BTHC XV, Inc. 0001010549-11-000003

This document was submitted to the SEC on behalf of BTHC XV, Inc.. The original filing can be found at http://www.sec.gov/Archives/edgar/data/00014120...

Exhibit 99.2

Long Fortune Valley Tourism International Limited

Condensed Consolidated Financial Statements

Three and six months ended June 30, 2010 and 2009

CONTENTS

PAGE(S)

   
   

CONDENSED CONSOLIDATED BALANCE SHEETS

2

   
   

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

3

   
   

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY

4

   
   

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

5

   
   

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

6- 22

1

Long Fortune Valley Tourism International Limited

Condensed Consolidated Balance Sheets

US$ amounts expressed in thousands)

 

June 30,  2010

   

December 31, 2009

 
   

(Unaudited)

   

(Audited)

 
             

ASSETS

           

Current Assets:  

           

Cash and cash equivalents

  $ 308     $ 1,076  

Advances to suppliers

    1,274       508  

Amounts due from related parties

    11,248       4,778  

Short term prepaid rent

    24       24  

Total current assets

    12,854       6,386  

Property, plant and equipment, net of accumulated depreciation

    11,435       9,925  

Land occupancy rights

    319       71  

Long term prepaid rent

    173       179  

Long term investment

    297    

- 

 

Total assets

  $ 25,078     $ 16,561  
             

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

   

 

 

Current liabilities:

 

 

   

 

 

Accounts payable

  $ 336     $ 737  

Accrued expenses and other liabilities

    76       76  

Short-term loans

    8,246       2,490  

Amounts due to related parties

    386       -  

Total current liabilities

    9,044       3,303  

Shareholders’ equity:

 

 

   

 

 

Share capital - $1 par value, authorized 50,000 shares; issued 1,000 shares

    1       1  

Additional paid in capital

    967       967  

Statutory reserve

     593        593  

Accumulated other comprehensive income

    550       472  

Retained earnings

    13,923       11,225  

Total shareholders’ equity

    16,034       13,258  

Total liabilities and shareholders' equity

  $ 25,078     $ 16,561  

See accompanying notes to condensed consolidated financial statements.

2

Long Fortune Valley Tourism International Limited

Condensed Consolidated Statements of Operations

 

Three months ended

 

 

 

Six months ended

 
 

June 30,

 

 

 

June 30,

 

(US$ amounts expressed in thousands)

(unaudited)

 

 

 

(unaudited)

 
   

2010

   

2009

 

 

 

2010

   

2009

 
   

 

   

 

 

 

 

 

   

 

 

Revenues

  $ 3,318     $ 3,266       $ 4,694     $ 4,710  

Costs and expenses

    (913 )     (877 )       (1,605 )     (1,436 )

Operating income

    2,405       2,389         3,089       3,274  

Other income (Expense)

    (45 )     7         (98 )     7  

Income before income taxes

    2,360       2,396  

 

    2,991       3,281  

Income tax expense

    (211 )     (345 )       (293 )     (345 )

Net income

  $ 2,149     $ 2,051       $ 2,698     $ 2,936  
                 

  

 

 

   

 

 

Other comprehensive income - Foreign translation adjustment

    82       5  

  

    78       13  

Comprehensive income

  $ 2,231     $ 2,056       $ 2,776     $ 2,949  

See accompanying notes to condensed consolidated financial statements.

3

Long Fortune Valley Tourism International Limited

Condensed Consolidated Statements of Stockholders’ Equity

 

 

 

 

(US$ amounts expressed in thousands)

 

Share Capital

   

Additional paid in capital

   

Statutory reserve

 

Retained Earnings

   

Accumulated Other Comprehensive Income

   

Total Equity

 
                                             

 Balances at Dec 31, 2009

  $ 1     $ 967  

593

  $ 11,225     $ 472     $ 13,258  
                                       

 Net income

 

- 

   

- 

     -     2,698    

- 

      2,698  
                                         

 Translation adjustments

 

- 

   

- 

     -      -       78       78  
                                             

 Balances at June 30, 2010

  $ 1     $ 967    593   $ 13,923     $ 550     $ 16,034  

See accompanying notes to condensed consolidated financial statements.

4

Long Fortune Valley Tourism International Limited

Condensed Consolidated Statements of Cash Flows

(US$ amounts expressed in thousands)

 

2010

   

2009

 
             

Cash flows from operating activities:

 

 

   

 

 

Net income

    2,698     $ 2,936  

Depreciation expense

    355       359  

Amortization expense

    2       2  

(Increase)/decrease in other receivable

    (766 )     (361 )

Increase/(decrease) in due to related parties

    386    

- 

 

Increase/(decrease) in accounts payable

    (586 )     (5 )

Increase/(decrease) in accrued expenses and other liabilities

     -       (27 )

Net cash provided by operating activities

    2,089       2,904  

 

 

 

   

 

 

Cash flows from investing activities:

 

 

   

 

 

Cash paid for purchase of fixed assets and intangible assets

    (1,919 )     (1,169 )

Long term investment

    (297 )  

- 

 

Amounts due from related parties

    (6,470 )  

- 

 

Net cash used in investing activities

    (8,686 )     (1,169 )

 

 

 

   

 

 

Cash flows from financing activities:

 

 

   

 

 

Proceeds from loans

    5,757       439  

Cash paid for reduction of capital

 

- 

      (1,271 )

Debt repayments

 

- 

   

- 

 

Net cash provided by (used in) financing activities

    5,757       (832 )

 

 

 

   

 

 

Effect of foreign exchange rate changes

    72       11  

 

 

 

   

 

 

Net increase (decrease) in cash and cash equivalents

    (768 )     914  

Cash and cash equivalents at beginning of period

    1,076       57  

Cash and cash equivalents at end of period

    308     $ 971  

 

 

 

   

 

 

Supplemental information:

 

 

   

 

 

Income taxes paid

    293     $ 345  

Interest paid

    135     $ 14  

See accompanying notes to condensed consolidated financial statements.

5

Long Fortune Valley Tourism International Limited

Notes to Condensed Consolidated Financial Statements

(Unless the context requires otherwise, US$ amounts expressed in thousands)

1.  Organization and nature of operations

Organization

Long Fortune Valley Tourism International Limited (the “Company”) was incorporated on December 9, 2009 as an exempted company limited by shares in the Cayman Islands.  Its registered office is located at the offices of Harneys Services (Cayman) Limited, 4th Floor, Genesis Building, 13 Genesis Close, P.O. Box 10240, Grand Cayman, Cayman Islands, KY1-1002.  The Company is 80% owned by Grand Fountain Capital Holding Limited (a Cayman Islands company 99.8% owned by Chen Rongxia, who is Zhang Shanjiu’s spouse), 14.5% owned by Zhang Shanjiu, 5% owned by Li Shikun and 0.5% owned by Yu Xinbo.  Since inception, the Company has not conducted any substantive operations of its own, except to serve as a holding company that owns 100% of the equity of Rich Valley Capital Holding Limited, a British Virgin Islands company that was established by Long Fortune on December 9, 2009 as a wholly-owned subsidiary (“Rich Valley”).

Since inception, Rich Valley has not conducted any substantive operations of its own, except to serve as a holding company that owns 100% of the equity of Long Fortune Valley Tourism International Limited, a Hong Kong company that was established by Rich Valley on December 22, 2009 as a wholly-owned subsidiary (“LFHK”).

Since inception, LFHK has not conducted any substantive operations of its own, except to serve as a holding company that owns 100% of the equity of Shandong Longkong Travel Management Co., Ltd., a limited liability company organized in the PRC on March 15, 2004 (“Longkong”).  Longkong operates its business in Linyi City, Yishui County, Shandong Province, PRC.

Longkong was organized with an initial registered capital of approximately $2.4 million, which was 79.2% owned by Zhang Shanjiu and 20.8% owned by Zhang Qian, Zhang Shanjiu’s daughter.  On August 25, 2004, the registered capital was increased to approximately $3.8 million, which resulted in an increase in the number of shareholders from two to fifteen.  After the increase in registered capital, Zhang Shanjiu, Zhang Qian, Chen Rongxia and Yu Xinbo owned 56.60%, 15.72%, 6.92% and 5.66% of Longkong, respectively.

Until September 2004, Longkong invested in Yishui Underground Fluorescent Lake Travel Development Co., Ltd., Shandong Shan Jiu Ching Tong Gong Yi Pin Co. Ltd. and Yi Shui Yi Mong Shan Nui Shing Shai Co. Ltd., thereby becoming the parent entity of each company and forming a PRC enterprise group of tourism companies.

In September 2007, the shareholders of Longkong entered into several equity transfer transactions that resulted in the reduction in the number of shareholders from fifteen to six.  After the equity transfers, Zhang Shanjiu, Zhang Qian, Chen Rongxia and Yu Xinbo owned 21.26%, 59.87%, 1.13% and 2.52% of Longkong, respectively.

On October 10, 2007, the shareholders agreed to a decrease in Longkong’s registered capital to approximately $3.2 million, which ultimately resulted in Zhang Qian and Li Hongwei being cashed out as shareholders.  After the decrease in registered capital, Zhang Shanjiu, Chen Rongxia and Yu Xinbo owned 84.5%, 4.5% and 10% of Longkong, respectively.

6

Long Fortune Valley Tourism International Limited

Notes to Condensed Consolidated Financial Statements

(Unless the context requires otherwise, US$ amounts expressed in thousands)

On December 17, 2007, largely in part due to the rarity of a group of companies such as the enterprise group in the PRC, Longkong’s management decided to sell its majority interest in its three subsidiaries to the minority shareholders in each company in order to focus on its core business.  Longkong’s interest in Yishui Underground Fluorescent Lake Travel Development Co. Ltd. was sold to Zhang Qian, Zhang Shanjiu’s daughter, for approximately $1.8 million.  Longkong’s interest in Shandong Shan Jiu Ching Tong Gong Yi Pin Co. Ltd. was sold to Li Hongwei, a former shareholder and employee of Longkong, for approximately $274,000.  Longkong’s interest in Yi Shui Yi Mong Shan Nui Shing Shai Co. Ltd. was sold to Zhang Shanshuang, Zhang Shanjiu’s brother, for approximately $27,000.

On March 10, 2008, the four remaining shareholders of Longkong sold their shares to Longong Travel Limited, a United Kingdom company (“Longong”), for approximately $2.0 million.  Longong was a company that was established by the four remaining shareholders of Longkong and each shareholder’s ownership percentage in Longong was the same as such shareholder’s ownership percentage in Longkong prior to the transaction.

On November 12, 2008, Longong sold 100% of the equity interests in Longkong to Long Fortune Valley Limited, a company organized under the laws of Gibraltar (“Fortune Valley”), for $1.  Fortune Valley was a company that was established by Zhang Shanjiu.  On December 29, 2009, Fortune Valley sold 100% of the equity interests in Longkong to LFHK for $1.

Pursuant to the acquisitions described above, the Company acquired all the equity interests of the subsidiaries (collectively with the Company, the “Group”).  The Group resulting from the acquisitions is regarded as a continuing entity because the Group is ultimately controlled by the same parties (Zhang Shanjiu and his immediate family) both before and after the transactions.  Accordingly, the condensed consolidated balance sheet at June 30, 2009 has been prepared using the principles of merger accounting.  The condensed consolidated statement of operations, condensed statement of stockholders’ equity and condensed statement of cash flows for the six months ended June 30, 2009 have been prepared on a combined basis as if the current structure had been in existence throughout the six months ended June 30, 2009.

Nature of operations

The business scope of Longkong is tourism development.  The key business project is a cave named the “Underground Grand Canyon” that is located in Linyi City, Yishui County, Shandong Province, PRC.  The Underground Grand Canyon tourist destination, at 6,100 meters (approximately 3.75 miles), is the longest cave system in northern China and contains several stalactite and stalagmite formations, as well as rivers and streams.  To date, approximately 3,100 meters (approximately 2 miles) have been developed into four entertainment attractions, including: (i) the “Underground Water Drifting” attraction; (ii) the “Electric Slide Car” attraction; (iii) the “Battery Vehicle” attraction; and (iv) the “Strop Ropeway” attraction.  Revenue is generated from admission tickets, water drifting attraction fees, rail car fees and other fees and services, including battery vehicle fees, strop ropeway fees and parking fees.  An admission ticket is for general access to the “Underground Grand Canyon” tourist destination.  Visitors are charged additional fees for the entertainment attractions in and around the Underground Grand Canyon.

7

Long Fortune Valley Tourism International Limited

Notes to Condensed Consolidated Financial Statements

(Unless the context requires otherwise, US$ amounts expressed in thousands)

2.  Significant accounting policies

Basis of presentation

The consolidated financial statements of the Group have been prepared in accordance with the accounting principles generally accepted in the United States of America (“US GAAP”).

Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries.  All inter-company transactions and balances have been eliminated upon consolidation.

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods.  Actual results could differ from those estimates.

Cash and cash equivalents

Cash and cash equivalents include interest bearing and non-interest bearing bank deposits, money market accounts, and short-term certificates of deposit with original maturities of three months or less.

Allowance for doubtful accounts

The Group provides an allowance for doubtful accounts equal to amount of estimated uncollectible accounts.  The Group’s estimates are based on historical collection experience and a review of the current status of accounts receivable and advances to suppliers.  It is reasonably possible that the Group’s estimate of the allowance for doubtful accounts will change.  Accounts receivable and advances to suppliers are presented net of the allowance for doubtful accounts.

Property, plant and equipment, net

Property, plant and equipment are recorded at cost and are stated net of accumulated depreciation.  Depreciation expense is calculated using the straight-line method over the estimated useful lives of the assets, taking into account the estimated residual value.  The estimated useful lives are as follows:

Building

20 years

Machinery and equipment

10 years

Motor vehicle

5 years

Office equipment

5 years

Maintenance and repairs are charged directly to expense as incurred, whereas betterments and capital expenditures for infrastructure and facilities improvement are generally capitalized in their respective property accounts.  When an item is retired or otherwise disposed of, the cost and applicable accumulated depreciation are removed and the resulting gain or loss is recognized and reflected in current operations.  For all periods presented in the statement of operations and comprehensive income, certain labor charges normally capitalized were charged to operating expenses as the Group was unable to adequately separate these costs.

8

Long Fortune Valley Tourism International Limited

Notes to Condensed Consolidated Financial Statements

(Unless the context requires otherwise, US$ amounts expressed in thousands)

2.  Significant accounting policies -continued

Construction in progress

Construction in progress represents property and equipment under construction.  No depreciation is recorded in respect of construction in progress.  Construction in progress is transferred to property and equipment, and depreciation of the asset commences, when the asset has been substantially completed and is ready for its intended use.

Land use rights, net

Land use rights are recorded at cost less accumulated amortization.  Amortization is provided over the term of the land use right agreement on a straight-line basis.

Impairment of long-lived assets

The carrying values of the Group’s long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that they may not be recoverable.  When such an event occurs, the Group projects the undiscounted cash flows to be generated from the use of the asset and its eventual disposition over the remaining life of the asset.  If projections indicate that the carrying value of the long-lived asset will not be recovered, the carrying value is reduced by the estimated excess of the carrying value over the projected discounted cash flows.

Revenue Recognition

Revenue of the Group is generated from admission tickets, water drifting attraction fees, rail car fees and other fees and services, including battery vehicle fees, strop ropeway fees and parking fees.  Revenue is recognized when the service has occurred and payment has been received from visitors.  An admission ticket entitles the visitor to a one-time admission to the Underground Grand Canyon and entertainment attraction fees entitle the visitor to a one-time usage of the particular entertainment attraction.  No weekly, monthly or other annual or season type passes are offered to the Underground Grand Canyon.  Admission ticket prices and entertainment attraction fees are generally collected immediately prior to the visitor entering the Underground Grand Canyon and, as a result, revenue is recognized when the service has occurred and payment has been received from visitors.  Revenue is recorded net of relevant taxes.

Operating leases

Leases in which substantially all the rewards and risks of ownership of the asset remain with the lessor are accounted for as operating leases.  Payments made under operating leases are charged to the statements of operations on a straight-line basis over the shorter of the lease term or estimated useful life.

Foreign currency transactions and translation

The Company uses the U.S. dollar as its functional currency and Renminbi (“RMB”), the national currency of China, as the functional currency of Longkong.

9

Long Fortune Valley Tourism International Limited

Notes to Condensed Consolidated Financial Statements

(Unless the context requires otherwise, US$ amounts expressed in thousands)

Longkong translates assets and liabilities into U.S. dollars using the rate of exchange prevailing at the balance sheet date, and the consolidated statements of operations are translated at average rates during the reporting periods.  Adjustments resulting from the translation of financial statements from RMB into U.S. dollars are recorded in shareholders’ equity as part of accumulated other comprehensive income/(loss).  Gains or losses resulting from transactions in currencies other than RMB are reflected in income for the reporting periods.

2.  Significant accounting policies –continued

Fair value

When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Group considers the principal or most advantageous market in which it would transact business and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.  The Group uses the following three levels of inputs in determining the fair value of the Group’s assets and liabilities, focusing on the most observable inputs when available:

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

The Group did not have any financial assets and liabilities or nonfinancial assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2010.

Fair value of financial instruments

The Group’s financial instruments consist primarily of cash and cash equivalents and short-term borrowings.  The fair value of these financial instruments approximate their carrying amounts reported in the balance sheets due to the short-term maturity of these instruments.

Income taxes

Deferred income taxes are recognized for temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, net of operating loss carry forwards and credits, by applying enacted statutory tax rates applicable to future years.  Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.  Current income taxes are provided for in accordance with the laws of the relevant taxing authorities.

10

Long Fortune Valley Tourism International Limited

Notes to Condensed Consolidated Financial Statements

(Unless the context requires otherwise, US$ amounts expressed in thousands)

In July 2006, the Financial Accounting Standards Board (“FASB”) issued Financial Interpretation (FIN) 48, Accounting for Uncertainty in Income Taxes—an Interpretation of FASB 109 (“FIN 48”).  The Group adopted the provisions of FIN 48, which did not have a material impact on its operating results, financial position or cash flows.

2.  Significant accounting policies –continued

Advertising costs

The Group expenses advertising costs as incurred.  Total advertising expenses were US$264 and US$239 during the six months ended June 30, 2009 and 2010, respectively, and have been included as part of Costs and expenses.

Comprehensive income

Comprehensive income includes net income and foreign currency translation adjustments. Comprehensive income is reported as a component of the consolidated statements of shareholders’ equity.

Recent Accounting Pronouncements adopted for 2009

In June 2009, the FASB issued the Accounting Standards Codification (“Codification”).  Effective July 1, 2009, the Codification is the single source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with US GAAP.  The Codification is intended to reorganize, rather than change, existing US GAAP.  Accordingly, all references to currently existing US GAAP have been removed and have been replaced with plain English explanations of the Group’s accounting policies.  The adoption of the Codification did not have a material impact on the Group’s financial position or results of operations.

In May 2009, the FASB revised the authoritative guidance for subsequent events, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued.  This guidance was effective for financial statements issued for interim and annual reporting periods ending after June 15, 2009.  We adopted this guidance for the period ended June 30, 2009, and have provided the disclosures required for the period ended June 30, 2010.

Recent Accounting Pronouncements not yet adopted

In October 2009, the FASB issued Update No. 2009-13, which amends the Revenue Recognition topic of the Codification.  This update provides amendments to the criteria in Subtopic 605-25 of the Codification for separating consideration in multiple-deliverable arrangements.  As a result of those amendments, multiple-deliverable arrangements will be separated in more circumstances than under existing US GAAP.  The amendments establish a selling price hierarchy for determining the selling price of a deliverable and will replace the term fair value in the revenue allocation guidance with selling price to clarify that the allocation of revenue is based on entity-specific assumptions rather than assumptions of a marketplace participant.  The amendments will also eliminate the residual method of allocation and require that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method and will require that a vendor determine its best estimate of selling price in a manner that is consistent with that used to determine the price to sell the deliverable on a standalone basis.  These amendments will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted.  We are currently evaluating the impact that the adoption of this update might have on our results of operations and financial condition.

11

Long Fortune Valley Tourism International Limited

Notes to Condensed Consolidated Financial Statements

(Unless the context requires otherwise, US$ amounts expressed in thousands)

3.  Amounts due from related parties

Amounts due from related parties are unsecured, have fixed repayment terms and carried interest rates between 5.38% and 9.6% per annum as of June 30, 2009.  As of June 30, 2010, amounts due from related parties no longer carry interest.  Refer to Note 10 - Related-party transactions.

4.  Property, plant and equipment, net

Property, plant and equipment consisted of the following:

       June 30,        December 31,  
       2010        2009  
     

(Unaudited)

       (Audited)  
                 

Building

  $ 10,215     $ 10,141  

Machinery and equipment

    556       527  

Motor vehicle

    844       832  

Office equipment

    141       128  
      11,756       11,628  

Less: Accumulated depreciation

    (2,691 )     (2,336 )

Property, plant and equipment, net

    9,065       9,292  

Construction in progress

    2,370       633  
    $ 11,435     $ 9,925  

5.  Land occupancy rights

       June 30,        December 31,  
        2010        2009   
     

(Unaudited)

       (Audited)  
                 

Land occupancy rights

  $ 328     $ 78  

Less: Accumulated amortization

    (9 )     (7 )

Land occupancy rights, net

  $ 319     $ 71  

12

Long Fortune Valley Tourism International Limited

Notes to Condensed Consolidated Financial Statements

(Unless the context requires otherwise, US$ amounts expressed in thousands)

During the six months ended June 30, 2010 and 2009, amortization expense was $1,897 and $1,192, respectively.  The estimated amortization expense for each of the five succeeding fiscal years from 2009 is approximately $10,000 each year.

6.  Long term investment

During the six months ended June 30, 2010, Longkong acquired a less than 1% interest in Yishui Rural Credit Cooperative (“Yishui Credit”), which is a financial institution located in Yishui County, Shandong Province.  Because the Group owns a less than 1% interest and has no representation on Yishui Credit’s board of directors, the Group’s management concluded that the Group could not exercise significant influence over the operating and financial policies of Yishui Credit.  Accordingly, the cost method is used to account for the investment.

7.  Short-term loans

The following table reflects the balance of short-term loans at June 30, 2010 and December 31, 2009:

 

 

Maturity date

 

Interest rate

 

As of June 30, 2010

(unaudited)

 

As of December 31, 2009

(audited)

Industrial and Commercial

Bank of China Yishui Branch

 

04/28/2010

 

7.97%

 

--

 

293

                 

Bank of China Yishui Branch

 

10/27/2010

 

5.38%

 

2,209

 

2,197

                 

Industrial and Commercial

Bank of China Yishui Branch

 

09/14/2010

 

6.37%

 

295

 

--

                 

Industrial and Commercial

Bank of China Yishui Branch

 

10/15/2010

 

5.83%

 

735

 

--

                 

Industrial and Commercial

Bank of China Yishui Branch

 

07/25/2010

 

5.83%

 

735

 

--

                 

Bank of Linshang

 

05/28/2011

 

7.97%

 

735

 

--

                 

Yishui Rural Credit Cooperative

 

04/26/2011

 

11.15%

 

442

 

--

                 

Yishui Rural Credit Cooperative

 

04/26/2012

 

5.31%

 

295

 

--

                 

Yishui Rural Credit Cooperative

 

05/20/2011

 

10.62%

 

1,474

 

--

                 

Yishui Rural Credit Cooperative

 

01/08/2012

 

10.62%

 

442

 

--

                 

Yishui Rural Credit Cooperative

 

04/20/2011

 

10.62%

 

884

 

--

           

8,246

 

2,490

13

Long Fortune Valley Tourism International Limited

Notes to Condensed Consolidated Financial Statements

(Unless the context requires otherwise, US$ amounts expressed in thousands)

The weighted average interest rate for short-term loans as of June 30, 2010 and December 31, 2009 was 7.81% and 5.68%, respectively.

As of June 30, 2010, the short-term loans were secured by guarantees provided by related parties, as well as the pledge by Longkong of its operation fee charging rights and its interest in real property.  Refer to Note 8 - Related-party transactions.

8.  Revenue

Revenue for the six months ended June 30, 2010 and 2009 was $4.7 million and $4.7 million, respectively.  The Group’s revenues are subject to seasonal variation and accordingly interim results may not be indicative of the estimated results for a full fiscal year.  Revenue for the twelve months ended June 30, 2010 and 2009 was $9.9 million and $8.5 million, respectively.

9.  Income tax

Cayman and BVI

Under the current laws of the Cayman Islands and the British Virgin Islands, the members of the Group that are incorporated in the Cayman Islands and the British Virgin Islands are not subject to income taxes.

Hong Kong

LFHK was incorporated in Hong Kong on December 22, 2009.  LFHK did not earn any income that was derived in Hong Kong for the six months ended June 30, 2010 and therefore was not subject to Hong Kong Profits Tax.  The payment of dividends by Hong Kong companies is not subject to any Hong Kong withholding tax.

PRC

The local competent tax authorities collect enterprise tax from Longkong through verification collection.  According to PRC law, if an enterprise satisfies certain conditions it may be eligible to pay its enterprise tax through verification collection.  Conditions include: (i) the enterprise is not required to establish accounting books under relevant laws and administrative regulations; (ii) the enterprise is required to establish accounting books under relevant laws and administrative regulations but fails to do so; (iii) the enterprise illegally destroys the accounting books or refuses to provide tax paying references; (iv) the enterprise has established accounting books but it is difficult to audit such books because the accounts are in disorder or the cost references, income vouchers and expenditure vouchers are incomplete; (v) the enterprise fails to file a tax return for a tax obligation within the prescribed time limit and refuses to file a tax return even after the taxing authority orders it to do so within a time limit; or (vi) the enterprise reports an obviously low tax basis without any justifiable reason.  Upon the satisfaction of these conditions, the taxing authorities, on the basis of the circumstance of a taxpayer subject to verification collection, verify the enterprise’s taxable income rate or income tax liability.  The taxing authorities may verify the enterprise income tax to be collected through the following approaches: (i) by referring to the tax burden on local taxpayers in the same or similar industry and with approximate business scale and income level; (ii) by referring to the amount of taxable income or the amount of costs and expenses; (iii) on the basis of calculation and inference or measurement of consumed raw materials, fuel, energy, etc.; or (iv) through other reasonable approaches.  Longkong has obtained receipts from the local competent tax authorities indicating that it has paid all taxes in full for the six months ended June 30, 2010 and 2009.

14

Long Fortune Valley Tourism International Limited

Notes to Condensed Consolidated Financial Statements

(Unless the context requires otherwise, US$ amounts expressed in thousands)

As of June 30, 2010 and 2009, the Company is not in any uncertain tax positions and thus has no accrued interest and penalties related to those matters.  The differences between U.S. GAAP net income and PRC taxable income are considered as permanent differences and thus the Company did not record any deferred taxes.

The components of the provision for income taxes are:

   

Six months ended June 30,

(Unaudited)

 
   

2010

   

2009

 

Current taxes-PRC

  $ 293     $ 345  

Deferred taxes

    -       -  
    $ 293     $ 345  

15

Long Fortune Valley Tourism International Limited

Notes to Condensed Consolidated Financial Statements

(Unless the context requires otherwise, US$ amounts expressed in thousands)

10.  Related-party transactions

(1)           Outstanding balances with related parties are as follows:

   

Relationship

     

Amounts due from related parties

       

Amounts due to related parties

 
              June 30,    

  December 31,

      June 30,      

  December 31,

 
           

2010

   

2009

     

2010

     

2009

 
            (Unaudited)    

   (Audited)

        (Unaudited)      

   (Audited)

 
           

US$ 

   

US$

     

US$

     

US$

 
                                           

Mr. Zhang Shanjiu

 

Director – Note 8(a)

     

-

     

-

       

359

       

-

 
                                           

Mr. Yu Xinbo

 

Director – Note 8(b)

      -       -          27         -  
                                           

Yishui Underground Fluorescent Lake Travel Development Co., Ltd.

 

Controlled by Mr. Zhang Shanjiu’s immediate family- Note 8(c)

      5,209       4,778         -         -  

Yishui Yinhe Travel Development Co., Ltd.

 

Mr. Zhang Shanjiu, as an investor, has significant influence over the entity- Note 8(d)

      6,039       -         -         -  
            11,248       4,778         386         -  

As of June 30, 2010, all related parties balances were non-interest bearing and unsecured.

As of June 30, 2009, amounts due from related parties were unsecured and carried interest rates between 5.38% and 9.6% per annum.

Notes:

a.  

Includes an advance of approximately $248,000 to purchase land occupancy rights.  The remaining balance was used for general corporate purposes.  The parties did not execute a written agreement with respect to these loans, which are interest-free, and there is no formal due date for repayment.

b.  

The amount was used for general corporate purposes.  The parties did not execute a written agreement with respect to this loan, which is interest-free, and there is no formal due date for repayment.

16

Long Fortune Valley Tourism International Limited

Notes to Condensed Consolidated Financial Statements

(Unless the context requires otherwise, US$ amounts expressed in thousands)

10.  Related-party transactions -continued

c.  

The details of loans to Yishui Underground Fluorescent Lake Travel Development Co., Ltd. at June 30,2010 are:

Date of loan

 

Due date

 

Interest

 

Amount

11/30/09

 

11/29/10

 

free of interest

 

        1,767

11/27/09

 

10/27/10

 

free of interest

 

        2,209

12/16/09

 

12/15/10

 

free of interest

 

           828

01/08/10

 

01/07/11

 

free of interest

 

              1

01/09/10

 

01/08/11

 

free of interest

 

              2

02/03/10

 

02/02/11

 

free of interest

 

             23

03/02/10

 

03/01/11

 

free of interest

 

             74

03/31/10

 

03/30/11

 

free of interest

 

             10

04/01/10

 

03/31/11

 

free of interest

 

             12

04/02/10

 

04/01/11

 

free of interest

 

             15

04/03/10

 

04/02/11

 

free of interest

 

             25

04/11/10

 

04/10/11

 

free of interest

 

              7

04/12/10

 

04/11/11

 

free of interest

 

             22

04/13/10

 

04/12/11

 

free of interest

 

              7

04/23/10

 

04/22/11

 

free of interest

 

             59

04/26/10

 

04/25/11

 

free of interest

 

           148

           

        5,209

Longkong generally executes written agreements with Fluorescent Lake, unless the dollar amount of the loan is less than $150,000.  These loan agreements provide that the loans are interest free and are due within 12 months of the date of the loan.  Periodic payments of principal are not required with respect to these loans.

d.  

The details of loans to Yishui Yinhe Travel Development Co., Ltd. (“Yinhe Travel”) at June 30,2010 are:

Date of loan

 

Due date

 

Interest

 

Amount

01/05/10

 

12/31/10

 

free of interest

 

           456

01/09/10

 

12/31/10

 

free of interest

 

           147

01/11/10

 

12/31/10

 

free of interest

 

           383

04/22/10

 

04/21/11

 

free of interest

 

           442

04/23/10

 

04/21/11

 

free of interest

 

           427

05/07/10

 

05/06/11

 

free of interest

 

           147

05/14/10

 

05/13/11

 

free of interest

 

        1,399

05/02/10

 

05/21/11

 

free of interest

 

           767

05/29/10

 

05/28/11

 

free of interest

 

        1,473

06/05/10

 

06/04/11

 

free of interest

 

           147

06/07/10

 

06/06/11

 

free of interest

 

           196

06/09/10

 

06/09/11

 

free of interest

 

             55

           

        6,039

17

Long Fortune Valley Tourism International Limited

Notes to Condensed Consolidated Financial Statements

(Unless the context requires otherwise, US$ amounts expressed in thousands)

10.  Related-party transactions -continued

Longkong generally executes written agreements with Yinhe Travel, which provide that the loans are interest free and are due within 12 months of the date of the loan.  Periodic payments of principal are not required with respect to these loans.

(2)           Guarantee

The following table lists details of related-party guarantees pursuant to which a related party has executed a Guarantee Contract with Longkong and the creditor to guarantee loans of Longkong:

Creditor

Guarantor

 

Relationship

 

Date of commencement of Guarantee

 

Date of termination of Guarantee

 

Due Date of Loan

Loan amount

Industrial and Commercial Bank of China Yishui branch

Zhang Shanjiu and Chen Rongxia (spouse of Zhang Shanjiu)

 

 

Director

 

05/11/2010

 

10/16/2010

 

10/15/2010

1,473

Bank of China Yishui branch

Yishui Yinhe Travel Development Co., Ltd.

 

Mr. Zhang Shanjiu, as an investor, has significant influence over the entity

 

 

11/17/2009

 

11/17/2012

 

10/27/2010

2,209

Bank of China Yishui branch

Junan Tianma Island Travel Development Co., Ltd.

 

 

Controlled by Zhang Shanjiu

 

11/17/2009

 

11/17/2012

 

10/27/2010

2,209

Bank of China Yishui branch

 

Zhang Shanjiu

 

Director

 

11/17/2009

 

11/17/2012

 

10/27/2010

2,209

Yishui Rural Credit Cooperative

 

Chen Rongguang

 

Director

 

01/09/2010

 

01/30/2011

 

01/08/2011

177

Yishui Rural Credit Cooperative

 

Zhang Shanjiu

 

Director

 

01/09/2010

 

01/08/2011

 

01/08/2011

265

Yishui Rural Credit Cooperative

 

Zhang Shanjiu

 

Director

 

01/09/2010

 

01/08/2011

 

01/08/2011

177

Yishui Rural Credit Cooperative

 

Zhang Shanjiu

 

Director

 

04/21/2010

 

04/20/2011

 

04/20/2011

884

18

Long Fortune Valley Tourism International Limited

Notes to Condensed Consolidated Financial Statements

(Unless the context requires otherwise, US$ amounts expressed in thousands)

Creditor

 

Guarantor

 
 

Relationship

 
 

Date of commencement of

Guarantee

 

Date of termination of Guarantee

 

Due Date of Loan

 

Loan amount

 
                     

Yishui Rural Credit Cooperative

Junan Tianma Island Travel Development Co., Ltd.

 

 

Controlled by Zhang Shanjiu

 

05/21/2010

 

04/26/2011

 

04/26/2011

736

Yishui Rural Credit Cooperative

 

Zhang Shanjiu

 

Director

 

05/21/2010

 

04/26/2011

 

04/26/2011

736

                     

Yishui Rural Credit Cooperative

Yishui Underground Fluorescent Lake Travel Development Co., Ltd.

 

Controlled by Mr. Zhang Shanjiu’s immediate family

 

05/21/2010

 

04/26/2011

 

04/26/2011

736

                     

Yishui Rural Credit Cooperative

 

Zhang Shanjiu

 

Director

 

05/24/2010

 

05/20/2011

 

05/20/2011

1,473

Pursuant to the Guarantee Contract, dated March 14, 2008, between Longkong and the Agricultural Development Bank of China, Junan Branch (“Agricultural Bank”), Longkong has guaranteed a loan by Agricultural Bank to Junan Tianma Island Travel Development Co., Ltd. (“Tianma Island”), a company controlled by Zhang Shanjiu, a director of the Company.  The loan bears interest at a rate of 7.83% per annum and is due March 13, 2014.  Periodic payments of $736,000, $1.2 million, $1.5 million and $1.8 million are due by Tianma Island on March 13, 2011, March 13, 2012, March 13, 2013 and March 13, 2014, respectively.  The balance due of the loan at June 30, 2010 was $5.2 million, which is the maximum potential amount of future payments that Longkong could be required to make under the guarantee.  The guarantee provided under the Guarantee Contract expires upon the payment in full of the loan.  Longkong will be required to make payment under the guarantee if Tianma Island fails to make a payment when due.  In such circumstance, Longkong will have recourse against Tianma Island for the full amount of the payment made on its behalf.  This obligation, however, is not secured by any assets or funds of Tianma Island.  Longkong’s guarantee to Agricultural Bank is not secured by any assets or funds of Longkong.

11.  Statutory reserves

The Company is required to make appropriations to reserve funds, comprising the statutory surplus reserve, statutory public welfare fund and discretionary surplus reserve, based on Longkong’s after-tax net income determined in accordance with PRC accounting standards.  Appropriation to the statutory surplus reserve should be at least 10% of Longkong’s after-tax net income determined in accordance with PRC accounting standards until the reserve is equal to 50% of Longkong’s registered capital (which was approximately $1.0 million on June 30, 2010 and 2009).  The Company did not make any such appropriation for the six months ended June 30, 2010 and 2009 because the reserve balance as of December 31, 2007 reached 50% of Longkong’s registered capital.  The accumulated balance of the statutory reserve of Longkong as of June 30, 2010 and 2009 was $0.6 million.  In accordance with PRC laws and regulations, Longkong’s statutory reserves generally are not distributable to the Company’s shareholders, for example, in the form of dividends, except upon the liquidation of Longkong.

19

Long Fortune Valley Tourism International Limited

Notes to Condensed Consolidated Financial Statements

(Unless the context requires otherwise, US$ amounts expressed in thousands)

12.  Commitments

Operating Lease

The Group conducts significant operations from leased lands.  The terms of substantially all of these leases are ten years or more.  Future minimum lease payments at December 31, 2009, by year and in the aggregate, under all non-cancelable operating leases are as follows:

Years  ending Dec 31:

 

 

Continuing

operations

 

2010

    $ 10  

2011

 

    20  

2012

 

    20  

2013

 

    20  

2014

 

    20  

Thereafter

 

    603  
 

                                                                                       

  693  

Rental expense for operating leases amounted to $0.01 million and $0.01 million for the six months ended June 30, 2010 and 2009, respectively, and has been recorded in costs and expenses.

Capital commitment

 

 

 

US$

 
           

Capital commitment for purchase of property and equipment

 

    324  
 

 

    324  

13.  Subsequent events

On August 23, 2010, Longkong changed its name to Shandong Longkong Travel Management Co., Ltd.

The following table lists the details of additional loans obtained by the Group since June 30, 2010:

Creditor

Loan Amount

 

Date of loan

Due date

   

Interest

   

China Construction Bank Yishui branch

 

    884  

07/25/2010

07/24/2011

    5.84 %

China Construction Bank Yishui branch

 

    589  

08/02/2010

08/01/2011

    5.84 %
                     

Industrial and Commercial Bank of China Yishui branch

    1,031  

09/21/2010

08/20/2011

    6.37 %

20

Long Fortune Valley Tourism International Limited

Notes to Condensed Consolidated Financial Statements

(Unless the context requires otherwise, US$ amounts expressed in thousands)

13.  Subsequent events-continued

On October 6, 2010, the Company entered into a Share Exchange Agreement with its shareholders, BTHC XV, Inc. (“BTHC”) and BTHC’s principal shareholder.  Pursuant to the terms of the Share Exchange Agreement, BTHC agreed to acquire all of the issued and outstanding shares of the Company from the Company’s shareholders in exchange for the issuance by BTHC to the Company’s shareholders of an aggregate of 17,185,177 newly-issued shares of BTHC’s common stock, which, upon completion of the transactions contemplated by the Share Exchange Agreement, will constitute approximately 95% of the entity’s issued and outstanding shares of common stock.  Upon consummation of the share exchange, the Company will become a wholly-owned subsidiary of BTHC.

On October 22, 2010, BTHC and BTHC’s principal shareholder received a letter from counsel (“Greentree Letter”) to Greentree Financial Group, Inc. (“Greentree”), in which it was alleged that the Company breached the Exclusive Service Agreement, dated September 1, 2010, between the Company and Greentree (the “Service Agreement”) and that BTHC and BTHC’s principal shareholder facilitated the Company’s alleged breach of the Service Agreement.  The Service Agreement purportedly provides that Greentree was engaged by the Company to provide certain financial advisory services, including, among others: (i) advising and assisting the Company with redesigning its capital structure, consistent with US GAAP and usual and customary business practices for companies similar to the Company; (ii) advising and assisting the Company in the conversion of its financial reporting systems to a format that is consistent with US GAAP; (iii) assisting the Company in evaluating prospective merger candidates, including due diligence; (iv) assisting in the preparation of English language closing documents in connection with a proposed reverse takeover transaction (“RTO”), including filings with the SEC; (v) assisting in the preparation and filing of registration statements with the SEC; (vi) assisting in the preparation of corporate governance documents and a NASDAQ listing application; and (vii) providing management training to the Company’s senior management with respect to usual and customary practices for U.S. companies with business plans similar to the Company’s business plan.  In consideration of the financial advisory services to be performed by Greentree, the Service Agreement purportedly provides that the Company would pay to Greentree: (i) $25,000 in cash; (ii) 500,000 shares of common stock of the proposed public company (based on an assumed capital structure of 7,500,000 shares issued and outstanding following the closing of the RTO); and (iii) warrants to purchase 200,000 shares of the proposed public company’s common stock.  The Service Agreement provides that the warrants: (i) are to be exercisable for a period of 18 months following the closing of the RTO; (ii) have an exercise price of $2.00 per share; (iii) would not be redeemable by the proposed public company; (iv) would contain registration rights; and (v) would contain anti-dilution and price protection provisions for 18 months following the closing of the RTO.  With respect to any shares that may be issuable to Greentree, the Service Agreement purportedly provides that the shares would be anti-dilutive for a period of 18 months and that to the extent more than 10,000,000 shares are issued, additional shares would be issued to Greentree to bring Greentree’s ownership up to 5% ownership in the proposed public company.  The Service Agreement contains a one year term, subject to extension upon mutual written agreement of the Company and Greentree, and may be terminated by the Company prior to the expiration of the term upon 45 days’ written notice.  In addition, the Service Agreement purportedly provides that if Company were to terminate the Service Agreement prior to the expiration of the term, Greentree would be entitled to the fee set forth above, except that the proposed public company would not be required to issue to Greentree 125,000 of the 500,000 shares of common stock.

21

Long Fortune Valley Tourism International Limited

Notes to Condensed Consolidated Financial Statements

(Unless the context requires otherwise, US$ amounts expressed in thousands)

In the Greentree Letter, Greentree has demanded: (i) 5% of BTHC’s issued and outstanding shares of common stock, subject to anti-dilution provisions; (ii) warrants to purchase 200,000 shares of BTHC’s common stock at an exercise price of $2.00 per share, exercisable for three years; and (iii) the reimbursement and payment of all past, current and future out-of-pocket expenses, including, but not limited to, legal fees.

The Company, BTHC and BTHC’s principal shareholder are in the process of evaluating the merits of the claims contained in the Greentree Letter.  To the Company’s, BTHC’s and BTHC’s principal shareholder’s knowledge, no formal legal action has been taken by Greentree as of this date.  If any such legal action is commenced by Greentree, there can be no assurance that the Company, BTHC and BTHC’s principal shareholder will be successful in such action.

22

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