China Education Technology (EVSF) 10-Q 2010 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, 2010

[    ]      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 if the registrant is a well-know seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes [  ]                                No [x]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act

Yes [  ]                                No [x]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 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 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	x

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the exchange act).

Yes [  ]                                No [x]

Number of shares of preferred stock, par value $.0001, outstanding as of November 18, 2010:          870,000

Number of shares of common stock, par value $.0001, outstanding as of  November 18, 2010:      26,767,798

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION

The discussion contained in this 10-Q under the Securities Exchange Act of 1934, as amended, contains forward-looking statements that involve risks and uncertainties. The issuer's actual results could differ significantly from those discussed herein. These include statements about our expectations, beliefs, intentions or strategies for the future, which we indicate by words or phrases such as "anticipate," "expect," "intend," "plan," "will," "we believe," "the Company believes," "management believes" and similar language, including those set forth in the discussions under "Notes to Financial Statements" and "Management's Discussion and Analysis or Plan of Operation" as well as those discussed elsewhere in this Form 10-Q. We base our forward-looking statements on information currently available to us, and we assume no obligation to upda te 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.

INDEX TO FORM 10-Q

PART I	Page No.
Item 1.  Financial Statements	3
Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations	9
Item 3.  Quantitative and Qualitative Disclosures About Market Risk	12
Item 4. Controls and Procedures	12
Item 4T. Controls and Procedures	12
PART II
Item 1.  Legal Proceedings	13
Item 1A. Risk Factors	13
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds	13
Item 3.  Defaults Upon Senior Securities	13
Item 4.  Removed and Reserved	13
Item 5.  Other Information	13
Item 6.  Exhibits	13

2

ITEM 1. FINANCIAL STATEMENTS

INDEX TOCHINA EDUCATION TECHNOLOGY, INC. FINANCIAL STATEMENTS

	Page
Unaudited Condensed Consolidated Balance Sheets		4
Unaudited Condensed Consolidated Statements of Operations And Comprehensive Income		5
Unaudited Condensed Consolidated Statements of Cash Flows		6
Notes to Unaudited Condensed Consolidated Financial Statements		7

3

CHINA EDUCATION TECHNOLOGY INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2010 AND DECEMBER 31, 2009
ASSETS
	September 30, 2010		December 31, 2009
Current assets:			Audited
Cash and cash equivalents	$	24,115	$	29,656
Trade receivables, net		127,209		822,926
Inventories		410,168		372,971
Prepayments		492,989		483,812
Other receivables		33,583		5,339
Refundable deposit		105,716		220,849
Total current assets		1,193,781		1,935,552
Property, plant and equipment, net		111,602		131,867
Non-current assets:
Others		68,322		67,050
Total non-current assests		68,322		67,050
Total assets	$	1,373,706	$	2,134,470
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term note payable		-		732,257
Trade payables		286,360		272,083
Salary payable		6,140		4,936
Other payables and accrued expenses		101,447		32,865
Amount due to a director		140,229		97,279
Tax payable		31,842		29,277
Total current liabilities		566,018		1,168,698
Long-term liabilities:
Warranty and maintenance reserves		31,757		50,976
STOCKHOLDERS’ EQUITY
Preferred stock, $0.0001 par value, 10,000,000 shares authorized,		87		87
870,000 shares issued and outstanding as of September 30, 2010 and December 31, 2009
Common stock, $0.0001 par value, 50,000,000 shares authorized,		2,677		2,677
26,767,798 shares issued and outstanding as of September 30, 2010 and December 31, 2009
Additional paid in captial		120,438		120,438
Statutory and other reserves		69,565		69,565
Accumulated other comprehensive income		92,301		76,246
Retained earnings		490,863		645,783
Total stockholders’ equity		775,931		914,796
Total liabilities and stockholders’ equity		1,373,706		2,134,470
See accompanying notes to consolidated financial statements.

4

CHINA EDUCATION TECHNOLOGY INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
	For the Three Months Ended						For the nine months ended
	September 30, 2010			September 30, 2009			September 30, 2010			September 30, 2009
Sales	$	37,342		$	194,821		$	54,018		$	1,166,281
Cost of goods sold		(27,745	)		(33,843	)		(27,745	)		(431,728	)
Gross profit		9,597			160,978			26,273			734,553
Operating expenses
General and administrative expenses		34,126			68,735			269,356			171,490
Research and development expenses		9,996			-			29,650			46,675
Selling expenses		5,546			8,313			19,982			33,939
Total operating expenses		49,668			77,047			318,987			252,104
Net operating Income (loss)		(40,072	)		83,931			(292,714	)		482,450
Other income
Subsidy income from the PRC authorities for general operations		-			84,460			-			184,769
Interest income (expenses)		(29,971	)		(7,360	)		(30,253	)		(16,890	)
Other income (expenses)		168,048			20			168,048			34,918
Total other income		138,077			77,119			137,795			202,797
Income before income taxes		98,005			161,050			(154,919	)		685,247
Income taxes		-			(24,416	)		-			(103,987	)
Net Income (loss)	$	98,005		$	136,634		$	(154,919	)	$	581,260
Other comprehensive income (loss)
Foreign currency translation adjustment		11,135			360			16,054			(813	)
Total comprehensive income (loss)	$	109,140		$	136,994		$	(138,865	)	$	580,447
Earnings (loss) per share
Basic		**		$	0.01			**		$	0.05
Diluted		**			**			**		$	0.01
Weighted average number of shares outstanding
Basic		26,767,798			24,767,798			26,767,798			11,730,761
Diluted		70,267,798			70,267,798			70,267,798			70,267,798
** Less than $.01
See accompanying notes to consolidated financial statements.

5

CHINA EDUCATION TECHNOLOGY INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
	For the Nine Months Ended
	September 30, 2010			September 30, 2009
Cash flows from operating activities
Net income (loss)	$	(154,919	)	$	581,260
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation		24,256			16,116
Changes in operating assets and liabilities:
Trade receivables		700,240			(47,247	)
Inventories		(29,654	)		(124,253	)
Other receivables and prepayments		(27,705	)		(630,819	)
Refundable deposits		117,462			(220,823	)
Other noncurrent assets		-			(1,839	)
Warranty and maintenance reserves		(19,872	)		(10,355	)
Trade payables		8,974			208,347
Salary payable		1,093			-
Other payables and accrued expenses		67,624			83,364
Tax payable		1,978			89,243
Net cash flows used in operating activities		689,479			(57,006	)
Cash flows from investing activities
Payments to acquire property, plant and equipment		(1,845	)		(221,136	)
Net cash flows used in investing activities		(1,845	)		(221,136	)
Cash flows from financing activities
Proceeds from (repayment to) notes payable		(734,519	)		292,869
Due to (repayment to) a director		41,130			-
Net cash flows provided by financing activities		(693,389	)		292,869
Effect of foreign currency translation on cash and cash equivalents		214			(23	)
Net increase in cash and cash equivalents		(5,541	)		14,704
Cash and cash equivalents - beginning of year		29,656			87,254
Cash and cash equivalents - end of year		24,115			101,958
Supplemental disclosure of cash flow information:
Cash paid for:
Interest	$	29,859		$	20,501
Income taxes	$	-		$	1,368
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, 2010 and 2009

(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 the Company’s 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 for the years ended December 31, 2009 and 2008 thereto contained in the Annual Report on Form 10-K for the year ended December 31, 2009.

2.   ORGANIZATION AND BUSINESS BACKGROUND

China Education Technology Inc. (the “Company”) was incorporated in the state of Delaware in 1996 in name of Envirosafe Corporation. 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.

China Education Technology Inc. and its wholly-owned subsidiaries, ADDE and Haoyu, are hereafter 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 the Company 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.

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

7

CHINA EDUCATION TECHNOLOGY INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

For the Three and Nine Months Ended September 30, 2010 and 2009

(Stated in US Dollars)

4.   RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Fair Value Measurements and Disclosures

(Accounting Standards Update (“ASU”) 2010-06)

In January 2010, the FASB issued ASU No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820) - Improving Disclosures about Fair Value Measurements.” ASU 2010-06 requires new disclosures regarding transfers in and out of the Level 1 and 2 and activity within Level 3 fair value measurements and clarifies existing disclosures of inputs and valuation techniques for Level 2 and 3 fair value measurements. ASU 2010-06 also includes conforming amendments to employers’ disclosures about postretirement benefit plan assets. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosure of activity within Level 3 fair value measurements, which is effective for fiscal years beginning after Decembe r 15, 2010, and for interim periods within those years. The adoption of this statement is not expected to have a material impact on our consolidated financial position or results of operation.

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 event s through the issuance date of the Company’s financial statements. No recognized or non-recognized subsequent events were noted.

5. TRADE ACCOUNTS RECEIVABLE

Trade accounts receivable is comprised of the following amounts at the respective dates:

	September 30, 2010			December 31, 2009
	(Unaudited)			(Audited)
Gross trade accounts receivable from customers	$	171,358		$	866,253
Allowance for doubtful customer accounts		(44,149	)		(43,327	)
	$	127,209		$	822,926

5. TRADE ACCOUNTS RECEIVABLE (CONT’D)

Previously written off accounts receivable in the amount of $168,048 were collected during the quarter ended September 30, 2010 and, accordingly, were included under recovery of bad debt in the accompanying financial statements.

6.   INVENTORIES

	September 30, 2010		December 31, 2009
	(Unaudited)		(Audited)
Raw materials	$	6,417	$	7,243
Finished goods		403,751		365,728
		410,168		372,971
Provision for obsolete inventories		-		-
	$	410,168	$	372,971

The Company had no provision for obsolete inventories charged to the statements of operations for the three and nine months ended September 30, 2010 and 2009, respectively.

7.   PREPAYMENTS

The balances of $492,989 and $483,812 as of September 30, 2010 and December 31, 2009, respectively, represented prepaid goods, supplies and other items used in packaging of the products.

8.   REFUNDABLE DEPOSIT

Deposits in the amount of $105,716 and $220,849 as of September 30, 2010 and December 31, 2009, respectively, represents monies held by an independent party, which acts as a guarantor for the Company in connection with a short-term loan from a bank. The principal and accrued interest of the bank loan was paid in full as of September 30, 2010. Accordingly, the first deposit of $115,133 was refunded by the guarantor as of September 30, 2010. The remaining balance was expected to be refunded in full during the fourth quarter of 2010.

9.   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, 2010 and December 31, 2009, the Company had warranty and maintenance reserves of $31,757 and $50,976, respectively.

10.   AMOUNT DUE TO A DIRECTOR

The balances due to a director represented unsecured advances which are interest-free and repayable on demand. As of September 30, 2010 and December 31, 2009, the balances of due to a director were $140,229 and $97,279, respectively.
 

8

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

FORWARD LOOKING STATEMENTS

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 deve lopments, 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 financial statements included herein.

OVERVIEW

As used herein the terms "We", the "Company", "CEDT", the "Registrant," or the "Issuer" refers to China Education Technology Inc., its subsidiary 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 the Company 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.

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

9

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s Discussion and Analysis of Financial Condition and Results of Operations are based upon our Unaudited Condensed Consolidated Financial Statements, which we have prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Estimates are based on historical experience, knowledge of economic and market factors and various other assumptions that management believes to be reasonable under the circumstances. Actual results may differ from those estimates.

On a regular basis we evaluate our estimates, assumptions and judgments and make changes accordingly. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably likely to occur could materially impact the financial statements. We believe that the estimates, assumptions and judgments involved in revenue recognition, receivables and allowances for doubtful accounts, accruals, inventories, income taxes, warranty, warranty and maintenance reserves have the greatest potential impact on our condensed consolidated financial statements, so we consider these to be our critical accounting policies.

RECENT ACCOUNTING PRONOUNCEMENTS

For a description of the new accounting standards that affect us, see Note 4 of notes to our unaudited condensed consolidated financial statements included under Part I, Item 1 of this Quarterly Report on Form 10-Q.

RESULTS OF OPERATIONS – THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (UNAUDITED)

Revenues

Our revenues for the three and nine months ended September 30, 2010 were $37,342 and $54,018, respectively, compared to revenues of $194,821 and $1,166,281 for the comparative periods ended September 30, 2009, respectively. We generated our revenues from sales of information collectors, sensors, digital meteorological stations, and digital analyzing software, certain products of which were covered by a warranty program for 3 years provided by the Company. The warranty liability will be assessed periodically and amortized over time when no actual claims occurred. We had small sales for the three and nine months ended September 30, 2010 since the current market demand for digital labs dropped significantly as results of a decrease in government subsidies. Approximately 21% and 37% of the revenues for three and nine months ended Sept ember 30, 2010, respectively, were due primarily to the amortization of the warranty liabilities.

Income / Losss

We had net income of $98,005 and net loss of $154,919 for the three and nine months ended September 30, 2010, respectively, compared to the net income of $136,634 and $581,260 for the three and nine months ended September 30, 2009, respectively. The net income of $98,005 during the third quarter of 2010 was due primarily to a collection of previously written off accounts receivable in the amount of $168,048, which were included under recovery of bad debt in the accompanying financial statements.

The net loss of $154,919 during the nine months ended September 30, 2010 was due primarily to the decrease in sales by $1,112,263. In addition, we had no subsidy income in 2010, which was $184,769 for the nine months ended September 30, 2009.

Expenses

Operating expenses for the three and nine months ended September 30, 2010 were $49,668 and $318,987 respectively, compared to operating expenses of $77,047 and $252,104 for the same periods ended September 30, 2009. The decrease in operating expenses during the three months ended September 30, 2010 was due primarily to the decrease in selling, general and administrative expenses as results of decrease in sales as discussed above. The operating expenses remained high during the nine months ended September 30, 2010 was due primarily to the bad debt expenses of $168,048, which were offset by other income under recovery of bad debt after the collection in the third quarter of 2010. Our research and development expenses also decreased significantly in the nine months of 2010. We reduced our research and development activities due to the dec reasing sales.

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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. We had $27,745 in cost of goods sold for both three-month and nine-month periods ended September 30, 2010. We had no cost of goods sold during the first half of 2010 due to the revenues for these periods primarily from the amortization of the warranty liabilities. Comparably, we had $33,843 and $431,728 in cost of goods sold, or 17.4% and 37.0% of sales revenue, during the three and nine months ended September 30, 2009, respectively.

Impact of Inflation

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

Liquidity and Capital Resources

Cash flows provided by operating activities were $689,479 for the nine months ended September 30, 2010, compared to cash flows of $57,006 used in operating activities for the nine months ended September 30, 2009. Positive cash flows from operations during the nine months ended September 30, 2010 were due primarily to the collection in trade receivables by $700,240 and the receipt of refundable deposits in amount of $117,462, which was held by an independent party acting as a guarantor for us in connection with a short-term loan from a bank. The short-term loan was paid in full during the third quarter of 2010. Negative cash flows from operations for the nine months ended September 30, 2009 were due primarily to the increases in other receivables and prepayments by $630,819, the increase in refundable deposits by $220,823, and the incre ase in inventories by $124,253, partially offset by the net income of $581,260, plus the increase in trade payables by $208,347.

We had cash flows of $1,845 and $221,136 used in investing activities during the nine months ended September 30, 2010 and 2009, respectively, attributable to payments to acquire property, plant, and equipment for both periods.

We had cash flows of $693,389 used in financing activities during the nine months ended September 30, 2010 due to the repayment of $734,519 to the short-term loan, offset by a loan of $41,130 from our director, representing unsecured advances which were interest-free and repayable on demand. Comparably, we had cash flows of $292,869 provided by investing activities during the nine months ended September 30, 2009, attributable to the proceeds from short-term loan.

Overall, we have funded our cash needs from inception through September 30, 2010 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 $24,115 on hand and a working capital of $627,763 as of September 30, 2010. Currently, we do not have enough cash to fund our operations for about nine months. This is based on our projected revenues. 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 $150,000 to sustain operations through year 2010 and approximately $500,000 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 fo r 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.

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ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MAR KET RISK

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

ITEM 4. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 (“Exchange Act”) is recorded, processed, summarized and reported within the specified time periods. Our Chief Executive Officer and 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, 2010, 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 Execu tive 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, 2010, 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 financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies a nd 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 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 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, 2010. 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 k nown 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 PROCEE DINGS

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, 2009.

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

ITEM 3.      DEFAULTS UPON SENIOR SEC URITIES

We have not had any default upon senior securities.

ITEM 4.      REMOVED AND RESERVED

ITEM 5.      OTHER INFOR MATION

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

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, 2010	By:	/s/ Yan Bin Guo
		Yan Bin Guo President, Chief Executive Officer