expense over the employee's requisite service period. The Company’s expected volatility assumption is based on the historical volatility of Company’s stock or the expected volatility of similar entities. The expected life assumption is primarily based on historical exercise patterns and employee post-vesting termination behavior. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant.
 
Stock-based compensation expense is recognized based on awards expected to vest, and there were no estimated forfeitures as the Company has a short history of issuing options. ASC 718-10 requires forfeitures to be estimated at the time of grant and revised in subsequent periods, if necessary, if actual forfeitures differ from those estimates.
 
o. Earning per share (EPS)
 
Earnings per share is calculated in accordance with ASC 260. Basic earnings per share is based upon the weighted average number of common shares outstanding. Diluted earnings per share is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.

p. Segment reporting
 
ASC 250, "Disclosure About Segments of an Enterprise and Related Information" requires use of the "management approach" model for segment reporting. The management approach model is based on the way a company's management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.
 
 
-9-

 
 
 
During the six and three months ended June 30, 2010 and 2009, the Company is organized into two main business segments: tourism and advertisement. The primary business relates to tourism and, specifically, tourism at the Great Golden Lake and Tulou. The company offers bamboo rafting, parking lot service, photography services and ethnic cultural communications. The primary business related to advertisement is focused on advertisements, including media publishing, television, cultural and artistic communication activities, and performance operation and management activities.
 
The following table presents a summary of operating information and certain balance sheet dates information for the six and three months ended June 30, 2010 and 2009:
 
   
Six months ended June 30,
   
Three Months ended June 30,
 
   
2010
(Unaudited)
   
2009
(Unaudited)
   
2010
(Unaudited)
   
2009
(Unaudited)
 
Revenues from unaffiliated customers:
                       
Advertisement
  $ 18,094,805     $ 14,482,483     $ 9,327,521     $ 7,890,295  
Tourism
    13,083,438       8,231,543       7,047,924       5,000,825  
     Total
  $ 31,178,243     $ 22,714,025     $ 16,375,445     $ 12,891,120  
                                 
 Operating income (loss):
                               
 Advertisement
  $ 13,326,173     $ 10,962,588     $ 7,127,709     $ 5,962,071  
Tourism
    7,689,836       4,281,792       4,130,057       2,591,555  
Others
    (408,538 )     (2,602 )     (267,715 )     (1,158 )
  Total
  $ 20,607,471     $ 15,241,778     $ 10,990,051     $ 8,552,468  
                                 
 Identifiable assets:
                               
Advertisement
  $ 18,416,862     $ 12,735,657     $ 18,416,862     $ 12,735,657  
Tourism
    114,023,785       55,259,262       114,023,785       55,259,262  
Others
    1,967,314       2,658,276       1,967,314       2,658,276  
  Total
  $ 134,407,961     $ 70,653,195     $ 134,407,961     $ 70,653,195  
                                 
 Net income (loss):
                               
Advertisement
  $ 9,908,708     $ 8,977,984     $ 5,286,237     $ 5,244,730  
Tourism
    5,752,283       4,241,525       3,098,540       1,708,781  
Others
    (411,067 )     (2,834     (269,401 )     (1,207 )
  Total
  $ 15,249,924     $ 12,411,259     $ 8,115,376     $ 6,952,304  
                                 
Capital expenditure:
                               
Advertisement
  $ -       -       -       -  
Tourism
    20,509,679-     $ 17,056,862     $ 10,046,356     $ 9,217,858  
   Total
  $ 20,509,679     $ 17,056,862     $ 10,046,356     $ 9,217,858  
 
 
 
-10-

 
 
 

 
Others represent reconciling amounts including certain assets which are excluded from segments and adjustments to eliminate inter company transactions. 
 
q. Reclassification
 
Certain prior period amounts have been classified to conform to the current period presentation.
 
3.  DUE FROM RELATED PARTY
 
Due from related party represents interest-free loans due on April 22, 2011 from the minority stockholder of Anhui Yida.
 
4.  PROPERTY AND EQUIPMENT, NET
 
Property and equipment consist of the following:
 
   
June 30, 2010
(Unaudited)
   
December 31, 2009
 
Building
 
$
36,119,666
   
$
34,903,503
 
Electronic Equipments
   
328,304
     
303,652
 
Transportation Equipments
   
683,623
     
74,281
 
Office Furniture
   
12,446
     
128,765
 
     
37,144,039
     
35,410,201
 
Less: Accumulated Depreciation
   
(3,141,909)
 
   
(2,414,316
)
Property and equipment, net
 
$
34,002,130
   
$
32,995,885
 
 
Depreciation expense for the six and three months ended June 30, 2010 and 2009 were $721,972, $714,095, $354,478 and $359,759, respectively.
 
5.  CONSTRUCTION IN PROGRESS
 
It is mainly related to the constructions for the new tourist resorts which the Company has acquired. Management right in Yuding; various small ongoing projects related to the Great Golden Lake dam; and the construction of earthen building Tulou. The amount of capitalized interest included in construction in progress amounted $142,398 and $80,571 for the six months ended June 30, 2010 and 2009, respectively. The Company will begin depreciating these assets when they are placed in service.  The Company expects these projects to be completed during the third quarter 2010 and placed in service at the end of 2010.
 
The Company advances and prepays certain monies for project deposits.  These balances are interest free and unsecured. As of June 30, 2010 and December 31, 2009, advances and prepayments amounted to $304,397 and $1,432,138, respectively. Long term prepayments related to the advances of Yunding construction projects.
 
 
 
-11-

 
 
6.  INTANGIBLE ASSETS, NET
 
Intangible assets consist of the following:
 
   
June 30, 2010
(Unaudited)
   
December 31, 2009
 
             
Management right of tourist resort
 
$
5,140,558
   
$
5,134,223
 
Advertising board
   
6,609,288
     
6,601,500
 
     
11,749,846
     
11,735,723
 
Accumulated amortization
   
(4,612,222)
     
(3,860,785)
 
Intangible assets, net
 
$
7,137,624
   
$
7,874,938
 
 
The Company acquired a 30 year tourist resort management right in August 2001 from unrelated parties for cash.
 
The Company entered into an agreement with a third party on February 29, 2008 and obtained five-year advertising rights for 30 outside advertising boards in Fuzhou city for payment of $6,609,288 (RMB45, 000,000). The agreement has a five-year term.
 
Intangible assets of the Company are reviewed annually as to whether their carrying value has become impaired. The Company considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations. The Company also re-evaluates the periods of amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives. As of June 30, 2010 the Company expects these assets to be fully recoverable.
 
Amortization expense for the six and three months ended June 30, 2010 and 2009 amounted to  $743,749, $743,982, $371,945 and $371,740, respectively.
 
7.  TAXES PAYABLE
 
Taxes payable consist of the following:
 
   
June 30, 2010
(Unaudited)
   
December 31, 2009
 
City planning tax
 
$
8,039
   
$
7,140
 
 Business tax payable
   
216,395
     
201,820
 
 Payroll tax payable
   
3,226
     
3,317
 
Corporation tax payable
   
2,902,086
     
2,533,023
 
 Education fee
   
7,163
     
6,625
 
 Cultural construction fee
   
93,720
     
83,730
 
 Total
 
$
3,230,629
   
$
2,835,655
 
 
 
 
-12-

 
 
8.  BANK LOANS PAYABLE
 
Bank loans payable represent the borrowings from commercial banks that are due within one year. These loans consisted of the following:
 
 
June 30,
2010
(Uuaudited)
 
December 31, 2009
       
Loan from Construction Bank, interest rate at 5.81% per annum, due December 15, 2010, guaranteed by the Tulou’s construction.
  $ 558,118     $ 557,460  
Loan from Merchant bank of Fuzhou, interest rate at 8.66% per annum, due November 6, 2010, guaranteed by a related party which is 80% owned by a shareholder of the Company.
    1,174,984       1,173,600  
Total
  $ 1,733,102     $ 1,731,060  
 
For the six  months ended June 30, 2010 and 2009, interest expense for the above loans was $54,049, $37,296 respectively.  For the three months ended June 30, 2010 and 2009, interest expense for the above loans was $27,328, $20,416 respectively. The interest expense was all capitalized as part of construct in progress.
 
Long-term debt consists of the following:
 
   
June 30, 2010
(Unaudited)
   
December 31, 2009
 
Loan from Taining Credit Union, interest rate at 7.02% per annum, due March 20, 2012, guaranteed by the management rights of the Great Golden Lake.
 
$
2,499,902
   
$
2,495,190
 
 
For the six months end June 30, 2010 and 2009, interest expense for the above loan was $88,335,and $3,363,  respectively. For the three months end June 30, 2010 and 2009, interest expense for the above loan was $44,653,and $0, respectively. The Interest expense was all capitalized as part of construction in progress.
 
9.  INCOME TAXES
 
The Company is subject to Hong Kong (“HK”) and People’s Republic of China (“PRC”) profit tax. For certain operations in HK and PRC, the Company has incurred net accumulated operating losses for income tax purposes. The Company believes that it is more likely than not that these net accumulated operating losses will not be utilized in the future. Therefore, the Company has provided full valuation allowance for the deferred tax assets arising from the losses at these locations as of June 30, 2010 and December 31, 2009. Accordingly, the Company has no net deferred tax assets.
 
 
 
-13-

 
 
 
People’s Republic of China (PRC)
 
Pursuant to the PRC Income Tax Laws, the Company's subsidiary is generally subject to Enterprise Income Taxes ("EIT") at a statutory rate of 33%, which comprises 30% national income tax and 3% local income tax before 2008. Beginning January 1, 2008, the new Enterprise Income Tax ("EIT") law will replace the existing laws for Domestic Enterprises ("DES") and Foreign Invested Enterprises ("FIEs"). The new standard EIT rate of 25% will replace the 33% rate currently applicable to both DES and FIEs. The Company’s applicable EIT rate under new EIT law is 25% which was approved by local Tax department.
 
There were no significant book and tax basis difference.
 
10.   STOCKHOLDERS’ EQUITY
 
1) SECURITY ISSUANCE AGREEMENT
 
In January 2010, the Company issued 2,489,721 shares of common stock at $11.50 per share for net proceeds of $26,682,956.
 
In connection with the closing of a financing transaction on November 19, 2007, the Company granted Pope Investments II, LLC and certain other investors Class A Warrants that were exercisable for a total of 6,666,667 shares of the Company’s common stock (the “Warrant Shares”) at $1.25 per share (the “Exercise Price”), and were exercisable as of September 6, 2009 and will expire on September 6, 2011. Subject to the provisions of the Class A Warrants, warrant holders may elect to exercise the Class A Warrants on a cashless basis. Pursuant to Section 18 of the Class A Warrants, the Company shall have the option to call 50% of the Class A Warrants at a redemption price of $0.001 per share of the Warrant Shares upon the Company’s achievement of the 2008 performance threshold, and shall have the option to call 100% of the Warrant Shares underlying the then outstanding Class A Warrants upon the Company’s achievement of net income of $39,000,000 for the fiscal year of 2010.
 
The assumptions used for warrants issued with the share purchase using the Black Scholes calculation are as follow:
 
Risk-free interest rate
   
2.5
%
Expected life of the options
 
3 year
Expected volatility
   
514.17
%
Expected dividend yield
   
0
%
 
On April 14, 2009, in reliance upon Section 18 of the Class A Warrants, the Company exercised its call option to redeem a total of 3,333,331 Warrant Shares at $0.001 per share for a total of $3,336.
 
In June 2009, the Company effectuated a 4:1 reverse stock split (the “Split”). As a result, the remaining 3,333,336 Warrant Shares underlying the Class A Warrants were reduced to 833,337 and the Exercise Price was increased to $5 per share.
 
 
 
-14-

 
 
Following is a summary of the warrant activity for the six months ended June 30, 2010:
 
Outstanding, December 31, 2008
   
6,666,667
 
Redemption
   
(3,333,331
)
4:1 Reverse Split
   
(2,499,999
Exercised during 2009
   
(59,525
)
Outstanding, December 31, 2009
   
773,812
 
Exercised during the six months      -  
Outstanding, June 30, 2010 (unaudited)    
773,812
 
 
Warrants outstanding at June 30, 2010 and related weighted average price and intrinsic value are as follows:
 
Exercise Price
   
Total
Warrants
Outstanding
   
Weighted
Average
Remaining Life
(Years)
   
Total
Weighted
Average
Exercise Price
   
Warrants
Exercisable
   
Weighted
Average
Exercise Price
   
 
Aggregate
Intrinsic
Value
 
                                       
$
5.00
     
773,812
     
1.18
   
$
5.00
     
773,812
   
$
5.00
   
$
-
 
 
2) REVERSE SPLIT
 
The Company effectuated a 4:1 reverse stock split during the quarter ended June 30, 2009. All financial statements presented are retroactively stated.
 
3) STOCK BASED COMPENSATION
 
On June 10, 2009 (the “Grant Date”), the Company entered into a Non-qualified Stock Option Agreement with one of the Company’s directors, pursuant to which, the Company agrees to issue the director non-qualified stock options (the “Stock Options”) to purchase a total of 30,000 shares of the Company’s common stock as compensation for his services to be rendered as the Company’s director.  One half of the Stock Options shall vest on the sixth monthly anniversary of the Grant Date (the “First Vesting Date”) and become exercisable at an exercise price equal to the market price of the Company’s common stock on the First Vesting Date and the second half of Stock Options shall vest on the 12th monthly anniversary of the Grant Date (the “Second Vesting Date”) and become exercisable at an exercise price equal to the market price of the Company’s common stock on the Second Vesting Date
 
 
 
-15-

 
 
 
The Company valued the stock options by the Black-Scholes model with the following assumptions:
 
   
Expected
 
Expected
 
Dividend
 
Risk Free
 
Grant Date
   
Term
 
Volatility
 
Yield
 
Interest Rate
 
Fair Value
Director
   
5.25
 
356
%
0
%
3.11
$
5.60
 
The following is a summary of the option activity:
 
   
Number of options
 
Outstanding as of December 31, 2008
   
-
 
Granted
   
30,000
 
Exercised
   
-
 
Forfeited
   
-
 
Outstanding as of December 31, 2009
   
30,000
 
Granted
   
-
 
Exercised
   
-
 
Forfeited
   
-
 
Outstanding as of June 30, 2010
   
30,000
 
 
Following is a summary of the status of options outstanding at June 30, 2010:
 
Outstanding and Exercisable options
Average
Exercise price
 
Number
 
Average remaining
contractual life
(years)
$
14.84
 
15,000
 
9
$
13.67
 
15,000
 
  9
 
For the six and three months ended June 30, 2010 and 2009, the Company recognized approximately $83,994, $0, $41,997 and $0, respectively, as compensation expenses for its stock option plan.
 
 
-16-

 
 
11.   MAJOR CUSTOMERS AND VENDORS
 
There were no major customers which accounting over 10% of the total net revenue for the six and three months ended June 30, 2010 and 2009. There are no major vendors which accounting over 10% of the total purchase for the six and three months ended June 30, 2010 and 2009. The Company extends credit to its customers based upon its assessment of their credit worthiness and generally does not require collateral.
 
12.   RISKS AND UNCERTAINTIES
 
The Company’s practical operations are all carried out in the PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by the political, economic and legal environments in the PRC, and by the general state of the PRC's economy.
 
The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in the North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
 
13.  LEASE COMMITMENTS
 
The Company incurred rental expenses of $28,896, $25,161, $2,853 and $9,438 for the six and three months ended June 30, 2010 and 2009, respectively.
 
The Company does not have any future lease commitments to pay a minimum amount.
 
14.  COMMITMENTS AND CONTIGENCIES
 
Commitments
 
The Company entered into a construction contract with an unrelated party to develop road project of Yunding tourist attraction in January 2009. The estimated project costs $10,749,597 (RMB73.28 million) and has completed  $10,058,367 (RMB 68.76 million) as of June 30, 2010.
 
The Company entered into a construction contract with an unrelated party to develop a cable car project of Yunding tourist attraction in March 2009.  The estimated project costs $7,902,304 (RMB 53.87 million) and has completed $7,514,519 (RMB 51.37 million) as of June 30, 2010.
 
The Company entered into a construction contract with an unrelated party to develop Tulou cluster scenic zone in April 2009. The total cost of the project is estimated at $960,833 (RMB 6.55 million) and has completed $904,024 (RMB 6.18 million) as of June 30, 2010.
 
The Company entered into a construction contract with an unrelated party to develop project of Yunding Tianchi in July 2009. The total contract is estimated at $ 5,842,746 (RMB 39.83 million) and has completed $5,472,418 (RMB 37.41 million) as of June 30, 2010.
 
The Company entered into a construction contract with an unrelated party to develop road project of Yunding in October 2009. The total estimated contract costs are $12,081,561 (RMB 82.36 million) and have completed $11,396,849 (RMB 77.91 million) as of June 30, 2010.
 
The Company entered into a construction contract with an unrelated party to develop landscape dam, water storage dam project of Yunding in January 2010. The total estimated contract costs are $3,112,886 (RMB 21.28 million) and have completed $2,789,120 (RMB 18.99 million) as of June 30, 2010.
 
 
-17-

 
 
 
The Company entered into a construction contract with an unrelated party to develop tourist service center project of Yunding in January 2010. The total estimated contract costs are $3,039,745 (RMB 20.78 million) and have completed $2,796,463 (RMB 19.04 million) as of June 30, 2010.
 
The Company entered into a construction contract with an unrelated party to develop cloud terrace project of Yunding in January 2010. The total estimated contract costs are $1,647,138 (RMB 11.26 million) and have completed $1,324,795 (RMB 9.02 million) as of June 30, 2010.
 
The Company entered into a construction contract with an unrelated party to develop tourist distritution center project of Yunding Tianchi in January 2010. The total estimated contract costs are $1,584,237 (RMB 10.83 million) and have completed $1,336,545 (RMB 9.1 million) as of June 30, 2010.
 
The Company entered into a construction contract with an unrelated party to develop Tulou cluster scenic zone Shangping in January 2010.  The total estimated contract costs are $2,451,690 (RMB 16.76 million) and have completed $2,054,754 (RMB13.99 million) as of June 30, 2010.
 
The Company entered into construction contract with an unrelated party to develop the second phase cable car project of Yunding tourist attraction in April 2010.  The estimated project costs are $7,947,302 (RMB 54.11 million) and has completed $6,372,823 (RMB 43.39 million) as of June 30, 2010.
 
Litigation
 
From time to time, the Company is a party to various legal actions arising in the ordinary course of business.  The Company’s management does not expect the legal matters involving the Company would have a material impact on the Company’s consolidated financial position or results of operations
 
15.  SUBSEQUENT EVENTS
 
On July 6, 2010, Yida (Fujian) Tourism Group Limited formed a wholly-owned subsidiary, Jiangxi Zhangshu (Yida) Tourism Development Limited Co. (Zhangshu Tourism Development), in Zhangshu City, Jiangxi Province to develop the China Yangsheng (Nourishing Life) Paradise tourim destination. Zhangshu Tourism Development requires RMB 100 million of registered capital, and RMB 20 million of registered capital has been paid.
 
On July 7, 2010, Yida (Fujian) Tourism Group Limited formed a wholly-owned subsidiary, Jiangxi Fenyi (Yida) Tourism Development Limited Co. (Fenyi Tourism Development), in Xinyu City, Jiangxi Province to develop the City of Caves tourism desitnation. Fenyi Tourism Development requires RMB 60 million of registered capital, and RMB 12 million of registered capital has been paid.
 
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 stated-owned company organized by the FETV under the laws of the People’s Republic of China (“Fuijan 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 (the “Term”), with the first three years of the Term, from August 1, 2010 to July 31, 2013, as phase I (the “Phase I”) and the remaining two years of the Term, from August 1, 2013 to July 31, 2015, the phase II (the “Phase II”). In exchange for the exclusive management rights for the FETV channel, we shall pay Fujian Education Media resource usage fees in the amount of RMB 12 million (approximately USD $1.76 million) for the first year, which amount shall be increased by 20% per year for each of the subsequent years during the Term. At the end of the Phase I, we and Fujian Education Media shall conduct full performance review of our cooperation under the Agreement. If there is no event of violation or breach of contract, the Agreement shall be automatically extended to Phase II.

 
 
-18-

 
 
 
ITEM 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
 
The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto 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 this prospectus. 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.

Our Business
 
We are a diversified entertainment enterprise focused on China's media and tourism industries headquartered in Fuzhou City, Fujian province, China. Our core business strategy is centered around the combination of tourism and media. Our tourism management business specializes in the development and management of tourism destinations and sites. We currently operate the Great Golden Lake tourist destination (Global Geo-park), Hua’An Tulou cluster (or the “Earth Buildings”) tourist destination (World Culture Heritage site), and Yunding tourist destination (Large-scale recreational park. Our media business provides operating management services including channel, column and advertisement management for the TV channels and other digital media. We currently operate the FETV (a provincial level TV channel) in Fujian province and the “Journey through China on the Train” on-board railway program on China’s high-speed trains.

Our Corporate History and Structure
  
Keenway Limited was incorporated under the laws of the Cayman Islands on May 9, 2007 for the purpose of functioning as an off-shore holding company to obtain ownership interests in Hong Kong Yi Tat International Investment Co., Ltd (“Hong Kong Yi Tat”), a company incorporated under the laws of Hong Kong. Immediately prior to the Merger (defined below), Mr. Chen Minhua and his wife, Ms. Fan Yanling, were the majority shareholders of Keenway Limited.
 
On November 19, 2007, we entered into a share exchange and stock purchase agreement with Keenway Limited, Hong Kong Yi Tat, and the then shareholders of Keenway Limited, including Chen Minhua, Fan Yanling, Zhang Xinchen, Extra Profit International Limited, and Lucky Glory International Limited (collectively, the “Keenway Limited Shareholders”), pursuant to which in exchange for all of their shares of Keenway Limited common stock, the Keenway Limited Shareholders received 2,272,582 newly issued shares of our common stock and 91,045 shares of our common stock which were transferred from some of our then existing shareholders (the “Merger”). As a result of the closing of the Merger, the Keenway Limited Shareholders owned approximately 94.5% of our then issued and outstanding shares on a fully diluted basis and Keenway Limited became our wholly owned subsidiary.

On March 15, 2010, Fuzhou Hongda Commercial Services, Ltd (“Fuzhou Hongda”) entered into an equity transfer agreement with Fujian Yunding Tourism Industrial Co., Ltd (“Fujian Yunding”) Fujian Yunding, pursuant to which Fuzhou Yunding acquired 100% of the issued and outstanding shares of Fuzhou Fuyu Advertising Co., Ltd (“Fuzhou Fuyu”) from Fuzhou Hongda at the aggregate purchase price of RMB 3,000,000. On March 15, Fujian Jintai Tourism Developments Co., Ltd (“Fujian Jintai”) entered into an equity transfer agreement with Fujian Yunding, pursuant to which Fujian Yunding acquired 100% of the issued and outstanding common stock of Fuzhou Yintai Tourism Co., Ltd (“Fuzhou Yintai”) from Fujian Jintai at the aggregate purchase price of RMB 5,000,000. On March 16, 2010, Fujian Yunding formed a wholly-owned subsidiary, Yongtai Yunding Resort Management Co., Ltd. (“Yuding Resort Management”) with its official address at No. 68 Xianfu Road, Zhangcheng Town, Yongtai County, China.

On April 12, 2010, we changed the company name of our operating subsidiary “Fujian Yunding Tourism Industrial Co., Ltd” to “Yida (Fujian) Tourism Group Limited” to better reflect our strategy of expanding our business operations in China by extending our business model through acquiring or collaborating with other domestic tourism destinations.
 
On April 15, 2010, Fujian Yunding entered into agreement with Anhui Xingguang Group to set up a joint venture – Anhui Yida Tourism Development Co. Ltd by investing 60% of the equity interest, and Anhui Xingguang Group owns 40% of the equity interest of Anhui Yida. The primary business of Anhui Yida Tourism Development Co. focuses on developing the Ming Dynasty Entertainment World.
 
On July 6, 2010, Fujian Yunding formed a wholly-owned subsidiary, Jiangxi Zhangshu (Yida) Tourism Development Limited Co. (Zhangshu Tourism Development), in Zhangshu City, Jiangxi Province to develop the China Yangsheng (Nourishing Life) Paradise tourim destination.
 
On July 7, 2010, Fujian Yunding formed a wholly-owned subsidiary, Jiangxi Fenyi (Yida) Tourism Development Limited Co. (Fenyi Tourism Development), in Xinyu City, Jiangxi Province to develop the City of Caves tourism destination.
  
 
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The following chart illustrates our current corporate structure:
 
Hong Kong Yi Tat is an entity that was created solely as the holding company for the operating entities, Fujian Jintai Tourism Industrial Development, Co, Ltd., and Fujian Jiaoguang Media, Co., Ltd., and Fujian Yida (Fujian) Tourism Group Limited, and Fujian Yida Tulou Tourism Development Co.. Ltd.  Hong Kong Yi Tat does not have any operations.  

Fujian Jintai Tourism Developments Co., Ltd. (“Fujian Jintai”) and its wholly owned subsidiary, Fuzhou Hongda Commercial Services, Ltd (“Hongda”) operate the Great Golden Lake, one of our tourism destinations.
 
 
 
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Yida (Fujian) Tourism Group Limited (f/k/a Fujian Yunding Tourism Industrial Co., Ltd, “Yida Tourism”) is engaged in the operations of our current tourism destinations, specifically the Yunding tourist destination, and the development of new tourism projects, specifically the China Yang-sheng (Nourishing Life) Paradise and the Ming Dynasty Entertainment World. In addition, Yida Tourism also operates our media business through its wholly owned subsidiary, Fuzhou Fuyu Advertising Co., Ltd. (“Fuzhou Fuyu”). Yida Tourism has 5 wholly-owned subsidiaries: Fujian Yintai, Fuzhou Fuyu, Yongtai Yunding Resort Management Co., Jiangxi Zhangshu (Yida) Tourism Development Co., Ltd, and Jiangxi Fenyi (Yida) tourism Development Co., Ltd. Jiangxi Zhangshu (Yida) Tourism Development Co., Ltd was newly formed on July 6, 2010 with its primary business relates to development and operation of the China Yang-sheng (Nourishing Life) Paradise. Jiangxi Fenyi (Yida) Tourism Development Co., Ltd was newly formed on July 7, 2010 with its primary business relates to development and operations of the City of Caves tourism destination. In addition, Yida Tourism formed Anhui Yida Tourism Development Co., Ltd, a joint venture with Anhui Xingguang Investment Group Ltd., with Yida Tourism holding 60% of the equity interest of Anhui Yida Tourism Development Co., Ltd.

Fujian Yida Tulou Tourism Development. Ltd’s primary business relates to the operation of Hua’An Tulou cluster tourism destination.

The primary business of Fujian Jiaoguang Media Co., Ltd. (“Fujian Jiaoguang”) is related to advertisements, including media publishing, television, cultural and artistic communication activities, and performance operation and management activities.
 
We do not have a direct ownership interest in Fujian Jiaoguang. However, we have accounted for this company as variable interest entity. On December 30, 2004, Jiaoguang and its shareholders entered into a set of contractual arrangements with us which governs the relationships between Fijian Jiaoguan and us.  The Contractual Arrangements are comprised of a series of agreements, including a Consulting Agreement and an Operating Agreement, through which we have the right to advise, consult, manage and operate Fujian Jiaoguang, and collect and own all of Fujian Jiaoguang’s respective net profits. Additionally, under a Proxy and Voting Agreement and a Voting Trust and Escrow Agreement, the shareholders of Fujian Jiaoguang have vested their voting control over Fujian Jiaoguang to the Company. In order to further reinforce the Company’s rights to control and operate Fujian Jiaoguang, Fujian Jiaoguang and its shareholders have granted us, under an Option Agreement, the exclusive right and option to acquire all of their equity interests in the Fujian Jiaoguang or, alternatively, all of the assets of Fujian Jiaoguang. Further, the shareholders of Fujian Jiaoguang have pledged all of their rights, titles and interests in Fujian Jiaoguang to us under an Equity Pledge Agreement. We effectuated this organizational structure due to China’s limitations on foreign investments and ownership in Chinese domestic businesses.  Generally, the Chinese law prohibits foreign entities from directly owning certain types of businesses, such as the media industry.  We have obtained an opinion from Allbright Law Office, our Chinese legal counsel, that this structure is legal and valid and that the U.S. holding corporation can obtain the same benefits and risks with this contractual structure as it would with a direct equity ownership.  

Our Business
 
The Great Golden Lake

The Great Golden Lake was recognized as the Global Geopark by the United Nations Educational, Scientific, and Cultural Organization (“UNESCO”) in February 2005. It is located in Taining, surrounding Sanming, Nanping of Fujian Province and Nanchang of Jiangxi Province. This world-class tourist attraction covers more than 230 square kilometers, including five (5) main scenic areas: (1) Golden Lake; (2) Shangqing River; (3) Zhuangyuan Rock; (4) Luohan Mountain; and (5) Taining Old Town.
 
 
 
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 In 2001, we entered into a tourism management revenue sharing agreement with Taining government, to operate and to manage the Great Golden Lake destination from 2001 through 2032. We have invested $30 million to improve the infrastructure, and through a well-designed marketing campaign, we have succeeded in increasing the number of the visitors from approximately 30,000 in 2001 to approximately 637,000 in 2009. Currently most visitors to the Great Golden Lake are from Fujian, Shanghai, Guangdong and Jiangxi. With easier transportation and increased marketing, we expect that the Great Golden Lake will attract more visitors from other provinces of China and even foreign countries. Our revenue from the operations of the Great Golden Lake is generated from entrance ticket fees and parking fees.
 
Hua’an Tulou Cluster (or the “Earth Buildings”)
 
The Tulou Cluster, composed of large multilayer earth buildings built by ancient wealthy families as their residence, is known for their unique round shape, ingenious structure and oriental mystery. The Tulou Cluster was recognized as a World Cultural Heritage site in 2008 by UNESCO. The Tulou Cluster is approximately 1.5 hour drive away from Xiamen City, one of China’s most famous tourist coastal cities.

In December 2008, we entered into a Tourist Resources Development Agreement with Hua’an County Government effective until 2048. Pursuant to this agreement, we began to develop the Hua’an Tulou tourist destinations with a right of priority to develop other scenic areas in Hua’an County. Hua’an Tulou cluster requires a total capital input of approximately $7.5 million to put it into infrastructure and facility constructions. The Hua’an Tulou Cluster was closed during the construction and re-opened to the public before the fourth quarter of 2009. Currently, approximately half of its visitors are from overseas, including Taiwan. We expect our revenue to be generated from the sale of entrance ticket fees, fees from rides on tour cars, and food at our restaurants.

Yunding Recreational Park

In November 2008, we entered into the Tourist Destination Cooperative Development Agreement with Yongtai County Government effective until 2048. Pursuant to the agreement, we obtained the exclusive right to develop the Yunding scenic areas, which is approximately 50 kilometer from Fuzhou. We plan to invest approximately $40 million to build the tourism, transportation and entertainment facilities. By the end of 2009, we had already invested approximately $33 million.  And we expect to generate revenue from entrance fees, cable cars and other entertainment activities. We expect that the Yunding Recreational Park will be open to public during the second half of 2010.

FETV

Covering 92% of the population of Fujian province located in southeastern China with a population of over 35 million, Fujian Education Television (“FETV”), owned by the Fujian Education TV Station, is a provincial comprehensive entertainment television channel ranked #4 in ratings in Fujian province (Source: ACNielsen 2008 Survey).

On August 1, 2010, Fuzhou Fuyu, our wholly-owned subsidiary,  entered into a Fujian Education Television Channel Project Management Agreement, with Fujian Education Media Limited Company, a wholly stated-owned company organized by the FETV under the laws of the People’s Republic of China (“Fuijan 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 (the “Term”), with the first three years of the Term, from August 1, 2010 to July 31, 2013, as phase I (the “Phase I”) and the remaining two years of the Term, from August 1, 2013 to July 31, 2015, the phase II (the “Phase II”).
 
 
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In exchange for the exclusive management rights for the FETV channel, we shall pay Fujian Education Media resource usage fees in the amount of RMB 12 million (approximately USD $1.76 million) for the first year, which amount shall be increased by 20% per year for each of the subsequent years during the Term.

At the end of the Phase I, we and Fujian Education Media shall conduct full performance review of our cooperation under the Agreement. If there is no event of violation or breach of contract, the Agreement shall be automatically extended to Phase II.
 
“Journey through China on the Train”

In February 2009, we entered into a six-year exclusive agreement with China Railway Media Center to create “Journey through China on the Train” infomercial programs, a part of China Railway Media Center’s master media program – CRTV that is usually 1 or 2 hours in length. We will produce customized 20-minute episode according to different routes of rail lines as part of CRTV to focus on China’s natural resources, culture and the history of tourism destinations, tourism advertisement and travel tips. The infomercial programs will be broadcast on7 railway lines into Tibet, all high speed motor trains in China with TV panels and cable TV channels covering 18 railway bureaus. We will pay an annual fee of approximately $46,154 or RMB 300,000 to Railway Media Center for the first three years and approximately $53,846 or RMB 350,000 for the second three years. We will generate revenue from selling embedded advertisements. At the end of 2009, “Journey through China on the Train” was shown on 31 railroad lines with 440 trains.
 
Ming Dynasty Entertainment World
 
On April 15, 2010, we, jointly with Anhui Xingguang Investment Group Ltd., a reputable privately held company engaged in real estate and commercial development in Anhui province, entered into an Emperor Ming Taizu Cultural and Ecological Resort and Tourist Project Finance Agreement with Anhui Province Bengbu Municipal Government, pursuant to which we and Anhui Xingguang will form a limited liability company, with a total registered capital of RMB 100 million (approximately $14.6 million) to engage in construction and development of a new tourism destination -- Ming Dynasty Entertainment World in Bengbu City, Anhui Province.

The Ming Dynasty Entertainment World will be built on approximately 5,000 Mu land (approximately 824 acres, 1 Mu = 6.07 acres, the “Project Land”), including recreational developments of Royal Hot Spring World, Royal Tour Town, Filial Piety Temple and Royal Hunting Garden.

On April 15, 2010, we entered into agreement with Anhui Xingguang Invest Group Ltd. to set up a joint venture – Anhui Yida Tourism Development Co. Ltd, the primary business of which is related to developing the Ming Dynasty Entertainment World.
 
China Yang-sheng (Nourishing Life) Paradise

On April 18, 2010 , we entered into a China Yang-sheng (Nourishing Life) Tourism Project Finance Agreement  with Jiangxi Province Zhangshu Municipal Government, pursuant to which we will invest in construction and development of China Yang-sheng (Nourishing Life) Paradise on approximately 6,000 Mu of land (approximately 988 acres, 1 Mu = 6.07 acres) in Zhangshu, Jiangxi province. Preliminarily, the Project includes (i) Salt Water Hot Spring SPA & Health Center, (ii) Yang-sheng Holiday Resort, (iii) World Yang-sheng Cultural Museum, (iii) International Camphor Tree Garden, (iv) Chinese Medicine and Herb Museum, (v) Yang-sheng Sports Club, (vi) Old Town of Chinese Traditional Medicine, and (vii) various other Yang-sheng related projects and tourism real estate projects.

On July 6, 2010, Yida (Fujian) Tourism Group Limited formed a wholly-owned subsidiary, Jiangxi Zhangshu (Yida) Tourism Development Limited Co. in Zhangshu, Jiangxi province, the primary business of which is focused on developing the China Yang-sheng (Nourishing Life) Paradise.

 
 
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The City of Caves

Effective June 1, 2010, we entered into a Jiangxi Province Fenyi County Tourist Resources Development Agreement with Fenyi County People’s Government , located in Xinyu city, Jiangxi province, pursuant to which Fenyi County People’s Government shall grant to us a 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. In addition, the Government shall grant to the Company a right of first refusal to develop, operate and manage other tourist resources in Fenyi County which are not included in the agreement.

On July 7, 2010, Yida (Fujian) Tourism Group Limited formed a wholly-owned subsidiary, Jiangxi Fenyi (Yida) Tourism Development Limited Co. in Xinyu, Jiangxi province, the primary business of which is focused on developing the City of Caves project.

Financings

Private Placement

On March 7, 2008, we entered into a definitive Securities Purchase Agreement for the sale of units of securities of the Company aggregating up to a maximum of $14,000,000.  Each unit of securities consist of: one (1) share of our common stock, $0.001 par value per share; and (ii) a Class A warrant to purchase an additional number of shares equal to 50% of our common stock.  The purchase price is $1.05 per unit.  In connection with the Securities Purchase Agreement, we also entered into (i) a Registration Rights Agreement; (ii) a Lock-Up Agreement, and (iii) a Make Good Agreement.
 
Registered Direct Offering

On February 2, 2010, we sold a total of 2,489,721 shares of our common stock at $11.50 per share in a registered direct offering for aggregate gross proceeds of $28,631,791 (net proceeds of $26,687,556) The shares were sold pursuant to a shelf registration statement on Form S-3 (File No. 333-163687), the statutory prospectus included therein, and its amendments thereto, that was declared effective by the Securities and Exchange Commission on January 20, 2010, and the prospectus supplement filed with the Securities and Exchange Commission on January 22, 2010.  Newbridge Securities, Inc. served as the sole placement agent in the transaction.
 
 
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Results of Operations

Three Months ended June 30, 2010 compared to Three Months ended June 30, 2009
 
Net Revenue:

Net revenue increased by $3.48 million or approximately 27%, from $12.89 million for the three months ended June 30, 2009 to $16.37 million for the three months ended June 30, 2010.  

Our revenue from advertisement for three months ended June 30, 2010 was $9.33 million and for the three months ended June 30, 2009 was $7.89 million, representing an increase of $1.44 or approximately 18%.  This increase in our revenue from advertisement was primarily due to (i) organic growth of FETV’s revenue from $7.89 million for three months ended June 30, 2009 to $7.94 million for three months ended June 30, 2010, and (ii) revenue growth of “Journey through China on the Train” recorded as $1.39 million for three months ended June 30, 2010.

Our revenue from tourism increased by $ 2.05 million or approximately 41%, from $5.00 million for the three months ended June 30, 2009 to $7.05 million for the three months ended June 30, 2010. The increase was primarily attributable to (i) an increase in the number of visitor arrivals to the Great Golden Lake, which resulted in a revenue growth of approximately $0.4 million, and (ii) approximately $1.65 million in revenue generated by the Hua'an Tulou Cluster which was in not in operations in the second quarter of 2009.

Cost of Revenue:
 
Cost of revenue increased by $0.63 million or approximately 25%, from $2.49 million for the three months ended June 30, 2009 to $3.12 for the three months ended June 30, 2010.

Our cost of revenue from advertisement in the three months ended June 30, 2009 decreased slightly by $4,302 from $1.914 million for the three months ended June 30, 2009.

Our cost of revenue from tourism for the three months ended June 30, 2010 was $1.20 million and for the three months ended June 30, 2009 was $0.57 million. This was an increase of $0.63 million or approximately 111%.  The substantial increase was the result of (i) a higher amount of business tax payment due to a revenue increase generated by our tourism business, (ii) additional costs incurred by the Hua'an Tulou Cluster which is newly open to public, and (iii) auditing adjustments to our profit sharing payment to Fujian local government for our tourist destination operations in Fujian province, which was reclassified from Operating Expense to Cost of Revenue.
 
Gross profit:
 
Our gross profit increased by $2.85 million, or approximately 27%, from $10.40 million in the three months ended June 30, 2009 to $13.25 million in the three months ended June 30, 2010. Our gross profit margin (gross profit divided by sales revenue) was 80.96% for the three months ended June 30, 2010, compared to the gross profit margin of 80.70% for the same period in 2009, representing a slight increase of 0.26%.
 
Operating Expenses:
 
Our operating expenses were $2.27 million in the three months ended June 30, 2010, compared to $1.85 million in the three months ended June 30, 2009, which represents an increase of $0.42 million, or approximately 23%. The increase in our operating expenses was primarily due to business expansions in our newly engaged operations – Tulou, Yunding and railroad TV program “Journey Through China on the Train.”
 
 
 
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Income Tax

Income tax was $2.89 million in the three months ended June 30, 2010, representing an increase of $1.30 million or approximately 81%, to the $1.59 million income tax in the three months ended June 30, 2009. The increase was primarily attributable to higher income before tax in the three months ended June 30, 2010.

Net Income:
 
As a result of the above factors, we have a net income of $8.11 million in the three months ended June 30, 2010 as compared to a net income of $6.95 million in the three months ended June 30, 2009, representing an increase of $1.16 million or approximately 17%, mainly due to the increase in total revenue and in gross profit margin.

Six Months ended June 30, 2010 compared to Six Months ended June 30, 2009
 
Net Revenue:

Net revenue increased by $8.46 million or approximately 37%, from $22.71 million for the six months ended June 30, 2009 to $31.18 for the six months ended June 30, 2010.  

Our revenue from advertisement for six months ended June 30, 2010 was $18.09 million and for the six months ended June 30, 2009 was $14.48 million, representing an increase of $3.61 million or approximately 25%.  This increase in our revenue from advertisement was primarily due to (i) organic growth of FETV’s revenue from $14.48 million for six months ended June 30, 2009 to $15.67 million for six months ended June 30, 2010, and (ii) revenue growth of “Journey through China on the Train” recorded as $2.42 million for six months ended June 30, 2010.

Our revenue from tourism increased by $4.85 million or approximately 59%, from $8.23 million for the six months ended June 30, 2009 to $13.08 million for the six months ended June 30, 2010. The increase was primarily attributable to (i) a higher number of visitor arrivals to the Great Golden Lake, which resulted in a revenue growth of approximately $2.02 million, and (ii) approximately $2.83 million in revenue generated by the Hua'an Tulou Cluster which was in not in operations in the second quarter of 2009.
 
 
 
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Cost of Revenue:
 
Cost of revenue increased by $1.33 million or approximately 28%, from $4.71 million for the six months ended June 30, 2009 to $6.04 million for the six months ended June 30, 2010.

Our cost of revenue from advertisement for the six months ended June 30, 2010 was $3.74 million and for the six months ended June 30, 2009 was $3.66 million, representing a slight increase of $0.08 million or approximately 2%.  

Our cost of revenue from tourism for the six months ended June 30, 2010 was $2.30 million and for the six months ended June 30, 2009 was $1.05 million.  This was an increase of $1.25 million or approximately 118%.  The substantial increase was the result of (i) a higher amount of business tax payment due to the increased revenue from our tourism business, (ii) additional costs incurred by the Hua'an Tulou Cluster which was newly open to public, and (iii) auditing adjustments to our profit sharing payment to the Fujian local government for our tourist destination operations in Fujian province, which was reclassified from Operating Expense to Cost of Revenue.
 
Gross profit:
 
Our gross profit increased by $7.14 million, or approximately 40%, from $17.99 million in the six months ended June 30, 2009 to $25.13 million in the six months ended June 30, 2010. Our gross profit margin (gross profit divided by sales revenue) was approximately 81% for the six months ended June 30, 2010, compared to the gross profit margin of approximately 79% for the same period in 2009, representing a slight increase of approximately 2%.
 
Operating Expenses:
 
Our operating expenses were $4.53 million in the six months ended June 30, 2010, compared to $2.76 million in the six months ended June 30, 2009, which represents an increase of $1.77 million, or approximately 64%. The increase in our operating expenses was primarily due to (i) business expansions in our newly engaged operations – Tulou, Yunding and railroad TV program “Journey Through China on the Train,” and (ii) increased financing costs associated with our registered direct offering in February 2010.
 
Income Tax

Income tax was $5.39 million in the six months ended June 30, 2010, representing an increase of $2.55 million or approximately 90%, compared to the $2.84 million income tax in the six months ended June 30, 2009. The increase was primarily attributable to higher income before tax during the six months ended June 30, 2010.

Net Income:
 
As a result of the above factors, we have a net income of $15.25 million in the six months ended June 30, 2010 as compared to a net income of $12.41 million in the six months ended June 30, 2009, representing an increase of $2.84 million or approximately 23%.

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity include cash from operations and proceeds from our private placement and registered direct offering in March 2008 and February 2010, respectively. These two offerings provided aggregate gross proceeds of approximately $42.6 million.

As of June 30, 2010, we had cash and cash equivalents of approximately $30.36 million as compared to approximately $8.88 million as of June 30, 2009, representing an increase of $21.48 million, which was primarily due to our registered direct offering mentioned above.  At June 30, 2010, our working capital was approximately $30.48 million.
 
 
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The following table sets forth a summary of our cash flows for the periods indicated:
 
   
For the Six Months June 30,
 
   
2010
(Unaudited)
   
2009
(Unaudited)
 
Net cash provided by operating activities
  $
18,296,934
    $
14,629,431
 
Net cash used in investing activities
  $
(26,266,157)
    $
(17,056,862)
 
Net cash provided by financing activities
  $
32,558,431
    $
2,487,257
 
 Effect of exchange rate changes on cash and cash equivalents  
  $
(7,077)
    $
101,066
 
 Net increase in cash and cash equivalents    
  $
24,582,131
    $
160,892
 
 Cash and cash equivalents, beginning of period
  $
5,776,678
    $
8,715,048
 
 Cash and cash equivalents, end of period
  $
30,358,809
    $
8,875,940
 
 
Net cash provided by operating activities was approximately $18.30 million for the six months ended June 30, 2010, compared to net cash provided by operations of approximately $14.63 million for six months ended June 30, 2009.  The $3.67 million increase was primarily due to the increase in net income during the six months ended June 30, 2010.

Net cash used in investing activities was approximately $26.27 million for the six months ended June 30, 2010, compared to net cash used in investing activities of approximately $17.06 million for the six months ended June 30, 2009, representing an increase in use of cash of $9.21 million, mainly due to (i) a loan of $5.76 million extended to a related party, and (ii) increase in investments of equipments, properties and construction in progress by amount of $3.45 million, primarily for our Yunding project.

Net cash provided by financing activities amounted to approximately $32.56 million for the six months ended June 30, 2010, compared to net cash provided by financing activities of approximately $2.49 million for the six months ended June 30, 2009, mainly due to  increase in non-controlling interest of $5.87 million for our newly formed subsidiary and the net proceeds from issuance of common stock in connection with a registered direct offering that we closed in February 2010.
 
2010-2011 Outlook

In second quarter 2010, we engaged three new tourism projects, the Ming Dynasty Entertainment World in Bengbu City, Anhui province, the China Yang-sheng (Nourishing Life) Paradise in Zhaungshu City, Jiangxi province, and the City of Caves in Fenyi City, Jiangxi province, which represent our commitment to expanding our business operations by applying our current business model to the development of other valuable tourist destinations throughout China. We expect these three projects will complete their first phase of construction and be open to the public by the end of 2012. In addition, we expect to complete the construction of our Yunding park and open it to the public in September 2010. Over the course of the next few years, we intend to further grow and expand our businesses in China’s tourism, media, entertainment and other related industry by acquiring additional tourist areas. Such acquisitions will be financed either through our revenues and cash flows or by financings and sales of our stock or other securities.  
  
Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates, and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operations. Critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require management’s difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our financial statements.
 
 
 
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Use of estimates
 
 The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the amount of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made. However, actual results could differ materially from those results.

Revenue recognition
 
Sales revenue is recognized at the date of service rendered to customers when a formal arrangement exists, the price is fixed or determinable, the services rendered, no other significant obligations of the Company exist and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue. Unearned revenue was $5,825 and $73,914 at June 30, 2010 and December 31, 2009, respectively, which was included in the accrued expenses and other payables.

Net revenue represents gross revenue net of Value Added Tax (“VAT”).
 
Revenues from advance resort ticket sales are recognized when the tickets are used. Revenues from our contractors who have tourism contracts with us are generally recognized over the period of the applicable agreements commencing with the tourists visit the resort.
 
The Company sells the television air time to third parties. The Company records advertising sales when advertisements are aired. The Company also sells admission and activities tickets for a resort which the Company has the management right.

The Company has no allowance for product returns or sales discount because services are rendered and accepted by the customers are normally not refundable and discounts are normally not granted after service is rendered.
 
Inflation and Seasonality
 
Our operating results and operating cash flows historically have not been materially affected by inflation or seasonality.
 
Off Balance Sheet Arrangements
 
We do not have 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, sales or expenses, results of operations, liquidity or capital expenditures, or capital resources that are material to an investment in our securities.

 
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Item 3.    Quantitative and Qualitative Disclosures about Market Risks

Interest Rates. Our exposure to market risk for changes in interest rates relates primarily to our short-term investments and short-term obligations; thus, fluctuations in interest rates would not have a material impact on the fair value of these securities. At June 30, 2010, we had $30.36 million in cash and cash equivalents.  A hypothetical 10% increase or decrease in interest rates would not have a material impact on our earnings or loss, or the fair market value or cash flows of these instruments.
 
Foreign Exchange Rates. The majority of our revenues derived and expenses and liabilities incurred are in Renminbi (the currency of the PRC). Thus, our revenues and operating results may be impacted by exchange rate fluctuations in the currency of Renminbi. We have not tried to reduce our exposure to exchange rate fluctuations by using hedging transactions. However, we may choose to do so in the future. We may not be able to do this successfully. Accordingly, we may experience economic losses and negative impacts on earnings and equity as a result of foreign exchange rate fluctuations.
 
Item 4.  Controls and Procedures

(a)      Evaluation of disclosure controls and procedures. Our disclosure controls and procedures are designed to ensure (i) that information required to be disclosed by us in the reports we file or submit under the Exchange Act are recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms; and (ii) that information required to be disclosed by us in the reports it files or submits under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. As of June 30, 2010 we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this report, our disclosure controls and procedures were effective at the reasonable assurance level.

However, our predecessor independent auditor, BDO Li Xin Da Hu, in connection with their resignation on August 8, 2010, indicated that we lacked a good system of internal controls, such as adequate documentation for certain transactions and lack of competent and well trained personnel to furnish US GAAP based reporting documents to be filed; which significantly delayed work progress. BDO Li Xin Da Hua did not issue any audit or review report on our financial statements from the appointment date of May 20, 2010 to the date of resignation, August 8, 2010.

Our management takes very seriously the strength and reliability of the internal control environment for the Company and intends to promptly undertake measures necessary to improve the control environment that include:

·  
maintaining effective communication with our independent auditors to mitigate any discrepancies that can potentially arise with the change of independent auditors,
·  
strengthening our finance team with additional qualified personnel and training in US GAAP reporting requirements, and
·  
developing a comprehensive plan and engaging required resources to further strengthening our internal controls, there is no assurance that these measures will effectively strengthen our internal control system.

Notwithstanding the above, our management believes that the condensed consolidated financial statements included in its reports fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.

We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. 
 
(b)     Changes in internal controls. During the period covered by this report, there was no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.
 
 
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PART II - OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS.
 
None.

ITEM 1A. RISK FACTORS

Investing in our common stock involves a high degree of risk. Before you invest, you should carefully consider the risks and uncertainties described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009 (the “2009 Form 10-K”), under the caption “Risk Factors,” our Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in Item 2 of Part I of this Quarterly Report on Form 10-Q, our condensed consolidated financial statements and related notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and our consolidated financial statements and related notes, as well as our Management’s Discussion and Analysis of Financial Condition and Results of Operations and the other information in our 2009 Form 10-K. Readers should carefully review those risks, as well as additional risks described in other documents we file from time to time with the Securities and Exchange Commission.

The following sets forth the material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2009.
 
WE DEPEND ON OUR KEY MANAGEMENT PERSONNEL AND THE LOSS OF THEIR SERVICES COULD ADVERSELY AFFECT OUR BUSINESS.

We place substantial reliance upon the efforts and abilities of Mr. Minhua Chen, our Chief Executive Officer, Ms. Yanling Fan, our Vice President of Operations, Mr. George Wung, our Chief Financial Officer, and Mr. Yongxi Lin, our Financial Controller. The loss of the services of any of our executive officers could have a material adverse effect on our business, operations, revenues or prospects.  We do not maintain key man life insurance on the lives of these individuals. We may not be able to attract or retain qualified management on acceptable terms in the future due to the intense competition for qualified personnel in our industry and as a result, our business could be adversely affected.
 
OUR PREDECESOR AUDITOR INDICATED THAT WE MAY LACK A GOOD SYSTEM OF DOCUMENTATION FOR CERTAIN TRANSACTIONS AND WELL TRAINED PERSONNEL TO FURNISH US GAAP BASED REPORTING DOCUMENTS TO BE FILED.  IF WE FAIL TO MAINTAIN AN EFFECTIVE SYSTEM OF INTERNAL CONTROL OVER FINANCIAL REPORTING, OUR ABILITY TO ACCURATELY AND TIMELY REPORT OUR FINANCIAL RESULTS OR PREVENT FRAUD MAY BE ADVERSELY AFFECTED AND INVESTOR CONFIDENCE AND THE MARKET PRICE OF OUR ORDINARY SHARES MAY BE ADVERSELY IMPACTED.
 
Our predecessor auditor, BDO Li Xin Da Hua resigned as our independent auditors on August 8, 2010 and indicated that we may lack a good system of internal controls, such as inadequate documentation for certain transactions and lack of competent and well trained personnel to furnish US GAAP based reporting documents to be filed; which significantly delayed work progress. Although our management intends to take several important steps to strengthen our financial reporting process, including, but not limited to,

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to annually furnish a report by our management on our internal control over financial reporting. Such report must contain, among other matters, an assessment by our principal executive officer and our principal financial officer on the effectiveness of our internal control over financial reporting, including a statement as to whether or not our internal control over financial reporting is effective as of the end of our fiscal year. This assessment must include disclosure of any material weakness in our internal control over financial reporting identified by management. In addition, under current SEC rules, we will be required to obtain an attestation from our independent registered public accounting firm as to our internal control over financial reporting for our annual report on Form 10-K for our fiscal year ending December 31, 2010. Performing the system and process documentation and evaluation needed to comply with Section 404 is both costly and challenging. During the course of our testing we may identify deficiencies which we may not be able to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act of 2002 for compliance with the requirements of Section 404. In addition, if we fail to maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002. Failure to achieve and maintain an effective internal control environment could also cause investors to lose confidence in our reported financial information, which could have a material adverse effect on the price of our common stock.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
None.
 
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
 
None.
 
 
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ITEM 4. (REMOVED AND RESERVED).  

ITEM 5. OTHER INFORMATION.
 
None.
 
ITEM 6. EXHIBITS.
  
   
10.1
Fujian Education Television Channel Project Management Agreement between Fuzhou Fuyu Advertising, Co. and Fujian Education Media Limited Company, dated August 1, 2010. *
   
31.1
Certification of Chen Minhua pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
31.2
Certification of George Wung pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
32.1
Certification of Chen Minhua pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
32.2
Certification of George Wung pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
  *Filed as Exhibit 10.1 to our current report on Form 8-K filed on August 4, 2010.
 
 
 
 
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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
   
 
China Yida Holding, Co.
       
       
Date: August 20, 2010 
By:
/s/ Chen Minhua
 
   
Chen, Minhua
Chief Executive Officer
 
       
Date: August 20, 2010
 
/s/ George Wung
 
   
George Wung
Chief Financial Officer
(Principal Financial Officer)
 

 
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