UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FormFORM 10-Q
(Mark One)
xQUARTERLY REPORT UNDERPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 2010
2011or
OR
oTRANSITION REPORT UNDERPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ______________
COMMISSION FILE NUMBER 333-162102Commission File Number: 000-54321
China Bilingual Technology CHINA BILINGUAL TECHNOLOGY
& Education Group Inc.EDUCATION GROUP INC.
(Exact Name of small business issuer as specified in its charter)
Nevada | | 68-0678185 |
(State or other jurisdiction of | | (I.R.S. Employer |
incorporation or organization) | | Identification No.) |
No. 2 Longbao Street, Xiaodian Zone, Taiyuan City, Shanxi Province, People’s Republic of China 030031
(Address of principal executive offices) (Zip Code)
Issuer’s telephone Number:number: 01186-351-796398886-351-7963988
Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ox No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o | | Accelerated filer o |
| | |
Non-accelerated filer o | | Smaller reporting company x |
(Do not check if a smaller reporting company) | | |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of NovemberAugust 15, 20102011, the issuer had 29,999,99830,014,528 outstanding shares of Common Stock.
| | Page |
| PART I | |
Item 1. | Financial Statements | 3 |
| Condensed Consolidated Balance Sheet as of June 30, 2011 (Unaudited) and December 31, 2010 | 3 |
| Unaudited Condensed Consolidated Statements of Operations and Other Comprehensive Income for the Six Months Ended June 30, 2011 and June 30, 2010 | 4 |
| Unaudited Condensed Consolidated Statements of Operations and Other Comprehensive Income for the Three Months Ended June 30, 2011 and June 30, 2010 | 5 |
| Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2011 and June 30, 2010 | 6 |
| Notes to the Unaudited Condensed Consolidated Financial Statements | 7 |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of OperationOperation. | 2821 |
Item 3. | Quantitative and Qualitative Disclosures About Market RiskRisk. | 3427 |
Item 4T.4. | Controls and ProceduresProcedures. | 3427 |
| | |
| PART II | |
Item 1. | Legal ProceedingsProceedings. | 3528 |
Item 1A. | Risk FactorsFactors. | 3528 |
Item 2. | Unregistered Sales of Equity Securities and Use of ProceedsProceeds. | 3528 |
Item 3. | Defaults Upon Senior SecuritiesSecurities. | 3528 |
Item 4. | (Removed and Reserved)Reserved. | 3528 |
Item 5. | Other InformationInformation. | 3528 |
Item 6. | ExhibitsExhibits. | 3528 |
| | |
SIGNATURES | | 29 |
| | |
PART 1 -FINANCIALI - FINANCIAL INFORMATION
ITEMItem 1. FINANCIAL STATEMENTSFinancial Statements.
China Bilingual Technology & Education Group Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
| | | | | | |
| June 30, 2011 | | December 31, 2010 | |
| (Unaudited) | | | |
ASSETS | | | | | | |
| | | | | | | | |
Cash and cash equivalents | | | 12,392,138 | | | $ | 8,377,527 | |
| | | | | | | | |
| | | 1,481,952 | | | | 241,067 | |
| | | 13,953,558 | | | | 8,728,539 | |
| | | | | | | | |
| | | | | | | | |
Property, plant and equipment, net | | | 26,766,934 | | | | 26,462,897 | |
| | | | | | | | |
Deposit paid for long-term assets | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Home purchase down payment | | | | | | | | |
Accrued expenses and other current liabilities | | | | | | | | |
Total Current Liabilities | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Common Stock, $0.001par value; 75,000,000 shares authorized; 30,014,528 and 30,000,005 issued and outstanding as of June 30, 2011 and December 31, 2010 | | | | | | | | |
Additional paid in capital | | | | | | | | |
| | | | | | | | |
Accumulated other comprehensive income | | | | | | | | |
| | | | | | | | |
TOTAL STOCKHOLDERS’ EQUITY | | | | | | | | |
| | | | | | | | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
The unaudited condensed consolidated financial statement of the registrant for the three and nine months ended September 30, 2010 and 2009 follow. The condensedaccompanying notes to these consolidated financial statements reflect all adjustments which are in the opinionan integral part of management, necessary to a fair statement of the results for the interim periods presented. All such adjustments are of a normal and recurring nature.these balance sheets.
China Bilingual Technology & Education Group Inc. and Subsidiaries
Condensed Consolidated Statements of Operations and Other Comprehensive Income
CHINA BILINGUAL TECHNOLOGY & EDUCATION GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| | September 30, | | | December 31, | |
ASSETS | | 2010 | | | 2009 | |
| | (Unaudited) | | | | |
CURRENT ASSETS | | | | | | |
Cash and cash equivalents | | $ | 14,114,068 | | | $ | 5,099,860 | |
Inventory | | | 210,936 | | | | 105,538 | |
Due from related parties | | | 3,719,381 | | | | 3,014,906 | |
Prepayments and other current assets | | | 3,470,507 | | | | 260,309 | |
Total Current Assets | | | 21,514,892 | | | | 8,480,613 | |
| | | | | | | | |
LONG-TERM ASSETS | | | | | | | | |
Property and equipment, net | | | 28,669,774 | | | | 28,779,123 | |
Land use rights, net | | | 5,292,275 | | | | 5,296,661 | |
Total Long-Term Assets | | | 33,962,049 | | | | 34,075,784 | |
| | | | | | | | |
TOTAL ASSETS | | $ | 55,476,941 | | | $ | 42,556,397 | |
| | | | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | |
CURRENT LIABILITIES | | | | | | |
Accounts payable | | $ | 222,905 | | | $ | 205,024 | |
Other payables | | | 47,203 | | | | 209,747 | |
Refundable deposits | | | 1,687,536 | | | | 2,162,729 | |
Prepaid tuition | | | 20,231,919 | | | | 15,820,999 | |
Home purchase down payment | | | 534,141 | | | | 504,216 | |
Accrued expenses and other current liabilities | | | 577,784 | | | | 733,540 | |
Due to related parties | | | 16,575 | | | | 1,189,429 | |
Total Current Liabilities | | | 23,318,063 | | | | 20,825,684 | |
| | | | | | | | |
TOTAL LIABILITIES | | | 23,318,063 | | | | 20,825,684 | |
SHAREHOLDERS’ EQUITY | | | | | | | | |
Common stock, $0.001 par value; 75,000,000 shares authorized, 29,999,998 shares issued and outstanding at September 30, 2010, and December 31, 2009, respectively | | | 30,000 | | | | 30,000 | |
Additional paid-in capital | | | 2,754,079 | | | | 2,754,079 | |
Retained earnings | | | 28,272,672 | | | | 18,378,984 | |
Accumulated other comprehensive income | | | 1,102,127 | | | | 567,650 | |
| | | | | | | | |
TOTAL SHAREHOLDERS’ EQUITY | | | 32,158,878 | | | | 21,730,713 | |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | | $ | 55,476,941 | | | $ | 42,556,397 | |
See accompanying notes to the condensed consolidated financial statements.(Unaudited)
| | | For The Six Months Ended June 30, | |
| | | 2011 | | | | 2010 | |
| | | | |
REVENUES | | | | | | | | |
| | | 8,681,294 | | | | 8,368,146 | |
| | | 3,720,554 | | | | 3,586,348 | |
| | | 12,401,848 | | | | 11,954,494 | |
| | | | | | | | |
| | | | | | | | |
| | | 4,348,445 | | | | 4,176,879 | |
| | | 1,863,620 | | | | 1,790,091 | |
| | | 6,212,065 | | | | 5,966,970 | |
| | | | | | | | |
| | | 6,189,783 | | | | 5,987,524 | |
| | | | | | | | |
| | | | | | | | |
General and Administrative Expenses | | | 174,283 | | | | 71,308 | |
| | | 174,283 | | | | 71,308 | |
| | | | | | | | |
| | | | | | | 5,916,216 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | 9,938 | |
| | | | | | | | |
NET INCOME BEFORE INCOME TAXES | | | | | | | 5,926,154 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Foreign currency translation, net of tax | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Earnings per Common Share: (June 30, 2010 Restated) | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Weighted Average Common Shares Outstanding: (June 30, 2010 Restated) | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
The accompanying notes to consolidated financial statements are an integral part of these statements.
CHINA BILINGUAL TECHNOLOGYChina Bilingual Technology & EDUCATION GROUP INC. AND SUBSIDIARIESEducation Group Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF INCOMECondensed Consolidated Statements of Operations and Other Comprehensive Income
(Unaudited)
| | | For The Three Months Ended June 30, | |
| | | 2011 | | | | 2010 | |
| | | | |
REVENUES | | | | | | | | |
| | | 4,398,772 | | | | 4,195,712 | |
| | | 1,885,188 | | | | 1,798,163 | |
| | | 6,283,960 | | | | 5,993,875 | |
| | | | | | | | |
| | | | | | | | |
| | | 2,110,281 | | | | 2,362,904 | |
| | | 904,407 | | | | 1,012,673 | |
| | | 3,014,688 | | | | 3,375,577 | |
| | | | | | | | |
| | | 3,269,272 | | | | 2,618,298 | |
| | | | | | | | |
| | | | | | | | |
General and Administrative Expenses | | | 65,947 | | | | 53,977 | |
| | | 65,947 | | | | 53,977 | |
| | | | | | | | |
| | | | | | | 2,564,321 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | 4,810 | |
| | | | | | | | |
NET INCOME BEFORE INCOME TAXES | | | | | | | 2,569,131 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Foreign currency translation, net of tax | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Earnings per Common Share: (June 30, 2010 Restated) | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Weighted Average Common Shares Outstanding: (June 30, 2010 Restated) | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | For The Nine months Ended September 30, | |
| | 2010 | | | 2009 | |
| | (Unaudited) | | | (Unaudited) | |
REVENUES | | | | | | |
Tuition fee | | $ | 13,240,999 | | | $ | 10,801,362 | |
Room and board and other services | | | 5,064,549 | | | | 4,481,930 | |
TOTAL REVENUES | | | 18,305,548 | | | | 15,283,292 | |
COST OF REVENUES | | | | | | | | |
Tuition cost | | | (3,409,363 | ) | | | (3,511,764 | ) |
Room and board and other service cost | | | (3,162,630 | ) | | | (3,200,645 | ) |
TOTAL COST OF REVENUES | | | (6,571,993 | ) | | | (6,712,409 | ) |
GROSS PROFIT | | | 11,733,555 | | | | 8,570,883 | |
OPERATING EXPENSES | | | | | | | | |
General and administrative | | | (1,928,693 | ) | | | (1,117,119 | ) |
TOTAL OPERATING EXPENSES | | | (1,928,693 | ) | | | (1,117,119 | |
INCOME FROM OPERATION | | | 9,804,862 | | | | 7,453,764 | |
OTHER INCOME (EXPENSE) | | | | | | | | |
Interest income | | | 20,476 | | | | 18,899 | |
Interest expense | | | - | | | | (71,681 | ) |
Foreign exchange loss | | | (4,044 | ) | | | - | |
Miscellaneous expense | | | 72,394 | | | | 30,354 | |
INCOME BEFORE INCOME TAXES | | | 9,893,688 | | | | 7,431,336 | |
INCOME TAXES | | | - | | | | - | |
NET INCOME | | $ | 9,893,688 | | | $ | 7,431,336 | |
| | | | | | | | |
Earnings per Common Share | | | | | | | | |
Basic | | $ | 0.33 | | | $ | 0.25 | |
| | | | | | | | |
Diluted | | $ | 0.33 | | | $ | 0.25 | |
| | | | | | | | |
Weighted Average Common Shares Outstanding | | | | | | | | |
Basic | | | 29,999,998 | | | | 29,999,998 | |
| | | | | | | | |
Diluted | | | 29,999,998 | | | | 29,999,998 | |
The accompanying notes to consolidated financial statements are an integral part of these statements.
See accompanying notes to the condensed consolidated financial statements.
CHINA BILINGUAL TECHNOLOGY & EDUCATION GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOMEChina Bilingual Technology & Education Group Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| | | | |
| | For The Six Months Ended June 30, | |
| | 2011 | | | 2010 | |
Cash flows from operating activities: | | | | | | |
| | | 6,029,812 | | | $ | 5,926,154 | |
Adjustments to reconcile net income to net cash | | | | | | | | |
provided by (used in) operating activities: | | | | | | | | |
| | | 550,104 | | | | 540,918 | |
| | | 76,478 | | | | 73,463 | |
Loss on disposal of property and equipment | | | - | | | | 1,766 | |
| | | 83,250 | | | | - | |
| | | (1,217,644 | ) | | | (147,751) | |
| | | 32,796 | | | | (12,588) | |
| | | 25,881 | | | | (24,546) | |
| | | (25,906 | ) | | | (37,145) | |
| | | (105,311 | ) | | | (343,396) | |
| | | (79,367 | ) | | | (253,568) | |
| | | (213,505 | ) | | | 2,617,752 | |
| | | 18,013 | | | | 3,438 | |
| | | | | | | | |
Net cash provided by (used in) operating activities | | | 5,174,601 | | | | 8,344,497 | |
| | | | | | | | |
Cash flows from investing activities: | | | | | | | | |
Deposits - long term assets | | | (1,197,805) | | | | (103,182) | |
| | | (212,984) | | | | - | |
Advances to related parties receivable | | | - | | | | (366,488) | |
Proceeds from related parties receivables | | | 61 | | | | - | |
| | | | | | | | |
Net cash used in investing activities | | | (1,410,728 | ) | | | (469,670) | |
| | | | | | | | |
Cash flows from financing activities: | | | | | | | | |
| | | | | | | | |
Repayments of related party | | | - | | | | (1,173,073) | |
| | | | | | | | |
Net cash provided by (used in) financing activities | | | - | | | | (1,173,073) | |
| | | | | | | | |
Effect of exchange rate changes on cash | | | 250,738 | | | | (74,636) | |
| | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | 4,014,611 | | | | 6,701,754 | |
| | | | | | | | |
Cash and cash equivalents, beginning of year | | | 8,377,527 | | | | 5,099,860 | |
| | | | | | | | |
Cash and cash equivalents, end of year | | | 12,392,138 | | | $ | 11,726,978 | |
| | | | | | | | |
Supplemental disclosures of cash flow information: | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
The accompanying notes to consolidated financial statements are an integral part of these statements.
| | For The Three Months Ended September 30, | |
| | 2010 | | | 2009 | |
| | (Unaudited) | | | (Unaudited) | |
REVENUES | | | | | | |
Tuition fee | | $ | 4,625,534 | | | $ | 3,803,337 | |
Room and board and other services | | | 1,677,406 | | | | 1,698,847 | |
TOTAL REVENUES | | | 6,302,940 | | | | 5,502,184 | |
| | | | | | | | |
COST OF REVENUES | | | | | | | | |
Tuition cost | | | (964,576 | ) | | | (1,017,490 | ) |
Room and board and other service cost | | | (909,869 | ) | | | (1,044,652 | ) |
TOTAL COST OF REVENUES | | | (1,874,445 | ) | | | (2,062,142 | ) |
GROSS PROFIT | | | 4,428,495 | | | | 3,440,042 | |
OPERATING EXPENSES | | | | | | | | |
General and administrative | | | (509,056 | ) | | | (379,460 | ) |
TOTAL OPERATING EXPENSES | | | (509,056 | ) | | | (379,460 | ) |
INCOME FROM OPERATION | | | 3,919,439 | | | | 3,060,582 | |
OTHER INCOME (EXPENSE) | | | | | | | | |
Interest income | | | 10,515 | | | | 6,737 | |
Interest expense | | | - | | | | (24,473 | ) |
Miscellaneous income | | | 16,539 | | | | (530 | ) |
INCOME BEFORE INCOME TAXES | | | 3,946,493 | | | | 3,042,316 | |
INCOME TAXES | | | - | | | | - | |
NET INCOME | | $ | 3,946,493 | | | $ | 3,042,316 | |
| | | | | | | | |
Earnings per Common Share | | | | | | | | |
| | | | | | | | |
Basic | | $ | 0.13 | | | $ | 0.10 | |
Diluted | | $ | 0.13 | | | $ | 0.10 | |
| | | | | | | | |
Weighted Average Common Shares Outstanding | | | | | | | | |
| | | | | | | | |
Basic | | | 29,999,998 | | | | 29,999,998 | |
| | | | | | | | |
Diluted | | | 29,999,998 | | | | 29,999,998 | |
See accompanying notes to the condensed consolidated financial statements.
CHINA BILINGUAL TECHNOLOGY & EDUCATION GROUP INC. AND SUBSIDIARIES
China Bilingual Technology & Education Group Inc. and Subsidiaries |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMENotes to Condensed Consolidated Financial Statements
| | For The Nine Months Ended September 30, | | | For The Three Months Ended September 30, | |
| | (Unaudited) | | | (Unaudited) | |
| | 2010 | | | 2009 | | | 2010 | | | 2009 | |
NET INCOME | | $ | 9,893,688 | | | $ | 7,431,336 | | | $ | 3,946,493 | | | $ | 3,042,316 | |
Foreign currency translation, net of tax | | | 534,477 | | | | (296,892 | ) | | | 378,122 | | | | (352,386 | ) |
TOTAL COMPREHENSIVE INCOME | | $ | 10,428,165 | | | $ | 7,134,444 | | | $ | 4,324,615 | | | $ | 2,689,930 | |
June 30, 2011 and 2010 (Unaudited)
See accompanying notes to the condensed consolidated financial statements.
CHINA BILINGUAL TECHNOLOGY & EDUCATION GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| | For The Nine Months Ended September 30, | |
| | 2010 | | | 2009 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | (Unaudited) | | | (Unaudited) | |
Net income | | $ | 9,893,688 | | | $ | 7,431,336 | |
Depreciation and amortization of property and equipment | | | 815,287 | | | | 819,355 | |
Amortization of land use rights | | | 110,836 | | | | 109,663 | |
Loss on disposal of property and equipment | | | 1,776 | | | | 5,230 | |
| | | | | | | | |
Changes in operating assets and liabilities: | | | | | | | | |
(Increase) Decrease In: | | | | | | | | |
Inventory | | | (105,398 | ) | | | 84,588 | |
Prepayments and other current assets | | | (3,210,199 | ) | | | (2,709,306 | ) |
| | | | | | | | |
Increase (Decrease) In: | | | | | | | | |
Accounts payable | | | 17,881 | | | | 102,809 | |
Other payables | | | (162,544 | ) | | | (571,296 | ) |
Refundable deposits | | | (475,193 | ) | | | (176,638 | ) |
Prepaid tuition | | | 4,410,920 | | | | 4,304,803 | |
Home purchase down payment | | | 29,925 | | | | (26,545 | ) |
Accrued expenses and other current liabilities | | | (155,755 | ) | | | (284,286 | ) |
Net cash provided by operating activities | | $ | 11,171,224 | | | $ | 9,089,713 | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | |
Purchases of property and equipment | | $ | (153,847 | ) | | $ | (371,586 | ) |
Proceeds from disposal of property and equipment | | | 23,664 | | | | 3,764 | |
Advances to/due from related parties | | | (704,474 | ) | | | (1,971,136 | ) |
Net cash used in investing activities | | $ | (834,657 | ) | | $ | (2,338,958 | ) |
| | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | |
Repayments to related parties | | | (1,172,854 | ) | | | (1,961,639 | ) |
Net cash used in financing activities | | $ | (1,172,854 | ) | | $ | (1,961,639 | ) |
| | | | | | | | |
INCREASE IN CASH AND CASH EQUIVALENTS | | $ | 9,163,713 | | | $ | 4,789,116 | |
Effect of exchange rate changes on cash | | | (149,505 | ) | | | (412,505 | ) |
Cash and cash equivalents at beginning of year | | | 5,099,860 | | | | 3,584,959 | |
CASH AND CASH EQUIVALENTS AT END OF YEAR | | $ | 14,114,068 | | | $ | 7,961,570 | |
| | | | | | | | |
SUPPLEMENTARY CASH FLOW INFORMATION | | | | | | | | |
Interest paid | | $ | - | | | $ | 71,681 | |
See accompanying notes to the condensed consolidated financial statements
CHINA BILINGUAL TECHNOLOGY & EDUCATION GROUP INC. AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010 AND 2009 (UNAUDITED)
NOTE 1 –- NATURE OF BUSINESS
Description of Business
China Bilingual Technology & Education Group Inc.Inc (the “Company”). is an education company that owns and operates high-quality, K-12 private boarding schools in China.The People’s Republic of China (“PRC”). Founded in 1998, the Company currently operates two schools encompassing kindergarten, elementary, middle and high school levels with over 9,000approximately 9,500 students and 1,3001,500 faculty and staff. The Company’s schools are located in Shanxi and Sichuan Provinces and provide students with an innovative and high-quality education with a focus on fluency and cultural skills in both Chinese and English, as well as a strong core curriculum. The schools regularly rank among the top schools in their respective regions for college entrance rates and national college entrance exam scores. The Company’s schools have earned excellent teaching reputationsscores and are recognized forcollege entrance rates. As the suc cess of their students and strong faculty. As ChinaPRC experiences rapid industrialization and economic growth, the government is focused on education as a means to increase worker productivity and raise the standard of living. Parents in China’sthe PRC’s new middle and upper classes are sending their children to receive private school education to give them an advantage in China’sthe PRC’s increasingly competitive workforce. The Company’s sector in education is not subject to corporate income tax, and the Company anticipates its growth will come from both organic growth through increased enrollment and expansion of its business model and teaching methods into new schools, which may be acquired by the Company.
Control by Principal Shareholders
The Company’s directors, executive officers and their affiliates or related parties, own beneficially and in the aggregate, the majority of the voting power of the outstanding shares of the common stock of the Company. Accordingly, the directors, executive officers and their affiliates, if they voted their shares uniformly, would have the ability to control the approval of most corporate actions, including increasing the authorized capital stock of the Company and the dissolution, merger or sale of the Company's assets or business.
Basis of PresentationFinancial Statements Presented
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements and related notes. The accompanying unaudited condensed consolidated financial statements and related notes should be read in conjunction with the audited consolidated financial statements of the Company and notes thereto for the year ended December 31, 2009 which are included in the Company’s Form 8K filed with the SEC on July 2, 2010.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (which include only normal recurring adjustments) necessary to present fairly the balance sheets of China Bilingual Technology & Education Group Inc. and subsidiaries as of September 30, 2010 and the results of their operations for the three and nine months ended September 30, 2010 and 2009, and cash flows for the nine months ended September 30, 2010 and 2009. The results of operations for the nine months ended September 30, 2010 and 2009 are not necessarily indicative of the results to be expected for the entire year.
The condensed consolidated financial statements of the Company have been prepared in accordance with the accounting principles generally accepted in the United States of America (“US GAAP”).
On July 1, 2009, The Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 105-10 (formerly Statement of Financial Accounting Standards (“SFAS”) No. 168, The FASB Accounting Standards Codification and Hierarchy of Generally Accepted Accounting Principles, a replacement of
CHINA BILINGUAL TECHNOLOGY & EDUCATION GROUP INC. AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010 AND 2009 (UNAUDITED)
NOTE 1 – NATURE OF BUSINESS (CONTINUED)
Basis of Presentation (Continued)
FASB Statement No. 162. ASC 105-10 establishes the FASB ASC as the source of authoritative accounting principles recognized by the FASB to be applied in preparation of financial statements in conformity with generally accepted accounting principles in the United States of America (“US GAAP”). The adoption of this standard had no impact on the Company’s consolidated financial statements.
The Company operates in two segments in accordance with accounting guidance FASB ASC Topic 280, Segment Reporting. Our Chief Executive Officer has been identified as the chief operating decision maker as defined by FASB ASC Topic 280.
On June 30, 2010, Designer Export, Inc. (“DESG”),was incorporated in the State of Nevada, USA on March 31, 2009 under the name Designer Export, Inc. On June 30, 2010 the Company entered into a Share Exchange Agreement (Agreement)(“Agreement”) with Kahibah Limited (“KL”), a British Virgin Islands (“BVI”) corporation and its shareholder. According to this Agreement, DESGthe Company acquired all the issued and outstanding common stock of KL. DESGThe Company issued 26,100,076 shares of its common stock, representing 87% of DESG’sthe Company’s issued and outstanding common stock after giving effect to the cancellation of 7,748,343 shares on June 30, 2010, to KL’s shareholders in exchange for 100% of the common stock of KL. After the closing of the transaction, DESGthe Company had a total of 29,999,99830,000,005 shares of common stock issued and outstanding, with KL’s shareholder owning 87% of the total issued and outstan dingoutstanding shares of DESG’sthe Company’s common stock, and the balance held by those who held shares of DESG’sthe Company’s common stock prior to the closing of the exchange. This share exchange transaction resulted in KL’s shareholders obtaining a majority voting interest in DESG.the Company. All shares are shown effective of a 2.582781 forward stock split.split as of July 14, 2010.
The acquisition of KL and the operations of its subsidiaries were accounted for as a reverse merger, whereby KL is the continuing entity for financial reporting purposes and is deemed, for accounting purposes, to be the acquirer of the Company. In accordance with the applicable accounting guidance for accounting for the business combination as a reverse merger, KL is deemed to have undergone a recapitalization, whereby KL is deemed to have issued common stock to the Company’s common equity holders. Accordingly, although the Company, as KL’s parent company, was deemed to have legally acquired KL, in accordance with the applicable accounting guidance for accounting for the transaction as a reverse merger and re-capitalization, KL is the surviving entity for accounting purposes and its assets and liabilities are recorded at their historical carrying amounts with no goodwill or other intangible assets recorded as a result of the accounting merger with the Company.
Pre-exchange Transaction Shares (post split) | | | | |
| | | | ) |
Issuance for KL Shareholders | | | | |
Total Post-Exchange Shares | | | | |
China Bilingual Technology & Education Group Inc. and Subsidiaries |
Notes to Condensed Consolidated Financial Statements
June 30, 2011 and 2010 (Unaudited)
As part of the Merger,acquisition, the Company’sCompany changed its name changed from “Designer Export, Inc.” to “ChinaChina Bilingual Technology & Education Group Inc.” (“China Bilingual”).
The Share Exchange was accounted for as a “reverse merger” since the stockholders of KL own a majority of the outstanding shares of China Bilingual’s common stock immediately following the Share Exchange. Under accounting principles generally accepted in the United States, the share exchange is considered to be a capital transaction in substance, rather than a business combination. Thus the share exchange is equivalent to the issuance of stock by KL for the net monetary assets of China Bilingual, accompanied by a recapitalization, and is accounted for as a change in capital structure. Accordingly, the accounting for the share exchange was identical to that resulting from a reverse acquisition, except no goodwill was recorded. Under reverse takeover accounting, the post reverse acquisition comparative historical finan cial statements of legal acquirer, China Bilingual, are those of the legal acquire, KL, which is considered to be the accounting acquirer, and thus represent a continuation of the financial statements of KL. Share and per share amounts stated have been retroactively adjusted to reflect the merger.acquisition. The accompanying financial statements present the historical financial condition, results of operations and cash flows of theKL and its operating companysubsidiaries prior to the capitalization.recapitalization.
Pre-exchange Transaction Shares
| | | 11,648,265 | * |
Repurchase | | | (7,748,343 | ) |
Issuance for KL Shareholders | | | 26,100,076 | |
Total Post-Exchange Shares | | | 29,999,998 | |
*effectingThe historical consolidated financial statements of the Company are those of KL, and of the consolidated entities. The consolidated financial statements of the Company presented for the six months ended June 30, 2011 and 2010 included the financial statements of China Bilingual, KL, KL’s subsidiary Taiyuan Taiji, a 2.582781 forward stock split aswholly-foreign owned enterprise (“WOFE”) under the laws of July 14, 2010the People's Republic of China (“PRC”), which owns 95% of the registered capital of Shanxi Taiji, an equity joint venture company organized under the laws of the PRC. Shanxi Taiji owns all of the registered capital of Shanxi Modern Bilingual School and Sichuan Guangan Experimental High School, both private non-enterprise entities incorporated under the laws of the PRC, collectively the “Subsidiaries.”
CHINA BILINGUAL TECHNOLOGY & EDUCATION GROUP INC. AND SUBSIDIARIES
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Since the ownership of KB and its Subsidiaries was substantially the same, the merger with each was accounted for as a transfer of equity interests between entities under common control, whereby the acquirer recognized the assets and liabilities of each Subsidiary transferred at their carrying amounts. The reorganization was treated similar to the pooling of interest method with carry over basis. Accordingly, the financial statements for KL and its Subsidiaries have been combined for all periods presented, similar to a pooling of interest. The reorganization of entities under common control was retrospectively applied to the financial statements of all prior periods when the financial statements are issued for a period that includes the date the transaction occurred. Intercompany transactions and balances are eliminated in consolidation.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010 AND 2009 (UNAUDITED)
Principles of Consolidation
NOTE 2 –PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements include the accounts of China Bilingual Technology & Education Group Inc. and the following wholly-owned subsidiaries:
Subsidiaries | | State and Countries Registered In | | % Ownership | |
| | | Percentage of
Ownership
| 100 | % |
Kahibah Limited | | British Virgin Island | | 100% |
Taiyuan Taiji IndustryKemao Development Co., Ltd. | | People’s Republic of China | | 100% | 100 | % |
Shanxi Taiji Industrial Development Co., Ltd.(i) | | People’s Republic of China | | 100% | 95 | % |
Shanxi Modern Bilingual School (ii) | | People’s Republic of China | | 100% | 100 | % |
Sichuan Guang’an Shiyan SecondaryExperimental High School (iii) | | People’s Republic of China | | 100% | 100 | % |
(i) | Shanxi Taiji IndustrialKemao Development Co., Ltd. was incorporated as a limited liability company on July 25, 1997 under PRC law. It is currently 95% owned by Taiyuan Taiji and 5% owned by Ms. Ren Bainv who has not yetBaiv. On November 25, 2009, Kahibah entered into a share exchange agreement to sell the remaining 5% ownership to Ms. Ren Baiv. Ms. Ren Baiv is the sister of Mr. Ren Zhiqing, the Company’s Chief Executive Officer. At December 31, 2010 Ms. Ren Baiv paid her1 million Renminbi (“RMB”) as part of the capital contribution ascontribution. The 5% ownership is held by Ms. Ren Baiv on behalf of September 30, 2010.the Taiyuan Taiji in accordance with local Chinese regulations, therefore no non-controlling interest is recognized. Shanxi Taiji is an equity joint venture under the laws of the PRC. The Shanxi Modern Bilingual School and Sichuan Guang’an Experimental HighShiyan Secondary School (the “Schools”) hold the requisite governmental licenses to provide private educational services within their province in China. Each province sets its own licensing criteria and duration following the general guidelines established by the national government for education standards. |
(ii) | Shanxi Modern Bilingual School (the “Shanxi School”) was established in 1998 by Shanxi Taiji. It operates as a private K-12 boarding school on a 3338 acre campus in Taiyuan City, Shanxi Province. The Shanxi School holds a three year provincial license to be renewed March, 2011.May, 2013. |
(iii) | Sichuan Guang’an Experimental High School (the “Sichuan School”) was established in 2002 by Shanxi Taiji. It operates as a private K-12 boarding school on a 1723 acre campus in Guang’an, Sichuan Province. The Sichuan School holds a four year provincial license to be renewed September, 2011. |
All significant intercompany accounts and transactions have been eliminated in consolidation.
Effective January 1, 2009,
China Bilingual Technology & Education Group Inc. and Subsidiaries |
Notes to Condensed Consolidated Financial Statements
June 30, 2011 and 2010 (Unaudited)
Management’s Representation of Interim Financial Information
The accompanying unaudited condensed consolidated financial statements have been prepared by the Consolidation Topic, ASC 810-10-45-16, revisedCompany without audit pursuant to the accounting treatment for non-controlling minority interestsrules and regulations of partially-owned subsidiaries. Non-controlling minority interests represent the portionSEC. Certain information and disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted as allowed by such rules and regulations, and management believes that the disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements include all of earnings that is not within the parent Company’s control. These amountsadjustments, which in the opinion of management are now requirednecessary to be reported as equity insteada fair presentation of as a liability on the balance sheet. Additionally, this statement requires net income from non-controlling minority interests to be shown separately on the consolidated statementsfinancial position and results of operations. There were no significant non-controlling minority interestsAll such adjustments are of a normal and recurring nature. Interim results are not necessarily indicative of results for a full year. These condensed consolidated financial statements should be read in conjunction with the nine months ended September 30,audited financial statements at December 31, 2010 and 2009.as filed in the Company Form 10-K filed with the SEC on March 31, 2011.
NOTE 3 –2 - USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. Measurement, estimates and assumptions are used for, but not limited to, the selection of the useful lives of property and equipment, impairment of long-lived assets, fair values and revenue recognition. Management makes these estimates using the best information available at the time the estimates are made; however, actual results, when ultimately realized, could differ from those estimates. The current economic environmen tenvironment has increased the degree of uncertainty inherent in these estimates and assumption.assumptions.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010 AND 2009 (UNAUDITED)
NOTE 4 –3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s consolidated financial statements. The consolidated financial statements and notes are representations of the Company’s management which is responsible for their integrity and objectivity. These accounting policies conform to US GAAP and have been consistently applied in the preparation of the consolidated financial statements.
In June 2009 the Financial Accounting Standards Board (“FASB”) established the Accounting Standards Codification (“ASC”) 105-10 (formerly Statement of Financial Accounting Standards (“SFAS”) No. 168, The FASB Accounting Standards Codification and Hierarchy of Generally Accepted Accounting Principles, a replacement of ASB ASC 105-10 establishes the FASB ASC as the source of authoritative accounting principles recognized by the FASB to be applied in preparation of financial statements in conformity with generally accepted accounting principles in the United States of America (“US GAAP”). The adoption of this standard had no impact on the Company’s consolidated financial statements.
The Company operates in two segments in accordance with accounting guidance FASB ASC Topic 280, Segment Reporting. Our Chief Executive Officer has been identified as the chief operating decision maker as defined by FASB ASC Topic 280.
(a) | Fair Value of Financial Instruments |
The Company applies the provisions of accounting guidance, FASB ASC Topic 820 that requires all entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practicable to estimate fair value, and defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. As of SeptemberJune 30, 2010,2011 and December 31, 20092010 the fair value of cash and cash equivalents, other receivables, accounts payable, short term bank loans, and other payables approximated carrying value due to the short maturity of the instruments, quoted market prices or interest rates which fluctuate with market rates except for related party debt or receivables for which it is not pract icablepracticable to estimate fair value.
Fair Value Measurements
Effective April 1, 2009, the FASB ASC Topic 820, Financial Instruments, requires disclosures about fair value of financial instruments in quarterly reports as well as in annual reports.
The FASB ASC Topic 820, Fair Value Measurements and Disclosures, clarifies the definition of fair value for financial reporting, establishes a framework for measuring fair value and requires additional disclosures about the use of fair value measurements.
Various inputs are considered when determining the fair value of the Company’s financial instruments. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in these securities. These inputs are summarized in the three broad levels listed below.below:
| · | Level 1 – observable market inputs that are unadjusted quoted prices for identical assets or liabilities in active markets. |
| · | Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, credit risk,Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, credit risks, etc.). |
· | Level 3 – significant unobservable inputs (including the Company’s own assumptions in determining the fair value of financial instruments). |
Level 3 – significant unobservable inputs (including the Company’s own assumptions in determining the fair market value of financial instruments.
The Company’s adoption of FASB ASC Topic 820 did not have a material impact on the Company’s consolidated financial statements.
The carrying value of financial assets and liabilities recorded at fair value is measured on a recurring or nonrecurring basis. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. The Company had no financial assets or liabilities carried and measured on a nonrecurring basis during the reporting periods. Financial assets and liabilities
CHINA BILINGUAL TECHNOLOGY & EDUCATION GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010 AND 2009 (UNAUDITED)
NOTE 4-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(a) Fair Value of Financial Instruments (continued)
Fair Value Measurements (continued)
measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. The Company had no financial assets and/or liabilities carried at fair value on a recurring basis at SeptemberJune 30, 20102011 and December 31, 2009.2010.
The availability of inputs observable in the market varies from instrument to instrument and depends on a variety of factors including the type of instrument, whether the instrument is actively traded, and other characteristics particular to the transaction. For many financial instruments, pricing inputs are readily observable in the market, the valuation methodology used is widely accepted by market participants, and the valuation does not require significant management discretion. For other financial instruments, pricing inputs are less observable in the market and may require management judgment.
China Bilingual Technology & Education Group Inc. and Subsidiaries |
Notes to Condensed Consolidated Financial Statements
June 30, 2011 and 2010 (Unaudited)
(b) | Cash and Cash Equivalents |
For purposes of the consolidated statements of cash flows, the Company considers all highly liquid debt instruments purchased with aan original maturity of three months or less to be cash equivalents. There are no restrictions to cash at SeptemberJune 30, 2010.2011. A substantial amount of the Company’s cash is held in bank accounts in the PRC and is not protected by the Federal Deposit Insurance Corporation (“FDIC”) insurance or any other similar insurance. Given the current economic environment and the financial conditions of the banking industry there is a risk that deposits may not be readily available.available. Cash held in the PRC amounted to $14,114,068$12,392,138 at SeptemberJune 30, 2010.2011. The PRC places limitations on expatriating cash out of the country, which may limit the Company’s ability to pay dividends.
(c) | Impairment of Long-Lived Assets |
The Company’s long-lived assets and other assets (consisting of property and equipment and purchased land use rights) are reviewed for impairment in accordance with the guidance of the FASB ASC Topic 360-10, Property, Plant, and Equipment, and FASB ASC Topic 205, Presentation of Financial Statements. The Company tests for impairment losses on long-lived assets used in operations whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such a ssetasset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Impairment evaluations involve management’s estimates on asset useful lives and future cash flows. Actual useful lives and cash flows could be different from those estimated by management which could have a material effect on our reporting results and financial positions.position. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. Through SeptemberJune 30, 2010,2011, the Company had not experienced impairment losses on its long-lived assets. However, there can be no assurances that demand for the Company’s services will continue, which could result in an impairment of long-lived assets in the future.
CHINA BILINGUAL TECHNOLOGY & EDUCATION GROUP INC. AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010 AND 2009 (UNAUDITED)
NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
On March 16, 2007, the PRC National People’s Congress passed the PRC Enterprise Income Tax Law (“New EIT Law”) which became effective on January 1, 2008. Pursuant to the New EIT Law, a unified enterprise income tax rate of 25% and unified tax deduction standards will be applied consistently to both domestic-invested enterprises and foreign-invested enterprises.
Shanxi Taiji and Taiyuan Taiji are taxed pursuant to the New EIT Law with a unified enterprise income tax rate of 25%. Shanxi Taiji and Taiyuan Taiji did not pay any income taxes during the year ended December 31, 2009 and for the ninesix months ended SeptemberJune 30, 2010 and June 30, 2011 due to net losses experienced in the past reporting periods. The two entities may apply the past periods’ net operating losses to futures years’ profits in order to reduce tax liability. Since Shanxi Taiji and Taiyuan Taiji have minimal business operations, the two entities are unlikely to have profits in future periods. As a result, all deferred tax assets and liabilities are diminimus,deminimus, and management would have a 100% valuation allowance for all deferred tax assets.
The subsidiaries of Shanxi Taiji, which were registered as private schools (the “school-subsidiaries”), are not subject to income taxes determined in accordance with the Law for Promoting Private Education (2003) and school-subsidiaries registered as private schools not requiring reasonable returns (similar to a not-for-profit entity) are treated as public schools and are generally not subject to enterprise income taxes. Therefore, the school-subsidiaries are tax exempt.
Kahibah Limited is exempt from income tax on all sources of income pursuant to the tax law in the British Virgin Islands. However, pursuant and subsequent to the reverse merger, the parent company in U.S. may pay tax in future years.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect ofon deferred tax assetstaxes of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets.assets and liabilities. The components of the deferred tax assets and liabilities are individually classified as current or non-current based on their characteristics. Deferred tax assets and liabilities 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.
A provision has not been made at SeptemberJune 30, 20102011 and December 31, 20092010 for U.S. or additional foreign withholding taxes of undistributed earnings of foreign subsidiaries because it is the present intention of management to reinvest the undistributed earnings indefinitely in foreign operations. Generally, such earnings become subject to U.S. tax upon the remittance of dividends and under certain other circumstances. It is not practicable to estimate the amount of deferred tax liability on such undistributed earnings.
The Company recognizes that virtually all tax positions in the PRC are not free of some degree of uncertainty due to tax law and policy changes by the government. However, the Company cannot reasonably quantify political risk factors and thus must depend on guidance issued by current government officials.
CHINA BILINGUAL TECHNOLOGY & EDUCATION GROUP INC. AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010 AND 2009 (UNAUDITED)
NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(d) | Income taxes (continued) |
Based on all known facts and circumstances and current tax law, the Company believes that the total amount of unrecognized tax benefits as of SeptemberJune 30, 20102011 and December 31, 2009,2010 is not material to its results of operations, financial condition or cash flows. The Company also believes that the total amount of unrecognized tax benefits as of SeptemberJune 30, 20102011 and December 31, 2009,2010, if recognized, would not have a material effect on its effective tax rate. The Company further believes that there are no tax positions for which it is reasonably possible, based on the current PRC tax law and policy, that the unrecognized tax benefits will significantly increase or decrease over the next twelve months producing, individually or in the aggregate, a material effect on the Company’s results of operations, financia lfinancial condition or cash flows as of SeptemberJune 30, 20102011 and December 31, 2009.2010.
(e) | Revenue Recognition and Prepaid Tuition |
In accordance with the Securities and Exchange Commission’s (“SEC”) Staff Accounting Bulletin (“SAB”) Topic 13, Revenue Recognition, the Company recognizes revenues when it is realized or realizable and earned. The Company records revenues when the following four fundamental criteria under SAB 104 are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the price to the customer is fixed or determinable, and (iv) collection of the resulting receivable is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as prepaid tuition.
China Bilingual Technology & Education Group Inc. and Subsidiaries |
Notes to Condensed Consolidated Financial Statements
June 30, 2011 and 2010 (Unaudited)
Revenues consist primarily of tuition and fees derived from providing meals and housing for students living on campus. Revenues from tuition and fees are recognized pro-rata (on a straight-line basis) over the relevant period attended by the student of the applicable grade or program. The school year runs OctoberSeptember 1 through September 30August 31 and prepaid tuition is recognized over the twelve-month period. If a student withdraws from a course or program within threesix months after the school year starts, the paid but unearned portion of the student’s tuition is 67% refunded. If a student withdraws after the first three months in a school year, no tuition will be refunded. As a result, the Company has recorded prepaid tuition as a current liability on the consolidated balance sheet in the event a student withdraws from school and the Company has to return a portion of the prepaid tuition. In past years there were minimal students who withdrew from a course or program before the end of a school year.
The Company normally receives prepaid tuition and fees from students at their initial admission or before the start of the school year on OctoberSeptember 1. Some students will benefit from a discount of fees if they prepay tuition for two to three years of school term. Prepaid tuition is the portion of payments received but not earned and is reflected as a current liability in the accompanying consolidated balance sheets as such amounts are expected to be earned, but may be refundable within the next year.
The 2010 - 2011 schoolsschool year annual tuition, room & board and other fees, (the “School Fees”), are allocated based on grade level to the following categories:
Grade | | Tuition | | | Cafeteria | | | Room | | | Others | | | Total | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
CHINA BILINGUAL TECHNOLOGY & EDUCATION GROUP INC. AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010 AND 2009 (UNAUDITED)
NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(e) Revenue Recognition and Prepaid Tuition (continued)
Below is a schedule of the prepaid School Fees as of SeptemberJune 30, 2011 and 2010, including the number of students prepaid within the calendar year. Students are requiredPrepaid tuition expected to prepay all School Fees in-full at the beginning of the school yearbe recognized into revenue for the current year of studies from October 1, 2010 through September 30, 2011. Students may prepay in advance for future schoolnext years to lock-in a lower price increase for future periods.
Period | | | Tuition, R&B | | | | No. of Students - School Year | |
from Oct 1 to Dec 31 in 2010 | | $ | 6,996,490 | | | | 9,314 – 2011 | |
from Jan 1 to Dec 31 in 2011 | | | 12,425,476 | | | | 3,976 – 2012 | |
from Jan 1 to Dec 31 in 2012 | | | 652,100 | | | | 205 – 2013 | |
from Jan 1 to Sep 30 in 2013 | | | 157,853 | | | | 64 - 2014 | |
Total | | $ | 20,231,919 | | | | - | |
and thereafter is as following.
| | | June 30, 2011 | | December 31, 2010 |
| | | 8,511,188 | | 13,754,026 |
| | | 6,029,351 | | 652,100 |
| | | 166,131 | | 157,853 |
| | | 14,706,670 | | 14,563,979 |
CHINA BILINGUAL TECHNOLOGY & EDUCATION GROUP INC. AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010 AND 2009 (UNAUDITED)
Room and Board and Other Revenues
Room and board revenues represent student room income and cafeteria income. Revenues are recognized as sales occur or rental services are rendered. During the nine and three months ended September 30, 2010 and 2009, the Schools recognized room and board income of $4,907,433 and $4,089,030, and $1,634,422 and 1,342,963 respectively.
Other revenues represent rental income earned from renting out apartments to faculty members and other miscellaneous revenues and fees, including tutoring, special lesson fees and registration fees. Other revenues represent less than 5% of total revenues. Rental income and other fees are recognized when the services are rendered. During the nine and three months ended September 30, 2010 and 2009, the Schools recognized other revenues of $157,116 and $392,900, and $42,984 and $355,884, respectively.
The following table shows the breakdown of revenues by segment during the ninesix months ended SeptemberJune 30, 20102011 and 2009 and for the three months ended September 30, 2010 and 2009:2010:
| | The Nine Months Ended September 30, | | | The Three Months Ended September 30, | |
| | 2010 | | | 2009 | | | 2010 | | | 2009 | |
| | Revenue | | | % | | | Revenue | | | % | | | Revenue | | | % | | | Revenue | | | % | |
Tuition | | $ | 13,240,999 | | | | 72.3 | % | | $ | 10,801,362 | | | | 70.7 | % | | $ | 4,625,534 | | | | 73.4 | % | | $ | 3,803,337 | | | | 69.1 | % |
Room & Board and Other Rev. | | | 5,064,549 | | | | 27.7 | % | | | 4,481,930 | | | | 29.3 | % | | | 1,677,406 | | | | 26.6 | % | | | 1,698,847 | | | | 30.9 | % |
Total | | $ | 18,305,548 | | | | 100 | % | | $ | 15,283,292 | | | | 100 | % | | $ | 6,302,940 | | | | 100 | % | | $ | 5,502,184 | | | | 100 | % |
| | | For the Six months Ended June 30, | |
| | | 2011 | | | | 2010 | |
| | | Revenue | | | | % | | | | Revenue | | | | % | |
| | $ | 8,681,294 | | | | 70 | % | | $ | 8,368,146 | | | | 70 | % |
Room & Board and Other Rev. | | | 3,720,554 | | | | 30 | % | | | 3,586,348 | | | | 30 | % |
| | $ | 12,401,848 | | | | 100 | % | | | 11,954,494 | | | | 100 | % |
(f) | Foreign Currency Translation |
The Company’s principal country of operations is The People’s Republic of China.the PRC. The financial position and results of operations of the Company are determined using the local currency (“Renminbi or RMB”) as the functional currency. The results of operations denominated in foreign currency are translated at the average rate of exchange during the reporting period.
China Bilingual Technology & Education Group Inc. and Subsidiaries |
Notes to Condensed Consolidated Financial Statements
June 30, 2011 and 2010 (Unaudited)
Assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the exchange rates prevailing at the balance sheet date. The results of operations are translated from Renminbi to US Dollar at the weighted average rate of exchange during the reporting period. The registered equity capital denominated in the functional currency is translated at the historical rate of exchange at the time of capital contribution. All translation
NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
adjustments resulting from the translation of the financial statements into the reporting currency (“US Dollars”) are dealt with as a component of accumulated other comprehensive income.
Translation adjustments net of tax totaled $534,477$853,762 and ($296,892), and $378,122 and ($352,386)$156,355, for the nine and threesix months ended SeptemberJune 30, 20102011 and 2009,2010, respectively.
CHINA BILINGUAL TECHNOLOGY & EDUCATION GROUP INC. AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010 AND 2009 (UNAUDITED)
As of September 30,December 31, 2010 and SeptemberJune 30, 2009,2011, the exchange rate to the U.S. Dollar was RMB 6.70116.6227 and RMB 6.8290,6.4635, respectively. The average exchange rate for the six months ended June 30, 2011 and 2010 was RMB 6.5399 and RMB 6.8260, respectively. The average exchange rate for the three months ended June 30, 2011 and nine months ended September 30, 2010 and September 30, 2009 was RMB 6.74606.499 and RMB 6.8305, and RMB 6.7692 and 6.8416, respectively.6.8068.
The Company reports comprehensive income in accordance with FASB ASC Topic 220 Comprehensive Income, which established standards for reporting and displaying comprehensive income and its components in a financial statement that is displayed with the same prominence as other financial statements.
Total comprehensive income is defined as all changes in stockholders' equity during a period, other than those resulting from investments by and distributions to stockholders (i.e., issuance of equity securities and dividends). Generally, for the Company, total comprehensive income equals net income plus or minus adjustments for currency translation. The foreign currency translation, net of tax was $853,762 and $156,355, for the six months ended June 30, 2011 and 2010, respectively. Total comprehensive income represents the activity for a period net of related tax and was an income of $10,428,165$6,883,574 and $7,134,444, and $4,324,615 and $2,689,930$6,082,509, for the nine and threesix months ended SeptemberJune 30, 20102011 and 2009,2010, respectively.
While total comprehensive income is the activity in a period and is largely driven by net earnings in that period, accumulated other comprehensive income or loss (“AOCI”) represents the cumulative balance of other comprehensive income as of the balance sheet date. For the Company, AOCI is primarily the cumulative balance related to the currency adjustments and increased overall equity by $1,102,127,$1,859,581, as of SeptemberJune 30, 2010.2011.
(h) | Concentrations, Risks, and Uncertainties |
All of the Company’s operations are located in the PRC. There can be no assurance that the Company will be able to successfully continue to provide the services offered and failure to do so would have a material adverse effect on the Company’s financial position, results of operations and cash flows. Also, the success of the Company’s operations is subject to numerous contingencies, some of which are beyond management’s control. These contingencies include general economic conditions, teacher salaries, competition, governmental and political conditions, and changes in regulations. Because the Company is dependent on trade in the PRC, the Company is subject to various additional political, economic and other uncertainties. Among other risks, the Company̵ 7;sCompany’s operations will be subject to risk of restrictions on transfer of funds, domestic and international customs, changing taxation policies, foreign exchange restrictions, and political and governmental regulations.
The Company expenses the cost of advertising as incurred or, as appropriate, the first time the advertising takes place. Advertising costs for the six months ended June 30, 2011 and 2010 were not significant.
(j) | Research and Development |
The Company expenses the cost of research and development as incurred. Research and development costs for the six months ended June 30, 2011 and 2010 were not significant.
(k) | Basic and diluted earnings per share |
Earnings per share is calculated in accordance with the ASC Topic 260, Earnings Per Share. Basic earnings per share is calculated dividing net earnings available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is based on the assumption that all dilutive convertible shares, stock options, warrants and other equity awards were converted or exercised during the period. Dilution is computed by applying the treasury stock method. Under this method, warrants and options are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. In periods where losses are reported, the weighted-average number of common stock outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.
China Bilingual Technology & Education Group Inc. and Subsidiaries |
Notes to Condensed Consolidated Financial Statements
June 30, 2011 and 2010 (Unaudited)
Basic and diluted earnings per share were $0.20 and $0.20 per share and $0.23 and $0.23 per share, respectively for the six months ended June 30, 2011 and 2010. Basic and diluted earnings per share were $0.11 and $0.11 per share and $0.10 and $0.10 per share, respectively for the three months ended June 30, 2011 and 2010.
The earnings per share for the six month period and three month period ended June 30, 2010, as previously reported, for basic and diluted earnings per share was $0.20 and $0.20 per share and $0.09 and $0.09 per share, respectively. The earnings per share for these periods was recalculated to reflect the recapitalization of the Company at June 30, 2010. The earnings per share for June 30, 2010 has been restated to reflect weighted average shares outstanding of 26,121,673 common shares compared to 29,999,998 common shares.
(l) | Statement of Cash Flows |
In accordance with ASC Topic 230, Statement of Cash Flows, cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rates. As a result, amounts related to assets and liabilities reported on the consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheets.
Certain reclassifications have been made to the 2010 consolidated financial statements to conform to the 2011 consolidated financial statement presentation. These reclassifications had no effect on net income or cash flows as previously reported.
(n) | Accounting Pronouncements |
Accounting Standards Update (“ASU”) ASU No. 2010-09 (ASC Topic 855), which amends Subsequent Events Recognition and Disclosures, ASU No. 2009-16 (ASC Topic 860), which amends Accounting for Transfer of Financial Assets, ASU No. 2009-05 (ASC Topic 820), which amends Fair Value Measurements and Disclosures - Overall, ASU No. 2009-08, Earnings per Share, ASU No. 2009-12(ASC Topic 820), Investments in Certain Entities That Calculate Net Asset Value per Share, and various other ASU’s No. 2009-2 through ASU No. 2010-192011-01 which contain technical corrections to existing guidance or affect guidance to specialized industries or entities were recently
CHINA BILINGUAL TECHNOLOGY & EDUCATION GROUP INC. AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010 AND 2009 (UNAUDITED)
NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
issued. These updates have no current applicability to the Company, or their effect on the financial statements would not have been significant.
ASU No. 2011-02 through 2011-07 which contain technical corrections to existing guidance or affect guidance to specialized industries or entities were recently issued. These updates have no current applicability to the Company or their effect on the financial statements would not have been significant, except for ASU 2011-05 (ACS Topic 220 Comprehensive Income) which will affect the presentation of Comprehensive Income and is effective for periods after December 15, 2011 and early adoption is allowed.
In April 2010, the FASB issued Accounting Standard Update, 2010-17, Revenue Recognition-Milestone Method (Topic 605): “Milestone Method of Revenue Recognition-a consensus of the FASB Emerging Issues Task Force.” This is an update regarding the milestone method of revenue recognition. The scope of this update is limited to arrangements that include milestones relating to research or development deliverables. The update specifies criteria that must be met for a vendor to recognize consideration that is contingent upon achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. The criteria apply to milestones in arrangements within the scope of this update regardless of whether the arrangement is determined to have single or multiple deliverables or units of accounting. ;TheThe update will be effective for fiscal years, and interim periods within
those years, beginning on or after September 15, 2010. Early application is permitted. Companies can apply this guidance prospectively to milestones achieved after adoption. However, retrospective application to all prior periods is also permitted. This update is not expected to have a material impact on the Company’s financial statements.
China Bilingual Technology & Education Group Inc. and Subsidiaries |
Notes to Condensed Consolidated Financial Statements
June 30, 2011 and 2010 (Unaudited)
In March 2010, the FASB issued Accounting Standard Update, 2010-13, Compensation-Stock Compensation (Topic 718): “Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades-a consensus of the FASB Emerging Issues Task Force.” This is an update regarding the effect of denominating the exercise price of a share-based payment awardsaward in the currency of the market in which the underlying equity security trades and that currency is different from (1) entity’s functional currency, (2) functional currency of the foreign operation for which the employee provides services, and (3) payroll currency of the employee. The update clarifies that an employee share-based payment award with an exercise price denominated in the currency of a market i nin which a substantial portion of the entity’s equity securities trades should be considered an equity award assuming all other criteria for equity classification are met. The update will be effective for interim and annual periods beginning on or after December 15, 2010, will be applied prospectively. Affected entities will be required to record a cumulative catch-up adjustment for all awards outstanding as of the beginning of the annual period in which the guidance is adopted. This update is not expected to have a material impact on the Company’s financial statements.
NOTE 5– INVENTORYstatements
Inventories consisted of the following:
| | September 30, 2010 (Unaudited) | | | December 31, 2009 | |
Course materials | | $ | 174,049 | | | $ | 88,822 | |
Low consumable tools | | | 36,887 | | | | 16,716 | |
Total inventory | | $ | 210,936 | | | $ | 105,538 | |
A valuation allowance was not considered necessary because inventory wasare stated at the lower of cost, determined on a weighted average basis, or net realizable value at September 30, 2010.value. Net realizable value is based onthe estimated selling prices less any further costs expected to be incurredprice in the ordinary course of business. The Company’s inventories are typically school supplies used in the normal course of business. When inventories are consumed, their carrying amounts are expensed in the year used. Write-downs for completion and disposal. No amount was written off duringdeclines in net realizable value or for losses of inventories are recognized as an expense in the three and nine months ended September 30, 2010 and 2009.
year of impairment or loss occurs. Inventories consisted of the following:
| | June 30, 2011 | | | December 31, 2010 | |
| | | 79,972 | | | | | |
| | | 19,254 | | | | | |
| | | 99,226 | | | | | |
| | | (19,758 | | | | | |
| | | 79,468 | | | | | |
* The provision is an inventory allowance for aged inventory items
CHINA BILINGUAL TECHNOLOGY & EDUCATION GROUP INC. AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010 AND 2009 (UNAUDITED)
NOTE 6 –5 - PREPAYMENT AND OTHER CURRENT ASSETS
Prepayment and other current assets consisted of the following:
| | September 30, 2010 | | | December 31, 2009 | | |
| | (Unaudited) | | | | | | June 30, 2011 | | December 31, 2010 | |
Advances to suppliers | | $ | 76,107 | | | $ | 20,475 | | | | | | | | |
Other prepaid | | | 557,775 | | | | 239,834 | | | | | | |
Deposit | | | 2,836,625 | | | | - | | |
| | | | | | | | |
Total | | $ | 3,470,507 | | | $ | 260,309 | | | | | | | | |
Other prepaid is primarily staff advances, travel, and the other related expenses to be charged to expenses as incurred. The deposit balance as of September 30, 2010 is a good-faith, refundable deposit paid to begin preliminary negations toward the potential acquisition of a school.
NOTE 7 –DUE FROM/TO RELATED PARTIES
(a) | Due From Related Parties |
| | | September 30, 2010 | | | December 31, 2009 | |
| | | (Unaudited) | | | | |
Pan Mingxiao | (ii) | | | - | | | $ | 558,736 | |
Ren Zhiqing | (i) | | | 1,164,080 | | | | - | |
Beijing Taiji Investment Co., Ltd. | (iii) | | $ | 2,555,301 | | | | 2,456,170 | |
Total due from related parties | | | $ | 3,719,381 | | | $ | 3,014,906 | |
(b) | Due To Related Parties |
| | | September 30, 2010 | | | December 31, 2009 | |
| | | (Unaudited) | | | | |
Ren Zhiqing | (i) | | $ | - | | | $ | 1,189,429 | |
Pan Mingxiao | (ii) | | | 16,575 | | | | - | |
Total due to related parties | | | $ | 16,575 | | | $ | 1,189,429 | |
| (i) | Ren Zhiqing is the president and a director of the Company, as well as the ultimate controlling shareholder of the Company. The amount due from Ren Zhiqing as of Septemer 30, 2010 represents a loan from the Shanxi School, which was unsecured, interest-free and payable upon demand that was granted to Mr. Ren in March, 2010. The Company repaid a loan from Mr. Ren in January, 2010. The amount due to Ren Zhiqing as of December 31, 2009 represented a loan to the Shanxi School, which was unsecured, interest-free and payable upon demand. |
CHINA BILINGUAL TECHNOLOGY & EDUCATION GROUP INC. AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010 AND 2009 (UNAUDITED)
| (ii) | Pan Mingxiao is an officer and director of the Company. The amount due from Pan Mingxiao as of December 31, 2009 represented a loan from the Sichuan School, which was unsecured, interest-free and payable upon demand, which was paid in March, 2010. The amount due to Pan Mingxiao as of September 30, 2010 represents a loan to the Sichuan School, which is unsecured, interest-free and payable upon demand. |
(iii) | Beijing Taiji Investment Co., Ltd., (“Beijing Taiji”) is a company wholly-owned by Ren Zhiqing. The amount |
NOTE 7 –Other receivable as of June 30, 2011, included the loan amount of $1,268,662 to the new acquisition school as an advance for their operations, which will be repaid to the Company on or before September 30, 2011.DUE FROM/TO RELATED PARTIES (CONTINUED)
| due from Beijing Taiji as of September 30, 2010 represents a loan from the Company in 2006, which is interest-free and payable upon demand. The loan is secured by real estate properties owned by Mr. Ren. |
NOTE 8–6 - LAND USE RIGHTS, NET
Land use rights, net consisted of the following:
| | June 30, 2011 | | | December 31, 2010 | |
| | | | | | | | |
Less: Accumulated amortization | | | | | | | | |
| | | | | | | | |
China Bilingual Technology & Education Group Inc. and Subsidiaries |
Notes to Condensed Consolidated Financial Statements
June 30, 2011 and 2010 (Unaudited)
| | September 30, 2010 | | | December 31, 2009 | |
| | (Unaudited) | | | | |
| | | | | | |
Cost of land use rights | | $ | 5,971,294 | | | $ | 5,875,770 | |
Less: Accumulated amortization | | | (679,019 | ) | | | (579,109 | ) |
Land use rights, net | | $ | 5,292,275 | | | $ | 5,296,661 | |
Amortization expense for the nine and threesix months ended on SeptemberJune 30, 2011 and 2010 was $76,479 and 2009, were $110,836, $109,663, $37,072 and $36,614,$73,463 respectively.
Amortization expense for the next five years and thereafter is as follows:
2010 | | $ | 36,614 | | |
2011 | | | 146,456 | | | | | |
2012 | | | 146,456 | | | | |
2013 | | | 146,456 | | | | |
2014 | | | 146,456 | | | | |
| | | | |
Thereafter | | | 4,669,837 | | | | | |
Total | | $ | 5,292,275 | | | | | |
CHINA BILINGUAL TECHNOLOGY & EDUCATION GROUP INC. AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010 AND 2009 (UNAUDITED)
NOTE 97 - PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following:
| | | | | | |
| | | | | | | | |
| | | | | | | | |
Furniture & education equipment | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Less : Accumulated depreciation | | | | | | | | |
| | | | | | | | |
Property and equipment, net | | | | | | | | |
For the six months ended June 30, 2011 and 2010, depreciation and amortization expenses were $550,109 and $540,918, respectively.
Property and equipment is located at the Company’s two school locations in Shanxi and Sichuan Provinces in the PRC and is recorded at cost less accumulated depreciation. Depreciation and amortization are calculated using the straight-line method over the expected useful life of the asset, after the asset is placed in service. Major repairs and betterments that significantly extend original useful lives or improve productivity are capitalized and depreciated over the period benefited. Maintenance and repairs are generally expensed as incurred. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations.
The estimated useful lives for each major category of fixed assets are as follows:
Description | Useful Lives |
| |
| |
| |
Furniture, Education Equipment, Computers | |
| | September 30, 2010 | | | December 31, 2009 | |
| | (Unaudited) | | | | |
At cost: | | | | | | |
Buildings | | $ | 31,423,644 | | | $ | 30,798,131 | |
Transportation equipment | | | 954,668 | | | | 830,885 | |
Furniture & education equipment | | | 3,431,022 | | | | 3,388,716 | |
Kitchen equipment | | | 482,966 | | | | 473,352 | |
Computer and software | | | 225,745 | | | | 218,357 | |
Total cost | | | 36,518,045 | | | | 35,709,441 | |
| | | | | | | | |
Less : Accumulated depreciation | | | (7,848,271 | ) | | | (6,930,318 | ) |
| | | | | | | | |
Property and equipment, net | | $ | 28,669,774 | | | $ | 28,779,123 | |
China Bilingual Technology & Education Group Inc. and Subsidiaries |
Notes to Condensed Consolidated Financial Statements
June 30, 2011 and 2010 (Unaudited)
NOTE 8 - DEPOSIT PAID FOR LONG-TERM ASSETS
The deposit balance paid for long term assets as of June 30, 2011 is a good-faith, refundable deposit of $10,211,186 paid toward the potential acquisition of a school. The deposit balance for the potential acquisition at December 31, 2010 was $8,782,894.
NOTE 9 - PROPERTY AND EQUIPMENT, NET (CONTINUED)
For the nine and three months ended September 30, 2010 and 2009, depreciation and amortization expenses were $815,287 and $819,355, and $273,567 and $270,631, respectively.
NOTE 10 - OTHER PAYABLE
Other payables included traveling and the related expenses incurred by employees on behalf of the company.Company. These amounts are unsecured, non-interest bearing and generally are short term in nature.
NOTE 11 –10 - HOME PURCHASE DOWN PAYMENT
According to the School’sCompany’s Employee Welfare Policy, the SchoolCompany may sign a home purchase agreement with teachers which would allow teachers to purchase home property at a discounted market rate. Pursuant to the home purchase agreement between the SchoolCompany and teachers, teachers were given the right to purchase a home property upon their 8th8th year of service. There were two payment options:
(1) one-time full payment of the home purchase price based on the signed agreement; or (2) RMB 20,000 down payment with remaining balance to be paid in 8 equal annual installments until their 8th8th year of service. Those teachers who selected option (2) would be charged an interest of 7% if they do not make payment on time during the 8 year period. If teachers resign or leave the school for any reasons, they will be entitled to a refund based on the terms of the home purchase agreement. There were minimal refunds for the three and ninesix months ended SeptemberJune 30, 20102011 and 2009.2010. For accounting purposes, cash received from teachers through payment options (1) and (2) and late interest payments are recorded as depositdeposits at the time the School receives.of receipt. The School r ecognizesCompany recognizes profit when the sale is consummated.
The SchoolCompany records the home purchase transactions in accordance to the deposit method pursuant to FASB ASC Topic 360-20, Real Estate Sales. Under the deposit method, the seller does not recognize any profit, does not record notes receivable, and continues to report in its financial statements the property which has been assumed by the buyer. Cash received from the buyer, including the initial investment and subsequent collections of principal and interest, is reported as a deposit. Interest collected that is subject to refund and is included in the deposit account before a sale is consummated is accounted for as part of buyer’s initial investment at the time the sale is consummated. There were no apartmentshomes sold for the three and ninesix months ended SeptemberJune 30, 2011 and 2010, and 20 09, andas such the SchoolCompany recognized no income from selling apartments.homes. As of SeptemberJune 30, 20102011 and December 31, 2009,2010, home deposits were $534,141$861,594 and $504,216,$823,095, respectively.
Since 2006, the School decided not to continue with the home purchase benefit and will not enter into any new home purchase agreements. Any teachers living in the School’s apartments without any signed home purchase agreement are required to pay monthly rent and monthly rent is directly deducted from teacher’s payroll. Such payroll deductions are recorded as rental income for the period it pays. During the nine and three months ended September 30, 2010 and 2009, the School recognized rental income of $25,286 and $21,227, and $8,507 and $7,197, respectively.
CHINA BILINGUAL TECHNOLOGY & EDUCATION GROUP INC. AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010 AND 2009 (UNAUDITED)
NOTE 12 –11 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following:
| | September 30, 2010 | | | December 31, 2009 | | |
| | (Unaudited) | | | | | |
| | | | | | | | June 30, 2011 | | December 31, 2010 | |
Accrued payroll | | $ | 442,863 | | | $ | 458,134 | | | | | | | | |
Individual taxes withholding | | | 4,345 | | | | 4,827 | | | | | | |
Others | | | 130,576 | | | | 270,579 | | | | | | | | |
Total | | $ | 577,784 | | | $ | 733,540 | | | | | | | | |
Others accrued expenses primarily included transportation expenses, utility fees, property management fees, and other miscellaneous accrued expenses.
NOTE 13 –12 - REFUNDABLE DEPOSITS
Students living on campus are required to pay a deposit of approximately RMB 60,000 at their initial admissions or before the start of the school year in September. If a student has any damages to the school housing, the repair and maintenance expense will be deducted directly from his or her student deposit. Any remaining balance in student deposits is fully refunded upon graduation or if students leave the school for any reasons. For the three and ninesix months ended SeptemberJune 30, 20102011 and 2009,2010, there were minimal damages to the school housing and no student deposit was deducted to pay for the repair and maintenance expense. As of SeptemberJune 30, 20102011 and December 31, 2009,2010, refundable deposits were $1,687,536$1,054,507 and $2,162,729,$1,107,533, respectively.
China Bilingual Technology & Education Group Inc. and Subsidiaries |
Notes to Condensed Consolidated Financial Statements
June 30, 2011 and 2010 (Unaudited)
NOTE 13 - STOCK BASED COMPENSATION
On September 15, 2010, the Company entered into a consulting agreement with its new Chief Financial Officer. The agreement is for a twelve month term. Under the terms of the agreement, the Chief Financial Officer is to be compensated $6,000 per month cash compensation and $6,000 per month stock compensation in restricted common shares to be awarded beginning January 1, 2011 on a quarterly basis.
Based on the fair market value at June 30, 2011 the stock award was for $18,000; the closing quoted stock price was $2.25 per share, therefore 8,000 shares will be awarded for the quarter ended June 30, 2011 on July 1, 2011 and $18,000 was booked as an accrued expense in the three month period ended June 30, 2011. To date the Company has issued 10,356 total shares to the Chief Financial Officer, which include the stock award of $18,000 or 4,800 shares at the December 31, 2010 fair market value of $3.75 per share and the stock award of $18,000 or 5,556 shares at the March 31, 2011 fair market value of $3.24 per share. The Company issued 10,356 shares to its Chief Financial Officer on April 18, 2011.
In January 2011, the Company entered consulting agreements with its three independent directors. The agreements are for a twelve month term. Under the terms of the agreements, each director is to be compensated $9,000 annually in cash compensation and $9,000 annually in stock compensation in restricted common shares to be awarded semi-annually.
Based on the fair market value at June 30, 2011 the stock awards for each director was $2,250; closing quoted stock price was $2.25 per share, therefore 1,000 shares will be awarded for the quarter ended June 30, 2011 on July 1, 2011 and $2,250 was booked as an accrued expense for each of the three directors in the three month period ended June 30, 2011. To date the Company has issued 1,389 shares to each of the three independent directors, which include the stock award $2,250 or 695 shares at the March 31, 2011 fair market value of $3.24 per share and the stock award of $1,562 or 694 shares at the June 30, 2011 fair market value of $2.25 per share. The directors will be issued an additional 306 shares for this period accounting for the total $2,250 at $2.25 per share due for the second quarter. The company issued 4,167 shares to its three independent directors on April 18, 2011.
On October 1, 2010, the Company entered into a consulting agreement with its financial controller. The agreement is for a twelve-month term. Under the terms of the agreement, the financial controller is to be compensated for 20,000 shares annually in restricted common shares to be awarded beginning on January 1, 2011 on a quarterly basis. The Company did not previously account for this stock award. Pursuant to the agreement, 15,000 shares will be awarded by the time of this report. Based on the closing quoted stock price of $2.25 per share at June 30, 2011, the 15,000 shares were valued at $33,750. No shares have been issued to date and $33,750 has been accrued as stock based compensation.
The above-mentioned securities were not registered under the Securities Act of 1933. The issuance of these shares was exempt from registration, in part pursuant to Regulation S and Regulation D under the Securities Act of 1933 and in part pursuant to Section 4(2) of the Securities Act of 1933.
NOTE 14 – TAXES
Enterprise Income Tax (“EIT”)
On March 16, 2007, the National People’s Congress of China approved the Enterprise Income Tax Law of the People’s Republic of China (the “new EIT law”), which went into effective on January 1, 2008. In accordance with the relevant tax laws and regulations of the PRC, the applicable enterprise income tax rate for the Company is 25%.
Shanxi Taiji and Taiyuan Taiji are taxed pursuant to the New EIT Law with a unified enterprise income tax rate of 25%. Shanxi Taiji and Taiyuan Taiyuan Taiji did not pay any income taxes for the three and ninesix months ended SeptemberJune 30, 20102011 due to these net losses experienced in the past reporting periods. The two entities may apply the past periods’ net operating losses to futures years’ profits in order to reduce tax liability. Since Shanxi Taiji and Taiyuan Taiji have minimal business operations, the two entities are unlikely to have profits in future periods.
The subsidiaries of Shanxi Taiji, which were registered as private schools (the “school-subsidiaries”), are not subject to income taxes determined in accordance with The Law for Promoting Private Education (2003) and those school-subsidiaries registered as private schools not requiring reasonable returns (similar to a not-for-profit entity) are treated as public schools and are generally not subject to enterprise income taxes. Therefore, the school-subsidiaries are tax exempt. As a result, all deferred tax assets and liabilities are diminimus,de-minimus, and management would have a 100% valuation allowance for all deferred tax assets.
CHINA BILINGUAL TECHNOLOGYChina Bilingual Technology & EDUCATION GROUP INC. AND SUBSIDIARIES Education Group Inc. and Subsidiaries |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSNotes to Condensed Consolidated Financial Statements
SEPTEMBERJune 30, 2011 and 2010 AND 2009 (UNAUDITED)
(Unaudited)
NOTE 14 – TAXES (CONTINUED)
Kahibah Limited is tax exempt from income tax on all sources of income pursuant to the tax law in the British Virgin Islands. However, pursuant and subsequent to the reverse merger, the parent company in U.S. will pay tax in future years.
Effective January 1, 2007, the Company adopted ASC 740-10, Accounting for Uncertainty in Income Taxes (formerly “FIN 48”, an interpretation of FASB statement No. 109), Accounting for Income Taxes. The interpretation addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements.
Under ASC 740-10, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. ASC 740-10 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. As of SeptemberJune 30, 20102011 and December 31, 2009,2010, the Company does not have a liability for unrecognized tax benefits.
The Company’s estimatedoperating subsidiaries are tax exempt, since primary and secondary education is not subject to income tax savings for the nine and three months ended September 30, 2010 and 2009 are summarized as follows:
| | For The Nine Months Ended September 30, | | | For The Three Months Ended September 30, | |
| | 2010 (Unaudited) | | | 2009 (Unaudited) | | | 2010 (Unaudited) | | | 2009 (Unaudited) | |
Tax savings | | $ | 2,473,422 | | | $ | 1,857,834 | | | $ | 986,623 | | | $ | 760,579 | |
Benefit per share Basic: | | $ | 0.08 | | | $ | 0.06 | | | $ | 0.03 | | | $ | 0.03 | |
Had the Company’s tax exemption not been in the place for three and nine months ended September 30, 2010,PRC. As such, the Company estimates the following pro-forma financial statement impact:
| | For The Nine Months Ended September 30, | | | For The Three Months Ended September 30, | |
| | 2010 (Unaudited) | | | 2009 (Unaudited) | | | 2010 (Unaudited) | | | 2009 (Unaudited) | |
Net income before tax provision, as reported | | $ | 9,893,688 | | | $ | 7,431,336 | | | $ | 3,946,493 | | | $ | 3,042,316 | |
Less tax provision exempted | | | (2,473,422 | ) | | | (1,857,834 | ) | | | (986,623 | ) | | | (760,579 | ) |
Pro-forma net income | | $7,420,266 | | | $5,573,502 | | | $2,959,870 | | | $ | 2,281,737 | |
Pro-forma net income per share: | | | | | | | | | | | | | | | | |
Pro-forma Basic earnings per share | | $ | 0.25 | | | $ | 0.19 | | | $ | 0.10 | | | $ | 0.08 | |
Pro-forma Diluted earnings per share | | $ | 0.25 | | | $ | 0.19 | | | $ | 0.10 | | | $ | 0.08 | |
and its subsidiaries have no deferred tax asset or liability.
CHINA BILINGUAL TECHNOLOGY & EDUCATION GROUP INC. AND SUBSIDIARIES
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010 AND 2009 (UNAUDITED)
NOTE 15 –SEGMENT INFORMATION
| | | For The Six Months Ended June 30, 2011 | | | | For The Six Months Ended June 30, 2010 | |
| | | Tuition fee | | | | Room & Board | | | | Total | | | | Tuition fee | | | | Room & Board | | | | Total | |
| | $ | 8,681,294 | | | $ | 3,720,554 | | | | 12,401,848 | | | $ | 8,368,146 | | | $ | 3,586,348 | | | | 11,954,494 | |
| | | 4,348,445 | | | | 1,863,620 | | | | 6,212,065 | | | | 4,176,879 | | | | 1,790,091 | | | | 5,966,970 | |
| | | 4,332,849 | | | | 1,856,934 | | | | 6,189,783 | | | | 4,191,267 | | | | 1,796,257 | | | | 5,987,524 | |
| | | 121,998 | | | | 52,285 | | | | 174,283 | | | | 49,916 | | | | 21,392 | | | | 71,308 | |
| | $ | 4,210,851 | | | | 1,804,649 | | | | 6,015,500 | | | | 4,141,351 | | | | 1,774,865 | | | | 5,916,216 | |
| | | | | | | | | | | | | | | | | | |
| | $ | 28,126,540 | | | $ | 28,126,539 | | | $ | 56,253,079 | | | $ | 24,613,694 | | | $ | 24,814,673 | | | $ | 49,428,367 | |
| | $ | 8,804,785 | | | $ | 8,804,785 | | | $ | 17,609,570 | | | $ | 18,818,541 | | | $ | 2,796,603 | | | $ | 21,615,144 | |
The Company operates in two business segment,segments, educational and room and board services. The Company also generates rental income; however, rental income ofAccording to experience, the Company was insignificant for nine and three months ended September 30, 2010 and 2009, which do not exceed the 10% quantitative threshold.
| | For The Nine Months Ended September 30, 2010 | | | For The Nine Months Ended September 30, 2009 | |
| | (Unaudited) | | | (Unaudited) | |
| | Tuition fee | | | Room & Board and Other Rev | | | Total | | | Tuition fee | | | Room & Board and Other Rev | | | Total | |
| | | | | | | | | | | | | | | | | | |
Revenue | | $ | 13,240,999 | | | $ | 5,064,549 | | | $ | 18,305,548 | | | $ | 10,801,362 | | | $ | 4,481,930 | | | $ | 15,283,292 | |
Costs of goods | | | 3,409,363 | | | | 3,162,630 | | | | 6,571,993 | | | | 3,511,764 | | | | 3,200,645 | | | | 6,712,409 | |
Gross profit | | | 9,831,636 | | | | 1,901,919 | | | | 11,733,555 | | | | 7,289,598 | | | | 1,281,285 | | | | 8,570,883 | |
Operating expenses | | | 1,395,086 | | | | 533,607 | | | | 1,928,693 | | | | 789,516 | | | | 327,603 | | | | 1,117,119 | |
Operating profit | | $ | 8,436,550 | | | $ | 1,368,312 | | | $ | 9,804,862 | | | $ | 6,500,082 | | | $ | 953,682 | | | $ | 7,453,764 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Segment assets | | $ | 27,637,500 | | | $ | 27,839,441 | | | $ | 55,476,941 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Segment liabilities | | $ | 20,664,153 | | | $ | 2,653,910 | | | $ | 23,318,063 | | | | | | | | | | | | | |
Tuitiontuition fee represented approximately 72.3% and 70.7%70%, and room and board and other fee represented approximately 27.7% and 29.3%30% of our total revenues in the ninesix months ended SeptemberJune 30, 2011 and 2010, and 2009, respectively.
CHINA BILINGUAL TECHNOLOGYChina Bilingual Technology & EDUCATION GROUP INC. AND SUBSIDIARIES Education Group Inc. and Subsidiaries |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSNotes to Condensed Consolidated Financial Statements
SEPTEMBERJune 30, 2011 and 2010 AND 2009 (UNAUDITED)
(Unaudited)
NOTE 15 –SEGMENT INFORMATION (CONTINUED)
| | For The Three Months Ended September 30, 2010 | | | | For The Three Months Ended September 30, 2009(Unaudited) | | | For The Three Months Ended June 30, 2011 | | For The Three Months Ended June 30, 2010 | |
| | Tuition fee | | | Room & Board and other fee | | | Total | | | | Tuition fee | | | Room & Board and other fee | | | Total | | | Tuition fee | | Room & Board | | Total | | Tuition fee | | Room & Board | | Total | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Revenue | | $ | 4,625,534 | | | $ | 1,677,406 | | | $ | 6,302,940 | | | | $ | 3,803,337 | | | $ | 1,698,847 | | | $ | 5,502,184 | | | $ | 4,398,772 | | $ | 1,885,188 | | | 6,283,960 | | $ | 4,195,712 | | $ | 1,798,163 | | | 5,993,875 | |
Costs of goods | | | 964,576 | | | | 909,869 | | | | 1,874,445 | | | | | 1,017,490 | | | | 1,044,652 | | | | 2,062,142 | | |
| | | | 2,110,281 | | | 904,407 | | | 3,014,688 | | | 2,362,904 | | | 1,012,673 | | | 3,375,577 | |
Gross profit | | | 3,660,958 | | | | 767,537 | | | | 4,428,495 | | | | | 2,785,847 | | | | 654,195 | | | | 3,440,042 | | | | 2,288,491 | | | 980,781 | | | 3,269,272 | | | 1,832,808 | | | 785,490 | | | 2,618,298 | |
Operating expenses | | | 373,581 | | | | 135,475 | | | | 509,056 | | | | | 262,298 | | | | 117,162 | | | | 379,460 | | | | 46,163 | | | 19,784 | | | 65,947 | | | 37,784 | | | 16,193 | | | 53,977 | |
Operating profit | | $ | 3,287,377 | | | $ | 632,062 | | | $ | 3,919,439 | | | | $ | 2,523,549 | | | $ | 537,033 | | | $ | 3,060,582 | | | $ | 2,242,328 | | | 960,997 | | | 3,203,325 | | | 1,795,024 | | | 769,297 | | | 2,564,321 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | $ | 28,126,540 | | $ | 28,126,539 | | $ | 56,253,079 | | $ | 24,613,694 | | $ | 24,814,673 | | $ | 49,428,367 | |
| | | $ | 8,804,785 | | $ | 8,804,785 | | $ | 17,609,570 | | $ | 18,818,541 | | $ | 2,796,603 | | $ | 21,615,144 | |
TuitionThe Company operates in two business segments, educational and room and board services. According to experience, the tuition fee represented approximately 73.4% and 69.1%70%, and room and board and other fee represented approximately 26.6% and 30.9%30% of our total revenues in the three months ended SeptemberJune 30, 2011 and 2010, and 2009, respectively.
NOTE 16–16 – EARNING PER SHARE
FASB ASC Topic 260, Earnings Per Share, requires a reconciliation of the numerator and denominator of the basic earnings per share (EPS) computations.
Basic earnings per share are computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. There were no potentially dilutive securities for the nine and three months or six months ended SeptemberJune 30, 20102011 and 2009.2010.
The following table sets forth the computation of basic and diluted net income per share:
| | For The Nine months Ended September 30, | |
| | 2010 | | | 2009 | |
| | (Unaudited) | | | (Unaudited) | |
Net income | | $ | 9,893,688 | | | $ | 7,431,336 | |
Basic weighted average outstanding shares of common stock | | | 29,999,998 | | | | 29,999,998 | |
Diluted weighted average common stock and stock equivalents | | | 29,999,998 | | | | 29,999,998 | |
Earnings per share: | | | | | | | | |
Basic | | $ | 0.33 | | | $ | 0.25 | |
Diluted | | $ | 0.33 | | | $ | 0.25 | |
| | For The Six Months Ended June 30, | | | For The Three Months Ended June 30, | |
| | 2011 | | | 2010 | | | 2011 | | | 2010 | |
| | $ | 6,029,812 | | | $ | 5,926,154 | | | $ | 3,211,243 | | | $ | 2,569,131 | |
| | | | | | | | | | | | | | | | |
Basic weighted average outstanding shares of common stock | | | 30,005,862 | | | | 26,121,623 | | | | 30,005,862 | | | | 26,121,623 | |
Diluted weighted average common stock and stock equivalents | | | 30,005,862 | | | | 26,121,623 | | | | 30,005,862 | | | | 26,121,623 | |
Earnings per share: (June 30, 2010 Restated) | | | | | | | | | | | | | | | | |
| | $ | 0.20 | | | $ | 0.23 | | | $ | 0.11 | | | $ | 0.10 | |
| | $ | 0.20 | | | $ | 0.23 | | | $ | 0.11 | | | $ | 0.10 | |
The earnings per share for the six month period and three month period ended June 30, 2010, as previously reported, for basic and diluted earnings per share was $0.20 and $0.20 per share and $0.09 and $0.09 per share, respectively. The earnings per share for these periods was recalculated to reflect the recapitalization of the Company at June 30, 2010. The earnings per share for June 30, 2010 has been restated to reflect weighted average shares outstanding of 26,121,673 common shares compared to 29,999,998 common shares.
China Bilingual Technology & Education Group Inc. and Subsidiaries |
Notes to Condensed Consolidated Financial Statements
June 30, 2011 and 2010 (Unaudited)
| | For The Three Months Ended September 30, | |
| | 2010 | | | 2009 | |
| | (Unaudited) | | | (Unaudited) | |
Net income | | $ | 3,946,493 | | | $ | 3,042,316 | |
Basic weighted average outstanding shares of common stock | | | 29,999,998 | | | | 29,999,998 | |
Diluted weighted average common stock and stock equivalents | | | 29,999,998 | | | | 29,999,998 | |
Earnings per share: | | | | | | | | |
Basic | | $ | 0.13 | | | $ | 0.10 | |
Diluted | | $ | 0.13 | | | $ | 0.10 | |
NOTE 17 –- EMPLOYEE RETIREMENT BENEFITS AND POST RETIREMENT BENEFITS
According to the Shanxi and Sichuan Provincial regulations on state pension program, both employees and employers have to contribute toward pensions. The pension contributions range from 2% to 8% that was contributed by individuals (employees) and the Company is required to make contributions to the state retirement plan based on 20% of the employees’ monthly basic salaries. Employees in the PRC are entitled to retirement benefits calculated with reference to their basic salaries on retirement and their length of service in accordance with a government managed benefits plan. The PRC government is responsible for the benefit liability to these retired employees. During the three and ninesix months ended SeptemberJune 30, 20102011 and 2009,2010, the Company contributed $141,317$91,929 and $129,176, and $18,359 and $23,275$90,240 in pension contributions, respe ctively.respectively.
NOTE 18–SUBSEQUENT EVENT
Management has evaluated subsequent events from September 30, 2010through the date these financial statements were issued and has concluded no events need to be reported during this period.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included elsewhere in this document. The following discussionreport.
This report contains forward-looking statements. Thestatements that involve risks and uncertainties. We generally use words or phrases “would be,such as “believe,” “may,” “could,” “will, allow,” “intend,” “expect, to”, “intends to,” “will likely result,“anticipate,” “are expected to,“plan,” “will continue,” “is anticipated,” “estimate,” orand similar expressions are intended to identify forward-looking statements. Such statements, include, among others, thoseincluding statements concerningregarding our expected financial performance,ability to continue to generate new business based on our corporatesales and marketing efforts, referrals and existing relationships, our financing strategy and operational plans. Actual results could differ materia llyability to access the capital markets and other risks discussed in our Risk Factor section included in our Form 10-K for the year ended December 31, 2010, as filed with the Securities and Exchange Commission on March 31, 2011 materially from those projectedexpressed in any forward-looking statements. We cannot assure you that the results or developments expected or anticipated by us will be realized or, even if substantially realized, that those results or developments will result in the expected consequences for us or affect us, our business or our operations in the way we expect. We caution readers not to place undue reliance on these forward-looking statements, which speak only as a result of a number of risks and uncertainties, including, among others: (a) those risks and uncertainties related to general economic conditions in China, including regulatory factors that may affect such economic conditions; (b) whether we are able to manage our planned growth efficiently and operate profitable operations, including whether our management will be able to identify, hire, train, retain, motivate and manage required personnel or that management will be able to successfully manage and exploit existing and potential market opportunities; (c) whether we are able to generate sufficient revenues or obtain financing to sustain and grow our operations; and (d) whether we are able to successfully fulfill our primary requirements for cash which are explained below under “Liquidity and Capital Resources”. Unless otherwise required by applicable law, wetheir dates. We do not undertake, and we specifically disclaim any obligation,intend to update any of the forward-looking statements to reflect occurrences, developments, unanticipated events or any other circumstances after the date of such statement unlessthis document to conform these statements to actual results or to changes in our expectations, except as required by law. For additional information regarding these risks and uncertainties, see “Risk Factors”. Our consolidated financial statements have been prepared in accordance with U.S. GAAP. In addition, our consolidated financial statements and the financial data included in this document reflect the Merger and have been prepared as if our current corporate structure had been in place throughout the relevant periods.
Overview
On June 30, 2010, Designer Export, Inc. (“DESG”), incorporated in the State of Nevada, USA on March 31, 2009, entered into an AgreementHighlights and Plan of Merger (the “Merger Agreement”) with China Bilingual Education Acquisition, Inc., DESG’s wholly-owned subsidiary, Kahibah Limited (“KL”), a British Virgin Islands (“BVI”) corporation and its shareholders. Pursuant to the Merger Agreement, DESG acquired all the issued and outstanding common stock of KL. DESG issued 26,100,076 shares of its common stock, representing 87% of DESG’s issued and outstanding common stock after giving effect to the cancellation of 7,748,343 shares on June 30, 2010, to KL’s shareholders in exchange for 100% of the common stock of KL. After the closing of the transaction contemplated by the Merger Agre ement (the “Merger”), DESG had a total of 29,999,998 shares of common stock issued and outstanding, with KL’s shareholder owning 87% of the total issued and outstanding shares of DESG’s common stock, and the balance held by those who held shares of DESG’s common stock prior to the closing of the exchange. This share exchange transaction resulted in KL’s shareholders obtaining a majority voting interest in DESG. All shares are shown effective of a 2.582781 forward stock split.
As part of the Merger, the Company’s name changed from “Designer Export, Inc.” to “China Bilingual Technology Education Group Inc.” (“China Bilingual”).
The Merger was accounted for as a “reverse merger” since the stockholders of KL own a majority of the outstanding shares of China Bilingual’s common stock immediately following the Merger. Under accounting principles generally accepted in the United States, the Merger is considered to be a capital transaction in substance, rather than a business combination. Thus, the Merger is equivalent to the issuance of stock by KL for the net monetary assets of China Bilingual, accompanied by a recapitalization, and is accounted for as a change in capital structure. Accordingly, the accounting for the Merger was identical to that resulting from a reverse acquisition, except no goodwill was recorded. Under reverse takeover accounting, the post reverse acquisition comparative historical financial statements of the legal acquirer, C hina Bilingual, are those of the accounting acquirer, KL, which is considered to be the accounting acquirer, and thus represent a continuation of the financial statements of KL. Share and per share amounts stated have been retroactively adjusted to reflect the Merger. The accompanying financial statements present the historical financial condition, results of operations and cash flows of the operating company prior to the capitalization.Executive Summary
Pre-exchange Transaction Shares | | | 11,648,265 | * |
Repurchase | | | (7,748,343 | ) |
Issuance for KL Shareholders | | | 26,100,076 | |
Total Post-Exchange Shares | | | 29,999,998 | |
*effecting a 2.582781 forward stock split as of July 14, 2010
History of KL
The accompanying consolidated financial statements include the financial statements of KL and its subsidiaries. KL and its subsidiaries are wholly-owned by China Bilingual and are collectively referred to as the “Company.” The Company owns and operates high quality, K-12 private boarding schools providing bilingual educational services including full-curriculum primary and secondary schools in the PRC through its wholly owned subsidiaries. As of September 30, 2010, there were 29,999,998 shares of the Company’s $0.001 par value common stock issued and outstanding. The shareholders of KL own approximately 87% of the common stock of the Company.
KL was incorporated under the laws of the British Virgin Islands (“BVI”) on December 6, 2005. On June 25, 2009, Mr. Ren Zhiqing and Mr. Pan Mingxiao entered into a Purchase Agreement to acquire KL for $10,285. Since June 25, 2009, KL was 90% and 10% owned by Mr. Ren Zhiqing and Mr. Pan Mingxiao, respectively. For several months prior to the Recapitalization (described below), KL was a “shell company,” as defined by Rule 405 of the Securities Act of 1933, as amended (the “Securities Act”), and its primary business operations involved seeking the acquisition of assets, property, or businesses that would be beneficial to it and its shareholders.
On August 14, 2009, KL established a new company, Taiyuan Taiji Industry Development Co., Ltd. (“Taiyuan Taiji”.) Taiyuan Taiji is a company incorporated in the PRC. KL is the sole shareholder of Taiyuan Taiji under the laws of the PRC. Taiyuan Taiji was organized pursuant to the laws of the PRC, for the purpose of acquiring Shanxi Taiji Industrial Development Co., Ltd. (“Shanxi Taiji”), a company formed on July 25, 1997 pursuant to the laws of the PRC.
On November 25, 2009, Taiyuan Taiji acquired Shanxi Taiji. This transaction was treated as a Recapitalization and Reverse Merger of Shanxi Taiji for financial reporting purposes. The effect of this Recapitalization was rolled back to the inception of Shanxi Taiji for financial reporting purposes. As a result, the historical financial statements of Shanxi Taiji become the historical financial statements of KL. Net equity of KL as of June 25, 2009 was less than 1% threshold, and thus the recapitalization effect was not presented on the consolidated statements of changes in shareholders’ equity for the years ended December 31, 2009.
Prior to November 25, 2009, Mr. Ren Zhiqing owned 90% of Shanxi Taiji, with the remaining balance being held by Mr. Pan Mingxiao. On November 25, 2009, the Company entered into a Share Exchange Agreement with Ms. Ren Bainv, a relative of Mr. Ren Zhiqing, which agreed to sell 5% ownership of Shaxi Taiji to Ms. Ren Bainv for $146,224. Since the Company has not yet received the capital contribution from Ms. Ren Bainv, the Company did not present non-controlling interest on its financial statements as of September 30, 2010 and December 31, 2009.
Description of Business
China Bilingual Technology & Education Group Inc. is an education company that owns and operates high-quality, K-12 private boarding schools in China.the People’s Republic of China (“PRC”). Founded in 1998, the Company currently operates two schools encompassing kindergarten, elementary, middle and high school levels with over 9,000approximately 9,500 students and 1,3001,500 faculty and staff. The Company’s schools are located in Shanxi and Sichuan Provinces and provide students with an innovative and high-quality education with a focus on fluency and cultural skills in both Chinese and English, as well as a strong core curriculum. The schools regularly rank among the top schools in their respective regions for college entrance rates and national college entrance exam scores.scores and college entrance rates. The Company’s schools have earned excellent teaching reputations and are recognized for the succ esssuccess of their students and strong faculty. As Chinathe PRC experiences rapid industrialization and economic growth, the government is focused on education as a means to increase worker productivity and raise the standard of living. Parents in China’sthe PRC’s new middle and upper classes are sending their children to receive private school education to give them an advantage in China’sthe PRC’s increasingly competitive workforce. The Company’s sector in education is not subject to corporate income tax, and the Company anticipates its growth will come from both organic growth through increased enrollment and expansion of its business model and teaching methods into new schools, which may be acquired by the Company.
The Company was incorporated under the laws of the State of Nevada on March 31, 2009 as Designer Export, Inc. On June 30, 2010, the Company completed its plan of merger and changed its name to China Bilingual Technology & Education Group Inc.
Results of Operations
Operation Results forFor the Three Months Ended SeptemberJune 30, 2011 Compared to the Three Months Ended June 30, 2010 and 2009
Revenues
The following table shows the breakdown of revenues by segment during the three months ended SeptemberJune 30, 20102011 and 2009:2010:
| | The Three Months Ended September 30, | | | | | | For the Three Months Ended June 30, | |
| | 2010 | | | 2009 | | | | | | 2011 | | 2010 | |
| | Revenue | | | % | | | Revenue | | | % | | | % Change | | | Revenue | | | % | | Revenue | | | % | |
Tuition | | $ | 4,625,534 | | | | 73.4 | % | | $ | 3,803,337 | | | | 69.1 | % | | | 21.6 | % | | $ | 4,398,772 | | | | 70 | % | | $ | 4,195,712 | | | | 70 | % |
Room & Board and Other Rev. | | | 1,677,406 | | | | 26.6 | % | | | 1,698,847 | | | | 30.9 | % | | | (1.3 | %) | |
| | | | 1,885,188 | | | | 30 | % | | | 1,798,163 | | | | 30 | % |
Total | | $ | 6,302,940 | | | | 100 | % | | $ | 5,502,184 | | | | 100 | % | | | 14.6 | % | | $ | 6,283,960 | | | | 100 | % | | $ | 5,993,875 | | | | 100 | % |
During the three months ended SeptemberJune 30, 2010,2011, we had total revenues of $6,302,940,$6,283,960, an increase of $800,756$290,085 or 14.6% as compared to4.8% from total revenues of $5,502,184 during the three months ended September 30, 2009. The increase was a primarily related to an increase in enrollment of 810 students and tuition during the period. Our average tuition increased approximately $300 or 10% to $3,350 per student from $3,050 per student$5,993,875 for the three months ended SeptemberJune 30, 20102010. Our average tuition however increased $226 or approximately 7% per student between the three month periods ended June 30, 2011 and 2009, respectively. June 30, 2010. Total enrollment between the periods decreased 363 students to 9,363 students at June 30, 2011 from 9,726 students at June 30, 2010. We phased-out 280 students that were part of an experimental program at our Sichuan school. The experimental program was to take local high school seniors or drop-outs (not our previous students) who could not score well on the college entrance exam and enroll them into our school to try to tutor them through the national college entrance exam known as the “GaoKao” exam (equivalent of the US S.A.T. test for college entrance). After experimenting with this program with some success for one year, our administration became concerned that this would pull down our average college entrance exam scores and college entrance rates, so the program was dropped. Our administration remains focused on improving our college entrance exam scores and college entrance rates since this is a key selling point for our schools. We have also raised our academic standards required to advance from middle school to our high school. Our minimum test scores have been raised and we dismissed 110 students during the period that could not advance to the high school level. Because of our strict academic standards we remain the leaders in our respective regions for sending students on to prestigious colleges with a high overall college acceptance rate.
During the three months ended SeptemberJune 30, 20102011 room and 2009 room & board increased $291,459$87,025 or 21.7%4.8% to $1,634,422$1,885,188 from $1,342,963,$1,798,163 for the three months ended June 30, 2010, corresponding to the similar 7% price increase in tuition. Other revenues decreased to $312,900 or 87.9% to $42,984 from $355,884 because of an incentive plan instituted by the Schools to waive cert ain registration fees during the registration period to help the students off-set the tuition increase. The incentive allowed student with high passing marks a reduced registration fee at enrollment for the current school year if paid before September 30, 2010.
Cost of Revenue
During the three months ended SeptemberJune 30, 2010,2011, our cost of revenue was $1,874,445, as compareddecreased $360,889 or 10.7% to cost of revenue of $2,062,142 during$3,014,688 from $3,375,577 for the three months ended September 30, 2009, a decrease of $187,697 or 9.1%.same period last year. The decrease in cost of revenue was primarily the result of a $325,972 decrease in the legal and professional fees included in overhead allocated to cost of $120,000 in teacher’s salary becauserevenue. As a percentage of newly hired teachers with lower salaries replacing older teachers with higher salaries who have left the schools. Also, boarding expensestotal revenues, cost of revenues decreased by $30,000 through tight cost controls.to 48.0% of revenues from 56.3% of revenues.
General and Administrative Expenses
General and administrative expenses, totaled $509,056$65,947 during the three months ended SeptemberJune 30, 20102011 as compared to $379,460$53,977 for the three months ended SeptemberJune 30, 2009.2010. The increase of $129,59611,970, or 34.2%22.2% in general and administrative expense was mainly attributedprimarily due to additional fees paid for going public such as, $20,000 for attorney’s fees, $40,000 for audit fees, and $50,000 for investor relations fees.
Interest Expense
Interest expense decreased from $ 24,473company expenses incurred during the three months ended SeptemberJune 30, 2009 to $0 for2011, including legal and accounting fees and investor relations fees.
Interest expense
We have had no short term or long term debt outstanding and therefore, have no interest expense during the three monthmonths ended SeptemberJune 30, 2011 and 2010. The decreased interest expense resulted from the bank loan of Shanxi Taiji paid-off on Oct 9th, 2009, so the interest for three month ended September 30, 2010 is nil.
Net Income
As a result of the factors described above, we had netNet income attributable to common shareholders in the amount of $3,946,493 for the three months ended SeptemberJune 30, 2011, increased $642,112 or 25.0% to $3,211,243 from $2,569,131 for the three months ended June 30, 2010, as compared with $3,042,316due to the reasons set forth above.
Earnings per share during the three months ended SeptemberJune 30, 2009. The increase of $904,177 or 29.7% in net income was mainly attributed to the increase of the revenue through higher enrollment.
Earnings2011, increased $0.01 per share increased during the three months ended September 30, 2010or 8.8% to $0.13$0.11 per share from $0.10 per share during the three months ended SeptemberJune 30, 2009.2010. Basic and diluted earnings per share are the same since the Company has no outstanding dilutive instruments, including warrants, options or convertible debt.
Comprehensive Income
Our business operates primarily in Chinese Renminbi (“RMB”), but we report our results in U.S. Dollars. The conversion of our accounts from RMB to U.S. Dollars results in translation adjustments. As a result, ofwe had a currency translation adjustment gain of $378,122$542,225 during the three months ended SeptemberJune 30, 2010,2011, as compared to a lossgain of $352,386$116,906 during the three months ended SeptemberJune 30, 2010 due to the 1.3% currency devaluation between the periods, our2010. Our comprehensive income was $4,324,615increased $1,067,431 or 39.7% to $3,753,468 during the three months ended SeptemberJune 30, 2010, an increase of $1,634,685 or 60.7%2011, as compared with $2,689,930$2,686,037 during the three months ended SeptemberJune 30, 2009.2010.
Operation Results ofFor the Nine monthsSix Months Ended SeptemberJune 30, 2011 Compared to the Six Months Ended June 30, 2010 and 2009
Revenues
The following table shows the breakdown of revenues by segment during the ninesix months ended SeptemberJune 30, 20102011 and 2009:
| | The Nine Months Ended September 30, | | | | |
| | 2010 | | | 2009 | | | | |
| | Revenue | | | % | | | Revenue | | | % | | | % Change | |
Tuition | | $ | 13,240,999 | | | | 72.3 | % | | $ | 10,801,362 | | | | 70.7 | % | | | 22.6 | % |
Room & Board and Other Rev. | | | 5,064,549 | | | | 27.7 | % | | | 4,481,930 | | | | 29.3 | % | | | 13.0 | % |
Total | | $ | 18,305,548 | | | | 100 | % | | $ | 15,283,292 | | | | 100 | % | | | 19.8 | % |
2010:
| | | For the Six Months Ended June 30, | |
| | | 2011 | | | | 2010 | |
| | | Revenue | | | | % | | | | Revenue | | | | % | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
During the ninesix months ended SeptemberJune 30, 2010,2011, we had total revenues of $18,305,548,$12,401,848, an increase of $3,022,256$447,354 or 19.8% as compared to compared to3.7% from total revenues of $15,283,292 during$11,954,494 for the ninesix months ended SeptemberJune 30, 2009. The increase was a primarily related to an increase in enrollment of 810 students.2010. Our average tuition alsohowever increased $226 or 7.2% overapproximately 7% per student between the six months periods ended June 30, 2011 and June 30, 2010. Total enrollment between the periods decreased 363 students to $3,352 per student9,363 students at June 30, 2011 from $3,126 per student9,726 students at June 30, 2010. We phased-out 280 students that were part of an experimental program at our Sichuan school. The experimental program was to take local high school seniors or drop-outs (not our previous students) who could not score well on the college entrance exam and enroll them into our school to try to tutor them through the national college entrance exam known as the “GaoKao” exam (equivalent of the US S.A.T. test for college entrance). After experimenting with this program with some success for one year, our administration became concerned that this would pull down our average college entrance exam scores and college entrance rates, so the program was dropped. Our administration remains focused on improving our college entrance exam scores and college entrance rates since this is a key selling point for our schools. We have also raised our academic standards required to advance from middle school to our high school. Our minimum test scores have been raised and we dismissed 110 students during the period that could not advance to the high school level. Because of our strict academic standards we remain the leaders in our respective regions for sending students on to prestigious colleges with a high overall college acceptance rate.
During the six months ended June 30, 2011 room and board increased $134,209 or 3.7% to $3,720,554 from $3,586,348 for the ninesix months ended SeptemberJune 30, 2010, and 2009, respectively. During the nine months ended September 30, 2010 and 2009 room & board increased $818,403 or 20.0% to $4,907,433 from $4,089,030, corresponding to the similar 7% price increase in tuition. Other revenues decreased to $235,784 or 60.0% to $157,116 from $392,900 primarily due to an incentive plan instituted by the Schools to waive certain registrat ion fees during the registration period to help the students off-set the tuition increase. The incentive allowed student with high passing marks a reduced registration fee at enrollment for the current school year if paid before September 30, 2010. The Schools maintained other fees during the school year and only reduced the registration fees, which had the greatest impact during the three months ended September 30, 2010.
Cost of Revenue
During the ninesix months ended SeptemberJune 30, 2010,2011, our cost of revenue was $6,571,993, as comparedincreased $245,095 or 4.1% to cost of revenue of $6,712,409 during$6,212,065 from $5,966,970 for the nine months ended September 30, 2009, a decrease of $140,416 or 2.1%.same period last year. The decreaseincrease in cost of revenue was primarily the result of increased labor costs for teacher salaries and insurance, as labor rates continue to increase in China. We also upgraded certain programs during this period to include new books and equipment as well as expanded our administration in anticipation of acquiring a decreasenew school facility, which are expensed in the cost of $140,000revenue for the period. All direct costs associated with education, room and board are included in teacher’s salary becausecost of newly hired teachers with lower salaries replacing older teachers with higher salaries who have left the schools.revenue. As a percentage of total revenues, cost of revenues increased to 50.1% of revenues from 49.9% of revenues.
General and Administrative Expenses
General and administrative expenses, totaled $1,928,693$174,283 during the ninesix months ended SeptemberJune 30, 20102011, as compared to $1,117,119$71,308 for the ninesix months ended SeptemberJune 30, 2009.2010. The increase of $ 811,574$102,975, or 72.7%144.4% in general and administrative expense was mainly attributedprimarily due to additional fees paid for going public such as $360,000 for purchasingcompany expenses incurred during the public entity - DESG, $130,000 for attorney’s fees, $160,000 for auditsix months ended June 30, 2011, including legal and accounting fees and $50,000 for investor relations fees. During the six months ended June 30, 2010, we were not a public company.
Interest expense
InterestWe have had no short term or long term debt outstanding and therefore, have no interest expense decreased from $71,681 during the ninesix months ended SeptemberJune 30, 2009 to $0 for the nine month ended September 30,2011 and 2010. The decreased interest expense resulted from the bank loan of Shanxi Taiji paid-off on Oct 9th, 2009, so the interest for nine month ended September 30, 2010 is nil.
Net Income
As a result of the factors described above, we had netNet income attributable to common shareholders in the amount of $9,893,688 for the ninesix months ended SeptemberJune 30, 2010, as compared with $7,431,336 during2011, increased $103,658 or 1.8% to $6,029,812 from $5,926,154 for the ninesix months ended SeptemberJune 30, 2009. The increase in of $2,462,352 or 33% was mainly attributed to the increase of the revenue through higher enrollment.2010.
Earnings per share increased during the ninesix months ended SeptemberJune 30, 20102011 decreased $0.03 per share or 11.1% to $0.33$0.20 per share from $0.25$0.23 per share during the ninesix months ended SeptemberJune 30, 2009.
2010. Basic and diluted earnings per share are the same since the Company has no outstanding dilutive instruments, including warrants, options or convertible debt.
Comprehensive Income
Our business operates primarily in Chinese Renminbi (“RMB”), but we report our results in U.S. Dollars. The conversion of our accounts from RMB to U.S. Dollars results in translation adjustments. As a result, ofwe had a currency translation adjustment gain of $534,477$853,762 during the ninesix months ended SeptemberJune 30, 2010,2011, as compared to a lossgain of $296,892$156,355 during the ninesix months ended SeptemberJune 30, 2010 due to the 3.6% currency devaluation between the periods, our2010. Our comprehensive income was $10,428,165increased $801,065 or 13.2% to $6,883,574 during the ninesix months ended SeptemberJune 30, 2010,2011, as compared with $7,134,444$6,082,509 during the ninesix months ended SeptemberJune 30, 2009.2010.
Liquidity and Capital Resources
Presently, our cash and cash equivalents are $14,114,068.$12,392,138. Our principal source of liquidity comes from prepaid tuition, and room and board from students that attend our schools. AsThe Company has no accounts receivable because tuition is prepaid up-front at the beginning of September 30, 2010, we had negative working capital of $1,803,171, as compared to negative working capital of $15,224,463 as of September 30, 2009.the school year. Based on our current operating plan, we believe that our existing resources, including cash flow generated from operations as well as available bank loans, will be sufficient to meet our working capital requirement for our current operations. In order to fully implement our business plan and continue our growth, however, we will require additional capital either from our shareholders or from outside sources, although there is no assurance that we will be able to obtain additional capital at s uitablesuitable terms if and when it is needed.
We have paid a deposit for the acquisition of a school facility as a good-faith, refundable deposit of $10,211,186 paid toward the potential acquisition of a school as of June 30, 2011.
Cash Flows from Operating Activities
Cash used in operating activities decreased $3,169,896 or 38.0% to $5,174,601 for the six months ended June 30, 2011 compared to $8,344,497 provided by operating activities for the six months ended June 30, 2010. The decrease is primarily because of cash used in the payments toward accounts payable, accrued expenses and refundable deposits.
Cash Flows from Operating Activities
Cash provided by operating activities was $11,171,224 for the nine months ended September 30, 2010 as compared to $9,089,713 provided by operating activities for the nine months ended September 30, 2009. The increase in cash provided by operations is due primarily to the $2,462,352 increase in net income from increased enrollment of 810 students attending our schools, as well as the tuition increase during the none months ended September 30, 2010.
Cash Flows from Investing Activities
Cash used in investing activities was ($834,657)decreased $941,058 or 200.4% to $1,410,728 for the ninesix months ended SeptemberJune 30, 20102011, as compared to $469,670 used in the six months ended June 30, 2010. The decrease in cash used inby investing activities of ($2,338,958) for the ninesix months ended SeptemberJune 30, 2009. The decrease2011 resulted primarily from the $1,197,805 additional payment as part of cash used in investing activities is mainly attributable tothe good-faith, refundable deposit toward the potential acquisition of a decrease in advances to related parties in 2010 versus 2009. A related party borrowed $704,474 during the nine months ended September 30, 2010 compared to cash advanced to related parties of $1,971,136 during the nine months ended September 30, 2009.new school facility.
Cash Flow from Financing Activities
Cash used in financing activities total ($1,172,854)decreased $1,173,073 or 100% to $0 for the ninesix months ended SeptemberJune 30, 20102011 as compared to ($1,961,639) provided for$1,173,073 used in the ninesix months ended SeptemberJune 30, 2009. 2010. This is primarily due to the $1,173,073 repayment of a related party receivable in 2010.
The decrease infollowing is a summary of our cash usedflows provided by (used in) operating, investing, and financing activities resulted primarily from repayments to related parties of $1,173,000 during the nine months ended September 30, 2010.periods indicated:
| | For the Six Months Ended June 30, | |
| | 2011 | | | 2010 | |
| | | | | | |
Cash at beginning of period | | | | | | | | |
Net cash provided by (used in) operating activities | | | | | | | | |
Net cash provided by (used in) investing activities | | | | | | | | |
Net cash provided by (used in) financing activities | | | | | | | | |
Effect of exchange rate changes on cash | | | | | | | | |
| | | | | | | | |
Plan of Operations
As described herein, we anticipate the completion of an acquisition of an additional school facility by the beginning of the 2011 – 2012 school year. We expect to continue to expand our enrollment base utilizing the excess capacity at our existing schools in addition to marketing and expanding enrollment at the proposed school facility to be acquired. Our strategy is to leverage our strong academic reputation to develop additional business. We are also actively seeking opportunities to expand our business that we consider accretive to earnings. We intend to grow our business model through the acquisition of existing schools to increase our total enrollment. To that end, the Company has paid $10,211,186 as a good-faith, refundable deposit to begin preliminary negotiations toward the potential acquisition of a school. In order to fully implement our business plan and continue our growth, however, we will require additional capital either from our shareholders or from outside sources, although there is no assurance that we will be able to obtain additional capital at suitable terms if and when it is needed.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, financings, or other relationships that are currently material or reasonably likely to be material to our financial position or results of operations.
Critical Accounting Policies and Estimates
The discussion and analysis of the Company’s results of operations and liquidity and capital resources are based on the Company’s consolidated financial statements, which have been prepared in accordance with GAAP. In connection with the preparation of consolidated financial statements, the Company is required to make assumptions and estimates about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses, and the related disclosures. The assumptions, estimates and judgments included within these estimates are based on historical experience, current trends and other factors the Company believes to be relevant at the time the consolidated financial statements were prepared. On a regular basis, the accounting policies, assumptions, estimates and judgments are reviewed to ensure that the consolidated financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from the assumptions and estimates, and such differences could be material.
The preparation of consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Significant estimates and assumptions are used for, but are not limited to: (1) asset impairments (2) revenue recognition. Future events and their effects cannot be predicted with certainty, and accordingly, accounting estimates require the exercise of judgment. The accounting estimates used in the preparation of the consolidated financial statements will change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes. The Company evaluates and updates these assumptions and estimates on an ongoing basis and may employ outside experts to assist with these evaluations. Actual results could differ from the estimates that have been used.
Significant accounting policies are discussed in Note 4, Summary of Significant Accounting Policies, to the accompanying consolidated financial statements. The Company believes the following accounting policies are the most critical to aid in fully understanding and evaluating the Company’s reported financial results, as they require management to make difficult, subjective or complex judgments, and to make estimates about the effect of matters that are inherently uncertain.
Impairment analysis for long-lived assets and intangible assets
The Company’s long-lived assets and other assets (consisting of property and equipment and purchased intangible assets) are reviewed for impairment in accordance with the guidance of the FASB Topic ASC 360, “Property, Plant, and Equipment”, and FASB ASC Topic 205 “Presentation of Financial Statements”. The Company tests for impairment losses on long-lived assets used in operations whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Impairment evaluations involve management’s estimates on asset useful lives and future cash flows. Actual useful lives and cash flows could be different from those estimated by management which could have a material effect on our reporting results and financial positions. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. Through June 30, 2011, the Company had not experienced impairment losses on its long-lived assets.
Revenue Recognition
In accordance with the Securities and Exchange Commission’s (“SEC”) Staff Accounting Bulletin (“SAB”) Topic 13, Revenue Recognition, the Company recognizes revenues when it is realized or realizable and earned. The Company records revenues when the following four fundamental criteria under SAB 104 are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the price to the customer is fixed or determinable, and (iv) collection of the resulting receivable is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as prepaid tuition.
Revenues consist primarily of tuition and fees derived from providing meals and housing for students living on campus. Revenues from tuition and fees are recognized pro-rata (on a straight-line basis) over the relevant period attended by the student of the applicable grade or program. The school year runs September 1 through August 31 and prepaid tuition is recognized over the twelve-month period. If a student withdraws from a course or program within three months after the school year starts, the paid but unearned portion of the student’s tuition is 67% refunded. If a student withdraws after the first six months in a school year, no tuition will be refunded. As a result, the Company has recorded prepaid tuition as a current liability on the consolidated balance sheet in the event a student withdraws from school and the Company has to return a portion of the prepaid tuition. In past years there were minimal students who withdrew from a course or program before the end of a school year.
The Company normally receives prepaid tuition and fees from students at their initial admission or before the start of the school year on September 1. Some students will benefit from a discount of fees if they prepay tuition for two to three years of school term. Prepaid tuition is the portion of payments received but not earned and is reflected as a current liability in the accompanying consolidated balance sheets as such amounts are expected to be earned, but may be refundable within the next year.
Management has discussed the development and selection of these critical accounting policies with the Board of Directors and the Board has reviewed the disclosures presented above relating to them.
ITEMItem 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.Quantitative and Qualitative Disclosures About Market Risk.
N/ANot required for smaller reporting companies.
ITEM 4T.Item 4. Controls and Procedures.
EVALUATION OF DISCLOSURE CONTROLS AND
PROCEDURES.PROCEDURES
EvaluationWe maintain "disclosure controls and procedures," as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of Disclosure Controls1934 (the "Exchange Act"), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and Procedures. Underreported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
As of June 30, 2011, we carried out an evaluation, under the supervision and with the participation of our management, including our President,Chief Executive Officer, Ren Zhiqing, and Chief Financial Officer, and Secretary, we evaluatedMichael Toups, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered byprocedures. Based on this report. Based upon that evaluation, our President,Chief Executive Officer and Chief Financial Officer and Secretary concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective suchto ensure that the information required to be disclosed by us in our periodic reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rulesfor each report and forms and (ii)that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
ChangesCHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
No changes in Internal Control Over Financial Reporting. During the most recent quarter ended September 30, 2010, there has been no change in ourCompany's internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) underhave come to management's attention during the Exchange Act) )Company's second fiscal quarter that hashave materially affected, or is reasonablyare likely to materially affect, ourthe Company's internal control over financial reporting.
PART IIII—OTHER INFORMATION
ITEMItem 1. LEGAL PROCEEDINGS.Legal Proceedings.
We are not a party to any pending legal proceeding, nor is our property the subject of a pending legal proceeding, that is not in the ordinary course of business or otherwise material to the financial condition of our business. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.
ITEMItem 1A. RISK FACTORS.Risk Factors.
N/ANot required for smaller reporting companies.
ITEMItem 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.Unregistered Sales of Equity Securities and Use of Proceeds.
None.Recent Sales of Unregistered Securities
On September 15, 2010, the Company entered into a consulting agreement with its new Chief Financial Officer. The agreement is for a twelve month term. Under the terms of the agreement, the Chief Financial Officer is to be compensated $6,000 per month cash compensation and $6,000 per month stock compensation in restricted common shares to be awarded beginning January 1, 2011 on a quarterly basis.
Based on the fair market value at June 30, 2011 the stock award was for $18,000; the closing quoted stock price was $2.25 per share, therefore 8,000 shares will be awarded for the quarter ended June 30, 2011 on July 1, 2011 and $18,000 was booked as an accrued expense in the three month period ended June 30, 2011. To date the Company has issued 10,356 total shares to the Chief Financial Officer, which include the stock award of $18,000 or 4,800 shares at the December 31, 2010 fair market value of $3.75 per share and the stock award of $18,000 or 5,556 shares at the March 31, 2011 fair market value of $3.24 per share. The Company issued 10,356 shares to its Chief Financial Officer on April 18, 2011.
In January 2011, the Company entered consulting agreements with its three independent directors. The agreements are for a twelve month term. Under the terms of the agreements, each director is to be compensated $9,000 annually in cash compensation and $9,000 annually in stock compensation in restricted common shares to be awarded semi-annually.
Based on the fair market value at June 30, 2011 the stock awards for each director was $2,250; closing quoted stock price was $2.25 per share, therefore 1,000 shares will be awarded for the quarter ended June 30, 2011 on July 1, 2011 and $2,250 was booked as an accrued expense for each of the three directors in the three month period ended June 30, 2011. To date the Company has issued 1,389 shares to each of the three independent directors, which include the stock award of $2,250 or 695 shares at the March 31, 2011 fair market value of $3.24 per share and the stock award of $1,562 or 694 shares at the June 30, 2011 fair market value of $2.25 per share. The directors will be issued an additional 306 shares for this period accounting for the total $2,250 at $2.25 due for the second quarter. The company issued 4,167 shares to its three independent directors on April 18, 2011.
On October 1, 2010, the Company entered into a consulting agreement with its financial controller. The agreement is for a twelve-month term. Under the terms of the agreement, the financial controller is to be compensated for 20,000 shares annually in restricted common shares to be awarded beginning on January 1, 2011 on a quarterly basis. The Company did not previously account for this stock award. Pursuant to the agreement, 15,000 shares will be awarded by the time of this report. Based on the closing quoted stock price of $2.25 per share at June 30, 2011 the 15,000 shares were valued at $33,750. No shares have been issued to date and $33,750 has been accrued as stock based compensation.
The above-mentioned securities were not registered under the Securities Act of 1933. The issuance of these shares was exempt from registration, in part pursuant to Regulation S and Regulation D under the Securities Act of 1933 and in part pursuant to Section 4(2) of the Securities Act of 1933.
ITEMItem 3. DEFAULTS UPON SENIOR SECURITIES.Defaults Upon Senior Securities.
NoneNone.
ITEMItem 4. (REMOVED AND RESERVED)Removed and Reserved.
ITEMItem 5. OTHER INFORMATION.Other Information.
NoneNone.
ITEMItem 6. EXHIBITS.Exhibits.
Exhibit Number | | Description of Exhibit |
| | |
31.1 | | Section 302 Certification of Principal Executive Officer |
31.2 | | Section 302 Certification of Principal Financial Officer |
32.1 | | Section 906 Certification of Principal Executive Officer |
| | Section 906 Certification of Principal Financial Officer |
EX-101.INS | | XBRL INSTANCE DOCUMENT |
EX-101.SCH | | XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT |
EX-101.CAL | | XBRL TAXONOMY EXTENSION CALCULATION LINKBASE |
EX-101.DEF | | XBRL TAXONOMY EXTENSION DEFINITION LINKBASE |
EX-101.LAB | | XBRL TAXONOMY EXTENSION LABELS LINKBASE |
EX-101.PRE | | XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | |
| CHINA BILINGUAL TECHNOLOGY & EDUCATION GROUP INC. |
| | |
Date: NovemberAugust 15, 20102011 | By: | /s/ Ren Zhiqing |
| Ren Zhiqing Chairman and Chief Executive Officer (Principal Executive Officer and Principal Financial Officer) |
| | |
Date: NovemberAugust 15, 20102011 | By: | /s/ Michael Toups |
| Michael Toups Chief Financial Officer (Principal Financial and Accounting Officer) |
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