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: March 31, 2005
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 first quarter ended March 31, 2005 and the Note 2.1 and Note 10 B. (x) footnote 1 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 first quarter ended March 31, 2005 filed with the Securities and Exchange Commission (“SEC”) on May 20, 2005 (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 $544,244 in the form of “Advances to ex-CFO” is inserted in the section entitled “Cash Flows From Investing Activities” under the column “Three months Ended March 31, 2005” in the Condensed Consolidated Statement of Cash Flows for the first quarter ended March 31, 2005. |
| (2) | The positive amount of $544,244 in the form of “Repayments of advances to ex-CFO” is inserted in the section entitled “Cash Flows From Investing Activities” under the column “Three months Ended March 31, 2005” in the Condensed Consolidated Statement of Cash Flows for the first quarter ended March 31, 2005. |
| (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) | Footnote 1 of new subsection (x) entitled “Amount due to (from) officers/shareholders” is provided 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 first quarter ended March 31, 2005, Note 2.1 and footnote 1 of the new subsection (x) 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 Items 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
Condensed Consolidated Statements of Cash Flows
(Expressed in US Dollars)
| | | Three months ended March 31, | |
| | | 2005 | | 2004 | |
| | | (Restated) | | | |
| | | (Unaudited) | |
| | | | | | |
| Cash flows from operating activities | | | | | |
| Net (loss) income | | $ | (50,430 | ) | $ | (327,654 | ) |
| Adjustments to reconcile net (loss) income to net cash provided by operating activities | | | | | | | |
| Depreciation of property and equipment | | | 66,681 | | | 52,266 | |
| Amortization of intangible assets | | | 42,835 | | | 40,509 | |
| Allowance for sales returns | | | 95,267 | | | 71,890 | |
| Allowance for doubtful debts | | | 284,537 | | | 156,221 | |
| Provision (reversal) of allowance for loss on inventory obsolescence and slow-moving items | | | 6,452 | | | (69,180 | ) |
| gain on disposal of property and equipment | | | (9,010 | ) | | — | |
| Minority interest income | | | (143 | ) | | — | |
| Share of loss (gain) of investments | | | (12,483 | ) | | (46,967 | ) |
| (Increase)/decrease in: | | | | | | | |
| Notes and accounts receivable | | | (775,674 | ) | | 192,461 | |
| Inventories | | | 4,514 | | | 204,320 | |
| Other receivables | | | (129,129 | ) | | 72,016 | |
| Prepayments and other current assets | | | 41,002 | | | (6,073 | ) |
| Deferred income tax assets | | | (32,194 | ) | | 3,314 | |
| Other assets | | | 46,591 | | | (31,084 | ) |
| Increase/(decrease) in: | | | | | | | |
| Notes and accounts payable | | | 60,036 | | | 107,712 | |
| Accrued expenses | | | 148,876 | | | (46,463 | ) |
| Other payables | | | 124,933 | | | (76,311 | ) |
| Receipts in advance | | | (147,307 | ) | | (261,384 | ) |
| Income taxes payable | | | 115,635 | | | (3,314 | ) |
| Deposits received | | | 67,207 | | | 29,413 | |
| Accrued pension liabilities | | | 29,115 | | | (16,266 | ) |
| | | | | | | | |
| Net cash provided by (used in) operating activities | | | (22,689 | ) | | 45,426 | |
| | | | | | | | |
| Cash flows from investing activities | | | | | | | |
| Purchase of property and equipment | | | (104,562 | ) | | — | |
| Proceeds from disposal of property and equipment | | | 72,795 | | | — | |
| Bank fixed deposits - pledged | | | (58,629 | ) | | (135,818 | ) |
| Pledged notes receivable | | | 29,990 | | | 30,129 | |
| Advances to ex-CFO (restated) | | | (544,244 | ) | | — | |
| Repayments of advances to ex-CFO (restated) | | | 544,244 | | | — | |
| | | | | | | | |
| Net cash used in investing activities | | | (60,406 | ) | | (105,689 | ) |
Kid Castle Educational Corporation
Condensed Consolidated Statements of Cash Flows - Continued
(Expressed in US Dollars)
| | | Three months ended March 31, | |
| | | 2005 | | 2004 | |
| | | (Restated) | | | |
| | | (Unaudited) | |
| Cash flows from financing activities | | | | | |
| Proceeds from bank borrowings | | $ | 795,968 | | $ | 2,829,827 | |
| Repayment of bank borrowings | | | (781,513 | ) | | (2,169,859 | ) |
| Proceeds from capital leases | | | 58,089 | | | — | |
| Repayment of capital leases | | | (10,910 | ) | | (5,662 | ) |
| Repayment of loan from officers/stockholders | | | — | | | (586,529 | ) |
| | | | | | | | |
| Net cash provided by financing activities | | | 60,634 | | | 67,777 | |
| | | | | | | | |
| Net increase in cash and cash equivalents | | | (22,461 | ) | | 7,514 | |
| | | | | | | | |
| Effect of exchange rate changes on cash and cash equivalents | | | (17,934 | ) | | (30,792 | ) |
| | | | | | | | |
| Cash and cash equivalents at beginning of period | | | 213,564 | | | 1,273,723 | |
| | | | | | | | |
| Cash and cash equivalents at end of period | | $ | 173,169 | | $ | 1,250,445 | |
| | | | | | | | |
Supplemental disclosure of significant non-cash transactions | | | | | | | |
| | | | | | | | |
| Increase (decrease) of notes receivable and pledged notes receivable corresponding to the increase (decrease) in the following accounts: | | | | | | | |
| | | | | | | | |
| Deposits received | | $ | 1,586 | | $ | (18,896 | ) |
| | | | | | | | |
| Other payables | | $ | 6,473 | | $ | (10,112 | ) |
| | | | | | | | |
| Receipts in advance | | $ | 258,156 | | $ | (123,465 | ) |
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 three months ended March 31, 2005, 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 March31, 2005. The Company’s condensed consolidated statement of cash flows for the three months ended March 31, 2005 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, (x) “Amount due to(from) officers/shareholders”, footnote 1.
The impact of the restatement on the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2005 is as follows:
| | | As Previously Reported | | Restated Amount | |
| Advances to ex-CFO | | | | | | (544,244 | ) |
| Repayments of advances to ex-CFO | | | | | | 544,244 | |
| Net cash (used in) provided by investing activities | | | (60,406 | ) | | (60,406 | ) |
NOTE 10 — RELATED PARTY TRANSACTIONS (Restated - See B. (x))
B. Significant transactions and balances with related parties are as follows:
(x) Amount due to (from) officers/shareholders:
| | | 2005 | | 2004 | |
| Mr. Yu-En Chiu (Note 1) | | $ | — | | $ | — | |
| | | | | | | | |
Note 1:
During the three months period ended March 31, 2005, 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 three months period ended March 31, 2005, the highest balance of the advances to Mr. Yu-En Chiu was $307,009. As of March 31, 2005, 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 March 31, 2005 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 March 31, 2005 filed with the Securities and Exchange Commission on May 20, 2005 is being filed to restate Kid Castle's condensed consolidated statement of cash flow for the three months ended March 31, 2005 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 three months period ended March 31, 2005. 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. (x) footnote 1. 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 March 31, 2005. 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 2005 Form 10-Q for the first quarter ended March 31, 2005 was initially 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 March 31, 2005, 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 |
