China Education Technology (EVSF) 10-Q 2009 Q3 Quarterly report

U.S. Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-Q

[X]           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2009

[ ]            TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934

                 For the Transition Period From ____to _____

Commission file number   000-52407

CHINA EDUCATION TECHNOLOGY, INC.

 (Name of Small Business Issuer in its Charter)

NEVADA

(State or Other Jurisdiction of Incorporation of Organization)

94-3251254

(I.R.S. Employer Identification No.)

8/F, Tower B, National Software Industry Zone,

Gao Tang Xin Jian Zone, Tian He District

Guangzhou, P.R.China  510663

(Address of principal executive offices)

(8620) 6108-8998 - Tel

(8620) 6108-8999 - Fax

(Issuer's telephone number)

Indicate by check mark whether the registrant (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 [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Date File required to be submitted 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 [ ] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨
Non-accelerated filer	¨(Do not check if a smaller reporting company)
Accelerated filer	¨
Smaller reporting company	þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

Number of shares of common stock outstanding as of November 18, 2009:24,767,798

Number of shares of preferred stock outstanding as of November 18, 2009:     910,000

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION

    The discussion contained in this 10-Q under the Securities Exchange Act of 1934, as amended, contains forward-looking statements that involve risks and uncertainties. The issuer's actual results could differ significantly from those discussed herein. These include statements about our expectations, beliefs, intentions or strategies for the future, which we indicate by words or phrases such as "anticipate," "expect," "intend," "plan," "will," "we believe," "the Company believes," "management believes" and similar language, including those set forth in the discussions under "Notes to Consolidated financial statements" and "Management's Discussion and Analysis or Plan of Operation" as well as those discussed elsewhere in this Form 10-Q. We base our forward-looking statements on information currently available to us, and we assume no obligation to update them. Statements contained in this Form 10-Q that are not historical facts are forward-looking statements that are subject to the "safe harbor" created by the Private Securities Litigation Reform Act of 1995.

TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS	3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	9
ITEM 3. QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK	10
ITEM 4. CONTROLS AND PROCEDURES ITEM 4T. CONTROLS AND PROCEDURES	10 10
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS	11
ITEM 1A. RISK FACTORS	11
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	11
ITEM 3. DEFAULTS UPON SENIOR SECURITIES	11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	11
ITEM 5. OTHER INFORMATION	11
ITEM 6. EXHIBITS	11
SIGNATURES	12

2

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

INDEX TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

	Page
Unaudited Consolidated Balance Sheets	F-4
Unaudited Consolidated Statements of Operations And Comprehensive Loss	F-5
Unaudited Consolidated Statements of Cash Flows	F-6
Notes to Unaudited Consolidated Financial Statements	F-7

3

CHINA EDUCATION TECHNOLOGY INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2009 AND DECEMBER 31, 2008
(UNAUDITED)
	September 30, 2009		December 31, 2008
			(Audited)
ASSETS
Current assets:
Cash and cash equivalents	$	101,958	$	87,254
Trade receivables, net		1,270,924		1,224,879
Inventories		377,450		253,446
Prepayments		649,680		132,978
Other receivables		113,986		-
Refundable deposit		220,823		-
Total current assets		2,734,821		1,698,557
Property, plant and equipment, net		243,070		38,087
Non-current assets:
Warranty receivable		15,617		15,633
Others		37,306		35,502
Total non-current assests		52,923		51,135
Total assets	$	3,030,815	$	1,787,779
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term note payable		732,172		439,734
Trade payables		314,455		106,212
Other payables and accrued expenses		196,222		112,966
Amount due to a director		35,663		35,663
Income tax payable		299,794		210,757
Total current liabilities		1,578,305		905,332
Long-term liabilities:
Warranty and maintenance reserves		19,819		30,203
STOCKHOLDERS’ EQUITY
Preferred stock, $0.0001 par value, 10,000,000 shares authorized,		91		135
910,000 shares issued and outstanding as of June 30, 2009 and 1,350,000 shares issued and outstanding as of December 31, 2008
Common stock, $0.0001 par value, 50,000,000 shares authorized,		2,477		277
24,767,798 shares issued and outstanding as of June 30, 2009 and 2,767,798 shares issued and outstanding as of December 31, 2008
Additional paid in captial		120,634		122,790
Statutory and other reserves		69,565		69,565
Accumulated other comprehensive income		76,095		76,908
Retained earnings		1,163,828		582,568
Total stockholders’ equity		1,432,690		852,243
Total liabilities and stockholders’ equity		3,030,815		1,787,779
See accompanying notes to consolidated financial statements.

4

CHINA EDUCATION TECHNOLOGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)
	For the three months ended						For the nine months ended
	September 30, 2009			September 30, 2008			September 30, 2009			September 30, 2008
Sales	$	194,821		$	695,307		$	1,166,281		$	2,576,508
Cost of goods sold		(33,843	)		(231,858	)		(431,728	)		(1,170,573	)
Gross profit		160,978			463,449			734,553			1,405,935
Operating expenses
General and administrative expenses		68,735			126,551			171,490			236,613
Research and development expenses		-			43,762			46,675			106,193
Selling expenses		8,313			19,545			33,939			55,007
Total operating expenses		77,047			189,858			252,104			397,813
Net operating Income (loss)		83,931			273,591			482,450			1,008,122
Other income
Subsidy income from the PRC authorities for general operations		84,460			68,778			184,769			233,567
Interest income (expenses)		(7,360	)		(8,886	)		(16,890	)		(22,854	)
Other income (expenses)		20			194			34,918			18,632
Total other income		77,119			60,086			202,797			229,345
Income before income taxes		161,050			333,677			685,247			1,237,467
Income taxes		(24,415.8	)		(74,473	)		(103,987	)		(295,552	)
Net Income (loss)	$	136,634		$	259,204		$	581,260		$	941,915
Other comprehensive income (loss)
Foreign currency translation adjustment		360			651			(813	)		39,560
Total comprehensive income (loss)	$	136,994		$	259,855		$	580,447		$	981,475
Earnings (loss) per share
Basic	$	0.01		$	0.10		$	0.05		$	0.37
Diluted		**			**		$	0.01		$	0.01
Weighted average number of shares outstanding
Basic		24,767,798			2,680,388			11,730,761			2,560,790
Diluted		70,267,798			70,180,388			70,267,798			70,060,790
** Less than $.01
See accompanying notes to consolidated financial statements.

5

CHINA EDUCATION TECHNOLOGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)
	For the nine months ended
	September 30, 2009			September 30, 2008
Cash flows from operating activities
Net income (loss)	$	581,260		$	941,915
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation		16,116			25,079
Provision for doubtful debts					23,055
Provision for obsolete inventories					2,424
Changes in operating assets and liabilities:
Trade receivables		(47,247	)		(786,533	)
Inventories		(124,253	)		142,293
Prepayments		(516,833	)		(216,993	)
Other receivables		(113,986	)
Refundable deposits		(220,823	)
Other noncurrent assets		(1,839	)		-
Warranty and maintenance reserves		(10,355	)		-
Trade payables		208,347			(630,528	)
Other payables and accrued expenses		83,364			18,412
Income tax payable		89,243			288,819
Net cash flows used in operating activities		(57,006	)		(192,057	)
Cash flows from investing activities
Payments to acquire property, plant and equipment		(221,136	)		(8,094	)
Net cash flows used in investing activities		(221,136	)		(8,094	)
Cash flows from financing activities
Proceeds from (repayment to) short-term loan		292,869			428,639
Cash acquired from the exchange		-			13,532
(Repayment to) a director		-			(197,355	)
Net cash flows provided by financing activities		292,869			244,816
Effect of foreign currency translation on cash and cash equivalents		(23	)		9,788
Net increase in cash and cash equivalents		14,704			54,453
Cash and cash equivalents - beginning of year		87,254			136,441
Cash and cash equivalents - end of year		101,958		$	190,894
Supplemental disclosure of cash flow information:
Cash paid for:
Interest	$	20,501		$	10,451
Income taxes	$	1,368		$	6,733
See accompanying notes to consolidated financial statements.

6

CHINA EDUCATION TECHNOLOGY INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

(Stated in US Dollars)

1.   BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with both generally accepted accounting principles for interim financial information, and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) that are, in the opinion of management, considered necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year.

The unaudited condensed consolidated financial statements and related disclosures have been prepared with the presumption that users of the interim financial information have read or have access to our annual audited consolidated financial statements for the preceding fiscal year. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto contained in the Annual Report on Form 10-K for the year ended December 31, 2008.

2.   ORGANIZATION BACKGROUND

China Education Technology Inc. (the “Company”) was incorporated in the state of Delaware in 1996. Its shares were traded on the OTC Bulletin Board of the United States of America.

On October 6, 2008, the Company redomiciled from Delaware to Nevada.  Additionally, on October 9, 2008, the Company’s board of directors authorized and approved a reverse stock split (the “Reverse Split”) of the Company’s common stock on the basis of one share for eight shares currently authorized or issued and outstanding. Accordingly, the number of authorized shares of common stock decreased from 400,000,000 shares to 50,000,000 shares and the number of issued and outstanding shares decreased from 22,141,375 shares to 2,767,672 shares. The Reverse Split was effective on October 31, 2008. The Company has retroactively adjusted all the share information to reflect the reverse stock split in the audited condensed consolidated financial statements.

The Company is an investment holding company, whose only asset is 100% equity interest in ADDE Education Hldgs Limited (“ADDE”). ADDE is a corporation organized and existing under the laws of Hong Kong Special Administrative Region of People’s Republic of China (the “PRC”) and is an investment holding company whose only asset is 100% equity interest in Guangzhou Haoyu Educational Technology Company Limited (“Haoyu”).  Haoyu was established in the PRC on March 27, 2001 as a domestic enterprise.

On March 1, 2008, ADDE entered into an agreement with the then sole stockholder of Haoyu to acquire the stockholder’s entire interest in Haoyu (the “Transfer”) at a consideration of Renminbi (“RMB”) 1 million.  Haoyu was wholly owned by the spouse of ADDE’s sole stockholder before the consummation of the Transfer.  The Transfer was subsequently approved by the government bureau in May 2008.  Haoyu re-registered as a wholly foreign owned enterprise and obtained its business license in August 2008.

On March 4, 2008, a Plan of Exchange (the “Exchange”) was executed between and among the Company, ADDE, the majority stockholder of the Company and the stockholder of ADDE.  The Exchange was consummated on July 31, 2008, pursuant to which 2,500,000 (after taking into account the Reverse Split) shares of the Company’s common stock and 1,350,000 shares of the Company’s preferred stock were issued to the stockholder of ADDE.  Thereafter, ADDE and Haoyu became the Company’s wholly-owned subsidiaries and the former stockholder of ADDE owned 93.2% of the Company’s issued and outstanding shares.

The Exchange and the Transfer have been respectively accounted for as reverse acquisition and recapitalization of the Company and ADDE whereby ADDE is deemed to be the accounting acquirer (legal acquiree) and the Company to be the accounting acquiree (legal acquirer) under the Exchange, and Haoyu is deemed to be the accounting acquirer (legal acquiree) and ADDE to be the accounting acquiree (legal acquirer) under the Transfer. The audited condensed consolidated financial statements are in substance those of Haoyu, with the assets and liabilities, and revenues and expenses, of the Company and ADDE being included effective from the respective consummation dates of the Exchange and the Transfer.

The Company and its subsidiaries are hereinafter referred to as (the "Company").

On April 3, 2008, the Company changed its corporate name to China Education Technology Inc. to more accurately reflect its business after the Exchange transaction with ADDE and Hao Yu.

3.   DESCRIPTION OF BUSINESS

The Company’s primary business operations are conducted through Haoyu, which is specialized in the research and development of educational products and technology applications.  Haoyu is located in the Guangzhou Province of the PRC with three manufacture bases for research and development purpose.

The educational software developed by Haoyu is in conformity to the new educational purpose.  The software uses the advanced technology of data collection, sensor and wireless control and video image with handy appearance, which can virtually upload the live experiment and analyze the information collected.  Teachers and students can have the experiments done automatically instead of the traditional method by hand.

Haoyu also engages in the trading of hardware and computer products such as monitors and computer notebooks.

4.   RECENTLY ISSUED ACCOUNTING STANDARS

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and do not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.

FASB Accounting Standards Codification

(Accounting Standards Update (“ASU”) 2009-01)

In June 2009, FASB approved the FASB Accounting Standards Codification (“the Codification”) as the single source of authoritative nongovernmental GAAP. All existing accounting standard documents, such as FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force and other related literature, excluding guidance from the Securities and Exchange Commission (“SEC”), have been superseded by the Codification. All other non-grandfathered, non-SEC accounting literature not included in the Codification has become nonauthoritative. The Codification did not change GAAP, but instead introduced a new structure that combines all authoritative standards into a comprehensive, topically organized online database. The Codification is effective for interim or annual periods ending after September 15, 2009, and impacts the Company’s financial statements as all future references to authoritative accounting literature will be referenced in accordance with the Codification. There have been no changes to the content of the Company’s financial statements or disclosures as a result of implementing the Codification during the quarter ended September 30, 2009.

As a result of the Company’s implementation of the Codification during the quarter ended September 30, 2009, previous references to new accounting standards and literature are no longer applicable. In the current quarter financial statements, the Company will provide reference to both new and old guidance to assist in understanding the impacts of recently adopted accounting literature, particularly for guidance adopted since the beginning of the current fiscal year but prior to the Codification.

Subsequent Events

(Included in Accounting Standards Codification (“ASC”) 855 “Subsequent Events”, previously SFAS No. 165 “Subsequent Events”)

SFAS No. 165 established general standards of accounting for and disclosure of events that occur after the balance sheet date, but before the financial statements are issued or available to be issued (“subsequent events”). An entity is required to disclose the date through which subsequent events have been evaluated and the basis for that date. For public entities, this is the date the financial statements are issued. SFAS No. 165 does not apply to subsequent events or transactions that are within the scope of other GAAP and did not result in significant changes in the subsequent events reported by the Company. SFAS No. 165 became effective for interim or annual periods ending after June 15, 2009 and did not impact the Company’s financial statements. The Company evaluated for subsequent events through the issuance date of the Company’s financial statements. No recognized or non-recognized subsequent events were noted.

Determination of the Useful Life of Intangible Assets

(Included in ASC 350 “Intangibles — Goodwill and Other”, previously FSP SFAS No. 142-3 “Determination of the Useful Lives of Intangible Assets”)

FSP SFAS No. 142-3 amended the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under previously issued goodwill and intangible assets topics. This change was intended to improve the consistency between the useful life of a recognized intangible asset and the period of expected cash flows used to measure the fair value of the asset under topics related to business combinations and other GAAP. The requirement for determining useful lives must be applied prospectively to intangible assets acquired after the effective date and the disclosure requirements must be applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date. FSP SFAS No. 142-3 became effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The adoption of FSP SFAS No. 142-3 did not impact the Company’s financial statements.

Noncontrolling Interests

(Included in ASC 810 “Consolidation”, previously SFAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements an amendment of ARB No. 51”)

SFAS No. 160 changed the accounting and reporting for minority interests such that they will be recharacterized as noncontrolling interests and classified as a component of equity. SFAS No. 160 became effective for fiscal years beginning after December 15, 2008 with early application prohibited. The Company implemented SFAS No. 160 at the start of fiscal 2009 and no longer records an intangible asset when the purchase price of a noncontrolling interest exceeds the book value at the time of buyout. The adoption of SFAS No. 160 did not have any other material impact on the Company’s financial statements.

Consolidation of Variable Interest Entities — Amended

(To be included in ASC 810 “Consolidation”, SFAS No. 167 “Amendments to FASB Interpretation No. 46(R)”)

SFAS No. 167 amends FASB Interpretation No. 46(R) “Consolidation of Variable Interest Entities regarding certain guidance for determining whether an entity is a variable interest entity and modifies the methods allowed for determining the primary beneficiary of a variable interest entity. The amendments include: (1) the elimination of the exemption for qualifying special purpose entities, (2) a new approach for determining who should consolidate a variable-interest entity, and (3) changes to when it is necessary to reassess who should consolidate a variable-interest entity. SFAS No. 167 is effective for the first annual reporting period beginning after November 15, 2009, with earlier adoption prohibited. The Company will adopt SFAS No. 167 in fiscal 2010 and does not anticipate any material impact on the Company’s financial statements.

7

CHINA EDUCATION TECHNOLOGY INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

(Stated in US Dollars)

 5. INVENTORIES

	September 30,		December 31,
		2009		2008
	(Unaudited)		(Audited)
Raw materials	$	3,947	$	13,330
Finished goods		373,503		240,116
		377,450		253,446
Provision for obsolete inventories		-		-
	$	377,450	$	253,446

The Company had no provision for obsolete inventories charged to the statements of operations for the nine months ended September 30, 2009 and for the year ended December 31, 2008.

 6. PREPAYMENTS

The balances of $649,680 and $132,978 as of September 30, 2009 and December 31, 2008, respectively, represent prepaid goods, supplies and other items used in packaging of the products.

7.   REFUNDABLE DEPOSIT

The balance of 220,823 as of September 30, 2009 represents the deposit to an independent party, which acts as a guarantor issuing the guarantee to the Company in connection with a short-term loan from a bank. (see Note 10)

8.   WARRANTY

The Company maintains a policy of providing after sales support for certain products by way of a warranty program. The Company provided 3 years warranties for the software products to certain customers.  Further, the relevant customers are allowed to defer the settlement of certain percentage (normally 5%) of the billed amount for certain period of time (normally three year) after acceptance of the Company’s products under the warranty program.

Since the aforementioned products were well developed, the Company did not encounter any claims from such customers. However, the Company will periodically assess the estimation of its warranty liability and recognize the reserve when necessary based on the actual experience.

As of September 30, 2009 and December 31, 2008, the Company had warranty and maintenance reserves of $19,819 and $30,203, respectively.

9.   INCOME TAXES

The Company is subject to the United States of America Tax law at tax rate of 34%.  It has no assessable profit for both reporting periods.  The Company has not provided deferred taxes on undistributed earnings of its non-U.S. subsidiaries as of September 30, 2009 as it is the Company’s current policy to reinvest these earnings in non-U.S. operations.

ADDE is subject to Hong Kong profits tax.  No provision for Hong Kong profits tax has been made as ADDE had no taxable income for the reporting period.

Commencing from the fiscal year 2008, Haoyu is subject to the PRC Enterprise Income Tax (“EIT”) at the statutory rate of 25% (under the new law as detailed below) on the profits as reported in its PRC statutory financial statements adjusted by profit and loss items that are not taxable or deductible.

PRC’s legislative body, the National People’s Congress, adopted the unified EIT Law on March 16, 2007. This new tax law replaces the existing separate income tax laws for domestic enterprises and foreign-invested enterprises and became effective on January 1, 2008. Under the new tax law, a unified income tax rate is set at 25% for both domestic enterprises and foreign-invested enterprises. However, there will be a transition period for enterprises, whether foreign-invested or domestic, that are currently receiving preferential tax treatments granted by relevant tax authorities. Enterprises that are subject to an enterprise income tax rate lower than 25% may continue to enjoy the lower rate and will transit into the new tax rate over a five year period beginning on the effective date of the EIT Law. Enterprises that are currently entitled to exemptions for a fixed term may continue to enjoy such treatment until the exemption term expires. Preferential tax treatments may continue to be granted to industries and projects that qualify for such preferential treatments under the new law.

Income taxes in the statements of operations and comprehensive income (loss) for the reporting periods represent provision for EIT for the Company’s continuing operations in the PRC.

In July 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”).  This interpretation requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach.  The Company adopted FIN 48 on January 1, 2007.  The management evaluated the Company’s tax positions and considered that no additional provision for uncertainty in income taxes is necessary as of September 30, 2009.

10.   SHORT-TERM NOTE PAYABLE

The short-term note payable was the loan from a bank denominated in RMB and repayable within one year.  It carries annual interest at 6.903%, which is determined by the benchmark rate of 5.31% in the People’s Bank of China (the “PBOC”) for six-month to one-year short-term loans per annum, and the floating rate of 30%.

The bank loan is secured by a guarantee put up by an independent party, as well as a real estate with the market value of approximately $295,000 deposited to the bank as collateral.  The guarantor received $220,823 from the Company for issuing the guarantee. The receivable due from the guarantor was recorded as refundable deposit under current assets as of September 30, 2009.

11.   EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share for the periods indicated:

	For three months ended				For nine months ended
	9/30/2009		9/30/2008		9/30/2009		9/30/2008
Net income (loss)	$	136,634	$	259,204	$	581,260	$	941,915
Earnings (loss) per share
Basic	$	0.01	$	0.10	$	0.05	$	0.37
Diluted		**		**	$	0.01	$	0.01
Weighted average number of shares outstanding
Basic		24,767,798		2,680,388		11,730,761		2,560,790
Diluted		70,267,798		70,180,388		70,267,798		70,060,790

** Less than $.01

The basic and diluted earnings (loss) per share were calculated using the net income (loss) and the weighted average number of shares outstanding during the reporting periods.  All share and per share data have been adjusted to reflect the recapitalization of the Company in the Exchange and the Reverse Split.

9.   SEGMENT INFORMATION

The Company uses the “management approach” in determining reportable operating segments.  The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments.  Management, including the chief operating decision maker, reviews operating results solely by monthly revenue of hardware and software and the overall operating results of the Company.  The revenue of hardware and software for the reporting periods is as follows:

	Hardware				Software				Total
	Three months ended September 30,				Three months ended September 30,				Three months ended September 30,
	2009		2008		2009		2008		2009		2008
Revenue from external customers, net of warranty and maintenance reserves	$	1,571	$	368,032	$	193,250	$	510,515	$	194,821	$	878,547

	Hardware				Software				Total
	Nine months ended September 30,				Nine months ended September 30,				Nine months ended September 30,
	2009		2008		2009		2008		2009		2008
Revenue from external customers, net of warranty and maintenance reserves	$	370,092	$	786,867	$	796,189	$	1,094,334	$	1,166,281	$	1,881,201

All of the Company’s long-lived assets and customers are located in the PRC.

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ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Management’s Discussion and Analysis contains various “forward looking statements” within regarding future events or the future financial performance of the Company that involve risks and uncertainties. Certain statements included in this 10-Q, including, without limitation, statements related to anticipated cash flow sources and uses, and words including but not limited to “anticipates”, “believes”, “plans”, “expects”, “future” and similar statements or expressions, identify forward looking statements. Any forward-looking statements herein are subject to certain risks and uncertainties in the Company’s business, including but not limited to, reliance on key customers and competition in its markets, market demand, product performance, technological developments, maintenance of relationships with key suppliers, difficulties of hiring or retaining key personnel and any changes in current accounting rules, all of which may be beyond the control of the Company. Management will elect additional changes to revenue recognition to comply with the most conservative SEC recognition on a forward going accrual basis as the model is replicated with other similar markets (i.e. SBDC). The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth therein.

Management’s Discussion and Analysis of Results of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the consolidated financial statements included herein.

As used herein the terms "We", the "Company", "CEDT", the "Registrant," or the "Issuer" refers to China Education Technology, Inc., its subsidiaries and predecessors, unless indicated otherwise. We were originally incorporated in Delaware in 1996 as Envirosafe Corporation. On October 6, 2008, our board decided to redomicile from the State of Delaware to the State of Nevada. Their decision was approved by the holders of a majority of the voting rights of our common stock. On April 3, 2009, we changed our name to China Education Technology, Inc. to more accurately reflect our business after the Exchange (as defined below) between ADDE and Haoyu.

We are an investment holding company, whose only asset is a 100% equity interest in ADDE Education Hldgs Limited (“ADDE”). ADDE is a corporation organized and existing under the laws of Hong Kong Special Administrative Region of the People’s Republic of China (the “PRC”) and is an investment holding company whose only asset is a 100% equity interest in Guangzhou Haoyu Educational Technology Company Limited (“Haoyu”).  Haoyu was originally established in the PRC on March 27, 2001 as a domestic enterprise.

On March 1, 2008, ADDE entered into an agreement with the then sole stockholder of Haoyu to acquire the stockholder’s entire interest in Haoyu (the “Transfer”) for consideration of 1,000,000 Renminbi (“RMB”).  Haoyu was wholly owned by the spouse of ADDE’s sole stockholder before the consummation of the Transfer.  The Transfer was subsequently approved by the government bureau in May 2008.  Haoyu re-registered as a wholly foreign owned enterprise and obtained its business license in August 2008.

On March 4, 2008, a Plan of Exchange (the “Exchange”) was executed between and among the Company, ADDE, the majority stockholder of the Company and the majority stockholder of ADDE.  The Exchange was consummated on July 31, 2008, pursuant to which 2,500,000 (after taking into account the Reverse Split) shares of the Company’s common stock and 1,350,000 shares of the Company’s preferred stock were issued to the stockholder of ADDE.  Thereafter, ADDE and Haoyu became the Company’s wholly-owned subsidiaries and the former stockholder of ADDE owned 93.2% of the Company’s issued and outstanding shares.

The Exchange and the Transfer have been respectively accounted for as a reverse acquisition and recapitalization of the Company and ADDE whereby ADDE is deemed to be the accounting acquirer (legal acquiree) and the Company to be the accounting acquiree (legal acquirer) under the Exchange, and Haoyu is deemed to be the accounting acquirer (legal acquiree) and ADDE to be the accounting acquiree (legal acquirer) under the Transfer. The audited condensed consolidated financial statements are in substance those of Haoyu, with the assets and liabilities, and revenues and expenses, of the Company and ADDE being included effective from the respective consummation dates of the Exchange and the Transfer.

Since the reverse merger was consummated, we have continued operation conducted through Haoyu, which is specializes in the research and development of educational products and technology applications.  Haoyu is located in the Guangzhou Province of the PRC with three manufacture bases for research and development purpose.

The educational software developed by Haoyu is in conformity to the new educational purpose.  The software uses advanced technology of data collection, sensor and wireless control and video imaging, which can virtually upload live media and analyze the information collected.  Our software allows teachers and students to conduct experiments automatically instead of the traditional method by hand.

Haoyu also engages in the trading of hardware and computer products such as monitors and computer notebooks.

RESULTS OF OPERATIONS - THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 (UNAUDITED)

Revenues

We had revenues of $194,821 and $695,307 for the three months ended September 30, 2009 and 2008, respectively, due primarily to sales of information collectors, sensors, digital meteorological stations, and digital analyzing software. We did not record any product returns for the three months ended September 30, 2009. The decrease in gross profits by $500,486 in the three months ended September 30, 2009 is due primarily to the decrease in sales of our specialized products.

We had revenues of $1,166,281 and $2,576,508 for the nine months ended September 30, 2009 and 2008, respectively, due primarily to sales of information collectors, sensors, digital meteorological stations, and digital analyzing software. We did not record any product returns for the nine months ended September 30, 2009. The decrease in gross profits by $1,410,227 in 2009 is due primarily to the decrease in sales for our specialized products.

Income / Loss

We had a net gain of $136,634 and $259,204 for the three months ended September 30, 2009 and 2008, respectively. The decrease by $122,570 in net income for the three months ended September 30, 2009 compared to September 30, 2008 is due primarily to the decrease in overall sales of our products.

We had a net gain of $581,260 and $941,915 for the nine months ended September 30, 2009 and 2008, respectively. The decrease by $360,655 in net income for the nine months ended September 30, 2009 compared to September 30, 2008 is due primarily to the decrease in overall sales of our products.

We hope to continue to incur profits from operations during fiscal year 2009. There can be no assurance that we will achieve or maintain profitability, or that any revenue growth will take place in the future.

Expenses

Operating expenses for the three months ended September 30, 2009 and 2008 were $77,047 and $189,858 respectively. The decrease of $112,811 in operating expenses for the three months ended September 30, 2009 compared to September 30, 2008 is due primarily to the decrease in research and development costs in the amount of $43,762. Our selling expenses also decreased in the amount of $11,232. The decrease in these operating expenses can be attributed to the decrease in overall sales.

Operating expenses for the nine months ended September 30, 2009 and 2008 were $252,104 and $397,813 respectively. The decrease by $145,709 in operating expenses for the nine months ended September 30, 2009 compared to the same period ended September 30, 2008 is due primarily to the decrease in research and development costs in the amount of $59,518. Additionally, we had decrease in general and administrative expenses in the amount of $65,123. The decrease in these operating expenses can be attributed to the decrease in overall sales.

Cost of Goods Sold

Cost of goods sold included expenses directly related to the manufacturing and selling our products. Product delivery and direct labor would be examples of cost of goods sold items. During the three months ended September 30, 2009, we had $33,843 in cost of goods sold, or 17.37% of sales revenue. During the three months ended September 30, 2008, we had $231,858 in cost of goods sold, or 33.34% of sales revenue. The lower cost of goods sold as a percentage during the three months ended September 30, 2009 was due to the decrease in sales revenue by $500,486.

Cost of goods sold included expenses directly related to the manufacturing and selling our products. Product delivery and direct labor would be examples of cost of goods sold items. During the nine months ended September 30, 2009, we had $431,728 in cost of goods sold, or 37.02% of sales revenue. During the nine months ended September 30, 2008, we had $1,170,573 in cost of goods sold, or 45.43% of sales revenue. The lower cost of goods sold as a percentage during the nine months ended September 30, 2009 was due to the decrease in sales revenue by $1,410,227.

Impact of Inflation

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

Liquidity and Capital Resources

Cash flows (used in) operating activities were $(57,006) for the nine months ended September 30, 2009, compared to cash flows of $(192,057) used in operating activities for the nine months ended September 30, 2008. Negative cash flows from operations for the nine months ended September 30, 2009 were due primarily to the net income of $581,260, plus the increase in trade payables by $208,347, partially offset by the increases in prepayments by $516,833, the increase in other receivables by $113,986, the increase in refundable deposits by $220,823, and the increase in inventories by $124,253. Negative cash flows from operations for the nine months ended September 30, 2008 were due primarily to the net income of $941,915 and the decrease in inventories by $142,293, partially offset by the increase in trade receivables by $786,533, the increase in prepayment by $216,993 and the decrease in trade payables by $630,528.

Cash flows (used in) investing activities were $(221,136) and $(8,094) for the nine months ended September 30, 2009 and 2008, respectively. This change in cash flows used in investing is attributable to payments to acquire property, plant, and equipment.

Cash flows provided by financing activities were $292,869 and $244,816 for the nine months ended September 30, 2009 and 2008, respectively. Cash flows from financing activities in 2009 were due primarily to proceeds from short term loan in the amount of $292,869.

Overall, we have funded our cash needs from inception through September 30, 2009 with a series of debt and equity transactions, primarily with related parties. If we are unable to receive additional cash from our related parties, we may need to rely on financing from outside sources through debt or equity transactions. Our related parties are under no legal obligation to provide us with capital infusions. Failure to obtain such financing could have a material adverse effect on operations and financial condition.

We had cash of $101,958 on hand and a working capital of $1,156,516 as of September 30, 2009. Currently, we have enough cash to fund our operations for about nine months. This is based on current cash flows from financing activities and projected revenues. Also, if the projected revenues fall short of needed capital we may not be able to sustain our capital needs. We will then need to obtain additional capital through equity or debt financing to sustain operations for an additional year. Our current level of operations would require capital of approximately $250,000 to sustain operations through year 2009 and approximately $700,000 per year thereafter. Modifications to our business plans may require additional capital for us to operate. For example, if we are unable to raise additional capital in the future we may need to curtail our number of product offers or limit our marketing efforts to the most profitable geographical areas. This may result in lower revenues and market share for us. In addition, there can be no assurance that additional capital will be available to us when needed or available on terms favorable to us.

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

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ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKETRISK

The information to be reported under this item is not required of smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 (“Exchange Act”) is recorded, processed, summarized and reported within the specified time periods. Our Chief Executive Officer and its Chief Financial Officer (collectively, the “Certifying Officers”) are responsible for maintaining our disclosure controls and procedures. The controls and procedures established by us are designed to provide reasonable assurance that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms.

As of the end of the period covered by this report, the Certifying Officers evaluated the effectiveness of our disclosure controls and procedures. Based on the evaluation, the Certifying Officers concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including the Certifying Officers, as appropriate to allow timely decisions regarding required disclosure.

The Certifying Officers have also concluded, based on their evaluation of our controls and procedures that as of September 30, 2009, our internal controls over financial reporting are effective and provide a reasonable assurance of achieving their objective.

The Certifying Officers have also concluded that there was no change in our internal controls over financial reporting identified in connection with the evaluation that occurred during our fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 4T. CONTROLS AND PROCEDURES

(a) Conclusions regarding disclosure controls and procedures. Disclosure controls and procedures are the Company’s controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files under the Exchange Act is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Management is responsible for establishing and maintaining adequate internal control over financial reporting.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-14(c) promulgated under the Exchange Act as of September 30, 2009, and, based on their evaluation, as of the end of such period, the our disclosure controls and procedures were effective as of the end of the period covered by the Quarterly Report,

(b) Management’s Report On Internal Control Over Financial Reporting. It is management’s responsibilities to establish and maintain adequate internal controls over the Company’s financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the issuer’s principal executive and principal financial officers and effected by the issuer’s management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

•           Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer; and

•           Provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management of the issuer; and

•           Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer’s assets that could have a material effect on the consolidated financial statements.

As of the end of the period covered by the Quarterly Report, an evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our internal control over financial reporting.

Management assessed the effectiveness of our internal control over financial reporting as of September 30, 2009. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework.

Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, internal controls over financial reporting were effective as of the end of the period covered by the Report.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

This Quarterly Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Quarterly Report.

(c) Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II.  OTHER INFORMATION

ITEM 1.      LEGAL PROCEEDINGS

As of the date of this report, we are not a party to any pending legal proceeding and are not aware of any threatened legal proceeding.

ITEM 1A.   RISK FACTORS

The information to be reported under this item has not changed since the previously filed 10K, for the year ended December 31, 2008.

ITEM 2.      UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

We have not had any sales of unregistered securities.

ITEM 3.      DEFAULTS UPON SENIOR SECURITIES

We have not had any default upon senior securities.

ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

We have not had any submissions of matters to a vote of security holders.

ITEM 5.      OTHER INFORMATION

We do not have any other information to report.

ITEM 6.      EXHIBITS

31.1 CEO Certification Pursuant to Section 302

31.2 CFO Certification Pursuant to Section 302

32.1 CEO Certification Pursuant to Section 906

32.2 CFO Certification Pursuant to Section 906

Reports on Form 8-K

(b) None

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	CHINA EDUCATION TECHNOLOGY, INC. (Registrant)
Date: November 18, 2009	By:	Yan Bin Guo
		Yan Bin Guo President, Chief Executive Officer