UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2004
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 333-39629
KID CASTLE EDUCATIONAL CORPORATION
(Exact name of Registrant as specified in its charter)
Florida | 59-2549529 |
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
| | |
8th Floor, No. 98 Min Chuan Road, Hsien Tien Taipei, Taiwan ROC |
| (Address of principal executive offices) |
| |
011-886-22218 5996 |
| (Registrant’s telephone number, including area code) |
| |
NONE |
| (Former name, former address and former fiscal year, if changed since last report) |
Indicate by check mark whether the Registrant (1) has 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 o No x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer o Accelerated Filer o Non-accelerated filer x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
As of May 24, 2007, there were 25,000,000 shares of the Registrant’s common stock outstanding.
EXPLANATORY NOTE:
Kid Castle Educational Corporation (the “Company”) is filing this Amendment No. 1 to the Quarterly Report on Form 10-Q/A (the “Amendment”) to amend and restate the Condensed Consolidated Statement of Cash Flows for the third quarter ended September 30, 2004 and the Note 2.1 and Note 10. B. (ix) footnote 2 of the Notes to the Consolidated Financial Statements (collectively, the “Cash Flow Statement and the Related Notes”) contained in the Quarterly Report on Form 10-Q for the third quarter ended September 30, 2004 filed with the Securities and Exchange Commission (“SEC”) on November 15, 2004 (the “Original Filing”).
This Amendment amends and restates the Cash Flow Statement and the Related Note of the Original Filing to properly account for and reflect certain transactions that occurred during this quarterly period involving inappropriate withdrawals and subsequent repayments by Yu-En Chiu, a former Chief Financial Officer of the Company (“ex-CFO”).
This Amendment amends and restates as follows:
| (1) | The negative amount of $353,361 in the form of “Advances to ex-CFO” is inserted in the section entitled “Cash Flows From Investing Activities” under the column “Nine months ended September 30, 2004” in the Condensed Consolidated Statement of Cash Flows for the third quarter ended September 30, 2004 |
| (2) | The positive amount of $353,361 in the form of “Repayments of advances to ex-CFO” is inserted in the section entitled “Cash Flows From Investing Activities” under the column “Nine months ended September 30, 2004” in the Condensed Consolidated Statement of Cash Flows for the third quarter ended September 30, 2004. |
| (3) | The disclosures under the Notes of the Condensed Consolidated Financial Statements are revised by adding Note 2.1 “Restatement” to reflect the effects of such transaction on the Condensed Consolidated Financial Statements. |
| (4) | Detailed information is provided in footnote 2 of subsection (ix) entitled “Amount due to (from) officers/shareholders” under Part B of Note 10 to the Notes of the Condensed Consolidated Financial Statements to reflect the above transactions.. |
| (5) | The discussion under Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” is revised by adding a paragraph to reflect the effects of such transaction |
| (6) | The discussion under Item 4, “Controls and Procedures” is revised in order to reflect the effects of such transactions |
Accordingly, the Condensed Consolidated Statement of Cash Flows for the third quarter ended September 30, 2004, Note 2.1 and footnote 2 of the related subsection (ix) entitled “Amount due to (from) officers/shareholders” under Part B of Note 10 to the Notes of the Condensed Consolidated Financial Statements, and the narrative of Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Item 4, Controls and Procedures, as amended and restated, are produced in this Amendment in their entirety. Unaffected items in the Original Filing have not been restated in this Amendment.
As a result of this Amendment, the certifications pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002, filed as exhibits to the Original Filing, have been re-executed and re-filed as of the date of this Amendment.
This Amendment does not otherwise reflect events occurring after the filing of the Original Filing, or otherwise update these disclosures. Accordingly, this Amendment should be read in conjunction with our filings with the SEC subsequent to the filing of the Original Filing.
PART I: FINANCIAL INFORMATION
Kid Castle Educational Corporation
(Expressed in US Dollars)
| | | Nine months ended September 30, | |
| | | 2004 | | 2003 | |
| | | (Restated) | | | |
| | | (Unaudited) | |
| Cash flows from operating activities | | | | | |
| Net loss | | $ | (785,171 | ) | $ | (1,296,886 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities | | | | | | | |
| Depreciation of property and equipment | | | 137,746 | | | 133,094 | |
| Amortization of intangible assets | | | 120,515 | | | 117,271 | |
| Provision of allowance for sales returns | | | 56,597 | | | 77,077 | |
| Allowance for doubtful debts | | | 115,940 | | | 93,514 | |
| Provision for (reversal of) loss on inventory obsolescence and slow-moving items | | | 113,573 | | | (163,831 | ) |
| Share of (gain) loss of investments | | | (10,609 | ) | | 12,750 | |
| Minority interest income | | | 2,611 | | | — | |
| Loss on write-off of an investment | | | — | | | 132,842 | |
| (Increase)/decrease in: | | | | | | | |
| Notes and accounts receivable | | | (482,415 | ) | | (1,939,891 | ) |
| Inventories | | | (403,744 | ) | | (144,037 | ) |
| Other receivables | | | (99,282 | ) | | (301,096 | ) |
| Prepayments and other current assets | | | (250,194 | ) | | (223,779 | ) |
| Deferred income tax assets | | | 67,378 | | | 330,283 | |
| Other assets | | | (122,453 | ) | | (18,505 | ) |
| Increase/(decrease) in: | | | | | | | |
| Notes and accounts payable | | | 572,556 | | | (59,094 | ) |
| Accrued expenses | | | (104,349 | ) | | (22,668 | ) |
| Other payables | | | (88,561 | ) | | 322,151 | |
| Receipts in advance | | | 349,247 | | | 613,267 | |
| Income taxes payable | | | 42,967 | | | — | |
| Deposits received | | | 129,455 | | | 258,249 | |
| Accrued pension liabilities | | | 10,406 | | | 43,893 | |
| | | | | | | | |
| Net cash used in operating activities | | | (627,787 | ) | | (2,035,396 | ) |
| | | | | | | | |
| Cash flows from investing activities | | | | | | | |
| Purchase of property and equipment | | | (197,389 | ) | | (172,562 | ) |
| Acquisition, net of cash acquired | | | 79,135 | | | — | |
| Proceeds from disposal of property, plant and equipment | | | — | | | 13,416 | |
| Prepayment of long-term investments | | | — | | | (58,828 | ) |
| Amount due from stockholder/director | | | — | | | 122,973 | |
| Acquisition of long-term investments | | | (103,563 | ) | | — | |
| Bank fixed deposits - pledged | | | (156,518 | ) | | (8,719 | ) |
| Pledged notes receivable | | | (77,685 | ) | | 38,081 | |
| Advances to ex-CFO (restated) | | | (353,361 | ) | | — | |
| Repayments of advances to ex-CFO (restated) | | | 353,361 | | | — | |
| | | | | | | | |
| Net cash used in investing activities | | | (456,020 | ) | | (65,639 | ) |
Kid Castle Educational Corporation
Condensed Consolidated Statements of Cash Flows
(Expressed in US Dollars)
| | | Nine months ended September 30, | |
| | | 2004 | | 2003 | |
| | | (Restated) | | | |
| | | (Unaudited) | |
| Cash flows from financing activities | | | | | |
| Proceeds from bank borrowings | | $ | 2,500,962 | | $ | 2,240,020 | |
| Repayment of bank borrowings | | | (1,652,431 | ) | | (1,749,178 | ) |
| Repayment of capital leases | | | (22,086 | ) | | (13,409 | ) |
| Proceeds from loan from officers/stockholders | | | — | | | 69,017 | |
| Repayment of loan from officers/stockholders | | | (581,228 | ) | | — | |
| Issuance of common stock for cash | | | | | | 2,181,578 | |
| Stock subscriptions received in advance | | | — | | | 122,850 | |
| | | | | | | | |
| Net cash provided by financing activities | | | 245,217 | | | 2,850,878 | |
| | | | | | | | |
| Net (decrease) increase in cash and cash equivalents | | | (838,590 | ) | | 749,843 | |
| Effect of exchange rate changes on cash and cash equivalents | | | 3,561 | | | 27,593 | |
| Cash and cash equivalents at beginning of period | | | 1,273,723 | | | 125,806 | |
| | | | | | | | |
| Cash and cash equivalents at end of period | | $ | 438,694 | | $ | 903,242 | |
| | | | | | | | |
| Supplemental disclosure of cash flow information Interest paid | | $ | 184,155 | | $ | 301,415 | |
| | | | | | | | |
| Income taxes paid | | $ | 1,419 | | $ | 1,738 | |
| | | | | | | | |
Supplemental disclosure of significant non-cash transactions | | | | | | | |
| Capital lease of transportation equipment | | $ | — | | $ | 57,887 | |
| | | | | | | | |
| Increase (decrease) of notes receivable and pledged notes receivable corresponding to the increase (decrease) in the following accounts: | | | | | | | |
| Other receivables - related parties | | $ | — | | $ | (260,734 | ) |
| | | | | | | | |
| Deposits received | | $ | (46,996 | ) | $ | — | |
| | | | | | | | |
| Other payables | | $ | 17,659 | | $ | — | |
| | | | | | | | |
| Receipts in advance | | $ | (712,252 | ) | $ | 83,439 | |
Kid Castle Educational Corporation
Condensed Consolidated Statements of Cash Flows
(Expressed in US Dollars)
| | | Nine months ended September 30, | |
| | | 2004 | | 2003 | |
| | | (Restated) | | | |
| | | (Unaudited) | |
| Increase of long-term investments corresponding to the (decrease) in the following accounts: | | | | | |
| Prepaid long-term investments | | $ | (61,202 | ) | $ | — | |
| | | | | | | | |
| Other receivables - related parties | | $ | (120,422 | ) | $ | — | |
| | | | | | | | |
| Write-off of an associate investment against deferred income | | | | | | | |
| Balance of an associate investment | | $ | — | | $ | 299,752 | |
| Balance of deferred income | | | — | | | (166,910 | ) |
| | | | | | | | |
| Loss on write-off of an associate investment | | $ | — | | $ | 132,842 | |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2.1 — RESTATEMENT
During the nine months ended September, 2004, the Company’s then Chief Financial Officer (referred to as “ex-CFO”) made fund withdrawals from and repayments to the Company and returned the full withdrawn amount of cash by September 30, 2004. The Company’s condensed consolidated statement of cash flows for the nine months ended September 30, 2004 has been restated to disclose the resulting cash flow impact in the Condensed Consolidated Statement of Cash Flows and to disclose such transactions in Note 10, “Related Party Transactions”, B, (ix) “Amount due to(from) officers/shareholders”, footnote 2.
The impact of the restatement on the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2004 is as follows:
| | | As Previously Reported | | Restated Amount | |
| Advances to ex-CFO | | | | | | (353,361 | ) |
| Repayments of advances to ex-CFO | | | | | | 353,361 | |
| Net cash (used in) provided by investing activities | | | (456,020 | ) | | (456,020 | ) |
NOTE 10 — RELATED PARTY TRANSACTIONS (Restated - See B. (ix) footnote 2)
B. Significant transactions and balances with related parties are as follows:
(ix) Amount due to (from) officers/shareholders:
| | | 2004 | | 2003 | |
| Mr. Kuo-An Wang and Mr. Yu-En Chiu (Note 1 and 2) | | $ | — | | $ | 572,160 | |
| | | | | | | | |
| | | $ | — | | $ | 572,160 | |
Note:
| 1. | Prior to 2003, the Group had borrowings from one of its shareholders. In December 2003, the Group repaid $70,000 of the borrowings and, in January 2004, the Group repaid the remaining balance of principal and interest in the total amount of $572,160. |
| 2. | During the nine months ended September 30, 2004, certain inappropriate withdrawals and subsequent repayments by the Company’s then Chief Financial Officer Yu-En Chiu have been recognized in the restated Consolidated Statements of Cash Flow as short term non-interest bearing advances to Mr. Chiu. During the nine months ended September 30, 2004, the highest balance of the advances to Mr. Yu-En Chiu was $183,819. As of September 31, 2004, Mr. Yu-En Chiu had repaid all the outstanding advances to the Company and there were no material amounts due from other officers of the Company. For further information subsequent to June 30, 2004 related to such transaction, please refer to 2004 Form 10-K/A and 2005 Form 10-K filed on March 8, 2007. |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
This Amendment No. 1 to our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2004 filed with the Securities and Exchange Commission on November 15, 2004 is being filed to restate Kid Castle's condensed consolidated statement of cash flow for the nine months ended September 30, 2004 to reflect the impact of cash withdrawals from, and repayments to the Company by the ex-Chief Financial Officer, Mr. Yu-En Chiu (referred to as “ex-CFO”), during the nine months period ended September 30, 2004. The impact of the restatement is described in detail in Note 2.1 to the accompanying restated condensed consolidated financial statements. Additionally, revisions have been made to the presentation and disclosures on related party transactions under Note 10, B. (ix) footnote 2. Kid Castle has also revised the discussion under this Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Item 4, Controls and Procedures, in order to reflect the impact of the restatement on management's evaluation of the effectiveness of the Company's disclosure controls and procedures as of September 30, 2004. Except with respect to these matters, the financial statements in this Form 10-Q/A do not reflect any subsequent events that have occurred after the 2004 Form 10-Q for the three quarters ended September 31, 2004 was filed.
ITEM 4. CONTROLS AND PROCEDURES
Pursuant to Exchange Act Rule 13a-15(b) our management has performed an evaluation of the effectiveness of our disclosure controls and procedures. The term disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) means controls and other procedures of an issuer that are designed to ensure 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 SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Based on deficiencies noted by our auditors, problems discovered relating to misuse of company funds by our former CFO Yu En Chiu (are more fully described in the Company’s Form 8-K filed June 23, 2006 ), and other issues noted in our management’s evaluation, our conclusion is that as of September 30, 2004, our disclosure controls and procedures were ineffective. We are taking steps to improve our disclosure controls and procedures, instituting a new ERP system and engaging an outside accounting firm to advise the Company with respect to setting up internal auditing and other controls and procedures.
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS
EXHIBIT INDEX
| Exhibit No. | | Exhibit |
| | | |
| 31.1 | | Rule 13a-14(a) Certification of Principal Executive Officer |
| | | |
| 31.2 | | Rule 13a-14(a) Certification of Principal Financial Officer |
| | | |
| 32.1 | | Section 1350 Certification of Principal Executive Officer and Principal Financial Officer |
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | |
| Dated May 24, 2007 | BY: | /s/ SUANG-YI PAI |
| |
SUANG-YI PAI |
| | CHIEF FINANCIAL OFFICER |
