10-Q 1 form10q.htm CIHS 10-Q 06.30.08 form10q.htm
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
FORM 10-Q
 
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934:
 
For the Quarterly Period ended June 30, 2008
 
[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE EXCHANGE ACT
 
For the transition period from __________________ to __________________

Commission File Number: 1-10559
China International Tourism Holdings Ltd.
(Exact name of registrant as specified in its charter)
 
Nevada
65-1021346
(State or other jurisdiction of
(IRS Employer Identification No.)
incorporation or organization)
  
 
E Pang Gong Site, 44 Hong Guang Road, Xi An, P.R. China 710068
(Address of principal executive offices)

( 8629 ) 8436-8561
(Issuer's telephone number)
 
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 registrant 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.
 
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]

Number of shares of common stock outstanding as of August 11, 2008:  48,591,809
Number of shares of preferred stock outstanding as of August 11, 2008:   3,295,000
 
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION
 
    The discussion contained in this 10-Q under the Securities Exchange Act of 1934, as amended, contains forward-looking statements that involve risks and uncertainties. The issuer's actual results could differ significantly from those discussed herein. These include statements about our expectations, beliefs, intentions or strategies for the future, which we indicate by words or phrases such as "anticipate," "expect," "intend," "plan," "will," "we believe," "the Company believes," "management believes" and similar language, including those set forth in the discussions under "Notes to Financial Statements" and "Management's Discussion and Analysis or Plan of Operation" as well as those discussed elsewhere in this Form 10-Q. We base our forward-looking statements on information currently available to us, and we assume no obligation to update them. Statements contained in this Form 10-Q that are not historical facts are forward-looking statements that are subject to the "safe harbor" created by the Private Securities Litigation Reform Act of 1995.
 
 
 
 
   
PART I. FINANCIAL INFORMATION
  
   
   
   
ITEM 1. FINANCIAL STATEMENTS
4
   
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
9
   
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
ITEM 4. CONTROLS AND PROCEDURES
9
 
9
   
PART II. OTHER INFORMATION
  
   
ITEM 1. LEGAL PROCEEDINGS
10
 
ITEM 1A. RISK FACTORS
 
     10
   
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
10
   
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
       10
   
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
       10
   
ITEM 5. OTHER INFORMATION
10
   
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
10
   
SIGNATURES
11
   
INDEX TO EXHIBITS
12
 

ITEM 1. FINANCIAL STATEMENTS
 

INDEX TO INTERIM FINANCIAL STATEMENTS
  
   
 
Page
   
Consolidated Unaudited Condensed Balance Sheets – June 30, 2008 and December 31, 2007
4
   
Consolidated Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income - For the Three and Six Months Ended June 30, 2008 and 2007
5
   
Consolidated Unaudited Condensed Statements of Cash Flows - For the Six Months Ended June 30, 2008 and 2007
6
   
Notes to Consolidated Unaudited Condensed Financial Statements
7
 
3
 
CHINA INTERNATIONAL TOURISM HOLDINGS, LTD. AND SUBSIDIARY
Unaudited Consolidated Balance Sheets
As of June 30, 2008 and December 31, 2007
 
             
   
June 30, 2008
    
December 31, 2007
  
ASSETS
            
CURRENT ASSETS
            
Cash and Cash Equivalents
   $ 9,845     $ 7,152  
Accounts Receivable
     8,644       19,338  
Inventory
     14,712       14,515  
Prepaid Expenses
     17,787       9,523  
TOTAL CURRENT ASSETS
     50,988       50,528  
                 
FIXED ASSETS
                
Property, Plant, and Equipment
     713,353       691,110  
Accumulated Depreciation
     (335,428 )     (269,508 )
TOTAL FIXED ASSETS
     377,925       421,602  
                 
TOTAL ASSETS
   $ 428,913     $ 472,130  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
                
CURRENT LIABILITIES
                
Accounts Payable and Accrued Liabilities
   $ 492,597     $ 360,867  
Due to Shareholder
     27,620       24,620  
                 
TOTAL CURRENT LIABILITIES
     520,217       385,487  
                 
TOTAL LIABILITIES
     520,217       385,487  
                 
COMMITMENTS AND CONTINGENCIES
                
Redeemable Preferred Stock (par value $.01,
     32,950       32,950  
5,000,000 Shares Authorized, 3,295,000 Shares
                
Issued and Outstanding
                
                 
STOCKHOLDERS' EQUITY
                
Common Stock (par $.0001, 250,000,000
     4,860       4,860  
Authorized, 48,591,809 Issued and Outstanding
                
Additional Paid in Capital
     3,617,895       3,617,895  
Accumulated Other Comprehensive Income
     41,086       21,063  
Retained Earnings (Deficit)
     (3,788,095 )     (3,590,125 )
TOTAL STOCKHOLDERS' EQUITY
     (124,254 )     53,693  
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
   $ 428,913     $ 472,130  
                 
      -          
                 
The accompanying notes are an integral part of these financial statements.

 
CHINA INTERNATIONAL TOURISM HOLDINGS, LTD. AND SUBSIDIARY
Unaudited Consolidated Statements of Operations
For the three and six months ended June 30, 2008 and 2007
                         
   
For the Three Months Ended
    
For the Six Months Ended
  
   
June 30, 2008
    
June 30, 2007
    
June 30, 2008
    
June 30, 2007
  
REVENUE
                        
Sales
   $ 62,429     $ 169,168     $ 117,766     $ 297,553  
Cost of Sales
     238       35,634       14,196       63,129  
GROSS PROFIT
     62,191       133,534       103,570       234,424  
                                 
OPERATING EXPENSES
                                
Selling, General , and Administrative
     120,620       174,035       295,957       355,001  
                                 
INCOME (LOSS) FROM OPERATIONS
     (58,429 )     (40,501 )     (192,387 )     (120,577 )
                                 
OTHER INCOME / (EXPENSES):
                                
Finance Costs
     (207 )     1       (207 )     (65 )
Non-Operating Income
     (5,376 )     (808 )     (5,376 )     119  
Total Other Income (Expense)
     (5,583 )     (807 )     (5,583 )     54  
                                 
NET INCOME (LOSS) BEFORE TAXES
     (64,012 )     (41,308 )     (197,970 )     (120,523 )
                                 
INCOME TAX EXPENSE
     -       -       -       -  
                                 
NET INCOME (LOSS)
     (64,012 )     (41,308 )     (197,970 )     (120,523 )
                                 
OTHER COMPREHENSIVE INCOME (LOSS)
                                
Foreign Currency Translation (Loss) Gain
     11,459       1,386       20,023       (4,381 )
                                 
COMPREHENSIVE INCOME (LOSS)
   $ (52,553 )   $ (39,922 )   $ (177,947 )   $ (124,904 )
                                 
NET LOSS PER COMMON SHARE
                                
Basically and Fully Dilluted
     **       **       **       **  
                                 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
     48,591,809       48,591,809       48,591,809       48,591,809  
                                 
**Less than $.01
                                
                                 
The accompanying notes are an integral part of these financial statements.
 
 
 
CHINA INTERNATIONAL TOURISM HOLDINGS, LTD. AND SUBSIDIARY
Unaudited Consolidated Statements of Cash Flows
For the six months ended June 30, 2008 and 2007
             
   
For the Six Months Ended
  
   
June 30, 2008
    
June 30, 2007
  
CASH FLOWS FROM OPERATING ACTIVITIES:
            
Net Income (loss)
   $ (197,970 )   $ (120,523 )
Adjustments to reconcile net loss to
                
net cash provided by (used in) operating activities:
          
Depreciation
     65,920       57,471  
Accounts receivable and other receivables
     10,694       (6,173 )
Prepaid expenses
     (8,264 )     14,684  
Inventory
     (197 )     360  
Accounts payable and accrued liabilities
     134,730       49,316  
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
     4,913       (4,865 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
                
Purchase of property, plant, and equipment
     (22,243 )     (467 )
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
     (22,243 )     (467 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
                
Proceeds from shareholder loan
     -       5,225  
NET CASH PROVIDED BY FINANCING ACTIVITIES
     -       5,225  
                 
FOREIGN CURRENCY TRANSLATION ADJUSTMENT
     20,023       (4,381 )
                 
NET INCREASE IN CASH AND CASH EQUIVALENTS
     2,693       (4,488 )
                 
CASH AND CASH EQUIVALENTS:
                
Beginning of period
     7,152       21,333  
End of period
     9,845       16,845  
                 
                 
The accompanying notes are an integral part of these financial statements.
 
6
 
CHINA INTERNATIONAL TOURISM HOLDINGS, LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007
 
NOTE A - BASIS OF PRESENTATION
 
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with both generally accepted accounting principles for interim financial information, and the instructions to Form 10-Q and Item 310(b) of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) that are, in the opinion of management, considered necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year.
 
The condensed consolidated financial statements and related disclosures have been prepared with the presumption that users of the interim financial information have read or have access to our annual audited consolidated financial statements for the preceding fiscal year. Accordingly, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the related notes thereto contained in the Annual Report on Form 10-KSB for the year ended December 31, 2007.
 
Business Organization China International Tourism Holdings, Limited. (the “Company” or “CIHS”) was incorporated in the State of Nevada on December 23, 1988, formerly known as Dark Dynamite, Inc., NCI Holdings, Inc., Vector Holding, Inc., and prior to June 26, 2002, Vector Aeromotive Corporation. On September 9, 2007, the Board of Directors of CIHS approved a name change from Dark Dynamite, Inc to China International Tourism Holdings, Limited. This change went into legal effect in the third quarter of 2007.
 
Recently Issued Accounting Pronouncements
 
In December 2007, the FASB issued two new statements: (a.) SFAS No. 141(revised 2007), Business Combinations, and (b.) No. 160, Noncontrolling Interests in Consolidated Financial Statements. These statements are effective for fiscal years beginning after December 15, 2008 and the application of these standards will improve, simplify and converge internationally the accounting for business combinations and the reporting of noncontrolling interests in consolidated financial statements. The Company is in the process of evaluating the impact, if any, on SFAS 141 (R) and SFAS 160 and does not anticipate that the adoption of these standards will have any impact on its consolidated financial statements.
 
(a.)  SFAS No. 141 (R) requires an acquiring entity in a business combination to: (i) recognize all (and only) the assets acquired and the liabilities assumed in the transaction, (ii) establish an acquisition-date fair value as the measurement objective for all assets acquired and the liabilities assumed, and (iii) disclose to investors and other users all of the information they will need to evaluate and understand the nature of, and the financial effect of, the business combination, and, (iv) recognize and measure the goodwill acquired in the business combination or a gain from a bargain purchase.
 
(b.) SFAS No. 160 will improve the relevance, comparability and transparency of financial information provided to investors by requiring all entities to: (i) report noncontrolling (minority) interests in subsidiaries in the same manner, as equity but separate from the parent’s equity, in consolidated financial statements, (ii) net income attributable to the parent and to the non-controlling interest must be clearly identified and presented on the face of the consolidated statement of income, and (iii) any changes in the parent’s ownership interest while the parent retains the controlling financial interest in its subsidiary be accounted for consistently. 
 
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133” (“SFAS 161”). This new standard requires enhanced disclosures for derivative instruments, including those used in hedging activities. It is effective for fiscal years and interim periods beginning after November 15, 2008, and will be applicable to us in the first quarter of fiscal 2009. We are currently evaluating the impact this statement and we do not anticipate that it will have an impact on our financial position and results of operations.
 
NOTE B – SUPPLEMENTAL CASH FLOW INFORMATION
 
Supplemental disclosures of cash flow information for the six months ended June 30, 2008 and 2007 are summarized as follows:
 
Cash paid during the period ended the six months ended June 30, 2008 and 2007 for interest and income taxes:
         
 
                                                                        2007                 2006
 
                        Income Taxes                           $-0-                  $ -0-
 
                        Interest                                     $-0-                  $ -0-
 
NOTE C – PAYABLES, COMMITMENTS AND CONTIGENCIES
 
As of June 30, 2008, the Company had a payable outstanding in the amount of $492,597, of which $136,500 in connection with the litigation (see note E).
 
NOTE D – GOING CONCERN
 
As shown in the accompanying unaudited financial statements, the Company has a deficit book value and small cash flow from operations that have placed substantial doubt as to whether the Company can continue as a going concern. The ability of the Company to continue as a going concern is dependent on developing operations, increasing revenues, and obtaining new capital. Management has enacted a plan to raise capital and increase profitability.
 
 
Securities and Exchange Commission v. David M. Wolfson, et al. On October 16, 2004 a civil complaint was filed by the Securities and Exchange Commission in which Dark Dynamite, Inc. was named as a respondent. The Company's former president Gino Carlucci was also named as a respondent. The suit was filed in the United States District Court for the District of Utah and bears the docket number 2:03CV00914DAK and the style of the case is: “Securities and Exchange Commission v. David M. Wolfson; NuWay Holdings, Inc., a Nevada corporation; Momentous Group, LLC, a Utah limited liability company; Leeward Consulting Group, LLC, a Utah limited liability company; Sukumo Limited, a company incorporated in the British Virgin Islands (a.k.a. Sukumo Group, Ltd., Fujiwara Group, First Chartered Capital Corporation, First Colonial Trust, First China Capital and International Investment Holding); Michael Sydney Newman (A.K.A. Marcus Wiseman); Stem Genetics, Inc., a Utah corporation; Howard H. Robertson; Gino Carlucci; G & G Capital, LLC an Arizona and Utah limited liability company; F10 Oil and Gas Properties, Inc.; Jon H. Marple; Mary E. Blake; Jon R. Marple; Grateful Internet Associates, LLC, a Colorado limited liability company; Diversified Financial Resources Corporation, a Delaware corporation; John Chapman; Valesc Holdings, Inc., a New Jersey corporation; Jeremy D. Kraus; Samuel Cohen; Dark Dynamite, Inc., (The Company) a Nevada corporation. The complaint alleges that the Company failed to accurately and fully disclose the nature of its relationship to The Sukumo Group, Inc., including the failure of Sukumo to complete the purchase of the shares and alleges that Sukumo acted as a selling agent for the Company. The complaint also faults The Sukumo Group Inc.'s actions with regard to the sale of common stock to off shore purchasers for failing to disclose the interest that Sukumo had in each sale, reporting that it was taking a 1-2% commission on the sale rather than keeping 70% or more of the proceeds of each transaction. The Company filed a motion to dismiss the complaint based upon a lack of jurisdiction and the failure of the complaint to adequately set forth the actions of the Company which form the basis of a cause of action against the Company that was denied by the Court. The Company filed an answer disputing the allegations of the complaint and has participated in some pre-trial discovery. The Company and the Government have agreed upon the terms of a settlement, the terms of which provide for the Company to pay the sum of $30,000 to the SEC.  While no final judgment has been entered in this case we have reached a tentative agreement with the SEC for settlement of this matter and we believe there is a high likelihood that the court will approve the settlement and the proposed judgment will be entered in the near future.
 
The Company believes that adequate provision has been made for all other judgments that may be awarded against the Company. None of the other lawsuits have yet been resolved as of June 30, 2008.
 
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

GENERAL DESCRIPTION OF BUSINESS

As used in this Quarterly Report, the terms "we", "us", "our," the “Registrant,” “CIHS” and the "Company" means, China International Tourism Holdings, Ltd., a Nevada corporation, formerly known as Dark Dynamite, Inc., NCI Holdings, Inc., Vector Holding, Inc., and prior to June 26, 2002, Vector Aeromotive Corporation. These terms also refer to our subsidiary corporation, Shanxi Kai Da Lv You Gu Wen You Xian Gong Si ("Kai Da"), a corporation organized under the laws of the Peoples’ Republic of China (“Kai Da”) acquired in August 2005.

After the acquisition of Kai Da, management changed our primary business into theme park management and travel related services. Accordingly, we changed our name to China International Tourism Holdings Ltd. We contract and operate the Theme Park of Qin E Pang Gong (“Theme Park”) through Shanxi Kai Da Lv You Gu Wen You Xian Gong Si (“Kai Da”), our wholly owned subsidiary in China. The Theme Park was built up next to the historical address of E Pang Gong, the most prestigious and largest palace in Chinese history built for Qin Shi Huang, the first emperor in the Qin dynasty over 2,200 years ago. E Pang Gong was burned down during the war and became a legend as well as the subject of numerous historical books. In 1994, the historical address of E Pang Gong was appraised by United Nations Educational, Scientific and Cultural Organization ("UNESCO") as one of the wonders in the ancient world due to the size of the palace and the degree of preservation. The current theme park was built imitating the original palace based on historical records and legends, covering approximately 5.59 million square feet consisting of several building structure, including the Front Palace, Qihe River, Magnetic Gate, Heaven Tower, Earth Temple, Lan-Chi Palace and the Shang-Lin Garden. Management believes it’s a significant achievement to be able to display such a famous and grand palace to the domestic and international communities. It is believed to be one of the more important historical sites in China.

In addition to our Theme Park management, we also manage Six-state Hot Spring Resort, one of the components of Theme Park business, which is located inside the Theme Park and built in an ancient Chinese style to match the Theme Park.

More information about our business can be found on the corporate website at http://www.qinepanggong.com.

RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2008

FORWARD LOOKING STATEMENTS
 
The information herein contains certain forward looking statements within the meaning of §27A of the Securities Act of 1933, as amended and §21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. Investors are cautioned that all forward looking statements involve risks and uncertainty, including without limitation, the ability of us to continue its current expansion strategy, changes in the fashion and clothing markets, labor and employee benefits, as well as general market conditions, competition and pricing. Although we believe that the assumptions underlying the forward looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward looking statements included in this Form 10-Q will prove to be accurate. In view of the significant uncertainties inherent in the forward looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved.

CRITICAL ACCOUNTING POLICIES

Revenue recognition

Our policy is to recognize income when it is earned. Our revenue is derived from ticket sales, and hotel and restaurant income. Revenues are booked net of any cash discounts. If any material contingencies are present, revenue recognition is delayed until all material contingencies are eliminated. Material contingencies are circumstances in which there are any potential uncertainties as to the completion of the revenue process being complete. Further, no revenue is recognized unless collection of the applicable consideration is probable. Probable collection is determined at the time collection occurs or is more than reasonably possible it will be collected. Retail store sales - revenue is recognized when sales are made. They are paid by cash or credit card.

Property, Plant, and Equipment

Property, plant, and equipment are recorded at cost less accumulated depreciation and impairment. Repairs and maintenance expenditures, which are not considered improvements and do not extend the useful life of property, plant, and equipment, are expensed as incurred. The cost and related accumulated depreciation applicable to property, plant, and equipment sold or no longer in service are eliminated from the accounts and any gain or loss is included in the statement of operations.
 
Depreciation is calculated to write-off the cost or basis of the property, plant, and equipment over their estimated useful lives for the date on which they become fully operational and after taking into account their estimated residual values (salvage value), using the straight-line method, at the following rates per year:
 
Equipment Straight-line for 5 to 20 years with a 5% salvage value
 
Furniture Straight-line for 5 to 10 years with a 5% salvage value
 
Autos Straight-line for 5 to 10 years with a 5% salvage value

When assets are sold or retired, their costs and accumulated depreciation are eliminated from the accounts and any gain or loss resulting from their disposal is included in the Statement of Operations.
 
The Company recognizes an impairment loss on property, plant, and equipment when evidence, such as the sum of expected future cash flows (undiscounted and without interest charges), indicates that future operations will not produce sufficient revenue to cover the related future costs, including depreciation, and when the carrying amount of the asset cannot be realized through sale. Measurement of the impairment loss is based on the fair value of the assets.

Stock-Based Compensation

We account for stock-based compensation using the fair value method of Financial Accounting Standard No. 123R. Common shares issued for services rendered by a third party (both employees and non-employees) are recorded at the fair value of the shares issued or services rendered, whichever is more readily determinable.

Revenues

Gross revenues for the three and six months ended June 30, 2008 were $62,429 and $117,766, respectively, derived from ticket sales, and hotel and restaurant income. The decrease by $106,739 and $179,787, compared to gross revenues of $169,168 and $297,553 for the same periods ended June 30, 2007, respectively, were due primarily to the impact from the Southwest China Earthquake occurring in May of 2008. Our location is approximately 400 miles north to the earthquake's epicenter, Wenchuan County. Even though our theme park was not damaged during the earthquake, the numbers of tourists dropped significantly afterwards.

Due to the different peak season timing for the theme park and most of our tours are a one-day trip to the theme park, the revenue appears to be diversified. The theme park is not the only resource of revenue. The peak season for the theme park tickets is from March to October, compared to the peak season for the resorts in the period.

Income / Loss

Net loss for the three and six months ended June 30, 2008 were $64,012 and $197,970, compared to the net loss of $41,308 and $120,523 for the same period ended June 30, 2007, respectively. The increase in net loss during the three and six months ended June 30, 2008 was due primarily to the decease in sales revenue.

We expect to incur losses in fiscal year 2008 until traffic is increased to the Theme Park and product sales increase. There can be no assurance that we will achieve or maintain profitability, or that any revenue growth will take place in the future.
 
 
Expenses

Selling, general and administrative expenses for the three and six months ended June 30, 2008 were $120,620 and $295,957, respectively, compared to selling, general and administrative expense of $174,035 and $355,001 for the same periods ended June 30, 2007, respectively, were due primarily to the Theme Park operation.

We had the following notable expenses during the six months ended June 30, 2008 and 2007:

·
Salaries and related expenses were $85,353 and $48,205, respectively.
   
Cost of Sales

Cost of sales included expenses directly related to delivering our product or services. Travel agents' commissions and direct labor would be examples of cost of sales items. During the three and six months ended June 30, 2008, we had $238 and $14,196, respectively, in cost of sales, compared to cost of sales of $35,634 and $63,129 for the same periods ended June 30,2007, respectively. Cost of sales as a percentage of sales was 0.4% and 12% for the three and six months ended June 30, 2008, respectively. The decrease in cost of sales was due primarily to no business from the restaurant during the three months ended June 30, 2008.

Impact of Inflation

We believe that inflation has had a negligible effect on operations during this period. We believe that we can offset inflationary increases in the cost of sales by increasing sales and improving operating efficiencies.

Liquidity and Capital Resources

Cash flows provided by operating activities were $4,913 for the six months ended June 30, 2008, compared to cash flows of $4,865 used in operation for the six months ended June 30, 2007. Positive cash flows from operation during the first half year of 2008 were due primarily to the increase in accounts payable and accrued liabilities by $134,730 and the net loss offset by the non-cash depreciation of $65,920. Negative cash flows from operation during the first two quarters of 2007 were primarily due to the net loss of $120,523, partially offset by depreciation of $57,471 and increase in accounts payable and accrued liabilities by $49,316.

Cash flows used in investing activities were $22,243 and $467 for the six months ended June 30, 2008 and 2007, respectively, attributable to the purchase of fixed assets consisting of leasehold improvements, machinery and equipment.  Most of the disbursements refurbished the theme park.

We had no cash flows from financing activities during the six months ended June 30, 2008. Cash flows provided by financing activities were $5,225 during the six months ended June 30, 2007, which was due primarily to shareholder loan.

We project that we will need additional capital to fund operations over the next 12 months. We anticipate we will need an additional $100,000 in working capital during 2008 and $50,000 for the two years thereafter.

On a long-term basis, liquidity is dependent on continuation and expansion of operations, receipt of revenues, additional infusions of capital and debt financing. However, there can be no assurance that we will be able to obtain additional equity or debt financing in the future, if at all. If we are unable to raise additional capital, our growth potential will be adversely affected. Additionally, we will have to significantly modify our business plan.
 
Trends, Events, and Uncertainties

The success of our business depends in large part on our ability to identify tourist trends as well as to react to changing customer demand in a timely manner. Consequently, we depend in part upon the continuing favorable market response to the creative efforts of our purchasing, design and marketing team’s ability to anticipate products and services that appeal to our consumer base. Failure on our part to anticipate, identify and respond effectively to changing consumer demands and trends will adversely affect our sales.

Ability to Continue as a Going Concern

As shown in the accompanying unaudited financial statements, we have a working capital deficit and a small cash flow from operations that have placed substantial doubt as to whether we can continue as a going concern. Our ability to continue as a going concern is dependent on developing operations, increasing revenues, and obtaining new capital. Management has enacted the following plan to address these issues: (1) obtain funding from new investors to alleviate our capital deficiency, (2) refinance existing debt on assets, (3) increase the revenues by launching new attraction in the theme park.
 
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information to be reported under this item is not required of smaller reporting companies.
 
ITEM 4. CONTROLS AND PROCEDURES.
 
We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 (“Exchange Act”) is recorded, processed, summarized and reported within the specified time periods. Our Chief Executive Officer and our Chief Financial Officer (collectively, the “Certifying Officers”) are responsible for maintaining our disclosure controls and procedures. The controls and procedures established by us are designed to provide reasonable assurance that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms.
 
During the six months ended June 30, 2008, our Certifying Officers evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on the evaluation, the Certifying Officers concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including the Certifying Officers, as appropriate to allow timely decisions regarding required disclosure. These conclusions notwithstanding you are advised that no system is 100% foolproof.

Changes in Internal Control over Financial Reporting
 
There were no changes in the our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
  
 
PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Securities and Exchange Commission v. David M. Wolfson, et al. On October 16, 2003 a civil complaint was filed by the Securities and Exchange Commission in which NCI Holdings, Inc. (n/k/a China International Tourism Holdings Ltd.) was named as a respondent. Our former president Gino Carlucci was also named as a respondent. The suit was filed in the United States District Court for the District of Utah and bears the docket number 2:03CV00914DAK and the style of the case is: A Securities and Exchange Commission v. David M. Wolfson; NuWay Holdings, Inc., a Nevada corporation; Momentous Group, LLC, a Utah limited liability company; Leeward Consulting Group, LLC, a Utah limited liability company; Sukumo Limited, a company incorporated in the British Virgin Islands (a.k.a. Sukumo Group, Ltd., Fujiwara Group, First Chartered Capital Corporation, First Colonial Trust, First China Capital and International Investment Holding); Michael Sydney Newman (A.K.A. Marcus Wiseman); Stem Genetics, Inc., a Utah corporation; Howard H. Robertson; Gino Carlucci; G & G Capital, LLC an Arizona and Utah limited liability company; F10 Oil and Gas Properties, Inc.; Jon H. Marple; Mary E. Blake; Jon R. Marple; Grateful Internet Associates, LLC, a Colorado limited liability company; Diversified Financial Resources Corporation, a Delaware corporation; John Chapman; Valesc Holdings, Inc., a New Jersey corporation; Jeremy D. Kraus; Samuel Cohen; NCI Holdings, Inc., a Nevada corporation. The complaint alleges that NCI failed to accurately and fully disclose the nature of NCI's relationship to The Sukumo Group, Inc., including the failure of Sukumo to complete the purchase of the shares and alleges that Sukumo acted as a selling agent for NCI. The complaint also faults The Sukumo Group Inc.'s actions with regard to the sale of common stock to off shore purchasers for failing to disclose the interest that Sukumo had in each sale, reporting that it was taking a 1-2% commission on the sale rather than keeping 70% or more of the proceeds of each transaction. A tentative settlement agreement has been reached in this case and we expect the Final Judgment will be entered sometime in the second quarter of 2008.  Pursuant to the terms of the proposed Final Judgment, the Defendant is liable for disgorgement of $107,000, representing profits gained as a result of the conduct alleged in the Complaint, together with prejudgment interest thereon in the amount of $35,426.39, for a total of $142,426.39, however, the Court is not ordering Defendant to pay a civil penalty and payment of all but $30,000, of the disgorgement and pre-judgment interest thereon is waived.  Defendant shall satisfy this obligation by paying $30,000 within ten business days to the Court, together with a cover letter identifying NCI Holdings, Inc. as a defendant in this action; setting forth the title and civil action number of this action and the name of the Court; and specifying that final payment is made pursuant to the Final Judgment.  Defendant shall simultaneously transmit photocopies of such payments and letters to the Commission’s counsel in this action.  By making these payments, Defendant relinquishes all legal and equitable right, title, and interest in such funds, and no part of the funds shall be returned to Defendant.  Defendant shall also pay post-judgment interest on any delinquent amounts pursuant to 28 USC § 1961.  The determination not to impose a civil penalty and to waive payment of all but $30,000 of the disgorgement and pre-judgment interest is contingent upon the accuracy and completeness of Defendant's Statement of Financial Condition.  If at any time following the entry of the Final Judgment the Commission obtains information indicating that Defendant’s representations to the Commission concerning his assets, income, liabilities, or net worth were fraudulent, misleading, inaccurate, or incomplete in any material respect as of the time such representations were made, the Commission may, at its sole discretion and without prior notice to Defendant, petition the Court for an order requiring Defendant to pay the unpaid portion of the disgorgement, pre-judgment and post-judgment interest thereon, and the maximum civil penalty allowable under the law.  In connection with any such petition, the only issue shall be whether the financial information provided by Defendant was fraudulent, misleading, inaccurate, or incomplete in any material respect as of the time such representations were made.  In its petition, the Commission may move the Court to consider all available remedies, including, but not limited to, ordering Defendant to pay funds or assets, directing the forfeiture of any assets, or sanctions for contempt of the Final Judgment.  The Commission may also request additional discovery.  Defendant may not, by way of defense to such petition:  (1) challenge the validity of the Consent or the Final Judgment; (2) contest the allegations in the Complaint filed by the Commission; (3) assert that payment of disgorgement, pre-judgment and post-judgment interest or a civil penalty should not be ordered; (4) contest the amount of disgorgement and pre-judgment and post-judgment interest; (5) contest the imposition of the maximum civil penalty allowable under the law; or (6) assert any defense to liability or remedy, including, but not limited to, any statute of limitations defense.
 
Item 1A. Risk Factors
 
Information regarding risk factors appears in Part I, “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the captions “General Description of Business” and “Cautionary Note Regarding Forward-Looking Statements” contained in this Quarterly Report on Form 10-Q and in “Item 1A. RISK FACTORS” of our 2007 Annual Report on Form 10-KSB. There have been no material changes from the risk factors previously disclosed in our 2007 Annual Report on Form 10-KSB.

Item 2. Changes in Securities and Use of Proceeds
 
None.
 
Item 3. Defaults Upon Senior Securities
 
None.
 
Item 4. Submission of Matters to a Vote of Security Holders.

None.
 
Item 5. Other Information
    
      None.

Item 6. Exhibits And Reports On Form 8-K

(1)  
Exhibits: Exhibits required to be attached by Item 601 of Regulation S-B are listed in the Index to Exhibits Beginning on page 8 of this Form 10-Q, which is incorporated herein by reference.

Reports on Form 8-K filed in the second quarter of 2008
None.
 
 
 
    Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized.
 
     
 
CHINA INTERNATIONAL TOURISM HOLDINGS LTD.
     
Date: August 14, 2008
By:  
/s/ Lei, Ming
 
Lei, Ming
President and CEO

     
   
     
Date: August 14, 2008
By:  
/s/ Wang, Xiao Jun
 
Wang, Xiao Jun
Chief Financial Officer
 
 
INDEX TO EXHIBITS