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, 2013 December 31, 2012(in thousands of Canadian dollars)Accumulated deficit $ 294,749 $ 291,358Working capital (deficiency) $ 67,824 $ 60,661
In April 2013 the Company was made aware by the bank with an outstanding balance of $41,300, that they are taking legal actions to demand repayment. As of the reporting date that Company has not received any formal claim.
2013 FIRST QUARTER MAJOR CORPORATE DEVELOPMENTS
Club Med Resorts management has further improved the revenue of Sun Mountain Yabuli Resort
The 2012-2013 winter season operations commenced on November 24, 2012 and closed on March 24, 2013. ClubMed management and brand effect had further improved the publicity and service quality of Yabuli Resorts, and attracted guests from all over the world to come to Yabuli to enjoy the beautiful scenery and various ski facilities. Total revenue generated in 2012-2013 winter season reached $8.26 million (2012 Q4 plus 2013 Q1), representing a 6% increase compared to last year ($7.77 million).
On March 31, 2013 the Company defaulted on its third principal payment of 6.54 million (RMB 40 million) under its $40.85 million (RMB 250 million) loan agreement with the China Construction Bank ("Construction Bank"). According to the Loan Agreement between Yabuli and Construction Bank, Construction 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. The collaterals associated with the loan agreement are made up of the Company's land use rights and property and equipment with a carrying value of approximately $65.39 million as at March 31, 2013. During the Company's initial negotiation with the bank, the bank required the Company to repay the interest. However, the Company has stopped the interest payment starting from February 2012. As a result, negotiations have ceased and the bank has indicated their intention to take possession of the pledged assets if the loan principal and interest are not repaid in full. On March 31, 2013 the principal and interest owing was $41,300. As of the reporting date that Company has not received any formal claim.
Update on Debt Restructuring
On February 8, 2012, the Company entered into a Debt Settlement Agreement with Melco Leisure and Entertainment Group Limited ("Melco" or "MLE") for the settlement of a loan in the principal of US$12 million made by Melco to the Company (the "MCR Loan") and a loan in the principal of US$11 million (the "MCRI Loan", and together with the MCR Loan, the "Melco Loans" or "MLE Loan") made by Melco to Mountain China Resorts Investment Limited ("MCRI"), the Company's Cayman subsidiary, both in 2008. On May 29, 2012, the Company and Melco entered into Amended and Restated Debt Settlement Agreement to clarify details of the loan settlement mechanism and procedures to implement the settlement of the Melco Loans. Detailed settlement arrangement can be found in Note 13 of 2013 interim consolidated financial statements. As of the reporting date, the Company has received approval of TSX Venture Exchange for the debt restructuring transaction announced on May 29, 2012. However, as of the reporting date, the Company has not implemented the transactions contemplated under the Amended and Restated Debt Settlement Agreement. The Melco Loans have matured on 31 March 2013, so that the entire Melco Loans now become immediately due and payable.