10-Q 1 q093013.htm FORM 10-Q ENDED SEPTEMBER 30, 2013 q093013.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 September 30, 2013

[   ]
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 October 31, 2013, there were 11,759,966 shares of common stock outstanding.


 
 

 

FORM 10-Q
GREAT CHINA INTERNATIONAL HOLDINGS, INC.

TABLE OF CONTENTS
   
Page
     
PART I.
Item 1.  Financial Information
  3
     
 
Balance Sheet as of September 30, 2013 and December 31, 2012  (Unaudited)
  3
     
 
Statements of Operations for the Three-Month and Nine-Month Periods Ended September 30, 2013 and 2012 (Unaudited)
  4
     
 
Statements of Cash Flows for the Nine-Month Periods Ended September 30, 2013 and 2012 (Unaudited)
  5
     
 
Notes to the Financial Statements
  6
     
 
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
  14
     
 
Item 3.  Quantitative and Qualitative Disclosures About Market Risk
  16
     
 
Item 4.  Controls and Procedures
  16
     
PART II.
Other Information
  16
     
 
Item 6.  Exhibits
  16
     
 
Signatures
  17


2
 
 

 

GREAT CHINA INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2013 AND DECEMBER 31, 2012
(UNAUDITED)

   
  September 30, 2013
 
   December 31, 2012
             
 ASSETS
 Current assets:
         
 
 Cash and cash equivalents
6,946,779
 
5,927,618
 
 Accounts receivable, net
 
135,961
   
-
 
 Other receivable, net
 
425,374
   
255,400
    Properties held for resale  
21,413
   
22,916
   
 Total current assets
 
7,529,527
   
6,205,934
               
Long-term loan receivable
 
6,135,621
   
6,308,085
Property and equipment, net
 
230,245
   
229,061
Rental property, net
 
45,073,443
   
46,691,556
           
Total assets
$
58,968,836
 
$
59,434,635
             
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
         
 
Bank loans
$
21,535,948
 
$
21,155,359
 
Accounts payable
 
4,628,084
   
4,552,396
 
Accrued expenses
 
171,042
   
57,337
 
Other payable
 
2,126,938
   
2,114,703
 
Payable to disposed subsidiaries
 
850,611
   
835,579
 
Advances from tenants
 
1,123,349
   
1,244,753
 
Taxes payable
 
4,513,916
   
4,354,853
 
  Total current liabilities
 
34,949,888
   
34,314,978
             
Stockholders' equity:
         
 
Common stock, $.001 par value 50,000,000
     
 
shares authorized, 11,759,966 issued and outstanding
         
 
as of September 30, 2013 and December 31, 2012
 
11,760
   
11,760
 
Additional paid in capital
 
4,566,156
   
4,566,156
 
Statutory reserve
 
638,128
   
638,128
 
Accumulated other comprehensive income
 
4,925,123
   
4,480,228
 
Retained earnings
 
13,877,781
   
15,423,385
             
Total stockholders' equity
 
24,018,947
   
25,119,657
             
Total liabilities and stockholders' equity
$
58,968,836
 
$
59,434,635

The accompanying notes are integral part of these unaudited consolidated financial statements.
 
3
 
 

 

GREAT CHINA INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME/(LOSS)
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012
(UNAUDITED)
   
Three-Months Ended September 30
 
Nine-Months Ended September 30
   
2013
 
2012
 
2013
 
2012
                         
 Revenues
                     
 
 Rental income
  1,268,336
 
   1,346,766
 
4,241,643
 
3,891,666
 
 Management fee income
 
   512,052
   
     549,375
   
1,577,878
   
1,560,745
 
    Total revenues
 
1,780,388
   
1,896,141
   
5,819,521
   
5,452,411
                         
 Cost of revenues
                     
 
 Rental cost
 
   1,206,346
   
   1,270,284
   
3,415,766
   
3,396,465
 
 Management fee cost
 
   306,120
   
  334,584
   
1,090,165
   
1,205,972
 
    Total cost
 
1,512,466
   
1,604,868
   
4,505,931
   
4,602,437
 Gross profit
 
267,922
   
291,273
   
1,313,590
   
849,974
                       
 Operation expenses
                     
 
 Selling expenses
 
  22,599
   
   20,736
   
  46,211
   
 46,453
 
 General and administrative expenses
 
  448,016
   
  455,021
   
1,452,640
   
1,359,907
 
 Depreciation and amortization
 
  5,741
   
    22,742
   
13,799
   
66,795
 
       Total operation expenses
 
476,356
   
498,499
   
1,512,649
   
1,473,156
                         
 Loss from operations
 
(208,434)
   
(207,226)
   
(199,060)
   
(623,182)
                         
 Other income (expense)
                     
 
 Disposal of parking lots income
 
        58,579
   
       113,306
   
        116,755
   
        396,402
 
 Other income, net
 
 41,704
   
 80,759
   
123,141
   
147,573
 
 Interest and finance costs
 
 (531,336)
   
 (410,103)
   
(1,585,641)
   
(1,634,836)
 
      Total other expense, net
 
   (431,053)
   
   (216,038)
   
(1,345,744))
   
(1,090,861)
                         
 Net loss
 
(639,487)
   
(423,263)
   
(1,544,804)
   
(1,714,043)
                         
 Other comprehensive income (loss):
                     
 
 Foreign currency translation adjustment
 
  124,904
   
   305,441
   
444,895
   
  3,405
                         
 Comprehensive loss
(514,583)
 
   (117,822)
 
(1,099,909)
 
 (1,710,637)
                         
Loss per share
                     
 
 Basic
     (0.04)
 
      (0.01)
 
     (0.09)
 
     (0.15)
 
 Diluted
     (0.04)
 
     (0.01)
 
      (0.09)
 
      (0.15)
                         
Weighted average number of shares outstanding
                     
 
 Basic
 
11,759,966
   
11,759,966
   
11,759,966
   
11,759,966
 
 Diluted
 
11,759,966
   
11,759,966
   
11,759,966
   
11,759,966
   Basic and diluted loss per share are the same because there is no dilutive effect.                      
 
 
The accompanying notes are integral part of these unaudited consolidated financial statements.
 
4
 
 

 


GREAT CHINA INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012
(UNAUDITED)

   
September 30,
   
 2013
 
 2012
             
Cash flows from operating activities:
         
Net loss
$
(1,544,804
$
(1,714,043)
Adjustments to reconcile net loss to net cash provided by operating activities:
         
Net cash provided by operating activities
         
 
Depreciation and amortization
 
2,471,902
   
2,460,442
 
Provision for doubtful accounts
 
98,917
   
-
             
Changes in operating assets and liabilities:
         
        Properties held for resale
 
1,900
     
 
Accounts receivable and other receivable
 
(337,163)
   
(341,738)
 
Advances to suppliers
 
(60,810
 )
 
8,688
 
Accounts payable and accrued expenses
 
85,196
   
78,935
 
Advances from buyers
 
(142,707)
   
(89,359)
 
Income and other taxes payable
 
80,131
   
(77,429)
             
Net cash provided by operating activities
$
652,563
 
$
325,497
             
Cash flows from investing activities:
         
 
Purchase of property & equipment
 
(12,275)
   
(10,886)
             
Cash flows from financing activities:
         
 
Loans repayment
 
283,779
   
315,935
             
Effect of exchange differences
 
95,094
   
(25,505)
             
Net increase in cash and cash equivalents
$
1,019,161
 
$
605,042
             
Cash and cash equivalents, beginning of period
$
5,927,618
 
$
6,294,500
             
Cash and cash equivalents, end of period
$
6,946,779
 
$
6,899,542
             
Supplemental disclosures of cash flow information:
         
 
Interest paid
$
1,586,947
 
$
1,634,787
 
Income taxes
$
-
 
$
-

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

 
 

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

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, 2012. The results of the three and nine months periods ended September 30, 2013 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2013.

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.

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 September 30, 2013 and December 31, 2012, the Company reserved $1,847,788 and $1,717,221 respectively, for other receivable bad debt, and $715,446 and $702,802, respectively, for accounts receivable bad debt. The Company also reserved $2,042,484 and $2,006,388 respectively for loans receivable.
 
6
 
 

 
 
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 September 30, 2013 and December 31, 2012 respectively.

Real estate held for development or sale

The Company capitalizes as real estate held for development or sale, the direct construction and development costs, property taxes, interest incurred on costs related to land under development and other related costs (i.e. engineering, surveying, landscaping, etc.) until the property reaches its intended use. As of the December 31, 2010, except the parking spaces, all the merchantable real estates of Qiyuan New Village, Peacock Garden, Chenglong Garden had been sold. As of September 30, 2013 and December 31, 2012, real estate held for development or sale amounted to zero.

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 September 30, 2013 and December 31, 2012, net property held for rental amounted to $45,073,443 and $46,691,556 respectively. Accumulated depreciation of rental properties amounted to $29,802,763 as of September 30, 2013 and $24,763,145 as of December 31, 2012.

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.

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.
 
7
 
 

 
 
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 per share

Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted earnings 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.

As of September 30, 2013 and December 31, 2012, respectively, there were no outstanding securities or other contracts to issue common stock, such as options, warrants or conversion rights, which would have a dilutive effect on earnings per share as the effect of options outstanding at that time was anti- dilutive.

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.

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 September 30, 2013 was $ 6,872,255. 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.
 
8
 
 

 
 
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

In February 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2013-02, which requires entities to present information about significant items reclassified out of accumulated other comprehensive income (loss) by component either on the face of the statement where net income is presented or as a separate disclosure in the notes to the financial statements. This ASU is effective for the Company in the first quarter of fiscal 2014. We do not expect the adoption will have a significant impact on our consolidated financial statements.

In March 2013, the FASB issued guidance on a parent company’s accounting for the cumulative translation adjustment upon derecognition of a subsidiary or group of assets within a foreign entity. This new guidance requires that the parent company releases any related cumulative translation adjustment into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. The new guidance will be effective for us beginning July 1, 2014. The adoption of this pronouncement is not expected to have a material impact on the Company’s financial statements.

Reclassifications

Certain amounts in the 2012 financial statements may have been reclassified to conform to the 2013 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 $27,420,361 and $28,109,045 as of September 30, 2013 and December 31, 2012, 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.

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 consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
 
9
 
 

 
 
4.
Loans receivable
 
The company entered into series of collateralized loan agreements with third parties from 2009, the total loan receivable is $6,135,621 and $6,308,085 as of September 30, 2013 and December 12, 2012, respectively.

During 2011, the Company entered into a collateralized loan agreement with Beijing Sihai Real Estate Development Ltd., pursuant to which the Company loaned $2,276,841, due on November 29, 2013. The loan bears interest at a variable rate based on the Peoples’ Bank of China lending rate applicable to the period plus 10%. $321,022 of repayment from Beijing Sihai Real Estate Development Ltd was received during 2012 first quarter and then the Company loaned $1,444,599 to Beijing Sihai Estate Development Ltd on November 30, 2012 again. In first quarter of 2013, the company has recollected $281,767 from Beijing Sihai Real Estate Development Ltd. The loan receivable from Beijing Sihai Real Estate Development Ltd was $3,684,641 and $3,912,539 as of September 30, 2013 and December 31, 2012, respectively.

During 2011, the Company entered into a collateralized loan agreement with Shenyang Landing Concrete Ltd. Company, pursuant to which, the Company loaned $2,450,980, 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 and Kaiyuan Hongyun Concrete Admixture Ltd. with the same terms, due on November 30, 2013.

During 2009, the Company entered into an uncollateralized loan agreement with Zhongxin Guoan Ltd., pursuant to which the Company loaned $2,042,484, 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 November 24, 2013. 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:

 
September 30, 2013
 
December 31, 2012
Building
$
16,029
 
$
15,746
Automobile
 
1,203,252
   
1,181,987
Office equipment & Furniture
 
583,217
   
562,240
   
1,802,498
   
1,759,973
Accumulated depreciation
 
(1,572,253)
   
(1,530,913)
Property and equipment, net
$
230,245
 
$
229,061

The Company recorded depreciation expense relating to properties held for rental, as well as property and equipment amounting to $2,471,902 and $2,460,442 for the months ended September 30, 2013 and 2012, respectively, of which, $13,799 and $66,795 were recorded as general and administrative expense, respectively.

As of September 30, 2013, fixed assets and rental property totaling $31,917,875 were pledged as security for various bank loans totaling $21,535,948.
 
10
 
 

 
 
6.
Accrued expenses

Accrued expenses consisted of the following:

 
September 30, 2013
 
December 31, 2012
Payroll and welfare payable
$
4,014
 
$
4,043
Accrued expenses
 
167,028
   
53,294
Total
$
171,042
 
$
57,337


7.
Other payables

Other payables consisted of the following:

 
September 30, 2013
 
December 31, 2012
Customer guarantee deposit
$
1,071,315
 
$
1,090,677
Customer deposit for property decoration
 
16,806
   
14,422
Miscellaneous payable
 
1,038,817
   
1,009,604
Total
$
2,126,938
 
$
2,114,703


8.
Tax payables

Tax payables consisted of the following:

 
September 30, 2013
 
December 31, 2012
Income tax payable in Mainland China
$
1,469,680
 
$
1,230,221
Business tax
 
634,966
   
669,202
Land VAT payable
 
2,451,817
   
2,408,488
Other levies
 
-42,547
   
46,942
Total
$
4,513,916
 
$
4,354,853


9.
Payable to disposed subsidiary

The Company had amounts due to a Loyal Best, a previously disposed of entity, as of September 30, 2013 and December 31, 2012 in the amount of $850,611 and $835,579, respectively.

10.
Loan Payable

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

Nature
Due on
Interest per Annum
September 30, 2013
 
December 31, 2012
Bank loan
6-12-2014
8.775%
$
6,535,948
 
$
6,420,443
Bank loan
10-13-2013
10.395%
 
15,000,000
   
14,734,916
               
Less current portion
     
21,535,948
   
21,155,359
     
$
-
 
$
-
 
11
 
 

 
 
The above loans are secured by Company rental properties.

As of September 30, 2013 and 2012, the Company’s incurred interest and finance cost amounted to $1,585,641 and $1,634,836 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 September 30, 2013 and 2012, 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.
 
12
 
 

 

During 2013 and 2012, 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 nine months ended of September 30, 2013 and 2012, respectively.

        September 30
        2013     2012
 Revenues from unaffiliated customers:
         
 
 Rental income & Management fee
 
5,819,521
   
                   5,452,411
   
 Consolidated
$
               5,819,521
 
$
                     5,452,411
 Operating loss:
         
 
 Rental income & Management fee
 
(144,524)
   
(604,615)
 
 Corporation (1)
 
(54,536)
   
(18,567)
   
 Consolidated
$
(199,060)
 
$
(623,182)
 Net loss before taxes:
         
 
 Rental income & Management fee
 
(1,729,830)
   
(1,695,008)
 
 Corporation (1)
 
185,026
   
(19,035)
   
 Consolidated
$
               (1,544,804)
 
$
                   (1,714,043)
 Identifiable assets: 
         
 
 Rental income & Management fee
 
49,888,636
   
                  47,294,090
 
 Corporation (1)
 
9,080,200
   
                  12,362,738
   
 Consolidated
$
              58,968,836
 
$
                  59,656,828
 Depreciation and amortization:
         
 
 Rental income & Management fee
 
2,458,103
   
                   2,393,647
 
 Corporation (1)
 
13,799
   
                       66,795
   
 Consolidated
$
                2,471,902
 
$
                   2,460,442
 Capital expenditures:
         
 
 Rental income & Management fee
 
                   12,275
   
10,886-
 
 Corporation (1)
 
- 
   
- 
   
 Consolidated
$
                12,275
 
$
10,886- 

(1). Unallocated loss from Operating income (loss) and Net income before provision for income taxes are primarily related to general corporate expenses.
 
13
 
 

 


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

(1)  
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.
 
(2)
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; Shenyang Maryland International Industry Company Limited and Silverstrand International Holdings Company Limited.
 
(3)
Results of Operations
 
Comparison of operations for nine months ended September 30, 2013 and 2012:

The Company incurred a net loss of $1,544,804 for the nine-month period ended September 30, 2013, which is an improvement of $169,239, or 9.9%, compared with a net loss of $1,714,043 in the same period of 2012.  Components resulting in this improvement are discussed below.

Sales revenues increased by $367,110 or 6.7% from $5,452,411 for the nine-month period ended September 30, 2012 to $5,819,521 for the same period of 2013.  Rental income increased by $349,977 or 9.0% from $3,891,666 for the nine-month period ended September 30, 2012 to $4,241,643 for the same period of 2013, which is largely attributable to the Company increasing rental rates.  Management fee income increased by $17,133 or 1.1% from $1,560,745 for the nine-month period ended September 30, 2012 to $1,577,878 for the same period of 2013.

There is no significant change for the cost of revenue in the nine-month period ended September 30, 2013 compared to the same period of 2012, which were $4,602,437 and $4,505,931 in 2012 and 2013, respectively.

The gross margin for the rental business was 19.5% and 12.7% for the nine-month periods ended September 30, 2013 and 2012, respectively.  This increase is mainly attributed to the increase in rental rates in 2013, which does not require a meaningful increase in cost of revenue and remained stable. The gross margin for the management business was 30.9% and 22.7% for the nine-month periods ended September 30, 2013 and 2012, respectively. This increase is mainly attributed to the cost decrease from maintenance in nine-month period ended September 30, 2013 compared to the same period of 2012.

Selling expenses remained stable for the nine-month period ended September 30, 2013 compared with the same period of 2012.

General and administrative expenses increased by $92,733 or 6.8% from $1,359,907 for the nine-month period ended September 30, 2012 to $1,452,640 for the same period of 2013.  The increase is mainly a result of an additional $100,120 for bad debt accrual on other receivable in the nine-month period ended September 30, 2013 compared with the same period of 2012.
 
14
 
 

 
 
Depreciation expense decreased by $52,996 or 79.3% from $66,795 for the nine-month period ended September 30, 2012 to $13,799 for the same period of 2013.  This decrease was mainly due to the fact depreciation had been accrued fully for some fixed assets in 2013.

Interest and finance costs decreased by $49,195 or 3.0% from $1,634,836 for the nine-month period ended September 30, 2012 to $1,585,641for the same period of 2013, which is primarily a result of the Company incurring more interest cost in 2012 than 2013.

The Company earned $396,402 and $116,755 of income from disposal of parking lots in the nine-month periods ended September 30, 2012 and 2013 respectively, which decreased by $279,648 or 70.6% for 2013 compared with 2012.

(4)
Cash Flow Discussion

Net cash flows provided by operating activities for the nine-month periods ended September 30, 2013 and 2012 were $652,563 and $325,497, respectively.  The improvement in net cash flow amounted to $327,066 or 100.5%, which was due to the below factors:

The main factor is that the Company increased rental rates, which increased revenue by $349,977 in the nine-month period ended September 30, 2013 compared to the same period of 2012.  

Net cash flows used in investing activities for the nine-month periods ended September 30, 2013 and 2012 were not significant.

Net cash flows from financing activities were $283,779 and $315,935 during the nine-month periods ended September 30, 2013 and 2012, respectively, which is a result of the Company receiving $283,779 and $315,935 of loan repayments from Beijing Sihai Estate Company during the nine-month periods ended September 30, 2013 and 2012.
 
(5)
Liquidity and Capital Resources

Current liabilities exceeded current assets by $27,420,361 as of September 30, 2013.  The Short Term Loans amounted to $21,535,948, the loan accounted for about 101.2% of the working capital deficit.  They are bank loans due in June 2014 and October 2013, respectively, and 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.
 
(6)
Contractual Obligations
 
The following table was a summary of the Company’s contractual obligations as of September 30, 2013:

 
  Total
 
  Less than one year
 
  1-3 Years
 
  Thereafter
Short-Term Debt
$
21,535,948
 
$
21,535,948
 
$
 
$
-
Long-Term Debt
                   
-
Amounts due to related parties
 
-
   
-
   
  -
   
-
Construction commitments
 
-
   
-
   
-
   
-
Total Contractual Cash Obligations
$
21,535,948
 
$
21,535,948
 
$
   
$
-
 
We have completed the negotiations for a portion of our short-term loan which was due in October 2013 ($15,000,000). We expect to sign this loan agreement prior to the end of November 2013.
 
15
 
 

 
 
Item 3. Quantitative and Qualitative Disclosure About Market Risk

Disclosure under this item is not required of a smaller reporting company.

Item 4.  Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures
 
Disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in rules and forms adopted by the Securities and Exchange Commission (“SEC”), and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures.
 
In connection with the preparation of this report, Great China International’s management, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, reassessed the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2013.  Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that Great China International’s disclosure controls and procedures were effective as of the end of the fiscal quarter on September 30, 2013, to ensure that information that is required to be disclosed by Great China International in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.  Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within Great China International to disclose information that is otherwise required to be set forth in its periodic reports.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the three-month period ended September 30, 2013, that have materially affected, or are likely to materially affect, our internal control over financial reporting.

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 required by Rule 13a-14(a) or Rule 15d-14(a)
     
31.1
31
The certification of 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
     
 101  101  Interactive Data File
 
 
16
 
 

 

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: November 14, 2013
By
  /s/ Jiang Peng
   
Jiang Peng, Chairman of the Board
   
(Principal Executive Officer)
     
     
     
Date: November 14, 2013
By
  /s/ Sun Dongqing
   
Sun Dongqing, Chief Financial Officer
   
(Principal Financial and Accounting Officer)

17