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EXCEL - IDEA: XBRL DOCUMENT - HH BIOTECHNOLOGY HOLDINGS COFinancial_Report.xls
EX-31.1 - THE CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER REQUIRED BY RULE 13A-14(A) OR RULE 15D-14(A) - HH BIOTECHNOLOGY HOLDINGS COex311q033115.htm
EX-32.1 - THE CERTIFICATIONS REQUIRED BY RULE 13A-14(B) OR RULE 15D-14(B) AND 18 U.S.C. SECTION 1350 - HH BIOTECHNOLOGY HOLDINGS COex321q033115.htm

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-Q

[ X ]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2015

[   ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from          to

Commission File No. 0-23015

GREAT CHINA INTERNATIONAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)

Nevada
(State or other jurisdiction of
incorporation or organization)
 
87-0450232
(IRS Employer Identification No.)
 
C Site 25-26F President Building, No. 69 Heping North Street
Heping District, Shenyang 110003, Peoples Republic of China
(Address of principal executive offices)

0086-24-22813888
(Issuer’s telephone number)

Not Applicable
(Former name, address and fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-3 of the Exchange Act). (check one)
 
Large Accelerated Filer [  ]  Accelerated Filer [  ]  Non-Accelerated Filer [  ]  Smaller Reporting Company [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes [  ] No [X]

State the number of shares outstanding of each of the issuer’s classes of common equity:  As of April 30, 2015, there were 14,059,966 shares of common stock outstanding.



 
 

 


FORM 10-Q
GREAT CHINA INTERNATIONAL HOLDINGS, INC.

TABLE OF CONTENTS
   
Page
 
PART I.
Item 1.  Financial Information
 
     
 
Balance Sheet as of March 31, 2015 (Unaudited) and December 31, 2014
  3
     
 
Statements of Operations for the Three-Month Periods Ended March 31, 2015 and 2014 (Unaudited)
  4
     
 
Statements of Cash Flows for the Three-Month Periods Ended March 31, 2015 and 2014 (Unaudited)
  5
     
 
Notes to the Financial Statements
  6
     
 
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
  14
     
PART II.
Other Information
 
     
 
Item 6.  Exhibits
  17
     
 
Signatures
  17
 
2
 
 

 

GREAT CHINA INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2015 AND DECEMBER 31, 2014
(UNAUDITED)
   
As of
   
March 31,
2015
 
December 31,
2014
             
 ASSETS
 Current assets:
         
 
Cash and cash equivalents
4,842,596
 
8,799,261
 
Accounts receivable, net
 
80,446
   
21,424
 
Other receivable, net
 
747,527
   
629,956
 
Other current assets
 
16,044
   
15,374
 
Short-term loan receivable, net
 
-
   
4,029,269
           
 
   Total current assets
 
     5,686,613
   
       13,495,284
             
Long-term loan receivable, net
 
-
   
-
Property and equipment, net
 
203,789
   
207,295
Rental property, net
 
39,508,096
   
40,281,831
           
Total assets
$
45,398,498
 
$
53,984,409
             
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
         
 
Bank loans
$
9,969,350
 
$
21,242,304
 
Accounts payable
 
4,568,513
   
4,566,001
 
Accrued expenses
 
10,568
   
7,388
 
Other payable
 
2,231,847
   
2,208,408
 
Payable to disposed subsidiaries
 
839,771
   
839,013
 
Advances from tenants
 
1,627,478
   
1,449,792
 
Taxes payable
 
4,561,632
   
4,535,002
 
  Total current liabilities
 
23,809,159
   
34,847,908
             
Stockholders' equity:
         
 
Common stock, $.001 par value 50,000,000
     
 
   shares authorized, 14,059,966 and 11,759,966 issued and outstanding
         
 
   as of March 31, 2015 and December 31, 2014
 
14,060
   
11,760
 
Additional paid in capital
 
12,107,856
   
4,566,156
 
Subscription receivable
 
(4,610,000)
   
-
 
Statutory reserve
 
638,128
   
638,128
 
Accumulated other comprehensive income
 
4,607,540
   
4,624,890
 
Retained earnings
 
8,831,755
   
9,295,567
             
Total stockholders' equity
 
21,589,339
   
19,136,501
             
Total liabilities and stockholders' equity
$
 45,398,498
 
$
53,984,409
 
The accompanying notes are integral part of these condensed consolidated financial statements.
 
3
 
 

 
 
 
GREAT CHINA INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS
FOR THE THREE MONTHS ENDED MARCH 31, 2015 and 2014
(UNAUDITED)
 
   
  2015
 
  2014
           
 Revenues
         
 
 Rental income
1,367,187
 
$
1,711,812
 
 Management fee income
 
534,690
   
543,387
 
 Total revenues
 
1,901,878
   
2,255,199
             
 Cost of revenues
         
 
 Rental cost
 
1,106,711
   
1,141,627
 
 Management fee cost
 
434,969
   
496,543
 
 Total cost
 
1,541,680
   
1,638,170
 
       Gross profit
 
360,198
   
617,029
             
 Operation expenses
         
 
 Selling expenses
 
7,218
   
12,975
 
 General and administrative expenses
 
373,151
   
452,152
 
 Depreciation and amortization
 
5,015
   
4,511
 
   Total operation expenses
 
385,385
   
469,639
             
 Loss from operations
 
(25,187)
   
147,390
             
 Other income (expense)
         
 
 Disposal of parking lots income
 
-
   
-
 
 Other income, net
 
48,895
   
34,656
 
 Interest and finance costs
 
(487,519)
   
(532,462)
             
 
      Total other expense
 
(438,625)
   
(497,806)
             
 Loss before income taxes
 
(463,812)
   
(350,416)
             
 Provision for income taxes
 
  -
   
  -
             
 Net loss
 
(463,812)
   
(350,416)
             
 Other comprehensive loss:
         
 
Foreign currency translation adjustment
 
(17,350)
   
(628,743)
             
 Comprehensive loss
(481,162)
   
(979,159)
             
Net loss per share
         
 
 Basic
( 0.04)
 
(0.03)
 
 Diluted
  (0.04)
 
  (0.03)
             
Weighted average number of shares outstanding
 
 Basic
 
11,785,522
   
11,759,966
 
 Diluted
 
11,785,522
   
11,759,966
 
 
The accompanying notes are integral part of these condensed consolidated financial statements.
 
4
 
 

 
 
GREAT CHINA INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014
  (UNAUDITED)
 
   
March 31,
   
 2015
 
 2014
Cash flows from operating activities:
         
Net loss
$
(463,812)
 
$
(350,416)
Adjustments to reconcile net loss to net cash provided by operating activities:
         
Net cash provided by operating activities
         
 
Depreciation and amortization
 
815,139
   
815,536
 
Provision for doubtful accounts
 
-
   
-
Changes in operating assets and liabilities:
         
 
Accounts receivable and other receivable
 
(126,674)
   
(185,842)
 
Advances to suppliers
 
(48,321)
   
-
 
Other current assets
 
(652)
   
1,013
 
Accounts payable and accrued expenses
 
23,171
   
205,083
 
Advances from tenants
 
175,364
   
(215,719)
 
Income and other taxes payable
 
22,405
   
(229,753)
             
Net cash provided by operating activities
$
396,621
 
$
39,903
             
Cash flows used in investing activities:
         
 
Purchase of property & equipment
 
(1,315)
   
(638)
           
           
 Net cash used in investing activities
 
(1,315)
   
(638)
           
Cash flows from financing activities:
         
 
Loans repayment from the borrowing parties
 
4,009,760
   
-
 
Loans paid to the bank
 
(11,227,327)
 
 
-
 
Proceeds from stock issuance, net of offering costs
 
2,934,000
   
-
           
Net cash used in financing activities
 
(4,283,567)
   
-
             
Effect of exchange rate change on cash and cash equivalents
 
(68,404)
   
(166,224)
             
Net decrease in cash and cash equivalents
$
(3,956,665)
 
$
(126,960)
             
Cash and cash equivalents, beginning of period
$
8,799,261
 
$
7,115,476
             
Cash and cash equivalents, end of period
$
4,842,596
 
$
6,988,517
             
Supplemental disclosures of cash flow information:
         
 
Interest paid
$
493,112
 
$
534,849
 
Income taxes
 
-
   
-

The accompanying notes are integral part of these condensed consolidated financial statements.
 
5
 
 

 

GREAT CHINA INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1.             Description of business

Great China International Holdings, Inc., (the “Company”) was incorporated in the State of Nevada on December 4, 1987, under the name of Quantus Capital, Inc. The Company, through its various subsidiaries, is engaged in commercial and residential real estate leasing, management, consulting, investment, development and sales in the city of Shenyang, Liaoning Province, in the People’ Republic of China (“PRC”).

2.             Summary of significant accounting policies

 Unaudited Interim Financial Information

The accompanying unaudited financial statements of the Company have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the interim periods are not necessarily indicative of the results for any future period. These statements should be read in conjunction with the Company's audited financial statements and notes thereto for the fiscal year ended December 31, 2014. The results of the three months periods ended Mar 31, 2015 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2015

Principles of consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant inter-company transactions and balances within the Company are eliminated in consolidation.

Use of estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Foreign currency translation

The Company uses the United States dollar for financial reporting purposes. The Company’s subsidiaries maintain their books and records in their functional currency - Chinese Yuan Renminbi (CNY), being the primary currency of the economic environment in which their operations are conducted. All assets and liabilities are translated at the current exchange rate, stockholder’s equity are translated at the historical rates and income statement and statement of cash flows items are translated at the average exchange rate for the period. As a result, amounts related to assets and liabilities reported on the statement of cash flows may not necessarily agree with changes in the corresponding balances on the balance sheet. The resulting translation adjustments are reported under other comprehensive as a component of shareholders’ equity.
 
6
 
 

 
 
Cash and cash equivalents

The Company considers all cash on hand and in banks, including accounts in book overdraft positions, certificates of deposit and other highly-liquid investments with maturities of three months or less, when purchased, to be cash and cash equivalents.

Allowance for doubtful accounts

The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and other 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. As of March 31, 2015 and December 31, 2014, the Company reserved $1,819,441 and $1,817,799 respectively, for other receivable bad debt, and $706,328 and $705,691, respectively, for accounts receivable bad debt. The Company also reserved $4,783.030 and $4,778,713 respectively for loans receivable as of March 31, 2015 and December 31, 2014 respectively.

Property and equipment

Property and equipment is being depreciated over the estimated useful lives of the related assets. Depreciation is computed on the straight-line basis over useful lives as follows:

Buildings
8-26 years
Equipment
5 years
Automobile
5 years
Office furniture and fixtures
5 years
 
Repairs and maintenance costs are normally charged to the statement of operations and other comprehensive income in the year in which they are incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the asset, the expenditure is capitalized as an additional cost of the asset.

Property and equipment are evaluated annually for any impairment in value. Where the recoverable amount of any property and equipment is determined to have declined below its carrying amount, the carrying amount is reduced to reflect the decline in value. There were no property and equipment impairments recognized as of March 31,2015 and December 31, 2014 respectively.

Properties held for rental

Properties include buildings held for rental and land use rights, which are being depreciated over the estimated useful lives of the related assets. Depreciation is computed on the straight-line basis over 20-26 years. As of March 31, 2015 and December 31, 2014, net property held for rental amounted to $39,508,096 and $40,281,831 respectively. Accumulated depreciation of rental properties amounted to $34,190,284 as of March 31, 2015 and $33,350,033 as of December 31, 2014.

Revenue recognition

Rental income and management fee income – The Company recognizes the rental income on the straight-line basis over the terms of the tenancy agreements. The management fee, including the service fee mainly for property management, maintenance and repair, and security, is recognized quarterly over the terms of the tenancy agreements.
 
7
 
 

 

 
Real estate sales – Revenue from the sales of development properties is recognized by the full accrual method when the sale is consummated. A sale is not considered consummated until (1) the parties are bound by the terms of a contract, (2) all consideration has been exchanged, (3) any permanent financing of which the seller is responsible has been arranged, (4) all conditions precedent to closing have been performed, (5) the seller does not have substantial continuing involvement with the property, and (6) the usual risks and rewards of ownership have been transferred to the buyer. Sales transactions not meeting all the conditions of the full accrual method are accounted for using the deposit method of accounting. Under the deposit method, all costs are capitalized as incurred, and payments received from the buyer are recorded as a deposit liability.

Real estate capitalization and cost allocation – Real estate held for development or sale is stated at cost or estimated net realizable value, whichever is lower. Costs include land and land improvements, direct construction costs and development costs, including predevelopment costs, interest on indebtedness, real estate taxes, insurance, construction overhead and indirect project costs. Selling and advertising costs are expensed as incurred. Total estimated costs of multi-unit developments are allocated to individual units based upon specific identification methods.
 
Impairment – If real estate is determined to be impaired, it will be written down to its fair market value. Real estate held for development or sale costs include the cost of land use rights, land development and home construction costs, engineering costs, insurance costs, wages, real estate taxes, and interest related to development and construction. All costs are accumulated by specific projects and allocated to residential and commercial units within the respective projects. The Company leases the land for the residential unit sites under land use rights with various terms from the government of the PRC. The Company evaluates the carrying value for impairment based on the undiscounted future cash flows of the assets. Write-downs of inventory deemed impaired would be recorded as adjustments to the cost basis. No depreciation is provided for construction in progress.
 
Other income

Other income consists of land leveling income, parking lot income, cleaning income and etc. This income was recognized as the services were performed and the settled amount has been paid in accordance with the terms of the agreement.

Earnings (loss) per share

Basic earnings (loss) per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed by dividing net income by the weighted-average number of common shares and dilutive potential common shares outstanding during the period.
 
On March 31, 2015, the Company had issued 2,300,000 shares of common stock to two non-U.S. unrelated business entities, the basic and diluted weighted-average number of common shares are 11,766,267 and 11,759,966 as of March 31, 2015 and December 31, 2014, respectively.

Stock issuance

On March 31, 2015, the Company completed the sale of 2,300,000 shares of its common stock at a price of US$3.28 per share, or a total of $7,544,000, to two non-U.S. unrelated business entities. The Company had received $2,934,000 from these two entities, and the remaining subscription payment of $4,610,000 was received on April 14, 2015. There are no options or warrants associated, nor conversion features embedded in this transaction.
 
Income taxes

The Company accounts for income taxes using an asset and liability approach which allows for the recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
 
8
 
 

 
 
 
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the difference are expected to affect taxable income.

The Company records a valuation allowance for deferred tax assets, if any, based on its estimates of its future taxable income as well as its tax planning strategies when it is more likely than not that a portion or all of its deferred tax assets will not be realized.

Concentrations of business and credit risk

Financial instruments that potentially subject the Company to concentrations of credit risk are cash and cash equivalents, accounts receivable and other receivables arising from its normal business activities. The Company places its cash and cash equivalents in what it believes to be credit-worthy financial institutions. The Company maintains large sums of cash in two major banks in China. The aggregate balance in such accounts as of March 31,2015 was $1,855,485. There is no insurance securing these deposits in China. The Company has a diversified customer base, most of which are in China.

The Company controls credit risk related to accounts receivable through credit approvals, credit limits and monitoring procedures. The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited.

Statement of cash flows

Cash flows from the Company's operations is calculated based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows may not necessarily agree with changes in the corresponding balances on the balance sheet.

Recent accounting pronouncements

There have been no new accounting pronouncements as the date of March 31, 2015 that are of significance, or potential significance, to the Company.
 
Reclassifications

Certain amounts in the 2014 financial statements may have been reclassified to conform to the 2015 presentation. These reclassifications had no effect on previously reported results of operations or retained earnings.

3.             Going concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of its liabilities in the normal course of business. The Company has a working capital deficit of $18,122,546 and $21,352,624 as of March 31,2015 and December 31, 2014, respectively.  In addition, the Company has incurred net loss in the period ended March 31,2015 and December 31, 2014 of $463,812 and $4,313,420 respectively.  As the Company has limited cash flow from operations, its ability to maintain normal operations is dependent upon obtaining adequate cash to finance its overhead, sales and marketing activities.  Additionally, in order for the Company to meet its financial obligations, including salaries, debt service and operations, it has maintained substantial short term bank loans that have historically been renewed each year.  The Company’s ability to meet its cash requirements for the next twelve months largely depends on the bank loans that involve interest expense requirements that reduce the amount of cash we have for our operations.  These factors raise substantial doubt about the Company's ability to continue as a going concern.
 
9
 
 

 
 
 
The Company is in the process of obtaining informal assurance from our current lender that our short term loans will continue to be renewed and further opening dialog with the lender to convert the short term loans to long term loans.  Additionally, the Company is assessing its ability to increase rental rates for its leasing business in order to generate additional revenue.  Further, the Company is continuing to focus efforts on cost containment to reduce general and administrative expenses.  With its relevant hands-on expertise, the Company also plans to expand operations to include property management.  The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

4.             Loans receivable

The company entered into series of collateralized loan agreements with third parties from 2009, the total loan receivable is $0 and $4,029,269 as of March 31, 2015 and December 31, 2014, respectively.

During 2011, the Company entered into a collateralized loan agreement with Beijing Sihai Real Estate Development Ltd.(Sihai), due on November 29, 2013, and then resigned the agreement at the same terms due on November 29, 2015.  The loan bears interest at a variable rate based on the Peoples’ Bank of China lending rate applicable to the period plus 10%. During 2011-2015 the Company loaned more money to Sihai through reassigned the agreement and also received part of loan payment from Sihai. As of March 31, 2015, the balance of loan capital was $2,766,575. Although the loan will be due on November 29, 2015, the Company accrued bad debt pr ovision of $2,766,575 with the consideration of uncertain collectability of the remaining loan balance.  The net loan receivable from Sihai, was $0 and $2,764,078 as of March 31, 2015 and December 31, 2014, respectively.

During 2011, the Company entered into a collateralized loan agreement with Shenyang Landing Concrete Ltd., pursuant to which, the Company loaned $2,419,745, due on March 27, 2013.  The loan bears interest at a variable rate based on the Peoples’ Bank of China lending rate applicable to the period.  On November 30, 2011, the Company, along with Shenyang Landing Concrete Ltd., reassigned the loan amount to Kaiyuan Hongyun Concrete Admixture Ltd., with the same terms due on November 30, 2013.  In August 15, 2013, the loan agreement was extended to August 15, 2015, on the same terms. As of the March 31, 2015, the company collected all the loan receivable from Kaiyuan Hongyun Concrete Admixture Ltd.

During 2009, the Company entered into an uncollateralized loan agreement with Zhongxin Guoan Ltd., pursuant to which the Company loaned $2,016,454 due on October 30, 2011.  The loan bore interest at a variable rate based on the Peoples’ Bank of China lending rate applicable to the period.  Subsequent to the issuance of the loan, the Company determined that the loan was uncollectible and recorded a reserve on the entire loan amount.  Therefore this loan is not included in the loans receivable on the balance sheet. During the fourth quarter of 2011, this loan was reassigned to Shenyang Konggang New City Investment Development Ltd., who is working on a development project with Zhongxin Guoan Ltd.  The loan remains uncollateralized and is now due on October 30, 2015.  The loan bears interest at a variable rate based on the Peoples’ Bank of China lending rate applicable to the period.
 
5.             Property and equipment

Property, Plant & Equipment consisted of the following:

 
March 31,
2015
 
December 31,
 2014
           
Building
$
15,825
 
$
15,811
Automobile
 
1,187,917
   
1,186,845
Office equipment & Furniture
 
579,418
   
578,069
   
1,783,160
   
1,780,725
Accumulated depreciation
 
(1,579,371)
   
(1,573,430)
Property and equipment, net
$
203,789
 
$
207,295
 
10
 
 

 
 
The Company recorded depreciation expense relating to properties held for rental, as well as property and equipment amounting to $815,139 and $ 815,536 for the months ended March 31,2015 and 2014, respectively, of which, $5,015 and $4,511 were recorded as general and administrative expense, respectively.

As of March 31, 2015, fixed assets and rental property totaling $30,451,195 were pledged as security for various bank loans totaling $9,969,350.

6.             Accrued expenses

Accrued expenses consisted of the following:
 
 
March 31,
2015
 
December 31,
 2014
           
Payroll and welfare payable
$
3,812
 
$
2,773
Accrued expenses
 
6,756
   
4,615
Total
$
10,568
 
$
7,388

7.             Other payables

Other payables consisted of the following:

 
March 31,
2015
 
December 31, 
 2014
           
Customer guarantee deposit
$
1,159,961
 
$
1,146,627
Customer deposit for property decoration
 
17,721
   
17,705
Miscellaneous payable
 
1,054,166
   
1,044,077
Total
$
2,231,847
 
$
2,208,408
 
8.             Tax payables

Tax payables consisted of the following:

 
March 31,
2015
 
December 31,
 2014
           
Income tax payable in Mainland China
$
1,450,951
 
$
1,449,641
Business tax
 
656,037
   
647,510
Land VAT payable
 
2,420,571
   
2,418,386
Other levies
 
34,073
   
19,465
Total
$
4,561,632
 
$
4,535,002
 
11
 
 

 

 
9.             Payable to disposed subsidiary

The Company had amounts due to a Loyal Best, a previously disposed of entity, as of March 31,2015 and December 31, 2014 in the amount of $839,771and $839,013, respectively.

10.           Loan Payable

Loans payable (including accrued interest) consisted of the following:

Nature
 
Due on
 
Interest per Annum
 
March31,
2015
 
December 31,
 2014
                     
Bank loan
 
6-12-2015
 
8.775%
 
$
6,452,654
 
$
6,446,830
Bank loan
 
10-13-2015
 
10.395%
   
3,516,696
   
14,795,474
                     
Less current portion
           
  -
   
  -
           
$
9,969,350
 
$
21,242,304
 
The above loans are secured by Company rental properties.
 
For the year ended March 31, 2015 and 2014, the Company’s incurred interest expense of $493,112 and $534,849 , respectively.

11.           Statutory reserve

As stipulated by the Company Law of the People’s Republic of China (PRC), net income after taxation can only be distributed as dividends after appropriation has been made for the following:
 
i.
Making up cumulative prior years’ losses, if any;
   
ii.
Allocations to the “Statutory Surplus Reserve” of at least 10% of income after tax, as determined under PRC accounting rules and regulations, until the fund amounts to 50% of the Company’s registered capital;
   
iii.
Allocations of 5% to 10% of income after tax, as determined under PRC accounting rules and regulations, to the Company’s “Statutory Common Welfare Fund”, which is established for the purpose of providing employee facilities and other collective benefits to the Company’s employees; and statutory common welfare fund is no longer required per the new cooperation law executed in 2006; and
   
iv.
Allocations to the discretionary surplus reserve, if approved in the stockholders’ general meeting.
 
The Company did not contribute to statutory reserve for the period ended March 31,2015 and 2013, respectively, due to the net loss incurred for its Chinese operation.

12.           Segment information

ASC 280 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.
 
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During 2015 and 2014, the Company was organized into two main business segments: (1) Property for sale, and (2) Rental income and Income of management fee of commercial buildings. The following table presents a summary of operating information and certain year-end balance sheet information as of year ended of March 31,2015 and 2014, respectively.

     
 March 31
     
  2015
 
  2014
 Revenues from unaffiliated customers:
         
 
 Rental income & Management fee
 
1,901,878
   
2,255,199
   
 Consolidated
$
1,901,878
   
2,255,199
 Operating income (loss):
         
 
 Rental income & Management fee
 
23,733
   
197,731
 
 Corporation (1)
 
(48,920)
   
(50,340)
   
 Consolidated
$
(25,187)
   
147,390
 Net loss before taxes:
         
 
 Rental income & Management fee
 
(414,827)
   
(334,284)
 
 Corporation (1)
 
(48,985)
   
(16,132)
   
 Consolidated
$
(463,812)
   
(350,416)
 Identifiable assets: 
         
 
 Rental income & Management fee
 
42,418,105
   
57,349,099
 
 Corporation (1)
 
2,980,393
   
69,072
   
 Consolidated
$
45,398,498
   
57,418,171
 Depreciation and amortization:
         
 
 Rental income & Management fee
 
815,139
   
815,536
 
  Corporation (1)
         
   
 Consolidated
$
815,139
   
815,536
               
 Capital expenditures:
         
 
 Rental income & Management fee
 
1,315
   
638
   
 Consolidated
$
1,315
   
638

(1). Unallocated loss from Operating income (loss) and Net income before provision for income taxes are primarily related to general corporate expenses.
 
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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Caution Regarding Forward-Looking Information
 
The following discussion and analysis should be read in conjunction with our consolidated financial statements prepared in accordance with accounting principles generally accepted in the USA. Unless otherwise indicated, references in this discussion to “we”, “our” and “us” are to Great China International Holdings, Inc., and its subsidiaries.
 
Any statements in this discussion that are not historical facts are forward-looking statements that involve risks and uncertainties; actual results may differ from the forward-looking statements.  Sentences or phrases that use such words as “believes”, “anticipates”, “plans”, “may”, “hopes”, “can”, “will”, “expects”, “is designed to”, “with the intent”, “potential” and others indicate forward-looking statements, but their absence does not mean that a statement is not forward-looking.  This information may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from the future results, performance or achievements expressed or implied by any forward-looking statements.  We do not undertake any obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Executive Summary

Great China International Holdings, through its various subsidiaries, is or has been engaged in commercial and residential real estate leasing, management, consulting, investment, development and sales, We conduct all our operation in the People’s Republic of China through our direct and indirect wholly owned subsidiaries; Silverstrand International Holdings Company Limited (“Silverstrand”)., Shenyang Maryland International Industry Company Limited (“Maryland”),,and Shenyang Ai ZhuangTrading Co., Ltd (“Ai Zhuang”).Ai Zhuang was established during the quarterly period ended March 31, 2015 to engage in wholesale and retail distribution of consumer products including food products, dietary supplements, household products and publications, etc. Ai Zhuang has not started business operation as of March 31, 2015.

Recent Development

Effective April 27, 2015, Great China International Holdings, Inc., entered into a Cooperation Agreement with FT Solution Co., Ltd., a Japanese company.  Pursuant to the Cooperation Agreement, the Company is investing approximately $224,473 (26.5 million Japanese Yen) for approximately 53% of shares in a joint venture which will engage in the distribution of a variety of consumer products including food products, dietary supplements, over-the-counter medications, and daily necessities, etc. It has not started business operation thus far.

Results of Operations

Comparison of operations for three months periods ended March 31, 2015 and 2014:

The Company incurred a net loss of $463,812 for thefirst quarter of 2015, which represents a decrease in net loss by $113,396 or 32.4%, compared with a net loss of $350,416 in the same period of 2014.  Components resulting in this decrease are discussed below.

Revenues decreased by $353,321 or 15.7% from $2,255,199 for the first quarter of 2014 to $1,901,878 for the same period of 2015.  The decrease is mainly due to that rental income decreased by $344,625 or 20.1% from $1,711,812 for the first quarter of  2014 to $1,367,187 for the same period of 2015 due to more vacancies in our rental properties.
 
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The cost of revenue decreased by $96,490 or 5.9% from $1,638,170 for the first quarter of 2014 to $1,541,680 for the same period of 2015, which is attributed to the decrease of management fee cost. 

The gross margin for the rental business was 19.1% and 33.3% for the first quarter of 2015 and 2014 respectively.  This decrease is attributable to the company gained less rental income from rental business but remained stable in rental cost.  The gross margin for the management business was 18.7% and 8.6% for the first quarter of 2015 and 2014, respectively.  This increase is mainly attributable to the cost decrease from maintenance in 2015 compared to the same period of 2014.

Selling expenses decreased by $5,757 or 44.4% from $12,975 for the first quarter of 2014 to $7,218 for the same period of 2015.  This decrease mainly attributes to the decrease of bonus for employees.
 
General and administrative expenses decreased by $79,001 or 17.5% from $452,152 for the first quarter of 2014 to $373,151 for the same period of 2015.  The decrease is mainly because the Company optimized expenses payment control system to reduce unnecessary expenses payment.

Depreciation and amortization is $5,015 and $4,511 for the first quarter of 2015 and 2014 respectively.

Interest and finance costs was $487,519 and $532,462 for the first quarter of 2015 and 2014 respectively. The decrease is mainly because the interest cost relating with bank loan decreased along with the Company made a loan payment $11,227,327 to bank in March.

Other income, net increased by $14,239 from $34,656 for the first quarter of 2014 to $48,895 for the same period of 2015, which is mainly a result of the Company receiving a penalty from one customer in first quarter of 2015..
 
Cash Flow Discussion

Net cash flows provided by operating activities for the first quarter of 2015 and 2014 were $396,621 and $39,903, respectively.  The increase in net operating activities cash flow amounted to $356,718 or 894.0%, which is due primarily to the below factors:

the change of advance from tenants increased by $391,083 or 181.3% for the first quarter of 2015 compared with the same period of 2014 due to the Company received more rent from rental business in the first quarter of 2015 than the same period of 2014;
 
The change of tax payable increased by $252,158 or 109.8% for the first quarter of 2015 compared with the same period of 2014.

Net cash flows used in investing activities were not significant.

Net cash flows used in financing activities were $4,283,567 and $0 for the first quarter of 2015 and 2014, respectively, the change is mainly because the below factors:

The Company made a bank loan repayment $11,227,327(RMB 70,000,000) to the bank in March;and the Company collected loan $4,009,760 from third parties and also the Company received Proceeds $2,934,000 from common stock issuance which closed in March 31,2015.
 
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Liquidity and Capital Resources

Current liabilities exceeded current assets by $18,122,546 as of March 31,2015.  The Short Term Loans amounted to $9,969,350 (RMB 61,800,000), and accounted for about 55.0% of the working capital deficit.  In March 2015, the Company repaid US$$11,227,327 (RMB 70,000,000), leaving a remaining principal of US$ 9,969,350 (RMB 61,800,000), The rest of the Short Term Loan is due in June and October 2015, and is secured by the Company’s real estate assets.  It has become common practice in China, for banks and companies to renegotiate loan extensions on an annual basis.  This is driven by the ever changing banking regulatory environment and a situation where banks are becoming more conservative.  Under the circumstances, most lending banks have usually worked closely with borrowers for loan extension or restructuring within the administrative guidelines of the government.  As State policies are issued outside the control of the banks in China and form part of the macro and micro-economic measures, many bankers and their customers work together to deal with the situation provided the borrowers are responsible.

Contractual Obligations

The following table was a summary of the Company’s contractual obligations as of March 31, 2015:

 
  Total
 
  Less than one year
 
  1-3 Years
 
  Thereafter
                       
Short-Term Debt
$
9,969,350
 
$
9,969,350
 
$
-
 
$
-
Long-Term Debt
                   
-
Amounts due to related parties
 
-
   
-
   
  -
   
-
Construction commitments
 
-
   
-
   
-
   
-
Total Contractual Cash Obligations
$
9,969,350
 
$
9,969,350
 
$
   
$
-
 
Recent accounting pronouncements

There have been no new accounting pronouncements during the year ended March 31,2015 that are of significance, or potential significance, to the Company.
 
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PART II.  OTHER INFORMATION

Item 6.                      Exhibits

Copies of the following documents are included or furnished as exhibits to this report pursuant to Item 601 of Regulation S-K.

Exhibit
No.
 
SEC Ref.
No.
Title of Document
31.1
31
The certification of chief executive officer and chief financial officer required by Rule 13a-14(a) or Rule 15d-14(a)
     
32.1
32
The certifications required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section 1350

SIGNATURES

In accordance with the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

     
 
GREAT CHINA INTERNATIONAL HOLDINGS, INC.
   
     
     
Date: May 15, 2015
By
 /s/ Frank Jiang
   
Frank Jiang, CEO
   
(Principal Executive Officer)
   
(Principal Financial and Accounting Officer)
     
     
     

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