Mountain China Resorts (Holding) Limited

Mountain China Resorts (Holding) Limited

May 30, 2012 12:10 ET

Mountain China Resorts Reports First Quarter 2012 Financial and Operational Results

BEIJING, CHINA--(Marketwire - May 30, 2012) - Mountain China Resorts (Holding) Limited (TSX VENTURE:MCG) ("MCR" or the "Company"), today reported its financial results for the three months ended March 31, 2012. MCR reports its results in Canadian Dollars.

Financial Highlights

(in thousands of Canadian dollars except for per share data) For the three months ended March 31, 2012 For the three months ended March 31, 2011
Revenue $ 5,236 $ 4,073
Operating expenses (3,251 ) (3,017 )
Other income 98 1
General and administrative expenses (635 ) (651 )
Depreciation and amortization (3,080 ) (2,312 )
Impairment of PPE (2 ) (69 )
Operating loss (1,634 ) (1,975 )
Total non-operating income and expenses (2,046 ) (1,246 )
Deferred income tax recovery 33 942
Net loss $ (3,647 ) (2,279 )
Net loss per share (Basic and Diluted) (0.01 ) (0.01 )
Weighted average number of shares outstanding (Basic and Diluted) 285,628,334 203,092,285

Total revenue and the net results were from resort operations with no real estate sales revenue during the Reporting Period. For the three months ended March 31, 2012, the Company generated revenues from resort operations of $5.24 million and a net loss of $3.65 million or $0.1 per share compared to $4.07 million and a net loss of $2.28 million or $0.1 per share. Revenue increased for the three months ended March 31, 2012 primarily due to a performance growth driven by the operations of the Club Med at the Sun Mountain Yabuli Resort.

Resort operations expenses from continuing operations totaled $3.25 million for the three months ended March 31, 2012 compared to $3.02 million for the same period in 2011. Operations expenses within the resorts are mainly attributable to snow making, grooming, staffing, fuel and utilities, which also include the G&A expenses relating to the resort's senior management, marketing and sales, information technology, insurance and accounting.

Corporate general and administrative expenses ("G&A expenses") totaled $0.64 million for the three months ended March 31, 2012 compared to $0.65 million for the same period in 2011. This amount mainly comprised executive employee costs, public company costs, and corporate information technology costs.

Depreciation and amortization expense from continuing operations totaled $3.08 million for the three months ended March 31, 2012 compared to $2.31 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 Group incurred interest expenses of $1.43 million for the three months ended March 31, 2012 from continuing operations compared to $0.89 million for the same period in 2011. The increase was mainly due to the interest expenses related to the short term bridge loan used by the Company to repay its RMB 150 million loan with the Harbin Bank on February 9, 2012, and also the Company's $7.6 million Convertible Bond was issued in February 2011, therefore the interest was only accrued for one month in 2011 comparing to three months in 2012.

Cash and cash equivalents totaled $14.57 million and working capital is negative $49.41 million as at March 31, 2012 compared to $15.77 million and negative $62.79 million as at December 31, 2011.

Operations Sun Mountain Yabuli

The 2011-2012 MCR's Sun Mountain Yabuli Resort winter season operations commenced on November 26, 2011 and closed on March 25, 2012. The revenue of Sun Mountain Yabuli Resort operation comprises mainly of mountain operations, beverage, skiing-related services and hotel lodging. Skiing-related services includes rental of ski equipment, goggles, lockers, gloves, etc, sales of ski equipment and skiing training services offered in ski school. It also includes the mountain operation which is using the facilities built in the mountain, such as sight-seeing trams, snow tubing and alpine. The total number of resort guests including ski only guests reached to 50,366 and the average hotel occupancy rate at 37.0% for the three months ended March 31, 2012, whereas the total number of guests only reached 38,502 and the average hotel occupancy rate at 28.3% for the same period in 2011. Revenue from the Yabuli Resort for the three months ended March 31, 2012 was $5.24 million (RMB33.01 million) with average revenue per guests per visit at $104 dollar (RMB655 yuan) versus $4.07 million (RMB27.21 million) with average revenue per guests per visit at $106 dollar (RMB706 yuan) for the same period in 2011.

The Company will resume its summer operation at the Sun Mountain Yabuli Resort for 2012. The Company did not operate the resort during the summer in 2011. Summer operation will commence from June 30, 2012 till September 2, 2012 for a total of 64 days. The resort will provide outdoor activities including: archery, tennis, grass skiing, cross country mountain bike/hiking, organic farming vegetables and fruit picking, mountain top afternoon tea party and so on. Many activities will be provided for the first time at the Sun Mountain Yabuli Resort.

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.

Since then, due to a combination of temporary Chinese government policies trying to cool down the rapidly rising housing price in mainland China, the property investment demand in China has gone down significantly. This decrease in demand has also adversely impacted the Yabuli area. At the same time, with a tight expense budget and shortage of working capital, the Company has decided for the time being not to take the risk by injecting its limited working capital into the villa's remaining public infrastructure construction (for example: public lighting, cement roads, landscape engineering) and a full scale marketing and advertising regime. However, the Company does have confidence with its first of kind "ski-in and ski-out" villas in China. And the Company will be reasonably flexible with its pricing when the market shows sign of a turn around. No other detailed milestones for the above matter are available from the Company as we believe that the related government policies are set to be temporary but with the duration undetermined.

Balance Sheet Key Indicators

(in thousands of Canadian dollars except for ratios)
March 31, 2012 December 31, 2011
Current Ratio1 0.45:1 0.41:1
Free Cash 14,570 15,772
Working Capital2 (49,410) (62,787)
Total Assets 179,648 187,728
Total Debt3 116,531 118,152
Total Equity4 63,117 69,576
Total Debt to Total Equity Ratio 1.85:1 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 casts substantial doubt on the Company's ability to continue as a going concern. The Company's ability to meet its obligations as they fall 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 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.

March 31, December 31,
2011 2011
(in thousands of Canadian dollars)
Accumulated deficit $ 257,632 $ 253,985
Working capital (deficiency) (49,410 ) (62,787 )

Fiscal 2012 Major Corporate Developments

Debt Settlement Agreement with Melco

On February 8, 2012, the Company entered into a Debt Settlement Agreement with MLE for the settlement of the MLE Loans (the "MLE Loans Settlement") by way of cash payment, villa transfer and share conversion subject to satisfaction of a number of conditions, including, among other conditions, approval of disinterested shareholders and approval of the TSX Venture Exchange. On May 29, the Company entered into an Amended and Restated Debt Settlement Agreement to clarify the details of the MLE Loans Settlement for implementation. The Closing Date of the Amended and Restated Debt Settlement Agreement is scheduled to be ten business days after the date that the Company receives the Shareholder Approval or such other later date(s) as may be mutually agreed by the parties in writing.

MLE is a subsidiary of Melco International Development Limited and is a related party of MCR.

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 made by a 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 from 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 will be used for general working capital and for the repayment of certain debentures. The Shares are subject to a TSX Venture Exchange hold period of four months and one day from closing of the Offering. On March 9, 2012, the Shares were issued to the corresponding shareholders.

Loan Defaults

On March 2, 2012, 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 and the Bank, the Bank has the right to accelerate Yabuli's obligation to repay the entire unpaid principal plus interest immediately and to take legal actions to enforce on the security. However, 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 or the Company. The Company is currently optimistic regarding the ongoing negotiation with the Bank for postponement of this second installment principal payment for two years. The Company will make further disclosure as required.

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.


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.

The TSX Venture Exchange nor its Regulation Services Provider has neither approved nor disapproved the contents of this press release. The TSX Venture Exchange nor its Regulation Services Provider does not accept responsibility for the adequacy or accuracy of this release.

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