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EX-32.1 - CERTIFICATION - CHINA YIDA HOLDING, CO.f10q0312ex32i_chinayida.htm
EX-31.1 - CERTIFICATION - CHINA YIDA HOLDING, CO.f10q0312ex31i_chinayida.htm
EX-31.2 - CERTIFICATION - CHINA YIDA HOLDING, CO.f10q0312ex31ii_chinayida.htm
EX-32.2 - CERTIFICATION - CHINA YIDA HOLDING, CO.f10q0312ex32ii_chinayida.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
 
FORM 10-Q
_____________________
 
(Mark One)
x    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

or
 
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ______to______

Commission File Number: 000-26777

CHINA YIDA HOLDING, CO.
(Exact name of registrant as specified in its charter)

Delaware
 
50-0027826
(State or other jurisdiction
of incorporation or organization)
 
(I.R.S. Employer Identification No.)
   
28/F Yifa Building, No. 111 Wusi Road
Fuzhou, Fujian, P. R. China
 
350003
(Address of principal executive offices)
 
(Zip Code)

+ 86 (591) 2830 8999
 (Registrant's 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 of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x No 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 x 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.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
 
¨
  
Accelerated filer
 
¨
Non-accelerated filer
 
¨  (Do not check if a smaller reporting company)
  
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
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.
 
Class
 
Shares outstanding as of May 11, 2012
Common stock, $ 0.001 par value
 
19,551,785
 
 
 

 
  
INDEX
 
PART I – FINANCIAL INFORMATION
 
     
Item 1.
Financial Statements (Unaudited).
 
     
 
Condensed Consolidated Balance Sheets as of March 31, 2012 and December 31, 2011.
1
     
 
Condensed Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2012 and 2011.
2
     
 
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and 2011.
3
     
 
Notes to the Condensed Consolidated Financial Statements.
4
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
23
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
35
     
Item 4.
Controls and Procedures.
35
     
PART II – OTHER INFORMATION
 
     
Item 1.
Legal Proceedings.
36
     
Item 1A.
Risk Factors.
36
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
36
     
Item 3.
Defaults Upon Senior Securities.
36
     
Item 4.
Mine Safety Disclosures.
36
     
Item 5.
Other Information.
36
     
Item 6.
Exhibits.
36
     
SIGNATURES
37
 
 
 

 
 
PART 1 - FINANCIAL INFORMATION
 
Item 1.                      Financial Statements.

 
CHINA YIDA HOLDING CO. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
             
             
   
March 31,
   
December 31,
 
   
2012
   
2011
 
   
(UNAUDITED)
   
(AUDITED)
 
ASSETS
           
Current assets
           
  Cash and cash equivalents
  $ 4,141,437     $ 5,684,847  
  Accounts receivable
    220,804       129,849  
  Other receivables, net
    6,018,197       4,940,389  
  Advances and prepayments
    4,928,102       1,881,427  
  Prepayment - current portion
    317,529       207,117  
    Total current assets
    15,626,069       12,843,629  
                 
  Property and equipment, net
    110,500,842       110,593,580  
  Construction in progress
    28,688,017       25,964,029  
  Intangible assets, net
    42,952,853       32,355,010  
  Long-term prepayments
    4,315,544       12,758,763  
  Deferred tax assets
    -       104,078  
    Total assets
  $ 202,083,325     $ 194,619,089  
                 
LIABILITIES AND EQUITY
               
Current liabilities
               
  Short-term loans
  $ 950,540     $ 943,619  
  Long-term debt, current portion
    5,452,932       3,761,894  
  Accounts payable
    73,660       91,385  
  Current obligation under airtime rights commitment
    2,585,469       2,359,169  
  Accrued expenses and other payables
    603,665       638,175  
  Taxes payable
    1,237,049       1,223,528  
  Deferred tax liabilities - current
    -       67,644  
    Total current liabilities
    10,903,315       9,085,414  
                 
  Long-term obligation under airtime rights commitment
    800,523       1,548,928  
  Long-term debt
    30,073,508       26,040,732  
  Deferred tax liabilities - non-current
    94,437       -  
    Total liabilities
    41,871,783       36,675,074  
                 
Commitments and contingencies
               
                 
Equity
               
Preferred stock ($0.001 par value, 10,000,000 shares authorized, none issued and outstanding)
    -       -  
Common stock ($0.0001 par value, 100,000,000 shares authorized, 19,551,785 shares issued and outstanding as of March 31, 2012 and December 31, 2011, respectively)
    1,955       1,955  
Additional paid in capital
    49,147,415       49,129,165  
Accumulated other comprehensive income
    13,589,796       12,484,116  
Retained earnings
    88,881,445       87,715,182  
Statutory reserve
    2,549,330       2,549,330  
Total China Yida Holding, Co. Stockholders’ equity
    154,169,941       151,879,748  
Non-controlling interest
    6,041,601       6,064,267  
Total equity
    160,211,542       157,944,015  
Total liabilities and equity
  $ 202,083,325     $ 194,619,089  
                 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
 
1

 
 
CHINA YIDA HOLDING CO. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
 
(UNAUDITED)
 
             
   
For The Three Months Ended March 31,
 
   
2012
   
2011
 
Net revenue
           
  Advertisement
  $ 6,194,519     $ 9,868,374  
  Tourism
    1,536,190       1,915,103  
                 
Total net revenue
    7,730,709       11,783,477  
                 
Cost of revenue
               
  Advertisement
    1,559,000       2,434,822  
  Tourism
    1,267,593       1,089,401  
                 
Total cost of revenue
    2,826,593       3,524,223  
                 
Gross profit
    4,904,116       8,259,254  
                 
Operating expenses
               
  Selling expenses
    1,142,965       863,891  
  General and administrative expenses
    1,279,748       1,266,610  
                 
Total operating expenses
    2,422,713       2,130,501  
                 
Income from operations
    2,481,403       6,128,753  
                 
Other income (expense)
               
  Other expense, net
    (38,709 )     (5,343 )
  Interest income
    6,714       22,132  
  Interest expense
    (64,260 )     (192,400 )
                 
Total other expenses
    (96,255 )     (175,611 )
                 
Income before income tax and non-controlling interest
    2,385,148       5,953,142  
                 
Less: Provision for income tax
    1,286,188       2,005,690  
                 
Net income
    1,098,960       3,947,452  
                 
Net loss attributed to non-controlling interest
    67,303       11,634  
                 
Net income attributable to China Yida Holding Co.
  $ 1,166,263     $ 3,959,086  
                 
Net income
  $ 1,098,960     $ 3,947,452  
                 
Other comprehensive income
               
  Foreign currency translation gain
    1,150,317       851,519  
                 
Comprehensive income
    2,249,277       4,798,971  
                 
Comprehensive loss attributable to non-controlling interest
    22,666       48,640  
                 
Comprehensive income attributable to China Yida Holding Co.
  $ 2,271,943     $ 4,847,611  
                 
Earnings per share
               
- Basic
  $ 0.06     $ 0.20  
- Diluted
  $ 0.06     $ 0.20  
                 
Weighted average shares outstanding
               
- Basic
    19,551,785       19,551,785  
- Diluted
    19,551,785       19,895,190  
                 
                 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
                 
 
 
2

 
 
CHINA YIDA HOLDING CO. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(UNAUDITED)
 
   
   
For The Three Months Ended March 31,
 
   
2012
   
2011
 
             
 CASH FLOWS FROM OPERATING ACTIVITIES
           
 Net income
  $ 1,098,960     $ 3,947,452  
   Adjustments to reconcile net income to net cash provided by operating activities:
               
   Depreciation
    1,035,896       841,189  
   Amortization
    616,069       930,245  
   Stock based compensation
    18,250       362,331  
   Deferred tax expense
    130,871       23,178  
   Amortization of financing costs
    49,340       -  
 Changes in operating assets and liabilities:
               
   Accounts receivable
    (90,210 )     (12,091 )
   Other receivables, net
    (1,043,985 )     (67,279 )
   Advances and prepayments
    25,882       (149,580 )
   Accounts payable
    (18,438 )     (1,111,406 )
   Accrued expenses and other payables
    (39,282 )     (120,841 )
   Taxes payable
    4,556       (38,923 )
 Net cash provided by operating activities
    1,787,909       4,604,275  
                 
 CASH FLOWS FROM INVESTING ACTIVITIES
               
 Additions to property and equipment
    (129,857 )     (60,407 )
 Additions to construction in progress
    (2,539,415 )     (50,583 )
 Additions to intangible asset
    (1,441,611 )     -  
 Increase in refundable deposit - land use rights
    (3,065,788 )     -  
 Increase in long-term prepayments for acquisition of property,equipment and land use rights
    (485,074 )     (444,690 )
 Net cash used in investing activities
    (7,661,745 )     (555,680 )
                 
 CASH FLOWS FROM FINANCING ACTIVITIES
               
 Repayment of obligation under airtime rights commitment
    (552,047 )     (439,667 )
 Payment of deferred financing costs
    (675,813 )     -  
 Proceeds from long-term loans
    6,113,440       10,623,122  
 Repayment of long-term loans
    (595,465 )     -  
 Net cash provided by financing activities
    4,290,115       10,183,455  
                 
 EFFECT OF EXCHANGE RATE CHANGES ON CASH
    40,311       78,952  
                 
 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    (1,543,410 )     14,311,002  
 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    5,684,847       7,146,684  
 CASH AND CASH EQUIVALENTS, ENDING OF PERIOD
  $ 4,141,437     $ 21,457,686  
                 
 SUPPLEMENTAL DISCLOSURES:
               
 Non-cash investing activities:
               
      Transfer from advances and prepayments to intangible assets
  $ 9,558,997     $ -  
                 
 Cash paid during the period for:
               
      Income tax
  $ 1,183,552     $ 2,063,288  
      Interest
  $ 610,903     $ 192,400  
                 
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. (“China Yida”) and its subsidiaries (collectively the "Company”, “we”, “us”, or “our”) engage in tourism and advertisement businesses in the People’s 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 Tat, and with the shareholders of Keenway Limited at that time, 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 was incorporated as the holding company of our operating entities, Fujian Jintai Tourism Development Co., Ltd., and Fujian Jiaoguang Media Co., Ltd., Yida (Fujian) Tourism Group Limited, and Fujian Yida Tulou Tourism Development Co., Ltd. (“Tulou”).  Hong Kong Yi Tat does not have any other operation.  
 
Fujian Jintai Tourism Development Co., Ltd. (“Fujian Jintai”) has a wholly owned subsidiary, Fuzhou Hongda Commercial Services Co., Ltd., (“Hongda”).  The operation of Fujian Jintai is to develop the Great Golden Lake, one of our tourism destinations.
 
Hongda does not have any operation except for owning 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. Hongda ceased business and deregistered on December 2, 2011.
 
Fujian Jintai originally also owned 100% of the ownership interest in Fujian Yintai Tourism Co., Ltd. (“Yintai”). On March 15, 2010, 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 a wholly owned subsidiary of Fujian Yunding.  Yintai was deregistered on November 18, 2010.

Fujian Yida Tulou Tourism Development Co., Ltd.’s (“Tulou”) primary business relates to the operation of the Hua’An Tulou cluster, one of our tourism destinations.
 
On April 12, 2010, our operating subsidiary “Fujian Yunding Tourism Industrial Co., Ltd.” changed its name to “Yida (Fujian) Tourism Group Limited” for our expanding business in operations of domestic tourism destinations in China by acquiring new tourism destinations. Yida (Fujian) Tourism Group Limited’s (“Fujian Yida”) 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 Yida formed a wholly owned subsidiary, Yongtai Yunding Resort Management Co., Ltd. (“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”) and the Company’s contractual relationship comply with the requirements of the Accounting Standard Codification ("ASC") 810, to consolidate Fujian Jiaoguang’s financial statements as a Variable Interest Entity. During the current period, Fujian Jiaoguang had no material business operations.

Fuzhou Fuyu Advertising Co., Ltd. (“Fuyu”) 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.

On April 15, 2010, we entered into agreement with Anhui Xingguang Group to set up a new subsidiary – Anhui Yida Tourism Development Co., Ltd. ("Anhui Yida") 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 was $14,687,307 (equals RMB 100 million). Anhui Yida's primary business relates to the operation of our tourism destinations, specifically, Ming dynasty culture tourist destination.

 
4

 
 
CHINA YIDA HOLDING, CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
1. 
ORGANIZATION AND DESCRIPTION OF BUSINESS (CONTINUED)

On July 6, 2010 Fujian Yida formed a wholly owned subsidiary, Jiangxi Zhangshu (Yida) Tourism Development Co., Ltd. (“Zhangshu Yida”) which currently has no material business operations. The initial paid-in capital of Zhangshu Yida was $2,937,461 (RMB 20 million). On July 5, 2011, Fujian Yida and Fuyu further injected capital amounted to RMB 49 million and RMB1 million, respectively, to Zhangshu Yida. On March 20, 2012, Fujian Yida and Fuyu further injected capital amounted to RMB 29.4 million and RMB 0.6 million, respectively, to Zhangshu Yida, and the total paid-in capital increased to $15,842,337 (RMB100 million). We plan to develop Zhangshu Yida into a business entity primarily focusing on the operations of our new tourist destination, specifically, a Chinese traditional culture theme resort.

On July 7, 2010 Fujian Yida formed a wholly owned subsidiary, Jiangxi Fenyi (Yida) Tourism Development Co., Ltd. (“Fenyi Yida”) which currently has no material business operations. The initial paid-in capital of Fenyi Yida was $1,762,477 (RMB 12 million).  On July 7, 2011, Fujian Yida further injected capital amounted to RMB 48 million to Fenyi Yida and the total paid-in capital increased to $9,391,876 (RMB 60 million). We plan to develop Fenyi Yida into a business entity primarily focusing on the operations of our new tourist destination, specifically, a caves entertainment park.

On June 24, 2011, Fujian Yida formed a wholly owned subsidiary, Fujian Yida Travel Service Co., Ltd (the “Yida Travel”). The total paid-in capital of Yida Travel was $1,546,670 (RMB 10 million).  Its primary business is to conduct domestic and international traveling services in China, including operating the direct sales of travel services for our current tourist destinations at the Great Golden Lake, Yunding Recreational Park, and Hua’An Tulou Cluster, and our three tourist destinations currently under construction, Ming Dynasty Entertainment World, China Yang-sheng (Nourishing Life) Paradise, and the City of Caves.

2.  
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The unaudited condensed consolidated financial statements of China Yida Holding, Co. and Subsidiaries have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and pursuant to the requirements for reporting on Form 10-Q.  Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements.  However, the information included in these interim financial statements reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for the fair presentation of the consolidated financial position and the consolidated results of operations.  Results shown for interim periods are not necessarily indicative of the results to be obtained for a full year.  The consolidated balance sheet information as of December 31, 2011 was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K.  These interim financial statements should be read in conjunction with that report.  Certain comparative amounts have been reclassified to conform to the current period's presentation.
 
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. The functional currency is the Chinese Renminbi, however the accompanying condensed consolidated financial statements have been translated and presented in United States Dollars ($).

b. Principles of consolidation
 
The accompanying condensed consolidated financial statements include the accounts of China Yida and its wholly-owned subsidiaries Keenway Limited, Hong Kong Yi Tat, Fujian Jintai, Fuyu, Hongda, Fujian Yida, Tulou, Anhui Yida, Yongtai Yunding, Zhangshu Yida, Fenyi Yida, Yida Travel and the accounts of its variable interest entity, Fujian Jiaoguang. All significant inter-company accounts and transactions have been eliminated in consolidation.
 
Consolidation of Variable Interest Entities
 
According to the requirements of ASC 810, an Interpretation of Accounting Research Bulletin No. 51 that requires a Variable Interest Entity ("VIE"), the Company has evaluated the economic relationships of Fujian Jiaoguang which signed an exclusive right agreement with the Company. Therefore, Fujian Jiaoguang is considered to be a VIE, as defined by ASC Topic 810-10, of which the Company is the primary beneficiary.

The carrying amount and classification of Fujian Jiaoguang’s assets and liabilities included in the Condensed Consolidated Balance Sheets are as follows:

   
March 31,
2012
   
December 31,
2011
 
Total current assets *
 
$
12,296,913
   
$
12,091,197
 
Total assets
 
12,304,422
   
12,098,729
 
Total current liabilities #
 
10,334,705
   
10,011,732
 
Total liabilities
 
$
10,334,705
   
$
10,011,732
 

* Including intercompany receivables of $12,286,755 and $12,090,456 as at March 31, 2012 and December 31, 2011, respectively, to be eliminated in consolidation.

# Including intercompany payables of $9,328,434 and $9,009,187 as at March 31, 2012 and December 31, 2011, respectively,  to be eliminated in consolidation.

 
5

 
 
CHINA YIDA HOLDING, CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
c. Use of estimates and assumptions
 
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. The most significant estimates reflected in the condensed consolidated financial statements include depreciation, useful lives of property and equipment, deferred income taxes, useful life of intangible assets and contingencies. Estimates and assumptions are periodically reviewed and the effects of revisions are reflected in the condensed consolidated financial statements in the period they are determined to be necessary.
 
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. As of March 31, 2012 and December 31, 2011, the Company has uninsured deposits in banks of approximately $4,040,180 and $5,435,000.
 
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. 
 
f. Advances and prepayments
 
The Company advances funds to certain vendors for purchase of its construction materials and necessary services. Based on the management’s judgment, no allowance for advances and prepayments is required at the balance sheet dates.
 
g. Property and equipment
 
Property and equipment are recorded at cost less accumulated depreciation. Gains or losses on disposals are reflected as gain or loss in the year of disposal. The cost of improvements that extends 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 or lease term as follows:

Building
20 years
Electronic Equipment
5 to 8 years
Transportation Equipment
8 years
Office Furniture
5 to 8 years
Leasehold Improvement and Attractions
Lesser of term of the lease or the estimated useful lives of the assets

h. Intangible assets

Intangible assets consist of acquisition of management right of tourism destinations, commercial airtime rights and land use rights for tourism destinations.  They are amortized on the straight line basis over their respective lease periods. The lease period of management right, commercial airtime rights and land use rights is 30 years, 3 years and 40 years, respectively.

 
6

 
 
CHINA YIDA HOLDING, CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
2.  
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
i. Impairment
 
The Company reviews long-lived assets 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.
 
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 March 31, 2012 and December 31, 2011. 

j. Revenue recognition
 
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 satisfaction of all of the relevant criteria for revenue recognition are recorded as unearned revenue.

Revenues from advance tourism destinations 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 visiting the tourism destinations. The Company also sells admission and activities tickets for a tourism destination  which the Company has the management right.
 
The Company sells the television airtime to third parties. The Company records advertising sales when advertisements are aired.
 
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 has been rendered. 

Profit sharing costs are recorded as cost of revenue. Profit sharing arrangements with the local governments for the management rights (see Note 15):

For the three months ended March 31, 2012
           
   
Fujian Jintai
   
Tulou
 
Gross receipts
  $ 525,697     $ 522,650  
                 
Profit sharing costs
    76,766       -  
Nature resource compensation expenses
    43,093       60,615  
Total paid to the local governments
    119,859       60,615  
                 
Net receipts
  $ 405,838     $ 462,035  
                 

For the three months ended March 31, 2011
           
   
Fujian Jintai
   
Tulou
 
Gross receipts
  $ 771,024     $ 897,216  
                 
Profit sharing costs
    99,308       -  
Nature resource compensation expenses
    64,396       103,104  
Total paid to the local governments
    163,704       103,104  
                 
Net receipts
  $ 607,320     $ 794,612  
 
 
7

 
 
CHINA YIDA HOLDING, CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
2.  
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
k. 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 three months ended March 31, 2012 and 2011 were $152,822 and $60,585, respectively.

l. Post-retirement and post-employment benefits

Full time employees of subsidiaries of the Company participate in a government mandated multi-employer defined contribution plan pursuant to which certain pension benefits, medical care, employee housing, and other welfare benefits are provided to employees. Chinese labor regulations require that the subsidiaries of the Company make contributions to the government for these benefits based on a certain percentages of employees’ salaries. The Company has no legal obligation for the benefits beyond the contributions made. The total amounts for such employee benefits, which were expensed as incurred, were $53,506 and $41,963 for the three months ended March 31, 2012 and 2011, respectively. Other than the above, neither the Company nor its subsidiary provides any other post-retirement or post-employment benefits.
 
m. 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 and its subsidiaries in China is the Chinese Renminbi.

n. 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. A valuation allowance is recognized if it is more likely than not that some portion, or all, of a deferred tax asset will not be realized. The deferred income tax assets were $0 and $104,078 as March 31, 2012 and December 31, 2011, respectively.

The Company applied the provisions of ASC 740-10-50, “Accounting For Uncertainty In Income Taxes”, which provides clarification related to the process associated with accounting for uncertain tax positions recognized in our financial statements. Audit periods remain open for review until the statute of limitations has passed. The completion of review or the expiration of the statute of limitations for a given audit period could result in an adjustment to the Company’s liability for income taxes. Any such adjustment could be material to the Company’s results of operations for any given quarterly or annual period based, in part, upon the results of operations for the given period. As of March 31, 2012, management considered that the Company had no uncertain tax positions, and will continue to evaluate for uncertain positions in the future.

China Yida is subject to U.S. Federal and California state examination by tax authorities for years after 2007, and the PRC tax authority for years after 2006.

o. 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. The carrying amount of long-term loans approximates fair value since the interest rate associated with the debt approximates the current market interest rate.
 
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.

 
8

 
 
CHINA YIDA HOLDING, CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
2.  
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
p. 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.
 
q. Earnings 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 instruments were converted or exercised. Options and warrants are assumed to be exercised at the beginning of the period if the average stock price for the period is greater than the exercise price of the warrants and options.
 
r. Statutory Reserves

In accordance with the relevant laws and regulations of the PRC and the articles of association of the Company, the Company is required to allocate 10% of their net income reported in the PRC statutory accounts, after offsetting any prior years’ losses, to the statutory surplus reserve, on an annual basis. When the balance of such reserve reaches 50% of the respective registered capital of the subsidiaries, any further allocation is optional.

As of March 31, 2012, the statutory reserve of the subsidiaries already reached 50% of the registered capital of the subsidiaries and the Company did not have any further allocation on it.

The statutory surplus reserves can be used to offset prior years’ losses, if any, and may be converted into registered capital, provided that the remaining balances of the reserve after such conversion is not less than 25% of registered capital. The statutory surplus reserve is non-distributable.

s. 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.  The Company has two reportable segments: advertisement and tourism

t. Dividend Policy

Under the laws governing foreign invested enterprises in China, dividend distribution and liquidation are allowed but subject to special procedures under the relevant laws and rules. Any dividend payments will be subject to the decision of the Board of Directors and subject to foreign exchange rules governing such repatriation. Any liquidation is subject to both the relevant government agency’s approval and supervision as well as the foreign exchange control.

u. Reclassification

Certain reclassifications have been made to the 2011 consolidated financial statements to conform to the 2012 consolidated financial statement presentation. These reclassifications had no effect on net loss or cash flows as previously reported.

 
9

 
 
CHINA YIDA HOLDING, CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
2.  
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
v. Recent accounting pronouncements

In December 2011, the FASB issued revised guidance on “Disclosures About Offsetting Assets and Liabilities.” The revised guidance specifies that an entity should disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The revised guidance affects all entities that have financial instruments and derivative instruments. The revised guidance is effective for interim or annual periods beginning after January 1, 2013. We do not expect the adoption of this standard will have a material impact on our condensed consolidated financial statements.

In December 2011, FASB issued Accounting Standards Update No. 2011-12, Comprehensive Income (“ASU 2011-12”).  Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.  Among the new provisions in ASU 2011-05 was a requirement for entities to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement in which net income is presented and the statement in which other comprehensive income is presented (for both interim and annual financial statements); however this reclassification requirement is indefinitely deferred by ASU 2011-12 and will be further deliberated by the FASB at a future date.

In September 2011, the FASB has issued Accounting Standards Update (ASU) No. 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment. ASU 2011-08 is intended to simplify how entities, both public and nonpublic, test goodwill and other intangible assets such as patents for impairment. ASU 2011-08 permits an entity to first assess qualitative factors to determine whether it is "more likely than not" that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350, Intangibles-Goodwill and Other. The more-likely-than-not threshold is defined as having a likelihood of more than 50%. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance.  The Company does not expect the adoption of ASU 2011-08 to have a material effect on the Company’s condensed consolidated financial statements.

In June 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU No. 2011-05), Presentation of Comprehensive Income, an amendment to ASC Topic 220, Comprehensive Income.  Under this amendment, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  The new guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in stockholders’ equity.  While the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income under current accounting guidance.  The guidance for public entities is effective for fiscal years or interim periods beginning after December 15, 2011 with early adoption permitted.  The amendments in this update are to be applied retrospectively.  The Company does not expect the adoption of ASU 2011-05 to have a material effect on the Company’s condensed consolidated financial statements.
 
3.  
OTHER RECEIVABLES, NET

Other receivables consist of the following:

   
March 31, 2012
   
December 31, 2011
 
             
Refundable deposits - land use rights
  $ 5,682,646     $ 4,718,094  
Other
    356,398       242,990  
      6,039,044       4,961,084  
Less: Allowance
    (20,847 )     (20,695 )
    $ 6,018,197     $ 4,940,389  

Anhui Yida participated in a bid for several land use rights in Anhui Province, with the intention to develop our new tourism destination, Ming Dynasty Entertainment World.  Anhui Yida deposited $4,831,913 (RMB 30.5 million) with the local government of Anhui province to participate in the bid in 2011.  The deposit can be  applied to payment for the land use rights if the Company wins the bid or the Company may choose to receive the deposit returned by the government and make new payment for purchasing the land use rights after winning the bid.  On February 23, 2012, the local government of Anhui province refunded $2,951,427 (RMB 18.63 million) to Anhui Yida for certain of the land use rights that the Company had won the bid on.

OnMarch 31, 2012, Zhangshu Yida entered into a land use rights agreement with the local PRC government at City of Zhangshu in Jiangxi Province for the purchase of several land use rights for the development of our new tourism destination, China Yang-sheng Paradise..  Zhangshu Yida participated in a bid for those land use rights and deposited $3,802,161 (RMB 24 million) with the local government at City of Zhangshu to participate the bid during the first quarter of 2012.  The deposit can be applied to payment for the land use rights if the Company wins the bid or the Company may choose to receive the deposit returned by the government and make new payment for purchasing the land use rights after winning the bid.

 
10

 
 
CHINA YIDA HOLDING, CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

4.  
ADVANCES AND PREPAYMENTS

Advances and prepayments consist of the following:

   
March 31, 2012
   
December 31, 2011
 
             
Advance payments related to land use rights
  $ 3,981,359     $ 1,072,144  
Advance payments related to hotel facilities of Yunding Park
    143,828       142,781  
Advance payments related to construction cost of Great Golden Lake
    369,686       240,969  
Other
    436,350       428,631  
      4,931,223       1,884,525  
Less: Allowance
    (3,121 )     (3,098 )
    $ 4,928,102     $ 1,881,427  

As of March 31, 2012, advance payments related to land use rights mainly represented the advance payments made by Fujian Yida, Zhangshu Yida, and Fenyi Yida. Fujian Yida made advance payments to the local government of Yongtai County of $701,182 (RMB 4.4million) for an acquisition of land use rights, as well as advance payments of $3,168,467 (RMB 20 million) made by Zhangshu Yida to City of Zhangshu in Jiangxi Province relating to an acquisition of several land use rights for the development of China Yang-sheng Paradise (see Note 3).  Fenyi Yida made advance payments of $382,946 (RMB 2.4 million) on behalf of the local government to the existing user of the land to compensate for the acquisition of land for the development of the tourism destinations in Fenyi City.  The local government repaid $271,236 (RMB 1.7 million) to the Company at the end of January, 2012.

As of December 31, 2011, advance payments related to land use rights mainly represented the advance payments made by Fujian Yida and Fenyi Yida. Fujian Yida to the local government of Yongtai province of $691,987 (RMB4.4million) for the acquisition of land use rights. Fenyi Yida made advance payment of $380,157 (RMB2.4 million) on behalf of the local government to the existing user of the land to compensate for the acquisition of land for the development of the tourism destinations in Fenyi City.  The variances as compared to the amounts disclosed in the Company’s condensed consolidated financial statements as of March 31, 2012 were mainly the effect of foreign currency translation.
 
5.  
PROPERTY AND EQUIPMENT, NET
 
Property and equipment consist of the following:

   
March 31, 2012
   
December 31, 2011
 
             
Buildings, Improvements and Attractions
  $ 116,860,477     $ 116,009,545  
Electronic Equipment
    557,244       523,108  
Transportation Equipment
    2,514,760       2,399,339  
Office Furniture
    55,434       53,606  
      119,987,915       118,985,598  
Less: Accumulated Depreciation
    (9,487,073 )     (8,392,018 )
Property and equipment, net
  $ 110,500,842     $ 110,593,580  

For the three months ended March 31, 2012, the depreciation expense was $1,035,896, of which $1,018,248 and $17,648 was included in cost of sales and in general and administrative expenses, respectively.

For the three months ended March 31, 2011, the depreciation expense was $841,189, of which $834,920 and $6,269 was included in cost of sales and in general and administrative expenses, respectively.

 
11

 
 
CHINA YIDA HOLDING, CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

6.  
CONSTRUCTION IN PROGRESS
 
The construction in progress consists of the projects related to the construction of the following:

   
March 31, 2012
   
December 31, 2011
 
             
Great Golden Lake
  $ 3,070,513     $ 2,980,653  
China Yang-sheng Paradise
    13,386,401       12,049,824  
City of Caves
    12,231,103       10,933,552  
    $ 28,688,017     $ 25,964,029  

The construction in progress mainly related to the construction of new tourist resorts which the Company has developed. The estimated completion date of all these construction projects in progress will be September 30, 2012. The amount of capitalized interest included in construction in progress for the three months ended March 31, 2012 and 2011 amounted to $610,903 and $0, respectively.

Construction in progress of $0 and $14,735,861 were transferred to property and equipment during the three months ended March 31, 2012 and the year ended December 31, 2011, respectively.

7.  
INTANGIBLE ASSETS, NET

Intangible assets consist of the following:

   
March 31, 2012
   
December 31, 2011
 
             
Management right of tourist resort
  $ 5,544,818     $ 5,504,443  
Commercial airtime rights
    6,664,541       6,616,013  
Land use right
    36,495,862       25,334,867  
      48,705,221       37,455,323  
Accumulated amortization
    (5,752,368 )     (5,100,313 )
Intangible assets, net
  $ 42,952,853     $ 32,355,010  

Commercial airtime rights

On August 1, 2010, the Company entered into a commercial airtime rights agreement with a television station.  Under the terms of the agreement, the Company can obtain commercial airtime and resell to advertisers from August 1, 2010 to July 31, 2013 for a monthly fee of $158,423 (RMB 1,000,000) for the period from August 1, 2010 to July 31, 2011.  The fee is increased by 20% annually on every August 1.  From August 1, 2011 to July 31, 2012, the monthly fee is $190,108 (RMB1,200,000).  From August 31, 2012 to July 30, 2013, the monthly fee will be $228,130 (RMB1,440,000) for the period.  The agreement can be renewed for two additional years, with mutual agreement between the parties.  Since the Company is reselling the commercial airtime to advertisers, the Company has present-valued the monthly payments, including the 20% annual increase, using the market borrowing rate of 7% for three years and recorded $6.7 million (RMB 42,067,917) of commercial airtime rights as an intangible asset, $6.9 million (RMB 43,680,000) as an obligation under airtime rights commitment, and $253,532 (RMB 1,612,083) as deferred interest at inception.
 
At inception, the Company had made an initial assessment that there is no assurance the Company will exercise the option for two additional years and therefore, the Company has only considered the present value of the monthly fee for the first three years under the terms of the agreement.

Land use right

On October 31, 2010, the Company entered into an agreement with the local government in the PRC to acquire the land use rights for 40 years for the development of the Yunding Park.  The purchase consideration was $2,089,470 (RMB 13,189,150).

On October 31, 2011, the Company entered into a land use rights agreements with the local PRC governments for the purchase of the land use rights in Anhui to develop Ming Dynasty Entertainment World.  As of March 31, 2012, the Company paid approximately $10,639,306 (RMB 67.16 million), of which $9.13 million (RMB 58.08 million) was recorded at Long-Term Prepayments as of December 31, 2011 until the Company received the official certificates of land use rights issued by the government on February 29, 2012 and reclassified under Intangible Assets.

On November 3, 2011, the Company entered into five land use rights agreements with the local PRC governments for the purchase of the land use rights in Zhangshu City for 40 years to develop China Yang-sheng Paradise.  The total purchase consideration was $23,431,229 (RMB 147,902,605).

On December 13, 2011, the Company entered into a land use rights agreements with the local PRC governments for the purchase of the land use rights in Fenyi City to develop City of Caves.  As of March 31, 2012, the Company paid approximately $335,858 (RMB 2.12 million), which was recorded at Long-Term Prepayments as of December 31, 2011 until the Company received the official certificates of land use rights issued by the government on March 20, 2012 and reclassified under Intangible Assets.

 
12

 
 
CHINA YIDA HOLDING, CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

7.  
INTANGIBLE ASSETS, NET (CONTINUED)

Amortization expense for the three months ended March 31, 2012 and 2011 amounted to $616,069 and $930,245, respectively.

Estimated amortization for the next five years and thereafter is as follows:
 
As of March 31,
 
Amounts
 
2013
  $ 2,459,127  
2014
    1,163,244  
2015
    237,614  
2016
    237,614  
2017
    237,614  
Thereafter
    38,617,640  
    $ 42,952,853  
 
8.  
 LONG-TERM PREPAYMENTS

Long-term prepayments consist of the following:

   
March 31, 2011
   
December 31, 2011
 
             
Prepayments for project planning, assessments and consultation fees
  $ 2,664,517     $ 2,136,883  
Prepayments for acquisition of land use right and management right of tourist resort
    -       9,481,598  
Deferred financing costs, net of accumulated amortization of $118,141
    1,314,037       846,695  
Others
    336,990       293,587  
    $ 4,315,544     $ 12,758,763  

Prepayments for project planning, assessments and consultation fees represent advances relating to the planning, assessment and consultation for the development of other tourism destinations in Anhui province and Jiangxi province.

For the three months ended March 31, 2012 and 2011, the Company paid approximately $675,800 (RMB 4.3 million) and approximately $369,100 (RMB 2.4 million) of fees in order to obtain additional debt used to construct various resort projects.  These fees are deferred and amortized on a straight line basis over the life of the debt.

Estimated amortization of the deferred financing costs for the next five years and thereafter is as follows:
 
As of March 31,
 
Amounts
 
2013
  $ 262,530  
2014
    262,530  
2015
    262,530  
2016
    262,530  
2017
    262,530  
Thereafter
    318,916  
Total minimum payments
  $ 1,631,566  
Current portion recorded under prepayments - current portion
    (317,529 )
Long term portion
  $ 1,314,037  
         
 
 
13

 
 
CHINA YIDA HOLDING, CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

9.  
BANK LOANS
 
Short-term loans

Short-term loans represent borrowings from commercial banks that are due within one year. These loans consisted of the following:

   
March 31, 2012
   
December 31, 2011
 
             
Loan from Fujian Haixia Bank (formerly known as Merchant bank of Fuzhou), interest rate at 9.184% per annum, due November 4, 2012, guaranteed by Fujian Jintai Tourism Development Co., Ltd.
    950,540       943,619  
Total
  $ 950.540     $ 943,619  

Interest expense for the three months ended March 31, 2012 and 2011 amounted to $22,118 and $29,531, respectively. The interest expense for the three months ended March 31, 2012 and 2011 of $22,118 and $0, respectively was capitalized as part of construction in progress.

Long-term debt

Long term debt consists of the following:

   
March 31, 2012
   
December 31, 2011
 
             
Loan from Industrial and Commercial Bank of China Limited, interest rate at 7.76% per annum, final installment due October 25, 2018, collateralized by the right to collect resort ticket sales at the Great Golden Lake. (Note (a))
    13,782,833       13,682,472-  
                 
Loan from Industrial and Commercial Bank of China Limited, interest rate at 6.40% per annum, final installment due December 15, 2017, secured by credit guarantee of Fujian Jintai and the right to collect resort ticket sales at Yunding resort as additional collateral. (Note (b))
    10,297,519       10,615,711-  
                 
Loan from Industrial and Commercial Bank of China Limited, interest rate at 7.76% per annum, final installment due November 22, 2018, collateralized by the right to collect resort ticket sales at the Tulou resort, secured by the fixed assets of Fujian Tulou and personal guarantees by two of the Company’s directors as additional collateral. (Note (c))
    5,346,789       5,504,443-  
                 
Loan from China Minsheng Banking Corp, Ltd., interest rate at 11.97% per annum, final installment due November 20, 2014, secured by credit guarantee of Fujian Jintai, collateralized by the fixed assets of Fujian Yida and personal guarantees by two of the Company’s directors as additional collateral. (Note (d))
 
    6,099,300       -  
      35,526,440       29,802,626  
Less: current portion
    (5,452,932 )     (3,761,894 )
Total
  $ 30,073,508     $ 26,040,732  

Note:
(a)  
$1,967,618 (RMB12,420,000) will be due in each twelve-month period as of March 31, 2013, 2014, 2015, 2016, 2017 and 2018, respectively, and $1,977,124 (RMB12,480,000) will be due in the twelve-month period as of March 31, 2019.  In November 2011 and in March 2012, $475,270 and $221,714 of financing costs were paid in connection with this loan.
 
 
14

 
 
CHINA YIDA HOLDING, CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 
9.  
BANK LOANS (CONTINUED)
 
Long-term debt (continued)

(b)
$1,108,963 (RMB 7,000,000), $1,742,658 (RMB 11,000,000), $1,901,081 (RMB 12,000,000), $2,217,927 (RMB 14,000,000), $2,376,350 (RMB 15,000,000), and $950,539 (RMB 6,000,000) will be due in each of the twelve-month period as of March 31, 2013, 2014, 2015, 2016, 2017 and 2018, respectively.  In January 2011 and in March 2012, $385,286 and $380,216 of financing costs were paid in connection with this loan.

(c)
$792,116 (RMB 5,000,000) will be due in each twelve-month period as of March 31, 2013, 2014, 2015, 2016, 2017 and 2018, respectively, and $594,087 (RMB 3,750,000) will be due in the twelve-month period as of March 31, 2019. In December 2011 and in January 2012, $214,901 and $72,320 of financing costs were paid in connection with this loan.

(d) 
$1,584,233 (RMB 10,000,000), $4,119,008 (RMB 26,000,000), and $396,059 (RMB 2,500,000) will be due in each twelve-month period as of March 31, 2013, 2014, and 2015, respectively.

Interest expense for the three months ended March 31, 2012 and 2011 amounted to $588,785 and $147,260, respectively.  Interest expense for the three months ended March 31, 2012 and 2011 of $588,785 and $0, respectively was capitalized as part of construction in progress.

10.  
OBGLIATION UNDER AIRTIME RIGHTS COMMITMENT
 
Obligation under airtime rights commitment (See note 7) consists of the following:
 
As of March 31,
     
2013
  $ 2,585,469  
2014
    912,519  
      3,497,988  
Less: Deferred interest
    (111,996 )
      3,385,992  
Less: Current portion
    (2,585,469 )
    $ 800,523  

11.  
ACCRUED EXPENSES AND OTHER PAYABLES

Accrued expenses and other payables consist of the following:

   
March 31, 2012
   
December 31, 2011
 
             
Unearned revenue
  $ 1,439     $ 30,155  
Accrued payroll
    287,517       298,810  
Welfare payables
    23,601       23,428  
Other
    291,108       285,782  
    $ 603,665     $ 638,175  

12.  
INCOME TAX
 
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.

United States

The Company is incorporated in the United States of America and is subject to United States federal taxation. No provisions for income taxes have been made as the Company has no taxable income for the year. The applicable income tax rate for the Company for the three months ended March 31, 2012 and 2011 was 35% and 35%, respectively. No tax benefit has been realized since a valuation allowance has offset the deferred tax asset resulting from the net operating losses.

Cayman Islands

Keenway Limited, a wholly owned subsidiary of the Company, is incorporated in the Cayman Islands and, under the current laws of the Cayman Islands, is not subject to income taxes.

 
15

 
 
CHINA YIDA HOLDING, CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

12.
INCOME TAX (CONTINUED)

Hong Kong

Hong Kong Yi Tat, a wholly owned subsidiary of the Company, is incorporated in Hong Kong. Hong Kong Yi Tat is subject to Hong Kong taxation on its activities conducted in Hong Kong and income arising in or derived from Hong Kong. No provisions for income taxes have been made as Hong Kong Yi Tat has no taxable income for the year. The applicable statutory tax rate for the subsidiary for the three months ended March 31, 2012 and 2011 was 16.5% and 16.5%, respectively.

PRC

Effective on January 1, 2008, the PRC Enterprise Income Tax Law, EIT Law, and Implementing Rules impose an unified enterprise income tax rate of 25% on all domestic-invested enterprises and foreign investment enterprises in PRC, unless they qualify under certain limited exceptions. As such, starting from January 1, 2008, the Company’s subsidiaries in PRC are subject to an enterprise income tax rate of 25%.

Provision for income tax consists of the following:

   
For the three months Ended March 31,
 
   
2012
   
2011
 
             
Current
           
USA
  $ -     $ -  
China
    1,155,317       1,982,512  
      1,155,317       1,982,512  
                 
Deferred
               
USA
               
Deferred tax asset for NOL carry forwards
    67,936       518,045  
Valuation allowance
    (67,936 )     (518,045 )
      -       -  
China
               
Current portion
               
Temporary difference from general and administrative expenses
    -       (23 )
Net changes in deferred income tax under current portion
    -       (23 )
                 
Non-current portion
               
Deferred tax asset for NOL carry forwards
    658,559       5,100  
Temporary difference from airtime rights expenses
    104,078       (23,155 )
Temporary difference from capitalized interest
    26,793       -  
Valuation allowance
    (658,559 )     (5,100 )
Net changes in deferred income tax under non-current portion
    130,871       (23,155 )
                 
Net deferred income tax expenses (benefit)
    130,871       (23,178 )
                 
Total provision of income tax
  $ 1,286,188     $ 2,005,690  
 
 
16

 
 
CHINA YIDA HOLDING, CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the net operating losses and temporary differences become deductible. Management considered projected future taxable income and tax planning strategies in making this assessment.

The change in total allowance for the three months ended March 31, 2012 and 2011 was an increase of $726,495 and $17,430, respectively.

13.  
EQUITY
 
STOCK-BASED COMPENSATION
 
On January 21, 2011 (the “CFO Stock Option Grant Date”), the Company entered into a Non-qualified Stock Option Agreement with the Company’s former Chief Financial Officer, George Wung, pursuant to which, the Company issued non-qualified stock options (the “CFO Stock Options”) to purchase a total of 75,000 shares of the Company’s common stock as compensation for his services to be rendered as the Company’s Chief Financial Officer. 15,000 CFO Stock Options vested on the CFO Stock Option Grant Date; 20,000 CFO Stock Options shall vest on the one-year anniversary of the CFO Grant Date; 20,000 CFO Stock Options shall vest on the second-year anniversary of the CFO Grant Date; and 20,000 CFO Stock Options shall vest on the third-year anniversary of the CFO Grant Date.  The exercise price for all of the shares was determined as the fair value of our common stock using the closing price on the grant date.

On November 5, 2011, Mr. Wung submitted a letter of resignation resigning from his position. The resignation was effective as of December 31, 2011. Under the Non-qualified Stock Option Agreement, if CFO is removed from office for cause prior to the 21st day of January, 2012, any outstanding stock options held by him which are not vested and exercisable by him immediately prior to resignation shall terminate as of the date of removal, and any outstanding stock options held by CFO which is vested and exercisable immediately prior to removal shall be exercisable at any time prior to the expiration date of such stock option or within one-year after the date of removal, whichever is shorter. As a result, 60,000 CFO Stock Options were forfeited as of December 31, 2011. On January 6, 2012, Mr. Wung transferred options to purchase 15,000 shares to Mr. Minhua Chen, our Chairman and Chief Executive Officer, as a gift.

On January 21, 2011 (the “VPIR Stock Option Grant Date”), the Company entered into a Non-qualified Stock Option Agreement with the Company’s former Corporate Secretary and VP of Investor Relation, Wei Zhang, pursuant to which, the Company issued non-qualified stock options (the “VPIR Stock Options”) to purchase a total of 75,000 shares of the Company’s common stock as compensation for his services to be rendered as the Company’s VP of Investor Relation. 15,000 VPIR Stock Options shall vest on the VPIR Stock Option Grant Date; 20,000 VPIR Stock Options shall vest on the one-year anniversary of the VPIR Grant Date; 20,000 VPIR Stock Options shall vest on the second-year anniversary of the VPIR Grant Date; and 20,000 VPIR Stock Options shall vest on the third-year anniversary of the VPIR Grant Date. The exercise price for all of the shares was determined as the fair value of our common stock using the closing price on the grant date.
 
On November 5, 2011, Mr. Zhang submitted a letter of resignation resigning from his position. The resignation was effective as of December 31, 2011. Under the Non-qualified Stock Option Agreement, if VPIR is removed from office for cause prior to the 21st day of January, 2012, any outstanding stock option held by him which is not vested and exercisable by him immediately prior to resignation shall terminate as of the date of removal, and any outstanding stock options held by VPIR which is vested and exercisable immediately prior to removal shall be exercisable at any time prior to the expiration date of such stock option or within one-year after the date of removal, whichever is shorter. As a result, 60,000 VPIR Stock Options were forfeited as of December 31, 2011. On January 6, 2012, Mr. Zhang transferred options to purchase 15,000 shares to Mr. Minhua Chen, our Chairman and Chief Executive Officer, as a gift.

On March 17, 2011 (the “ID Stock Option Grant Date”), the Company entered into a Non-qualified Stock Option Agreement with the Company’s Independent Director, Michael Marks, pursuant to which, the Company issued non-qualified stock options (the “ID 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 Independent Director. One half of the ID Stock Options vested on the ID Grant Date and the second half of ID Stock Options vested on June 10, 2011.  The exercise price for all of the shares was determined as the fair value of our common stock using the closing price on the grant date.

On July 27, 2011, the Company entered into an agreement with the Company’s Independent Director, Michael Marks, pursuant to which, the Company granted 20,000 restricted shares of the Company’s common stock as compensation for his services to be rendered as the Company’s Independent Director from June 10, 2011 to June 9, 2012. The estimated value of the 20,000 shares was $73,000 on June 10, 2011. The unrecognized share based compensation expense as of March 31, 2012 and December 31, 2011 was approximately $18,250 and $36,500, respectively.  As of the date of this report, the issuance of the 20,000 restricted shares has been in process.
 
 
17

 
 
CHINA YIDA HOLDING, CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
13.  
EQUITY (CONTINUED)
 
The Company valued the stock options using the Black-Scholes model with the following assumptions:

Type of
Stock Option
 
Number
of
Options
   
Expected Term
   
Expected Volatility
   
Dividend Yield
   
Risk Free Interest
 Rate
 
Options to Chief Financial Officer
    75,000       6.25       60 %     0 %     3.44 %
                                         
Options to VP of Investor Relation
      75,000         6.25       60 %     0 %     3.44 %
                                         
Options to Independent Director
      30,000         6.25       60 %     0 %     3.25 %
      180,000                                  

The following is a summary of the option activity:
 
   
Number of Options
 
       
Outstanding as of December 31, 2011
    90,000  
Granted
    -  
Exercised
    -  
Forfeited
    --  
Outstanding as of March 31, 2012
    90,000  

For the three months ended March 31, 2012 and 2011, the Company recognized approximately $18,250 and $362,331, respectively, as stock-based compensation expense, which was included in general and administrative expenses.

The total unrecognized share-based compensation expense as of March 31, 2012 was approximately $18,250 which is expected to be recognized in 3 months.
 
 
18

 
 
CHINA YIDA HOLDING, CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

14.  
NON-CONTROLLING INTEREST
 
On April 15, 2010, the Company established a new subsidiary, Anhui Yida.  The Company has a 60% interest and Anhui Xingguang Group, an unrelated entity, holds a 40% interest.  Anhui Yida has not commenced operations as of March 31, 2012.  Non-controlling interest consisted of the following:

   
March 31, 2012
   
December 31, 2011
 
             
Balance bought forward
  $ 6,064,267     $ 94,595  
Accumulated deficits
    (67,303 )     (195,823 )
Accumulated other comprehensive income
    44,637       236,701 )
      6,041,601       135,473  
Add: Repayment from non-controlling interest
    -       5,928,794  
Balance carry forward
  $ 6,041,601     $ 6,064,267  

15.  
COMMITMENTS AND CONTINGENCIES

(1) Operating commitments
 
Operating commitments consist of leases for office space under various operating lease agreements which expire in April 2021.

Operating lease agreements generally contain renewal options that may be exercised at the Company’s discretion after the completion of the terms. The Company's obligations under various operating leases are as follows:
 
As of March 31,
 
Amounts
 
2013
  $ 333,639  
2014
    280,471  
2015
    273,646  
2016
    266,195  
2017
    271,983  
Thereafter
    12,764,033  
Total minimum payments
  $ 14,189,967  
         
 
The Company incurred rental expenses of $88,225 and $28,765 for the three months ended March 31, 2012 and 2011, respectively, which included $2,382 and $2,276, respectively, paid to Xin Hengji Holding Company Limited, a related party.

(2) Capital commitments

China Yang-sheng Paradise

As of March 31, 2012, the total estimated contract costs to complete China Yang-sheng Paradise are approximately $14,348,400 (RMB 90.57 million, excluding interest to be capitalized) of which the Company has completed and paid for approximately $13,386,400 (RMB 84.50 million), including capitalized interest.  The remaining will be completed and paid for by the end of 2012.

City of Caves

As of March 31, 2012, the total estimated contract costs to complete City of Caves are approximately $12,868,700 (RMB 81.23 million, excluding interest to be capitalized) of which the Company has completed and paid for approximately $12,231,100 (RMB 77.21 million), including capitalized interest.  The remaining will be completed and paid for by the end of 2012.

(3) Management rights commitments

In 2001, Fujian Jintai entered into a tourism management revenue sharing agreement which is related to the management rights with Fujian Taining Great Golden Lake Tourism Economic Development Zone Management Committee (“Taining government”) to operate and to manage the Great Golden Lake resort from 2001 through 2032. The Company agreed to pay (1) 8% of the revenue from 2001 to 2005; (2) 10% of the revenue from 2006 to 2010; (3)12% of the revenue from 2011 to 2015; (4) 14% of the revenue from 2016 to 2020; (5) 16% of the revenue from 2021 to 2025; 18% from 2026 to 2032 to the Taining government. The Company paid approximately $76,766 and $99,308 to the Taining government for the three months ended March 31, 2012 and 2011, respectively, and recorded as cost of revenue.

 
19

 
 
CHINA YIDA HOLDING, CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
16.  
COMMITMENTS AND CONTINGENCIES (CONTINUED)

(4) Compensation for using nature resources commitments

In 2007, Fujiang Jintai entered into an agreement with Taining government which is related to compensation fees for using nature resources in the Great Golden Lake resort. The Company agreed to pay 10% of the revenue from sale of resort tickets after deduction of the profit sharing with Taining government (see above). The Company paid approximately $43,093 and $64,396 to the Taining government for the three months ended March 31, 2012 and 2011, respectively, and recorded as selling expenses.

In December 2008, Tulou entered into a Tourist Resources Development Agreement with Hua’an County Government (“Hua’an government”) which is related to pay compensation fees for using nature resources in Tulou.  The Company agreed to pay (1) 16% of gross ticket sales in the first five years; (2) 20% of gross ticket sales in the second five years; (3) 23% of gross ticket sales in the third five years; (4) 25% of gross ticket sales in the fourth five years; (5) 28% of gross ticket sales in the fifth five years; (6) 30% in twenty six years and thereafter when the ticket price of the Tulou Clusters is RMB60 ($9.50 USD) or above per person.  The Company paid approximately $60,615 and $103,104 to the Hua’an government for the three months ended March 31, 2012 and 2011, respectively, and recorded as selling expenses.

(5) Litigation
 
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.

 
20

 
 
 CHINA YIDA HOLDING, CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
17.  
EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income attributable to common shareholders by the weighted average number of common shares outstanding during the period.  Diluted earnings per share reflects the potential dilution of securities by including other potential common stock, including convertible preferred stock, stock options and warrants, in the weighted average number of common shares outstanding for the period, if dilutive.  The numerators and denominators used in the computations of basic and dilutive earnings per share are presented in the following table:
 
   
For The Three Months Ended March 31,
 
   
2012
   
2011
 
BASIC
           
Numerator for basic earnings per share attributable to the Company’s common stockholders:
           
Net income used in computing basic earnings per share
 
$
1,166,263
   
$
3,959,086
 
                 
Basic earnings per share
 
$
0.06
   
$
0.20
 
                 
Basic weighted average shares outstanding
   
19,551,785
     
19,551,785
 
 
 
   
For The Three Months Ended March 31,
 
   
2012
   
2011
 
DILUTED
           
Numerator for diluted earnings per share attributable to the Company’s common stockholders:
           
Net income used in computing diluted earnings per share
 
$
1,166,263
   
$
3,959,086
 
                 
Diluted earnings per share
 
$
0.06
   
$
0.20
 
                 
Weighted average outstanding shares of common stock
   
19,551,785
     
19,551,785
 
Warrants
   
-
     
341,739
 
Options
   
-
     
1,666
 
Diluted weighted average shares outstanding
   
19,551,785
     
19,895,190
 
                 
Potential common shares outstanding as of March 31:
               
Warrants outstanding
   
-
     
773,812
 
Options outstanding
   
90,000
     
75,000
 
                 
 
For the three months ended March 31, 2012 and 2011, 90,000 and 75,000 options, respectively were not included in the diluted EPS because the average stock price was lower than the strike price of these options.
 
 
21

 
 
CHINA YIDA HOLDING, CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
18.  
BUSINESS SEGMENTS

During the three months ended March 31, 2012 and March 31, 2011, the Company is organized into two main business segments: advertisement and tourism. The primary business relates to tourism at the Great Golden Lake, Yunding Park and Tulou Cluster. 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 information for the two segments for the three months ended:
 
   
For The Three Months Ended March 31,
 
   
2012
   
2011
 
Revenues:
           
Advertisement
 
$
6,194,519
   
$
9,868,374
 
Tourism
   
1,536,190
     
1,915,103
 
 Total
 
$
7,730,709
   
$
11,783,477
 
                 
Operating income (loss):
               
Advertisement
 
$
4,473,703
   
$
7,252,673
 
Tourism
   
(1,784,740
   
(457,086
 
Others
   
(207,560
)
   
(666,834
)
 Total
 
$
2,481,403
   
$
6,128,753
 
                 
Net income (loss):
               
Advertisement
 
$
3,169,670
   
$
5,368,128
 
Tourism
   
(1,862,640
   
(730,161
 
Others
   
(208,070
)
   
(690,515
 Total
 
$
1,098,960
   
$
3,947,452
 
                 
Capital expenditure:
               
Advertisement
 
$
-
   
1,356
 
Tourism
   
2,669,272
     
109,634
 
 Total
 
$
2,669,272
   
$
110,990
 
                 
   
March 31, 2012
   
December 31, 2011
 
Identifiable assets:
               
Advertisement
 
$
3,116,536
   
$
4,134,036
 
Tourism
   
198,639,887
     
189,882,849
 
Others
   
326,902
     
602,213
 
 Total
 
$
202,083,325
   
$
194,619,098
 

Intangible assets:
               
Advertisement
 
$
2,962,018
   
$
3,491,785
 
Tourism
   
39,990,835
     
28,863,225
 
 Total
 
42,952,853
   
32,355,010
 

Others represent reconciling amounts including certain assets which are excluded from segments and adjustments to eliminate inter-company transactions.    
 
19.  
SUBSEQUENT EVENTS
 
The Company has evaluated events after the balance sheet date of these condensed consolidated financial statements through the date these condensed consolidated financial statements were issued.  There were no other material subsequent events as of that date.

 
22

 
 
Item 2.                      Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
The following discussion of our financial condition and results of operations should also be read in conjunction with our unaudited condensed consolidated financial statements and the notes to those financial statements appearing elsewhere in this Form 10-Q. The following discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 relating to future events or our future performance. Actual results may materially differ from those projected in the forward-looking statements as a result of certain risks and uncertainties set forth in 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.
 
Overview
 
The Company was formed on June 4, 1999 to serve as a vehicle to effect a merger, capital stock exchange, asset acquisition or other similar business combination with a company having its primary operations in the PRC. On November 19, 2007, we consummated the acquisition of Keenway Limited, Hong Kong Yi Tat, and the then shareholders of Keenway Limited, including Chen Minhua, Fan Yanling, Zhang Xinchen, Extra Profit International Limited, and Lucky Glory International Limited (collectively, the “Keenway Limited Shareholders”), received newly issued shares of our common stock (the “Merger”).
 
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), and Yunding Recreational Park (Large-scale National Recreational Park), covering over 300 square kilometers in total. Our media business provides operating management service, including channel and advertisement management for the FETV since 2004 and the “Journey through China on the Train” on-board railway program (“Railway Media”). As of December 31, 2010, we, through our wholly owned subsidiaries in China, have entered into four additional cooperation agreements respectively with the local Chinese government agents, namely, (i) the Anhui Province Bengbu Municipal Government; (ii) the Jiangxi Province Zhangshu Municipal Government; (iii) the Fenyi County, Xinyu City, Jiangxi Province Government; and (iv) the Fujian Education Media Limited Company, a wholly state-owned company organized by the Fujian Education Television Station (“FETV”). Under these agreements, we have obtained the right to construction and development of the Ming Dynasty Entertainment World Project (“Ming Dynasty Entertainment World”) including the purchase of the forty (40) years land use rights for a parcel of approximately 250 Mu for commercial land use purpose and another parcel of approximately 82.37 acres for industry land use purpose, as well as the construction of the Royal Hot Spring World project; the right to invest in construction and development of China Yang-sheng (Nourishing Life) Paradise Project (“Nourishing Life”) (including the following projects: (i) Salt Water Hot Spring SPA & Health Center, (ii) Yang-sheng Holiday Resort, (iii) World Yang-sheng Cultural Museum, (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) with a forty (40) year exclusive right to develop, operate and manage a variety of caves, hot springs and other natural and cultural tourist resources identified in the Meng Mountain area, and various caves and tourist resources of the Dagang Mountain located in Fenyi County, Xinyu City, Jiangxi Province (“The City of Caves”); and the five years (three year agreement with two year renewal) of exclusive management rights for the operation of the FETV channel (“FETV”).

We expect that our tourism business will be the primary source of our revenue over the next few years. Advertising business has been our primary source of revenue for the last two year because the tourism business has experienced the serious flooding and weather and the ads restriction was not executed by the local government. The revenue from advertising will decrease because of the new restriction on the advertisement and we expect that the revenue from tourism will increase. However, any increase in revenue will depend on the recovery of Great Golden Lake and the progress we make in our other tourist destinations. This expectation is also based on our new projects and construction of tourism destinations. Last year we experienced a significant flood at the Great Golden Lake which resulted in a sharp decrease of revenue because we had to close the park. It has taken a considerable amount of time for the natural beauty to be restored after the flood but we believe that the Great Golden Lake has started to recover and visitors will return to the park. Flooding does not occur on a regular basis either at the Great Golden Lake or in the province and we do not expect to see additional floods or other natural disasters affect our operations in the future. In 2012, at Great Golden Lake and at Hua’an Tulou, we do not anticipate much new construction as we are maintaining our existing operations and restoring what is already built and in operation. We do not expect any construction or restoration to affect our operations.  Our advertising and tourism businesses are not seasonal. We have visitors to our parks throughout the year.
 
 
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We are subject to risks common to companies operating in China, including risks inherent in our distribution and commercialization efforts, uncertainty of foreign regulatory approvals and laws, the need for future capital and retention of key employees. We cannot provide assurance that we will generate revenues or achieve and sustain profitability in the future.
 
Overview

Advertising Business

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

We generate our advertising revenue by selling air time to sponsors and companies that are interested in marketing their products to our television viewers. We incur administrative fees, business traveling fees, salaries, depreciation, automobile and interest costs in operating the advertising business.
 
The new PRC regulations set forth by the State Administration for Radio, Film and Television which bans certain television and radio advertisements has had a negative effect on our revenues and certain clients have not continued to advertise. Accordingly, we expect our revenues to decline.
 
Tourism Business

For the tourism business, our revenue is driven by the reputation of our tourist destinations. We strive to offer quality tourist attractions that offer our visitors diverse entertainment, including catering, hotel, transportation and shopping. We generate our revenue from our visitors and tourists who are looking to enjoy our tourist location. We incur many costs associated with operating the tourist business, including, administration fees, business traveling fees, land use rights fees, and revenue sharing fees.
 
We entered into tourism management revenue sharing agreement with the Taining government with respect to the Great Golden Lake resort. We have contracted to share the revenue over the course of the agreement as follows: (i) from 2001 to 2006 we will receive 92% of the revenue and the Taining government will receive 8% of the revenue; (ii) from 2006 to 2012 we will receive 90% of the revenue and the Taining government will receive 10% of the revenue; (iii) from 2012 to 2016 we will receive 88% of the revenue and the Taining government will receive 12% of the revenue; (iv) from 2016 to 2022 we will receive 86% of the revenue and the Taining government will receive 14% of the revenue; (v) from 2022 to 2026 we will receive 84% of the revenue and the Taining government will receive 16% of the revenue; and (vi) from 2026 to 2032 we will receive 82% of the revenue and the Taining government will receive 18% of the revenue. Because of the decreasing revenue share that we will receive from the Great Golden Lake resort and the resort has not been fully recovered to its previous level due to the flood, we may not be able to maintain our revenues from Great Golden Lake.

However, with the recovery of Great Golden Lake and the expected grand openings of three new tourism projects in the future, we believe that we will be able to generate more revenues in order to maintain the high gross profit margins in the tourism segment.
 
We do expect our tourism business to be our primary source of revenue over the next few years. Although Ming Dynasty, Yang-Sheng Paradise and City of Caves is not yet operating, we do expect them to be opened by the end of 2012 and to start generating revenue by 2013. Also, we expect Yunding to continue to grow and for the Great Golden Lake to recover from the flooding.
 
Results of Operations
 
During the three months ended March 31, 2012 and 2011, we are organized into two main business segments, tourism and advertisement. The following table presents a summary of operating information for the three months ended March 31, 2012 and 2011:
 
 
24

 
 
   
For the three months
   
For the three months
         
Increase/
 
 (All amounts, other than
 
ended
   
ended
   
Increase/
   
(Decrease)
 
 percentage, in U.S.
 
March 31,
   
March 31,
   
(Decrease)
   
Percentage
 
 Dollar)
 
2012
   
2011
   
U.S. Dollar ($)
   
(%)
 
Net revenue
 
 
   
 
   
 
   
 
 
Advertisement
  $ 6,194,519     $ 9,868,374     $ (3,673,855 )     (37.23 )
Tourism
    1,536,190       1,915,103       (378,913 )     (19.79 )
Total net revenue
    7,730,709       11,783,477       (4,052,768 )     (34.39 )
 
 
 
   
 
   
 
   
 
 
Cost of revenue
 
 
   
 
   
 
   
 
 
Advertisement
    1,559,000       2,434,822       (875,822 )     (35.97 )
Tourism
    1,267,593       1,089,401       178,192       16.36  
Total cost of revenue
    2,826,593       3,524,223       (697,630 )     (19.80 )
 
 
 
   
 
   
 
   
 
 
Gross profit
    4,904,116       8,259,254       (3,355,138 )     (40.62 )
 
 
 
   
 
   
 
   
 
 
Selling expenses
    1,142,965       863,891       279,074       32.30  
General and administrative expenses
    1,279,748       1,266,610       13,138       1.04  
Income from operations
    2,481,403       6,128,753       (3,647,350 )     (59.51 )
Other expense, net
    (38,709 )     (5,343 )     (33,366 )     624.48  
Interest income
    6,714       22,132       (15,418 )     (69.66 )
Interest expense
    (64,260 )     (192,400 )     128,140       (66.60 )
Less: Provision for income tax
    1,286,188       2,005,690       (719,502 )     (35.87 )
Net income
    1,098,960       3,947,452       (2,848,492 )     (72.16 )
Net loss attributable to non-controlling interest
    67,303       11,634       55,669       478.50  
Net income attributable to China Yida Holding Co.
  $ 1,166,263     $ 3,959,086     $ (2,792,823 )     (70.54 )

 
25

 
 
Net Revenue:
 
Net revenue decreased by approximately $4.05 million or 34%, from approximately $11.78 million for the three months ended March 31, 2011 to approximately $7.73 million for the three months ended March 31, 2012.  The decrease in net revenue was primarily due to the decrease in the revenue from advertisement.

Advertisement 
Our revenue from advertisement decreased by approximately $3.67 million or 37% from approximately $9.86 million for the three months ended March 31, 2011 to approximately $6.19 million for the three months ended March 31, 2012.  In February 2009, our wholly-owned subsidiary, Fuzhou Fuyu Advertising Co., Ltd., entered into a six-year exclusive agreement with China’s Railway Media Center to create “Journey through China on the Train” infomercial programs, pursuant to which we produce 20-minute monthly episodes focused on tourist destinations around China and travel ideas and tips with product placement advertisements.  The infomercial programs are broadcasted on all high speed motor trains in China with TV panels made available by the Ministry of Railways of PRC and cable TV channels.  We 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 generate revenue from selling product placement advertisements.  However, since the program is broadcasted manually by train attendants, we have no control over the frequency of program broadcasting, which results in the substantial instability of our railway media revenue.  We generated approximately $0.14 million from the “Journey through China on the Train” program for the quarter ended March 31, 2012 as compared to approximately $1.8 million for the same quarter in prior year.

The strict television advertising regulatory policy making by the government on educational television channel resulted in the decline in our advertisement revenue of FETV.  We generated approximately $6.05 million from the operation of FETV for the quarter ended March 31, 2012 as compared to approximately $8.07 million for the same quarter in prior year. 

Tourism
Our revenue from tourism decreased by approximately $0.38 million or approximately 20%, from approximately $1.92 million for the three months ended March 31, 2011 to approximately $1.54 million for the three months ended March 31, 2012, including approximately $0.53 million from the Great Golden Lake resort, $0.49 million from Yunding Park, and $0.52 million from Hua’an Tulou.  The primary sources of the revenues are entrance fees, tour shuttle bus fees and restaurants.  The revenue decrease in tourism business was primarily due to the revenue decrease at Tulou tourism destination due to strong competition among the homogeneous tourism destinations, including Nanjing Tulou Cluster and Yongding Tulou Cluster.
 
Cost of Revenue:
 
Cost of revenue decreased by approximately $0.70 million or approximately 20%, from approximately $3.52 million for the three months ended March 31, 2011 to approximately $2.83 million for the three months ended March 31, 2012.
 
Advertisement
Our cost of revenue from advertisement decreased by approximately $0.88 million or approximately 36%, from approximately $2.43 million for the three months ended March 31, 2011 to approximately $1.56 million for the three months ended March 31, 2012.  The Railway media clients demanded less broadcast programs due to the instability of the railway broadcasting, so the decrease in cost of media businesses was primarily due to the decrease of railway program productions.  Also the business tax decreased along with the decrease in the Company’s advertising revenue.

 
26

 
 
Tourism 
Our cost of revenue from tourism for the three months ended March 31, 2012 increased by approximately $0.18 million or approximately 16%, from approximately $1.09 million for the three months ended March 31, 2011 to approximately $1.27 million for the three months ended March 31, 2012. The increase was due to the increase in depreciation cost for the new construction of tourism destination in Yunding.

Gross profit:
 
Gross profit decreased approximately $3.36 million, or approximately 41%, from approximately $8.26 million for the three months ended March 31, 2011 to approximately $4.90 million for the three months ended March 31, 2012. Our gross profit margin was approximately 63% for the three months ended March 31, 2012, compared to approximately 70% for the same period in 2011, representing a decrease of approximately 7 percentage points.

Advertisement 
Our gross profit from advertisement decreased by approximately $2.80 million, or approximately 37%, from approximately $7.43 million for the three months ended March 31, 2011 to approximately $4.64 million for the three months ended March 31, 2012. Our gross profit margin from advertisement was approximately 75% for the three months ended March 31, 2012, which was consistent with the gross profit margin for the same period in 2011.

Tourism
Our gross profit from tourism decreased by approximately $0.56 million, or approximately 67%, from approximately  $0.83 million for the three months ended March 31, 2011 to approximately $0.27 million for the three months ended March 31, 2012. Our gross profit margin from tourism was approximately 17% for the three months ended March 31, 2012, compared to the gross profit margin of tourism of approximately 43% for the same period in 2011. The decrease of gross profit margin was primarily attributable to fixed cost derived from depreciation of property and equipment at tourism spots that remained steady despite the decrease in tourism revenue, as well as increase in depreciation cost for the new construction of tourism destination in Yunding.
 
Selling Expenses:

Our selling expenses were approximately $1.14 million for the three months ended March 31, 2012, compared to approximately $0.86 million for the three months ended March 31, 2011, which represents an increase of approximately $0.28 million, or approximately 32%. The increase in selling expense was primarily due to the increase in variable costs associated with the expansions at Yunding Park during the three months ended March 31, 2012.

General and Administrative Expenses:

Our general and administrative expenses were approximately $1.28 million for the three months ended March 31, 2012, compared to approximately $1.27 million for the three months ended March 31, 2011, which represents a slight increase of approximately $0.01 million, or approximately 1%.  General and administrative expenses remained substantially steady.

Income Tax:
 
Income tax was approximately $1.29 million for the three months ended March 31, 2012, representing a decrease of approximately $0.72 million or approximately 36%, compared to the approximately $2.01 million for the three months ended March 31, 2011. The decrease was primarily attributable to the lower revenue generated from the Tulou tourism destination, as well as decrease in the railway media revenue for the three months ended March 31, 2012 as compared with the same period in 2011.
 
Net Income:
 
As a result of the above factors, we have net income of approximately $1.10 million for the three months ended March 31, 2012 as compared to net income of approximately $3.95 million for the three months ended March 31, 2011, representing a decrease of approximately $2.85 million or approximately 72%. The decrease was primarily attributable to the lower revenue generated from the Tulou tourism destination, as well as the railway media revenue for the three months ended March 31, 2012 as compared with the same period in 2011.

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity during the three months ended March 31, 2012 include cash from operations and proceeds from long-term loans.  Net proceeds from long-term loans were approximately $5.52 million.
 
As of March 31, 2012, we had cash and cash equivalents of approximately $4.14 million as compared to approximately $5.69 million as of December 31, 2011, representing a decrease of $1.54 million. The decrease was due to the decrease in revenue generated from Tulou tourism destination and railway media broadcast, the increase in expenditures on activities related to obtaining land use rights and on constructions in progress at the China Yang-sheng Paradise and the City of Caves.

As of March 31, 2012, our working capital was approximately $4.72 million as compared to $3.76 million as of December 31, 2011. 

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

   
For the three months ended March 31,
 
   
2012
   
2011
 
             
Net cash provided by operating activities
 
$
1,787,909
   
$
4,604,275
 
Net cash used in investing activities
 
$
(7,661,745)
   
$
(555,680
)
Net cash provided by financing activities
 
$
4,290,115
   
$
10,183,455
 
 
Net cash provided by operating activities was approximately $1.79 million for the three months ended March 31, 2012, compared to approximately $4.60 million for the three months ended March 31, 2011.  The decrease of $2.82 million was primarily due to the decrease in revenue generated from the Tulou tourism destination, and railway media broadcasts.
 
 
27

 
 
Net cash used in investing activities was approximately $7.66 million for the three months ended March 31, 2012, compared to approximately $0.56 million for the three months ended March 31, 2011.  The increase in net cash used in investing activities was due to the increase in expenditures on activities related to obtaining land use rights and on constructions in progress at the China Yang-sheng Paradise and the City of Caves..
 
Net cash provided by financing activities amounted to approximately $4.29 million for the three months ended March 31, 2012, compared to approximately $10.18 million for the three months ended March 31, 2011, representing a decrease of approximately $5.89 million.  The decrease in net cash provided by financing activities was mainly because of the lower amount of bank loans obtained during the three months ended March 31, 2012 as compared to the three months ended March 31, 2011.

Bank loans

The Company has five bank loans from four institutional lenders for the development of the tourism destinations.
 
1.  
A loan for approximately $0.95 million from Fujian Haixia Bank (formerly known as Merchant bank of Fuzhou). The loan bears interest at 9.184% per annum, and is due November 4, 2012.  It is guaranteed by Fujian Jintai Tourism Development Co., Ltd.
 
2.  
A loan for approximately $13.78 million from Industrial and Commercial Bank of China Limited.  The loan bears interest at 7.76% per annum.  $1,967,618 (RMB 12,420,000) will be due in each twelve-month period as of March 31, 2013, 2014, 2015, 2016, 2017 and 2018, respectively, and $1,977,124 (RMB 12,480,000) will be due in the twelve-month period as of March 31, 2019.  It is collateralized by the right to collect ticket sales at the Great Golden Lake.
 
3.  
A loan for approximately $10.30 million from Industrial and Commercial Bank of China Limited.  It bears interest at 6.40% per annum.  $1,108,963 (RMB 7,000,000), $1,742,658 (RMB 11,000,000), $1,901,081 (RMB 12,000,000), $2,217,927 (RMB 14,000,000), $2,376,350 (RMB 15,000,000), and $950,539 (RMB 6,000,000) will be due in each of the twelve-month period as of March 31, 2013, 2014, 2015, 2016, 2017 and 2018, respectively.  It is secured by credit guarantee of Fujian Jintai and the right to collect ticket sales at Yunding Park as additional collateral.
 
4.  
A loan for approximately $5.35 million from Industrial and Commercial Bank of China Limited.  The loan bears interest at 7.76% per annum. $792,116 (RMB 5,000,000) will be due in each twelve-month period as of March 31, 2013, 2014, 2015, 2016, 2017 and 2018, respectively, and $594,087 (RMB 3,750,000) will be due in the twelve-month period as of March 31, 2019. It is collateralized by the right to collect ticket sales at the Tulou tourism destination, fixed assets of Fujian Tulou and personal guarantee by directors as additional collateral.
 
5.  
A loan for approximately $6.10 million from China Minsheng Banking Corp, Ltd.. The loan bears interest at 11.97% per annum. $1,584,233 (RMB 10,000,000), $4,119,008 (RMB 26,000,000), and $396,059 (RMB 2,500,000) will be due in each twelve-month period as of March 31, 2013, 2014, and 2015, respectively. It is secured by credit guarantee of Fujian Jintai, collateralized by the fixed assets of Fujian Yida and personal guarantees by two of the Company’s directors as additional collateral.
 
In the coming 12 months, we have approximately $6.40 million in bank loans that will mature. We plan to replace these loans with new bank loans in approximately the same aggregate amounts.

We believe that our currently available working capital, credit facilities referred to above and the expected additional credit facility should be adequate to sustain our operations at the current level for the next twelve months.
 
 
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Obligations Under Material Contracts

Below is a table setting forth the Company’s material contractual obligations as of March 31, 2012:

         
Payment due by period
 
Contractual Obligations
 
Total
   
 
1 year
   
1-3 years
   
3-5 years
   
More than
5 years
 
                               
Bank Loans
 
$
36,476,980
   
$
6,403,473
   
$
13,678,274
   
$
10,113,748
   
$
6,281,485
 
Operating Lease Obligations
   
14,189,967
     
333,639
     
554,117
     
538,178
     
12,764,033
 
Obligation under airtime rights
   
3,385,992
     
2,585,469
     
800,523
     
-
     
-
 
Total
 
$
54,052,939
   
$
9,322,581
   
$
15,032,914
   
$
10,651,926
   
$
19,045,518
 
 
Capital Commitments

China Yang-sheng Paradise
As of March 31, 2012, the total estimated contract costs to complete China Yang-sheng Paradise are approximately $14,348,400 (RMB 90.57 million, excluding interest to be capitalized) of which the Company has completed and paid for approximately $13,386,400 (RMB 84.50 million), including capitalized interest.  The remaining will be completed and paid for by the end of 2012.

City of Caves
As of March 31, 2012, the total estimated contract costs to complete City of Caves are approximately $12,868,700 (RMB 81.23 million, excluding interest to be capitalized) of which the Company has completed and paid for approximately $12,231,100 (RMB 77.21 million), including capitalized interest.  The remaining will be completed and paid for by the end of 2012.

Management Rights Commitments

In 2001, Fujian Jintai entered into a tourism management revenue sharing agreement which is related to the management rights with Fujian Taining Great Golden Lake Tourism Economic Development Zone Management Committee (“Taining government”) to operate and to manage the Great Golden Lake from 2001 through 2032. The Company agreed to pay (1) 8% of the revenue from 2001 to 2005; (2) 10% of the revenue from 2006 to 2010; (3)12% of the revenue from 2011 to 2015; (4) 14% of the revenue from 2016 to 2020; (5) 16% of the revenue from 2021 to 2025; 18% from 2026 to 2032 to the Taining government. The Company paid approximately $76,766 and $99,308 to the Taining government for the three months ended March 31, 2012 and 2011, respectively, and recorded as cost of revenue.

Compensation For Using Nature Resources Commitments

In 2007, Fujiang Jintai entered into an agreement with Taining government which is related to compensation fees for using nature resources in the Great Golden Lake. The Company agreed to pay 10% of the revenue from sale of tickets after deduction of the profit sharing with Taining government (see above). The Company paid approximately $43,093 and $64,396 to the Taining government for the three months ended March 31, 2012 and 2011, respectively, and recorded as selling expenses.

In December 2008, Yida Tulou entered into a Tourist Resources Development Agreement with Hua’an County Government (“Hua’an government”) which is related to pay compensation fees for using nature resources in Tulou Clusters. The Company agreed to pay (1) 16% of gross ticket sales in the first five years; (2) 20% of gross ticket sales in the second five years; (3) 23% of gross ticket sales in the third five years; (4) 25% of gross ticket sales in the fourth five years; (5) 28% of gross ticket sales in the fifth five years; (6) 30% in twenty six years and thereafter when the ticket price of the Tulou tourism destination is RMB60 ($9.50 USD) or above per person.  The Company paid approximately $60,615 and $103,104 to the Hua’an government for the three months ended March 31, 2012 and 2011, respectively, and recorded as selling expenses.
 
 
29

 

2012-2013 Outlook

In 2012, we will continue constructing and developing Yunding Park’s second phase of construction and three new tourism projects, the Ming Dynasty Entertainment World in Bengbu City, Anhui province, the China Yang-sheng (Nourishing Life) Paradise in Zhangshu 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 out of Fujian province and throughout China. The construction was in line with our schedule. We expect to complete the first phase construction of these three new projects and open them to the public by the end of 2012. In addition, in June 2011, we announced the establishment of our new subsidiary, Fujian Yida Travel Service Co., Ltd. Over the next three years, we will mainly focus on developing our existing six tourist destinations.  All required construction funds will be funded either from our net income and operating cash flow or will be financed through bank loans.

Critical Accounting Policies
 
The preparation of condensed consolidated 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 condensed consolidated 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 condensed consolidated financial statements.
 
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.  The functional currency is the Chinese Renminbi, however the accompanying condensed consolidated financial statements have been translated and presented in United States Dollars ($).

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 months ended March 31, 2012 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, 2011, filed on March 29, 2012 (the “Annual Report”).
 
Principles of consolidation
 
The accompanying condensed consolidated financial statements include the accounts of China Yida and its wholly-owned subsidiaries Keenway Limited, Hong Kong Yi Tat, Fujian Jintai, Fuyu, Hongda, Fujian Yida, Yida Tulou, Anhui Yida, Yongtai Yunding, Zhangshu Yida, Fenyi Yida, Yida Travel and the accounts of its variable interest entity, Fujian Jiaoguang. All significant inter-company accounts and transactions have been eliminated in consolidation.
 
Consolidation of Variable Interest Entities
 
According to the requirements of ASC 810, an Interpretation of Accounting Research Bulletin No. 51 that requires a Variable Interest Entity ("VIE"), the Company has evaluated the economic relationships of Fujian Jiaoguang which signed an exclusive right agreement with the Company. Therefore, Fujian Jiaoguang is considered to be a VIE, as defined by ASC Topic 810-10, of which the Company is the primary beneficiary.

The carrying amount and classification of Fujian Jiaoguang’s assets and liabilities included in the Condensed Consolidated Balance Sheets are as follows:

 
30

 

   
March 31,
2012
   
December 31,
2011
 
Total current assets *
 
$
12,296,913
   
$
12,091,197
 
Total assets
 
12,304,422
   
12,098,729
 
Total current liabilities #
 
10,334,705
   
10,011,732
 
Total liabilities
 
$
10,334,705
   
$
10,011,732
 

* Including intercompany receivables of $12,286,755 and $12,090,456 as at March 31, 2012 and December 31, 2011, respectively, to be eliminated in consolidation.

# Including intercompany payables of $9,328,434 and $9,009,187 as at March 31, 2012 and December 31, 2011, respectively, to be eliminated in consolidation.

Use of estimates and assumptions
 
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. The most significant estimates reflected in the condensed financial statements include depreciation, useful lives of property and equipment, deferred income taxes, useful life of intangible assets and contingencies. Estimates and assumptions are periodically reviewed and the effects of revisions are reflected in the condensed consolidated financial statements in the period they are determined to be necessary.

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. As of March 31, 2012 and December 31, 2011, the Company has uninsured deposits in banks of approximately $4,040,180 and $5,435,000.
 
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. 
 
Advances and prepayments
 
The Company advances funds to certain vendors for purchase of its construction materials and necessary services. Based on the management’s judgment, no allowance for advances and prepayments is required at the balance sheet dates.
 
Property and equipment
 
Property and equipment are recorded at cost less accumulated depreciation. Gains or losses on disposals are reflected as gain or loss in the year of disposal. The cost of improvements that extends 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 or lease term as follows: