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EX-31.1 - EX 31.1 - HH BIOTECHNOLOGY HOLDINGS COex311q033111.htm
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EX-31.2 - EX 31.2 - HH BIOTECHNOLOGY HOLDINGS COex312q033111.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, 2011

[   ]
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, 2011, 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 March 31, 2011 and
December 31, 2010 (Unaudited)
 
3
 
Statements of Operations for the Three-Month
Periods Ended March 31, 2011 and 2010 (Unaudited)
 
4
 
Statements of Cash Flows for the Three-Month Periods
Ended March 31, 2011 and 2010 (Unaudited)
 
5
 
Notes to the Financial Statements (Unaudited)
 
6
 
Item 2.  Management’s Discussion and Analysis of
Financial Condition and Results of Operations
 
16
 
Item 3.  Quantitative and Qualitative Disclosures
About Market Risk
 
18
 
Item 4.  Controls and Procedures
 
18
PART II.
Other Information
 
 
 
Item 5.  Exhibits
 
18
 
Signatures
 19

2

 
 

 

GREAT CHINA INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2011 AND DECEMBR 31, 2010
(UNAUDITED)
                 
          March 31, 2011     December 31, 2010
                 
ASSETS
                 
Current assets:
         
 
Cash and cash equivalents
$
            7,424,774
  $
             9,584,071
 
Accounts receivable, net
 
                     7,358
   
                    17,816
 
Prepayments and other current assets, net
 
                 232,066
   
                  195,436
                 
     
Total current assets
 
              7,664,198
   
               9,797,323
                 
Long-term loan receivable
 
            2,290,671
   
                         -
Property and equipment, net
 
                 376,759
   
                 1,133,641
Rental property, net
 
            49,800,297
   
               49,436,381
Total assets
$
          60,131,925
  $
           60,367,345
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
                 
Current liabilities:
         
 
Bank loans
$
          20,127,361
  $
           19,969,697
 
Accounts payable
 
              4,216,952
   
               4,184,672
 
Accrued expenses
 
                 265,481
   
                  172,059
 
Other payable
 
              2,039,143
   
               2,047,904
 
Payable to disposed subsidiaries
 
                 801,956
   
                  795,674
 
Advances from tenants
 
              1,234,164
   
               1,263,290
 
Taxes payable
 
              9,222,027
   
               9,191,984
                 
Total liabilities
 
37,907,084
   
37,625,280
                 
Stockholders' equity:
         
 
Common stock,  $.001 par value 50,000,000 shares
         
 
  authorized, 11,759,966  issued and outstanding
         
 
  as of March 31, 2011 and Dec. 31,2010
 
                   11,760
   
                    11,760
 
Additional paid in capital
 
              4,566,156
   
               4,566,156
 
Statutory reserve
 
                 638,128
   
                  638,128
 
Accumulated other comprehensive income
 
              3,181,188
   
               2,964,637
 
Retained earnings
 
            13,827,609
   
             14,561,384
Total stockholders' equity
 
            22,224,841
   
             22,742,065
                 
Total liabilities and stockholders' equity
$
          60,131,925
  $
           60,367,345
                 
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 MONTH PERIODS ENDED MARCH 31, 2011 AND 2010
(UNAUDITED)
     
    For the Three Months Ended March 31,
      2011     2010
             
Revenues
         
 
Real estate sales
$
                              - 
  $
                     243,628
 
Rental income
 
1,227,374 
   
1,088,111
 
Management fee income
 
484,530 
   
458,611
 
        Total revenues
 
1,711,903 
   
1,790,350
             
Cost of revenues
         
 
Real estate cost
 
   
233,834
 
Rental cost
 
1,006,297 
   
966,727
 
Management fee cost
 
572,502 
   
349,696
 
Total cost
 
1,578,799 
   
1,550,257
 
       Gross profit
 
133,104 
   
240,093
             
Operation expenses
         
 
Selling expenses
 
17,872 
   
19,174
 
General and administrative expenses
 
666,974 
   
542,119
 
Depreciation and amortization
 
21,532 
   
46,941
 
       Total operation expenses
 
706,378 
   
608,234
             
Loss from operations
 
(573,274)
   
(368,141)
             
Other income (expense)
         
 
Use rights in parking lots transferred
 
281,069 
   
                                  -
 
Other income, net
 
51,169 
   
33,775
 
Interest and finance costs
 
(492,740)
   
(478,378)
 
      Total other expense, net
 
(160,502)
   
(444,603)
             
Net loss
 
(733,775)
   
(812,744)
             
Other comprehensive income (loss):
         
 
Foreign currency translation adjustment
 
216,551 
   
35,113
             
Comprehensive loss
$
                    (517,224)
 
                  (777,631)
             
Net loss per share
         
 
 Basic
$
                         (0.04)
  $
                        (0.07)
 
 Diluted
$
                         (0.04)
  $
                        (0.07)
             
Weighted average number of shares outstanding
         
             
 
 Basic
 
11,759,966 
   
11,759,966
 
 Diluted
 
11,759,966 
   
11,759,966
             
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 MONTH PERIODS ENDED MARCH 31, 2011 AND 2010
(UNAUDITED)

      For the Three Months Ended March 31,
      2011     2010
             
Cash flows from operating activities:
         
Net loss
$
(733,775)
 
$
(812,744)
Adjustments to reconcile net income (loss) to operating activities -
         
net cash provided by operating activities
         
 
Depreciation and amortization
 
777,290 
   
771,045 
 
Provision for doubtful accounts
 
32,818 
   
39,621 
(Increase)/decrease in current assets:
         
 
Accounts receivable and other receivable
 
(46,695)
   
(253,788)
 
Advances to suppliers
 
                         - 
   
(4,394)
 
Properties held for resale
 
                         - 
   
309,176 
Increase/(decrease) in current liabilities:
         
 
Accounts payable and accrued expenses
 
68,767 
   
127,038 
 
Advances from buyers
 
(38,921)
   
(131,605)
 
Income and other taxes payable
 
(2,641)
   
23,350 
             
Net cash provided by operating activities
 
(56,842)
 
 
67,700 
             
Cash flows from investing activities:
         
 
Purchases of property & equipment
 
(1,473)
   
(4,634)
             
Cash flows from financing activities:
         
 
Loan to a third party
 
(2,290,671)
     
           
Net cash used in financing activities
 
(2,290,671)
 
 
                          - 
             
Effect of exchange differences
 
76,005 
 
 
34,688 
             
Net (decrease) increase in cash and cash equivalents
 
(2,159,296)
 
 
97,754 
             
Cash and cash equivalents, beginning of period
 
9,584,071 
 
 
9,933,271 
             
Cash and cash equivalents, end of period
$
7,424,774 
 
$
10,031,025 
             
Supplemental disclosures of cash flow information:
         
 
Interest paid
$
380,869 
 
$
477,969 
             
 
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 FINANCIAL STATEMENTS
FOR THE THREE MONTH PREIODS ENDED MARCH 31, 2011 AND 2010

1.           Description of business

Nature of organization

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., and in 1992, it changed its name to Red Horse Entertainment Corporation.

Effective July 5, 2005, the Company completed the acquisition of Silverstrand International Holdings Limited (“Silverstrand”), a Hong Kong limited liability company, by issuing 10,102,333 shares of its common voting stock to the former stockholders of Silverstrand in exchange for all of the capital stock of Silverstrand. For financial reporting purposes the acquisition was treated as a recapitalization of Silverstrand. On September 15, 2005, the Company changed its name to Great China International Holdings, Inc. from Red Horse Entertainment Corporation.
 
Silverstrand was incorporated on September 30, 2004 in Hong Kong Special Administrative Region, PRC, and is the holding company of Shenyang Maryland International Industry Company Limited, formerly Shenyang Malilan Audio Equipment Company, Limited (“Shenyang Maryland”). Shenyang Maryland was originally registered as a limited liability Sino-foreign joint investment enterprise on December 15, 1989, in Shenyang, Liaoning Province, PRC. In October 2004, Silverstrand acquired all of the registered equity of Shenyang Maryland, and this transfer and the reclassification of Shenyang Maryland as a “wholly foreign-owned enterprise” (“WFOE”) was approved in November 2004 by the Liaoning Provincial Bureau of Foreign Trade and Economic Cooperation. This approval was subsequently registered, and a business registration certificate (No. 111103721 (1-1)) was issued to Shenyang Maryland as a WFOE in April 2005 by the Shenyang Municipal Administration of Industry and Commerce. The original business licenses for Shenyang Maryland described our business scope as real estate development, sales, leasing, and property management. In January of 2010, the Company modified the business scope to real estate leasing, property management, and consulting.
 
The Company, through its various subsidiaries, has 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, 2010. The results of the three month periods ended March 31, 2011 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2011.

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. Such financial statements were translated into United States dollars in accordance with ASC 830 (Originally issued as Statement of Financial Accounts Standards (“SFAS”) No. 52, “Foreign Currency Translation”). According to the Statement, 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 income in accordance with ASC 220 (Originally issued as SFAS No. 130, “Reporting Comprehensive Income”) as a component of shareholders’ equity.
 
6
 
 

 
 
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements have been translated and presented in United States Dollars ($) on the basis set forth below.

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.

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 31,2011 and December 31, 2010, the Company reserved $3,538,875and $3,478,443 respectively, for other receivable bad debt, and $564,808 and $560,383, respectively, for accounts receivable bad debt.

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 out. As of March 31,2011 and December 31, 2010, real estate held for development or sale amounted is 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 March 31,2011 and December 31, 2010, net property held for rental amounted to$49,800,297 and $49,436,381, respectively. Accumulated depreciation of rental properties amounted to $20,195,716 and $18,906,785, respectively, as of March 31,2011 and December 31, 2010.

 
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

As of March 31,2011 and December 31, 2010, Property, Plant & Equipment consist of the following:

 
March 31, 2011
 
December 31, 2010
Building 
$
14,981 
 
$
1,119,091 
Automobile 
 
1,124,551 
   
1,115,742 
Office equipment & Furniture 
 
534,557 
   
530,178 
       
  
 
1,674,089 
   
2,765,011 
 
Accumulated depreciation 
 
(1,297,330)
   
(1,631,370)
       
Property and equipment, net 
$
376,759 
 
$
1,133,641 
7
 
 

 
 

The Company recorded depreciation expense relating to properties held for rental, as well as property and equipment amounting to $777,290 and $771,045 for the three month periods ended March 31, 2011 and 2010, respectively, among which, $21,532 and $46,941 were recorded as general and administrative expense, respectively.
 
Repairs and maintenance costs are normally charged to the statement of and 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 31,2011 and December 31,2010, respectively.
 
As of March 31, 2011, fixed assets and rental property totaling $28,830,424 have been pledged for various bank loans totaling $20,127,361.

Revenue Recognition

Real estate sales

Real estate sales are reported in accordance with the provisions of ASC 360, “Accounting for Sales of Real Estate.” 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.
 
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 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.
 
If the 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.
 
8
 
 

 

 
Other income
 
Other income consists of land leveling income, parking lot income, cleaning income and etc, of which land leveling income was a one-time service performed at the request of our customers. These 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 March 31, 2011 and December 31, 2010, 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 utilizes ASC 740 (Originally issued as SFAS No. 109, “Accounting for Income Taxes”), which requires the recognition of 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. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
 
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. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain.
 
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. If the Company is able to utilize more of its deferred tax assets than the net amount previously recorded when unanticipated events occur, an adjustment to deferred tax assets would increase the Company net income when those events occur.
 
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.
 
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 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 - In accordance with ASC 230 (Originally issued as SFAS No. 95), "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.
 
9
 
 

 

 
Subsequent Events - For purposes of determining whether a post-balance sheet event should be evaluated to determine whether it has an effect on the financial statements for the period ending March 31, 2011pursuant to ASC 855(Originally issued as SFAS No. 165), subsequent events were evaluated by the Company as of May 16, 2011, the date on which the Form 10-Q, which included the audited consolidated financial statements for the year ended March 31, 2011, was available to be issued.

Recent accounting pronouncements  – In January 2011, the FASB issued ASU 2011-01 an accounting pronouncement related to receivables (“FASB ASC Topic 310”), The amendments in this update temporarily delay the effective date of the disclosures about troubled debt restructurings in ASU 2010-20 for public entities. The delay is intended to allow the Board time to complete its deliberations on what constitutes a troubled debt restructuring. The effective date of the new disclosures about troubled debt restructurings for public entities and the guidance for determining what constitutes a troubled debt restructuring will then be coordinated. Currently, that guidance is anticipated to be effective for interim and annual periods ending after June 15, 2011.
 
Reclassifications – Certain amounts in the 2010 financial statements may have been reclassified to conform to the 2011 presentation. These reclassifications had no effect on previously reported results of operations or retained earnings.
 
3.           Long-term Loan receivable

On March 28, 2011, the Company and Shenyang Landing Concrete Ltd. Company entered into a loan agreement, pursuant to which, the Company loaned to Shenyang Landing $2,290,671, which was due in two years on March 27, 2012.  The loan was interest bearing at a rate commensurate with bank loans for the same period,


4.           Accrued expenses

Accrued expenses consisted of the following as of March 31, 2011 and December 31, 2010, respectively:

 
March 31, 2011
 
December 31, 2010
Payroll and welfare payable
$
109,309
 
$
108,502
 Accrued expenses
 
156,172
   
63,557
Total
$
265,481
 
$
172,059

5.           Other payables
 
Other payables consist of the following as of March 31, 2011 and December 31, 2010, respectively:

 
March 31, 2011
 
December 31, 2010
Customer guarantee deposit
$
             1,173,444
 
$
             1,086,931
Customer deposit for property decoration
 
                  18,150
   
                  16,341
Miscellaneous payable
 
847,549
   
                944,632
Total
$
             2,039,143
 
$
             2,047,904

6.           Tax payables

Tax payables consist of the following as of March 31, 2011 and December 31, 2010, respectively:

 
March 31, 2011
 
December 31, 2010
Income tax payable in Mainland China
$
1,170,442
 
$
1,161,273
Income tax payable in Hong Kong
 
5,049,321
   
5,049,321
Business tax
 
648,918
   
644,878
Land VAT payable
 
2,293,088
   
2,273,503
Other levies
 
60,258
   
63,009
Total
$
9,222,027
 
$
9,191,984
 
10
 
 

 
 
In 2007, the Company sold its interest in Loyal Best, a subsidiary of the Company, booking a gain and the   corresponding income tax of $5,049,321. GCIH initially acquired Loyal Best to obtain land use right for development of real estate assets. The Company recorded the tax liability of $5,049,321as of March 31, 2011 and December 31, 2010, respectively.

7.           Payable to disposed subsidiary
 
The Company had a payable to a disposed subsidiary, Loyal Best Property Development Limited, amounting to $10,494,449 as of December 31, 2007.

Subsequently, the Company paid $9,725,112 to Loyal Best during 2008 and had a balance due as of March 31, 2011 and December 31, 2010 in the amount of $801,956 and $795,674, respectively.

8.           Short-term loans

Short-term loans as of March 31, 2011 and December 31, 2010 consist of the following:
 
Nature
Due on
Interest per Annum
 
March 31, 2011
Bank loan
10-13-2011
10.395%
 
$
14,018,906
Bank loan
6-12-2011
8.775%
   
6,108,455
Total
     
$
20,127,361

Nature
Due on
Interest per Annum
 
December 31, 2010
Bank loan
10-13-2011
10.395%
 
13,909,091
Bank loan
6-12-2011
8.775%
   
6,060,606
Total
     
19,969,697

The above loans are secured by rental properties the Company owns.

For the three month periods ended March 31, 2011 and 2010, the Company incurred interest and finance costs amounting to $496,037 and $477,969, respectively.

9.           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.
     
 
iv.
Allocations to the discretionary surplus reserve, if approved in the stockholders’ general meeting.
 
11
 
 

 
 
The Company did not contribute to statutory reserve for the three month periods ended March 31, 2011 and 2010, respectively, due to the net loss incurred for its Chinese operation .
 
10.        Income Tax
 
The Company is registered in the State of Nevada and has operations in primarily three tax jurisdictions – the People’s Republic of China, Hong Kong and the United States. For operation in the US, the Company has incurred net accumulated operating losses for income tax purposes. The Company believes that it is more likely than not that these net accumulated operating losses will not be utilized in the future. Therefore, the Company has provided full valuation allowance for the deferred tax assets arising from the losses at these locations as of March 31, 2011. Accordingly, the Company has no net deferred tax assets.

The provision for income taxes from continuing operations on income consists of the following for the years ended March 31, 2011 and December 31, 2010, respectively:

 
For the Three Months Ended March 31,
 
2011
 
2010
US current income tax expense (benefit)
         
Federal
$
-
 
$
-
State
 
-
   
-
HK current income tax expense
 
-
   
-
PRC current income tax expense (benefit)
 
-
   
Total provision for income tax
$
-
 
$

The following is a reconciliation of the provision for income taxes at the U.S. federal income tax rate to the income taxes reflected in the Statement of Operations:

 
 March 31, 2011
March 31, 2010
Tax expense (credit) at statutory rate - federal
35%
35%
State tax expense net of federal tax
0%
0%
Changes in valuation allowance
(35%)
(35%)
Foreign income tax - HK
16.5%
16.5%
Valuation allowance
(16.5%)
(16.5%)
Foreign income tax expense - PRC
25%
25%
Tax expense at actual tax rate
25%
25%

United States of America

As of March 31, 2011, the Company in the United States had approximately $700,331 in net operating loss carry forwards available to offset future taxable income. Federal net operating losses can generally be carried forward 20 years. The deferred tax assets for the United States entities at March 31, 2011 consists mainly of net operating loss carry forwards and were fully reserved as the management believes it is more likely than not that these assets will not be realized in the future.
 
The following table sets forth the significant components of the net deferred tax assets for operation in the US as of March 31, 2011 and December 31, 2010.

 
March 31, 2011
 
December 31, 2010
Net operation loss carry forward
$
(700,331)
 
$
(696,357)
Total deferred tax assets
 
245,116 
   
243,725 
Less: valuation allowance
 
(245,116)
   
(243,725)
Net deferred tax assets
  
                 - 
   
                 - 
Change in valuation allowance
$
(1,391)
 
$
(38,786)
 
12
 
 

 
 
Hong Kong

As of March 31, 2011, the Company in Hong Kong had approximately $153,514 in net operating loss carry forwards available to offset future taxable income. There is no time limit for the losses to carry forward. The deferred tax assets for the Hong Kong entities at March 31, 2011 consists mainly of net operating loss carry forwards and were fully reserved as the management believes it is more likely than not that these assets will not be realized in the future.
 
The following table sets forth the significant components of the net deferred tax assets for operation in Hong Kong as of March 31, 2011 and December 31, 2010.

 
March 31, 2011
 
December 31, 2010
Net operation loss carry forward
$
(153,514)
 
$
(151,758)
Total deferred tax assets
 
25,330 
   
25,040 
Less: valuation allowance
 
(25,330)
   
(25,040)
Net deferred tax assets
  
                   - 
   
                   - 
Change in valuation allowance
$
(290)
 
$
(648)
 
People’s Republic of China (PRC)

Pursuant to the PRC Income Tax Laws, the Company’s subsidiary is generally subject to Enterprise Income Taxes (“EIT”) at a statutory rate of 25% since January 1, 2008. The Company’s applicable EIT rate under new EIT law is 25% which was approved by local Tax department.

As of March 31, 2011 and 2010, the Company’s PRC subsidiary had net operating loss carry forwards which can be carried forward 5 years to offset future taxable income. The deferred tax assets for Shenyang Maryland on March 31, 2011 consist mainly of net operating loss carry forwards and they were fully reserved as the management believes they are more likely than not that these assets will not be realized in the future.
 
The following table sets forth the significant components of the net deferred tax assets for operation in PRC as of March 31, 2011 and December 31,2010, respectively.

  
March 31, 2011
 
December 31, 2010
Net operation loss carry forward
$
(8,670,992)
 
$
(7,942,947)
Total deferred tax assets
 
2,167,748 
   
1,985,737 
Less: valuation allowance
 
(2,167,748)
   
(1,985,737)
Net deferred tax assets
  
                   - 
   
                   - 
Change in valuation allowance
$
(182,011)
 
$
(762,862)

Aggregate net deferred tax assets
 
The following table sets forth the significant components of the aggregate net deferred tax assets of the Company as of March 31, 2011 and December 31, 2010, respectively.
 
 
March 31, 2011
 
December 31, 2010
Aggregate
  
   
  
 
Total deferred tax assets
$
2,438,194 
 
$
2,254,502 
Less: valuation allowance
 
(2,438,194)
   
(2,254,502)
Change in valuation allowance
$
(183,692)
 
$
(802,296)
 
13
 
 

 

 
11.        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.
 
During the years ended March 31, 2011 and 2010, the Company is 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 March 31, 2011 and 2010, respectively.
 
       
 March 31, 2011
 
March 31, 2010
 Revenues from unaffiliated customers:
       
 
 Selling of properties
$
                             -
$
243,628
 
 Rental income & Management fee
 
1,711,903
 
1,546,722
   
 Consolidated
$
                1,711,903
$
1,790,350
 Operating income (loss):
       
 
 Selling of properties
$
(52,118)
$
(73,396)
 
 Rental income & Management fee
 
13,973
 
75,263
 
 Corporation (1)
 
(535,129)
 
(370,008)
   
 Consolidated
$
(573,274)
$
(368,141)
 Net income (loss) before taxes:
       
 
 Selling of properties
$
(544,859)
$
(551,774)
 
 Rental income & Management fee
 
                     13,973
 
75,263
 
 Corporation (1)
 
(202,890)
 
(336,233)
   
 Consolidated
$
                 (733,775)
$
                  (812,744)
 Identifiable assets:
       
           
 
 Selling of properties
$
                       1,982
$
125
 
 Rental & management fee
 
50,761,960
 
51,197,464
 
 Corporation (1)
 
9,367,983
 
11,764,668
   
 Consolidated
$
              60,131,925
$
                62,962,257
 Depreciation and amortization:
       
 
 Selling of properties
$
                     32,910
$
41,172
 
 Rental & management fee
 
754,792
 
724,106
 
 Corporation (1)
 
5,038
 
5,769
   
 Consolidated
$
                   792,740
$
771,047
 Capital expenditures:
       
 
 Selling of properties
$
                               -
$
                               -
 
 Rental & management fee
    -  
(4,634)
 
 Corporation (1)
 
1,159
 
-
   
 Consolidated
$
1,159
$
(4,634)

(1). Unallocated loss from Operating income (loss) and Net income before provision for income taxes are primarily related to general corporate expenses.
 
14
 
 

 
 
12.        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 $30,242,886 and $27,827,957 as of March 31, 2011 and December 31, 2010, respectively. In addition, the company has had net loss for the three months ended March 31, 2011 of $733,775. As the Company has limited cash flow from operations amounting to $56,842, 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.

15

 
 

 

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.  Factors that could have a material and adverse impact on actual results are described in our annual report on Form 10-K for the year ended December 31, 2010, filed with the Securities and Exchange Commission on April 15, 2011.  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 Inc., 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 the three month periods ended March 31, 2011 and 2010:
 
The Company incurred net loss of $733,775 for the three month period ended March 31, 2011, a decrease of $78,969, or 9.72%, from the same period in 2010.Components resulting in this decrease were discussed below.
 
Sales revenues decreased $78,447 or 4.38% from $1,790,350 for the three month period ended March 31, 2010 to $1,711,903 for the same period in 2011. In 2010, the Company sold the last real estate properties, and there were no real estate sales in the first quarter of 2011. The rental income increased $139,263 or 12.80% from $1,088,111 for the three month period ended March 31, 2010 to $1,227,374 for the same period in 2011. The Company raised the rental rates. There was also an increase in management fee income by $25,919 or 5.65% from $458,611 for the three month period ended March 31, 2010 to $484,530 for the same period in 2011.
 
Cost of revenue increased $28,542 or 1.84% from $1,550,257 for the three month period ended March 31, 2010 to $1,578,799 for the same period in 2010. The rental cost increased $39,570 or 4.09% to match the increase of the rental income. Management fee cost increased $222,806 from $349,696 for the three month period ended March 31, 2010 to $572,502 for the same period in 2011.
 
16
 
 

 
 
Selling expenses decreased $1,302 or 6.79% from $19,174 for the three month period ended March 31, 2010 to $17,872 for the same period in 2011. The main reason for this decrease was a reduction of compensation paid to salespersons.
 
General and administrative expenses increased $124,855 or 23.03%  from $542,119 for the three month period ended March 31, 2010 to $666,974 for the same period of 2011.

Depreciation expense decreased $25,409 or 54.13% from $46,941 for the three month period ended March 31, 2010 to $21,532 for the same period of 2011. 
 
The Company transferred use rights in parking lots amounting to $281,067 during the first quarter of 2011 and there was little income of such for the three month period ended March 31, 2010.

Interest and finance costs had a slight increase of $14,362 from $478,378 for the three month period ended March 31, 2010 to $492,740 for the same period of 2011.
 
     (4)  Cash Flow Discussion
 
Net cash flows provided by operating activities for the three month period ended March 31, 2011 and 2010 were $56,842 and $67,700, respectively. The decrease amounted to $10,858.
 
Net cash flows used in financing activities for the first quarter of 2011 was $2,290,671, which was an interest bearing loan to a third party.
 
Net cash flows provided by investing activities were not significant.
 
     (5)  Liquidity and Capital Resources
 
Current liabilities exceeded current assets by $30,242,886 as of March 31, 2011. The Short Term Loans amounted to $20,127,361, about 67% of the working capital deficit. They were bank loans due in June and October, 2011, respectively, and secured by some of 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 and have good relations with the lenders.
 
     (6)  Contractual Obligations
 
 
The following table was a summary of the Company’s contractual obligations as of March 31, 2011:
 
   
Total
 
Less than
one year
 
1-3 Years
 
Thereafter
Short-Term Debt
$
20,127,361
$
20,127,361
$
-
$
-
Long-Term Debt
         
-
 
-
Amounts due to related parties
 
-
 
-
 
-
 
-
Construction commitments
 
-
 
-
 
-
 
-
Total Contractual Cash Obligations
$
20,127,361
$
20,127,361
$
-
$
-
 
17
 
 

 

 
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 March 31, 2011.  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 March 31, 2011, 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 March 31, 2011, that have materially affected, or are likely to materially affect, our internal control over financial reporting.

PART II.  OTHER INFORMATION

Item 5.  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)
 
31.2
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
 
18

 
 
 

 

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 16, 2011
By
  /s/ Jiang Peng
   
Jiang Peng, Chairman of the Board
   
(Principal Executive Officer)
     
     
     
Date: May 16, 2011
By
  /s/ Sun Dongqing
   
Sun Dongqing, Chief Financial Officer
   
(Principal Financial and Accounting Officer)
 
19