Mountain China Resorts (Holding) Limited (TSX VENTURE:MCG) ("MCR" or the
"Company"), reported its financial results for the three months ended September
30, 2012. MCR reports its results in Canadian Dollars.
Financial Highlights
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For the three months For the three months
(in thousands of Canadian dollars ended ended
except for per share data) September 30, 2012 September 30, 2011
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Revenue 1,184 39
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Operating expenses (1,606) (464)
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Other income 83 3
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General and administrative
expenses (160) (429)
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Depreciation and amortization (2,813) (2,418)
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Impairment of PPE - -
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Operating loss (3,312) (3,269)
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Total non-operating income and
expenses (1,518) (2,096)
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Deferred income tax recovery 33 38
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Net loss (4,797) (5,327)
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Net loss per share (Basic and
Diluted) (0.02) (0.02)
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Weighted average number of shares
outstanding(Basic and Diluted) 308,859,103 203,092,285
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Total revenue and the net results were from the Company's resort operations with
no real estate sales revenue generated during the Reporting Period. For the
three months ended September 30, 2012, the Company generated revenues from
resort operations of $1.18 million and a net loss of $4.80 million or $0.02 per
share compared to $0.039 million and a net loss of $5.32 million or $0.02 per
share. The increase in the revenue is a sharp contrast to the revenue from the
same period of last year because the Company started its first summer season
operation on a trial basis in the three months ended September 30, 2012.
Also because of the trial summer season operation, the Company's resort
operation expenses from continuing operations increased to $1.60 million for the
three months ended September 30, 2012, compared to $0.46 million for the same
period in 2011, because of the Company's resort summer season operations.
Operations expenses for the resort were mainly attributable to staffing, fuel
and utilities.
Corporate general and administrative expenses totaled $0.16million for the three
months ended September 30, 2012, compared to $0.43 million for the same period
in 2011. This amount mainly comprised executive employee costs, public company
maintenance costs, and corporate information technology costs.
Depreciation and amortization expense from continuing operations totaled $2.81
million for the three months ended September 30, 2012, compared to $2.41 million
for the same period in 2011. The increase was mainly due to the additional
amortization expenses related to the building renovation completed in later
2011.
The Company incurred interest expenses of $1.48 million for the three months
ended September 30, 2012 from continuing operations compared to $1.03 million
for the same period in 2011.
Cash and cash equivalents totaled $14.46 million and working capital deficiency
is $56.11 million as at September 30, 2012, compared to $15.77 million in cash
and cash equivalent and working capital deficiency of $62.79 million as at
December 31, 2011.
Operations Sun Mountain Yabuli
The Company's 2011-2012 Sun Mountain Yabuli Resort winter season operations
commenced on November 26, 2011 and closed on March 25, 2012. The Company's first
trial summer operation began on July 14, 2012 and closed on September 2, 2012
for a total of 50 days at the Sun Mountain Yabuli Resort. The resort provided
outdoor activities including: archery, cross country mountain bike/hiking,
mountain top afternoon tea parties and so on. For the three months ended
September 30, 2012, the total number of slide guests reached 3,299, the total
number of hotel nights reached 12,895, and the hotel occupancy rate reached 37%
for the period of time when the summer operation was open. Even though Sun
Mountain Yabuli Resort was successful in generating revenues from the first
trial summer operation, after taking into consideration of the corresponding
operating expenses for the summer operation, the summer operation at the Yabuli
Resort is not profitable enough for the Company to continue. Accordingly, the
Company and Club Med decided that there will be no summer operation in 2013 at
Club Med Yabuli Resort.
Revenue at the Yabuli Resort for the third quarter and the nine-month period
ended September 30, 2012 was $1.18 million and $6.45 million respectively.
Operating EBITDA was negative $0.42 million in the third quarter and $0.91
million in the nine-month period ended September 2012.
The Company's 2012-2013 Sun Mountain Yabuli Resort winter season commenced on
November 24, 2012 and is anticipated to continue until sometime in March of
2012. The Club Med portion of the Yabuli Resort will commence on November 30,
2012 and is anticipated to continue until sometime in March 2012. Advance hotel
bookings received by the Company this year suggest that the winter operating
income is expected to grow by 30%.
Sun Mountain Yabuli - Real Estate Development
As at the end of Fiscal 2010, the Company had completely finished working on the
exterior decoration of 55 villas, including roofs, windows, painting and tiles.
Three of the 55 villas were completed with interior finishing, including wall
paint, carpets, wood floors, kitchen cabinets, countertops and other necessary
furniture. 20 villas were left in its foundation stage (a total of 75 villas
have been built) until the sales of the decorated villas begin. Flattened dirt
roads were also constructed to connect each of the villas and the main street.
As of the date of this MD&A, 55 villas are ready for sale and subject to
internal decoration pursuant to the specifications of buyers. Generally, buyers
in China are accustomed to have their interior decoration plan personalized,
therefore, majority of homes sold in China are not decorated interiorly at the
time when they are sold, but rather completely remained in cement.
A combination of temporary Chinese government policies aimed at cooling down the
rapidly rising housing prices in mainland China from 2011 to now have depressed
the market for resort properties like the Company's villas. Therefore, the
Company temporary suspended sales efforts for its villas. When the policies of
Chinese government changes and the market for resort properties warms up, the
Company plans to resume its sales efforts for the villas.
Balance Sheet Key Indicators
(in thousands of Canadian dollars except for ratios)
September 30, 2012 December 31, 2011
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Current Ratio(1) 0.41:1 0.41:1
Free Cash 9,460 772
Working Capital(2) (56,111) (62,787)
Total Assets 170,840 187,728
Total Debt(3) 115,764 118,152
Total Equity(4) 55,076 69,576
Total Debt to Total Equity Ratio 2.10:1 1.70:1
(1) Current ratio is defined as total current assets divided by total
current liabilities
(2) Working capital is defined as total current assets less total current
liabilities
(3) Total debt is defined as total current liabilities plus total non-
current liabilities
(4) Total equity is equal to the total shareholders' equity
The Company has an accumulated deficit, a working capital deficiency and has
defaulted on a bank loan, which all cast a substantial doubt on the Company's
ability to continue as a going concern. The Company's ability to meet its
obligations as they become due and to continue to operate as a going concern is
dependent on further financing and ultimately, the attainment of profitable
operations. These consolidated financial statements do not include any
adjustments to the amounts and classifications of assets and liabilities that
might be necessary should the Company be unable to continue as a going concern.
Management of the Company plans to fund its future operation by obtaining
additional financing through loans and private placements of its securities and
through the sale of the properties held for sale. However, there is no assurance
that the Company will be able to obtain additional financing or sell the
properties held for sale.
September 30, December 31,
2012 2011
(in thousands of Canadian dollars)
Accumulated deficit $ 266,134 $ 253,985
Working capital (deficiency) (56,111) (62,787)
Fiscal 2012 Major Corporate Developments
Debt Settlement Agreement with Melco
On July 10, 2012, during the Company's Annual General Meeting, the Company
obtained the necessary shareholder approval for the Debt Settlement Agreement
with Melco. However, the Company is still waiting for the final approval from
the Exchange, which has asked the Company to provide an independent real estate
appraisal for each of the villas at Club Med Sun Mountain Yabuli Resort proposed
to be transferred for partial repayment of the debts. The Company is in the
process of obtaining such appraisals.
New bank loan for the amount of RMB 140 million
On February 14, 2012, the Company secured a new bank loan for the amount of RMB
140 million with the Harbin Bank (the "New Bank Loan"). The New Bank Loan
carries a three year term with a maturity date of February 15, 2015 and a fixed
annual interest rate of 7.315%, which interest to be paid on a monthly basis
commencing February 16, 2012. The principal of the New Bank Loan is repayable in
four installments of RMB 35 million each, starting with the first installment
repayment due on August 15, 2013 and each subsequent installment repayment due
every six month thereafter. The original RMB 150 million bank loan with the same
bank was repaid with advance from a short term bridge loan guaranteed by an
independent third party trust company when it was due in on February 9, 2012.
The Company then used the advance from the New Bank Loan and RMB 10 million of
its own funds to repay bridge loan guaranteed by the third party trust company.
Non-Brokered Private Placement
On February 22, 2012, the Company announced that it has closed the non-brokered
private placement of 105,700,000 common shares (the "Shares") initiated in
September 16, 2011, priced at $0.18 per Share for gross proceeds of $19 million
(the "Offering"). The proceeds from the Offering are being used for the
Company's general working capital and for the repayment of certain debentures.
On March 9, 2012, the Shares were issued to the corresponding shareholders.
Loan Default
On March 2, 2012, one of the Company's subsidiaries, Heilongjiang Yabuli On Snow
Asian Game Village Hotel Co. Ltd. ("Yabuli Resort"), missed the second
installment principal repayment in the amount of RMB 30 million under its RMB
250 million loan agreement with the China Construction Bank (the "Bank").
According to the Loan Agreement between Yabuli Resort and the Bank, the Bank has
the right to accelerate Yabuli Resort's obligation to repay the entire unpaid
principal plus interest immediately and to take legal actions to enforce on the
security. During the Company's initial negotiation with the Bank,
representatives of the Bank have advised the Company that the Bank will not take
immediate actions against Yabuli Resort or the Company. However, the likelihood
that the Bank will take legal actions and execute on its security over the
collaterals increases significantly if Yabuli Resort still cannot repay the loan
in the coming year. The Company is still trying to seek an extension of the
repayment period from the Bank.
Corporate Restructuring
In order to better allocated and manage the Company's primary operations and
assets, the Company completed the process of separating its real estate
operation and its resort and ski related operations into different entities in
the three months ended September 30, 2012.
The Company incorporated a subsidiary called Asia Snow Investment Limited ("Asia
Snow"), in Hong Kong on March 21, 2012. Asia Snow is 100% owned by the Company's
direct wholly-owned Cayman Island subsidiary, Mountain China Resorts Investment
Limited. Asia Snow in turn holds 100% of the issued share capital Mountain China
Resort Travel Consultancy (Beijing) Co. Ltd. ("MCR Beijing"), which was
transferred from Mountain China Resorts Limited ("MCR HK") to Asia Snow. Also
all of the issued share capital of Heilongjiang Yabuluoni Zhiye Co. Ltd.
("Zhiye") was transferred to MCR Beijing from MCR HK. By completing the
corporate restructuring transaction, the resort business and real estate
business of the Company will be operated and held by two separate operating
subsidiaries. The Company believes that it will be more efficient for
classifications and management purposes.
About MCR
MCR is the premier developer of four season destination ski resorts in China.
MCR is transforming existing China ski properties into world-class, four seasons
luxury mountain resorts with excellent real estate investment opportunities for
discerning buyers. In February 2009, the Company's Sun Mountain Yabuli Resort
was awarded Best Resort Makeover in Asia by TIME Magazine. Yabuli is also the
permanent home of the China Entrepreneur's Forum the leading and most
influential community of China's most distinguished and successful entrepreneurs
and business leaders with over 5,000 members from across a variety of key
industries.
FORWARD LOOKING INFORMATION
Information in this press release that is not current or historical factual
information may constitute forward-looking information within the meaning of
securities laws, and actual results may vary from the forward-looking
information. Implicit in this information are assumptions regarding future
operations, plans, expectations, anticipations, estimates and intentions, such
as the plans to develop the ski resorts in China. These assumptions, although
considered reasonable by MCR at the time of preparation, may prove to be
incorrect. Readers are cautioned that actual future operating results and
economic performance of MCR are subject to a number of risks and uncertainties,
including general economic, market and business conditions, uncertainty relating
to land use rights in China, adverse industry events for the ski and real estate
industries, real estate prices in general in China, MCR's ability to make and
integrate acquisitions, the requirements of recent Chinese regulations relating
to cross-border mergers and acquisitions, the inability to obtain required
approvals or approvals may be subject to conditions that are unacceptable to the
parties, changing industry and government regulation, as well as MCR's ability
to implement its business strategies, dispose of assets or raise sufficient
capital, MCR's ability to obtain additional financial resources and sufficient
working capital, MCR's ability to complete the announced non-brokered private
placement, seasonality, weather conditions, competition, currency fluctuations
and other risks, and could differ materially from what is currently expected as
set out above.
Forward-looking information contained in this press release is based on current
estimates, expectations and projections, which MCR believes are reasonable as of
the date of this press release. MCR uses forward-looking statements because it
believes such statements provide useful information with respect to the
operation and financial performance of MCR, and cautions readers that the
information may not be appropriate for other purposes. Readers should not place
undue importance on forward-looking information and should not rely upon this
information as of any other date. While MCR may elect to, it does not undertake
to update this information at any particular time except as required by
applicable law.
FOR FURTHER INFORMATION PLEASE CONTACT:
Mountain China Resorts (Holding) Limited
Mr. Han Gang
Chief Financial Officer and Director
0086-10-66420868
investor_relations@mountainchinaresorts.com
www.mountainchinaresorts.com
Mountain China Resorts (TSXV:MCG)
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