x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Nevada
|
75-3268300
|
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
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Large accelerated filer ¨ | Accelerated filer ¨ | |
Non-accelerated filer ¨ (Do not check if a smaller reporting company) | Smaller reporting company x |
Class of Securities
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Shares Outstanding
|
|
Common Stock, $0.001 par value
|
22,834,100
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TABLE OF CONTENTS
|
|
Page
|
|
PART I
FINANCIAL INFORMATION
|
|
Item 1. Financial Statements.
|
1 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
|
23 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
|
35 |
Item 4. Controls and Procedures.
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35 |
PART II
OTHER INFORMATION
|
|
Item 1. Legal Proceedings.
|
36 |
Item 1A. Risks Factors.
|
36 |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
|
36 |
Item 3. Defaults Upon Senior Securities.
|
36 |
Item 4. [Removed and Reserved.]
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36 |
Item 5. Other Information.
|
36 |
Item 6. Exhibits.
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36 |
SIGNATURES
|
36 |
ITEM 1.
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FINANCIAL STATEMENTS.
|
Page(s)
|
||
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE30, 2011 AND DECEMBER 31, 2010 (UNAUDITED) | 2 | |
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010 (UNAUDITED)
|
3 | |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2011 AND 2010 (UNAUDITED) | 4 | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | 5 |
June 30, 2011
|
December 31, 2010
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||||||||
ASSETS
|
|||||||||
Current assets:
|
|||||||||
Cash and cash equivalents
|
$ | 9,268,568 | $ | 10,272,391 | |||||
Advance to vendors
|
899,363 | 415,619 | |||||||
Other receivables
|
285,029 | 285,854 | |||||||
Advances to management
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- | 328,791 | |||||||
Total current assets
|
10,452,960 | 11,302,655 | |||||||
Property, plant and equipment, net
|
765,493 | 735,876 | |||||||
Construction in progress
|
401,683 | - | |||||||
Restricted cash
|
309,433 | 302,924 | |||||||
Long-term deposit
|
464,150 | 302,924 | |||||||
Total Assets
|
$ | 12,393,719 | $ | 12,644,379 | |||||
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|||||||||
Current liabilities:
|
|||||||||
Customer deposits
|
$ | 3,919,105 | $ | 4,883,410 | |||||
Other payable
|
66,725 | 49,381 | |||||||
Due to shareholder
|
20,113 | 19,690 | |||||||
Accrued expenses
|
409,086 | 653,261 | |||||||
Taxes payable
|
473,509 | 1,180,080 | |||||||
Total current liabilities
|
4,888,538 | 6,785,822 | |||||||
Commitments
|
|||||||||
Stockholders' equity
|
|||||||||
Common stock, $0.001 par value, 70,000,000 shares
|
|||||||||
authorized, 22,834,100 shares issued and outstanding
|
22,834 | 22,834 | |||||||
Additional paid-in capital
|
1,771,516 | 1,771,516 | |||||||
Statutory surplus
|
43,917 | 43,917 | |||||||
Retained earnings
|
5,465,711 | 3,946,927 | |||||||
Accumulated other comprehensive income
|
165,362 | 71,894 | |||||||
Total stockholder's equity
|
7,469,340 | 5,857,088 | |||||||
Non-controlling interest
|
35,841 | 1,469 | |||||||
Total equity
|
7,505,181 | 5,858,557 | |||||||
Total Liabilities and Stockholder's Equity
|
$ | 12,393,719 | $ | 12,644,379 |
For the three months ended June 30,
|
For the six months ended June 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
(Restated)
|
(Restated)
|
|||||||||||||||
Revenues
|
$ | 3,809,951 | $ | 5,014,321 | $ | 9,587,805 | $ | 9,355,786 | ||||||||
Cost of revenue
|
1,801,083 | 1,628,918 | 5,007,383 | 2,964,693 | ||||||||||||
Gross profit
|
2,008,868 | 3,385,403 | 4,580,422 | 6,391,093 | ||||||||||||
Operating expenses
|
||||||||||||||||
Selling expenses
|
606,880 | 654,730 | 1,101,857 | 1,259,008 | ||||||||||||
General and administrative expenses
|
782,073 | 863,494 | 1,539,604 | 1,920,251 | ||||||||||||
Total operating expenses
|
1,388,953 | 1,518,224 | 2,641,461 | 3,179,259 | ||||||||||||
Income from operations
|
619,915 | 1,867,179 | 1,938,961 | 3,211,834 | ||||||||||||
Other income (expenses)
|
||||||||||||||||
Interest income
|
23,236 | 4,738 | 58,786 | 4,952 | ||||||||||||
Other income
|
184,851 | 95,228 | 194,860 | 95,228 | ||||||||||||
Total Other income(expenses)
|
208,087 | 99,966 | 253,646 | 100,180 | ||||||||||||
Income before income taxes
|
828,002 | 1,967,145 | 2,192,607 | 3,312,014 | ||||||||||||
Provision for income taxes
|
206,497 | 596,269 | 639,451 | 892,437 | ||||||||||||
Net income
|
621,505 | 1,370,876 | 1,553,156 | 2,419,577 | ||||||||||||
Less: net income attributable to non-controlling interest
|
(2,392 | ) | 1,349 | 34,372 | 2,202 | |||||||||||
Net income attributable to China Executive Education Corp
|
$ | 623,897 | $ | 1,369,527 | $ | 1,518,784 | $ | 2,417,375 | ||||||||
Net income
|
621,505 | 1,370,876 | 1,553,156 | 2,419,577 | ||||||||||||
Foreign currency translation adjustment
|
71,473 | (36,253 | ) | 93,472 | (46,703 | ) | ||||||||||
Comprehensive income
|
692,978 | 1,334,623 | 1,646,628 | 2,372,874 | ||||||||||||
Comprehensive income attributable to non-controlling interest
|
(3,574 | ) | 1,813 | (4,674 | ) | 2,335 | ||||||||||
Comprehensive income attributable to China Executive Education Corp
|
$ | 689,404 | $ | 1,336,436 | $ | 1,641,954 | $ | 2,375,209 | ||||||||
Basic and diluted income per common share
|
$ | 0.03 | $ | 0.06 | $ | 0.07 | $ | 0.11 | ||||||||
Basic and diluted weighted average common shares outstanding
|
22,834,100 | 22,199,160 | 22,834,100 | 22,119,691 | ||||||||||||
Cash dividends per common share
|
$ | - | $ | 0.06 | $ | - | $ | 0.06 |
|
||||||||
For the six months ended June 30,
|
||||||||
2011
|
2010
|
|||||||
(Restated)
|
||||||||
Cash flows from operating activities
|
||||||||
Net income
|
$ | 1,553,156 | $ | 2,419,577 | ||||
Adjustments to reconcile net income to net cash provided by
|
||||||||
(used in) operating activities:
|
||||||||
Depreciation and amortization
|
112,687 | 21,607 | ||||||
Stock issued for services
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- | 105,000 | ||||||
Changes in assets and liabilities:
|
||||||||
(Increase) decrease in -
|
||||||||
Other receivables
|
6,888 | 185,428 | ||||||
Advance to vendors
|
(469,378 | ) | (297,388 | ) | ||||
Advances to management
|
332,010 | (837,716 | ) | |||||
Increase (decrease) in -
|
||||||||
Other payables
|
30,516 | |||||||
Advance from customers
|
(1,056,994 | ) | (332,909 | ) | ||||
Accrued expenses
|
(254,828 | ) | (363,130 | ) | ||||
Tax payable
|
(723,548 | ) | 269,674 | |||||
Net cash (used in) provided by operating activities
|
(469,491 | ) | 1,170,143 | |||||
Cash flows from investing activities
|
||||||||
Long-term deposit
|
(152,945 | ) | (368,815 | ) | ||||
Acquistion of property and equipment
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(126,334 | ) | (101,417 | ) | ||||
Incease in construction in progress
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(397,084 | ) | - | |||||
Net cash used in investing activities
|
(676,363 | ) | (470,232 | ) | ||||
Cash flows from financing activities
|
||||||||
Repayment of shareholder loan
|
- | (705 | ) | |||||
Dividends paid
|
- | (1,285,305 | ) | |||||
Proceeds from issuance of common stock under a private placement
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- | 1,220,400 | ||||||
Net cash (used in) financing activities
|
- | (65,610 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents
|
142,030 | (31,631 | ) | |||||
Net (decrease) increase in cash and cash equivalents
|
(1,003,823 | ) | 602,670 | |||||
Cash and cash equivalents, beginning of period
|
10,272,391 | 6,089,919 | ||||||
Cash and cash equivalents, end of period
|
$ | 9,268,568 | $ | 6,692,589 | ||||
Supplemental disclosures of cash flow information:
|
||||||||
Interest paid | $ | - | $ | - | ||||
Income taxes paid | $ | 1,636,867 | $ | 702,812 |
Name of the entity | Place of Incorporation | Ownership Percentage | |||
Surmounting Limit Marketing Advisor Limited
("SLM")
|
Hong Kong, China | 100% | |||
Hangzhou MYL Business Administration Co., Ltd.
("MYL Business")
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Hangzhou, China | 100% | |||
Shanghai MYL Consulting Co., Ltd.
("MYL Consulting")
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Shanghai, China | 100% | |||
Hangzhou MYL Commerical Service., Ltd.
("MYL Commerical")
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Hangzhou, China | VIE | |||
Computer electronics equipments | 3 years |
Vehicles | 5 years |
Other equipments | 3 years |
Leasehold improvements | 3 years |
June 30, 2011
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December 31, 2010
|
June 30, 2010
|
||||
Period end RMB: US$ exchange rate
|
6.4634
|
6.6023
|
6.7814
|
|||
Average RMB: US$ exchange rate
|
6.5383
|
6.7682
|
6.8258
|
June 30, 2011
|
December 31, 2010
|
|||||||
Property
|
$ | 96,670 | $ | 94,636 | ||||
Computer and electronics equipment
|
183,773 | 175,718 | ||||||
Automobiles
|
620,235 | 486,269 | ||||||
Leasehold improvements
|
50,418 | 49,358 | ||||||
Sub-total
|
951,096 | 805,981 | ||||||
Less: accumulated depreciation
|
(185,603 | ) | (70,105 | ) | ||||
Property, plant and equipment, net
|
$ | 765,493 | $ | 735,876 |
2011
|
2010
|
||||
U.S. Statutory income tax rate
|
35.0%
|
35.0%
|
|||
Statutory tax rate difference between U.S. and China
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(10.0%)
|
(10.0%)
|
|||
Non-deductible expenditure (1)
|
4.2%
|
1.9%
|
|||
Effective income tax rate
|
29.2%
|
26.9%
|
As of
|
As of
|
|||||||
June 30,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
Corporation income tax
|
$ | 377,510 | $ | 919,551 | ||||
Business tax
|
77,288 | 222,289 | ||||||
Other tax and fees
|
18,711 | 38,240 | ||||||
Total tax payable
|
$ | 473,509 | $ | 1,180,080 |
|
June 30,
2011
|
December 31,
2010
|
||||
|
||||||
Original paid-in capital
|
|
$ |
4,354
|
|
$ |
4,354
|
Retained Earnings
|
|
34,372
|
|
3,773
|
||
Accumulated other comprehensive (loss)
|
|
(2,885)
|
|
(6,658)
|
||
|
||||||
Total
|
|
$ |
35,841
|
|
$ |
1,469
|
For the six months ended June 30, | ||||||||
2011 | 2010 | |||||||
Cost of lecturer's compensation | $ | 1,826,885 | $ | 583,017 | ||||
Hotel and conference-room
|
1,141,599 | 806,282 | ||||||
Educational facility costs | 166,084 | 110,399 | ||||||
Consulting fee | 949,353 | 448,662 | ||||||
Administrative support | 193,514 | 154,728 | ||||||
Sales taxes | 729,949 | 861,604 | ||||||
Total cost of sales | $ | 5,007,383 | $ | 2,964,693 |
2011
|
$ | 417,040 | ||
2012
|
637,486 | |||
2013
|
624,478 | |||
2014
|
211,464 | |||
Total
|
$ | 1,890,468 |
·
|
the “Company,” “we,” “us,” and “our” refer to the combined business of China Executive Education Corp., a Nevada corporation, and its consolidated subsidiaries and variable interest entity;
|
·
|
“SLM” refers to our subsidiary Surmounting Limit Marketing Adviser Limited, a Hong Kong limited company;
|
·
|
“MYL Business” refers to our indirect subsidiary Hangzhou MYL Business Administration Consulting Co., Ltd., a PRC limited company;
|
·
|
“Shanghai MYL” refers to our indirect subsidiary Shanghai MYL Business Administration Consulting Co. Ltd., a PRC limited company;
|
·
|
“MYL Commercial” refers to our variable interest entity Hangzhou MYL Commercial Services Co., Ltd., a PRC limited company;
|
·
|
“MYL Training School” refers to MYL Commercial’s subsidiary Hangzhou Gongshu MYL Training School;
|
·
|
“Hong Kong” refers to the Hong Kong Special Administrative Region of the People’s Republic of China;
|
·
|
“PRC” and “China” refer to the People’s Republic of China, excluding Hong Kong, Macau and Taiwan;
|
·
|
“SEC” refers to the Securities and Exchange Commission;
|
·
|
“Securities Act” refers to the Securities Act of 1933, as amended;
|
·
|
“Exchange Act” refers to the Securities Exchange Act of 1934, as amended;
|
·
|
“Renminbi” and “RMB” refer to the legal currency of China; and
|
·
|
“U.S. dollars,” “dollars” and “$” refer to the legal currency of the United States.
|
·
|
Revenues: Revenues were $3.8 million for the three months ended June 30, 2011, a decrease of $1,204,370, or 24.0%, for the same period last year.
|
·
|
Gross Profit and Margin: Our gross profit decreased $1,376,535, or 41%, to approximately $2,008,868 for the three months ended June 30, 2011, as compared to $3,385,403 for the three months ended June 30, 2010.
|
·
|
Net Income: Net income was $621,505 for the three months ended June 30, 2011, as compared to net income of $1,370,876 for the same period of 2010. The decrease in net income of $749,371 was primarily due to decreased student recruiting and course attendance during the quarter.
|
·
|
Fully diluted net income per share: Fully diluted net income per share for the six months ended June 30, 2011 was $0.03, as compared to $0.06 for the same period last year.
|
For the three months ended June 30,
|
||||||||||||||
2011
|
2010
|
Variance |
%
|
|||||||||||
(Restated)
|
||||||||||||||
Revenue
|
$ |
3,809,951
|
$ |
5,014,321
|
$ |
(1,204,370)
|
(24
|
%)
|
||||||
Cost of revenue
|
1,801,083
|
1,628,918
|
172,165
|
11
|
%
|
|||||||||
Gross profit
|
2,008,868
|
3,385,403
|
(1,376,535)
|
(41
|
%)
|
|||||||||
Operating expenses
|
||||||||||||||
Selling expenses
|
606,880
|
654,730
|
(47,850)
|
(7
|
%)
|
|||||||||
General and administrative expenses
|
782,073
|
863,494
|
(81,421)
|
(9
|
%)
|
|||||||||
Total operating expenses
|
1,388,953
|
1,518,224
|
(129,271)
|
(9
|
%)
|
|||||||||
Income from operations
|
619,915
|
1,867,179
|
(1,247,264
|
(67
|
%)
|
|||||||||
Other income (expenses) | ||||||||||||||
Interest income | 23,236 | 4,738 | 18,498 | 390 | % | |||||||||
Other income | 184,851 | 95,228 | 89,623 | 94 | % | |||||||||
Total other income (expenses)
|
208,087
|
99,966
|
108,121
|
108
|
%
|
|||||||||
Income before income taxes
|
828,002
|
1,967,145
|
(1,139,143)
|
(58
|
%)
|
|||||||||
Income taxes
|
206,497
|
596,269
|
(389,772)
|
(65
|
%) | |||||||||
Net income
|
$ |
621,505
|
$ |
1,370,876
|
$ |
(749,371)
|
(55
|
%)
|
Three months ended June 30, 2011
|
% |
Three months ended
June 30, 2010
|
% | Change | % of change | |||||||||||||||||||
Revenue from Proprietary Training Courses
|
$ | 1,400,292 | 36.8% | $ | 3,390,530 | 67.6% | $ | (1,990,238 | ) | -58.7% | ||||||||||||||
Revenue from comprehensive training packages
|
2,409,659 | 63.20 | 1,623,791 | 32.4% | 785,868 | -48.4% | ||||||||||||||||||
Total Revenue
|
$ | 3,809,951 | 100.0% | $ | 5,014,321 | 100.0% | $ | (1,204,370 | ) | -24.0% |
Three months ended June 30, 2011
|
Three months ended June 30, 2010
|
Change
|
% of change
|
|||||||||||||||||||||
Cost of lecturer's compensation
|
506,364 | 28.1 | % | 147,281 | 9.0 | % | 359,082 | 243.8 | % | |||||||||||||||
Hotel and conference-room
|
627,219 | 34.8 | % | 600,002 | 36.8 | % | 27,217 | 4.5 | % | |||||||||||||||
Educational facility costs
|
130,125 | 7.2 | % | 68,243 | 4.2 | % | 61,882 | 90.7 | % | |||||||||||||||
Consulting fee
|
124,675 | 6.9 | % | 279,540 | 17.2 | % | (154,865 | ) | -55.4 | % | ||||||||||||||
Administrative support
|
119,014 | 6.6 | % | 100,999 | 6.2 | % | 18,015 | 17.8 | % | |||||||||||||||
Sales taxes
|
293,686 | 16.3 | % | 432,853 | 26.6 | % | (139,167 | ) | -32.2 | % | ||||||||||||||
Total cost of sales
|
1,801,083 | 100.0 | % | 1,628,918 | 100.0 | % | 172,165 | 10.6 | % |
For the six months ended June 30,
|
||||||||||||||||
2011
|
2010
|
Variance |
%
|
|||||||||||||
(Restated)
|
||||||||||||||||
Revenues
|
$ | 9,587,805 | $ | 9,355,786 | $ | 232,019 | 2.5 | % | ||||||||
Cost of revenue
|
5,007,383 | 2,964,693 | 2,042,690 | 68.9 | % | |||||||||||
Gross profit
|
4,580,422 | 6,391,093 | (1,810,671 | ) | -28.3 | % | ||||||||||
Operating expenses
|
||||||||||||||||
Selling expenses | 1,101,857 | 1,259,008 | (157,151 | ) | -12.5 | % | ||||||||||
General and administrative expenses | 1,539,604 | 1,920,251 | (380,647 | ) | -19.8 | % | ||||||||||
Total operating expenses
|
2,641,461 | 3,179,259 | (537,798 | ) | -16.9 | % | ||||||||||
Income from operations
|
1,938,961 | 3,211,834 | (1,272,873 | ) | -39.6 | % | ||||||||||
Other income
|
||||||||||||||||
Interest income | 58,786 | 4,952 | 53,834 | 1087.1 | % | |||||||||||
Other income | 194,860 | 95,228 | 99,632 | 104.6 | % | |||||||||||
Total Other income
|
253,646 | 100,180 | 153,466 | 153.2 | % | |||||||||||
Income before income taxes
|
2,192,607 | 3,312,014 | (1,119,407 | ) | -33.8 | % | ||||||||||
Provision for income taxes
|
639,451 | 892,437 | (252,986 | ) | -28.3 | % | ||||||||||
Net income
|
$ | 1,553,156 | $ | 2,419,577 | $ | (866,421 | ) | -35.8 | % |
Six months ended June 30, 2011
|
%
|
Six months ended June 30, 2010
|
%
|
Change
|
% of change
|
|||||||||||||||||||
Revenue from Proprietary Training Courses
|
6,561,999 | 68.4 | % | 6,557,275 | 70.1 | % | 4,724 | 0.1 | % | |||||||||||||||
Revenue from comprehensive training packages
|
3,025,806 | 31.6 | % | 2,798,511 | 29.9 | % | 227,295 | 8.1 | % | |||||||||||||||
Total
|
$ | 9,587,805 | 100.0 | % | 9,355,785 | 100.0 | % | 232,019 | 2.5 | % |
Six months ended June 30, 2011
|
% |
Six months ended June 30, 2010
|
% |
Change
|
% of change
|
|||||||||||||||||||
Cost of lecturer's compensation
|
$ | 1,826,885 | 36.5% | $ | 583,017 | 19.7% | $ | 1,243,868 | 213.4% | |||||||||||||||
Hotel and conference-room
|
1,141,599 | 22.8% | 806,282 | 27.2% | 335,317 | 41.6% | ||||||||||||||||||
Educational facility costs
|
166,084 | 3.3% | 110,399 | 3.7% | 55,685 | 50.4% | ||||||||||||||||||
Consulting fee
|
949,353 | 19.0% | 448,662 | 15.1% | (500,691 | ) | 52.7% | |||||||||||||||||
Administrative support
|
193,514 | 3.9% | 154,728 | 5.2% | 38,786 | 25.1% | ||||||||||||||||||
Sales taxes
|
729,949 | 14.6% | 861,604 | 29.1% | (131,655 | ) | (15.3% | ) | ||||||||||||||||
Total cost of sales
|
$ | 5,007,383 | 100.0% | $ | 2,964,693 | 100.0% | $ | 2,042,690 | 68.9% |
2011
|
2010 (Restated)
|
|||||
Cash flows from operating activities
|
$
|
(469,491)
|
$
|
1,170,143
|
||
Cash flows from investing activities
|
(676,363)
|
(470,232)
|
||||
Cash flows from financing activities
|
-
|
(65,610)
|
||||
Effect of exchange rate changes on cash
|
142,030
|
(31,631)
|
||||
Net (decrease) increase in cash and cash equivalents
|
(1,003,823)
|
602,670
|
||||
Cash and cash equivalents, beginning of period
|
10,272,391
|
6,089,919
|
||||
Cash and cash equivalents, end of period
|
$ |
9,268,568
|
$ 6,692,589
|
ITEM 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
|
ITEM 4.
|
CONTROLS AND PROCEDURES.
|
ITEM 1.
|
LEGAL PROCEEDINGS.
|
ITEM 1A.
|
RISK FACTORS.
|
ITEM 2.
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
|
ITEM 3.
|
DEFAULTS UPON SENIOR SECURITIES.
|
ITEM 4.
|
(REMOVED AND RESERVED).
|
ITEM 5.
|
OTHER INFORMATION.
|
ITEM 6.
|
EXHIBITS.
|
Exhibit No.
|
Description
|
|
31.1
|
Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31.2
|
Certifications of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32.1
|
Certifications of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32.2
|
Certifications of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
101 |
The following materials from China Executive Education Corp. Quarterly Report on Form 10-Q for the period ended June 30, 2011, formatted in Extensible Business Reporting Language: (i) condensed consolidated balance sheets, (ii) condensed consolidated statements of income and comprehensive income, (iii) condensed consolidated statements of cash flows, and (iv) notes to condensed consolidated financial statements. As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934 (filed herewith).
|
Date: September 8, 2011
|
CHINA EXECUTIVE EDUCATION CORP.
|
|
By:
|
/s/ Kaien Liang
|
|
Kaien Liang, Chief Executive Officer
|
||
(Principal Executive Officer)
|
By:
|
/s/ Zhiwei Huang
|
|
Zhiwei Huang, Chief Financial Officer
|
||
(Principal Financial Officer and Principal
Accounting Officer)
|
1.
|
I have reviewed this quarterly report on Form 10-Q/A of China Executive Education Corp.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
|
||
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
/s/ Kaien Liang
|
Kaien Liang
|
Chief Executive Officer
(Principal Executive Officer)
|
1.
|
I have reviewed this quarterly report on Form 10-Q/A of China Executive Education Corp.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
|
||
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
/s/ Zhiwei Huang
|
Zhiwei Huang
|
Chief Financial Officer
(Principal Financial and Accounting Officer)
|
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
|
Jun. 30, 2011
|
Dec. 31, 2010
|
---|---|---|
Stockholders Equity | Â | Â |
Common stock par value | $ 0.001 | $ 0.001 |
Common stock shares authorized | 70,000,000 | 70,000,000 |
Common stock shares issued | 22,834,100 | 22,834,100 |
Common stock shares outstanding | 22,834,100 | 22,834,100 |
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (USD $)
|
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2011
|
Jun. 30, 2010
|
Jun. 30, 2011
|
Jun. 30, 2010
|
|
Income Statement [Abstract] | Â | Â | Â | Â |
Revenues | $ 3,809,951 | $ 5,014,321 | $ 9,587,805 | $ 9,355,786 |
Cost of revenue | 1,801,083 | 1,628,918 | 5,007,383 | 2,964,693 |
Gross profit | 2,008,868 | 3,385,403 | 4,580,422 | 6,391,093 |
Operating expenses | Â | Â | Â | Â |
Selling expenses | 606,880 | 654,730 | 1,101,857 | 1,259,008 |
General and administrative expenses | 782,073 | 863,494 | 1,539,604 | 1,920,251 |
Total operating expenses | 1,388,953 | 1,518,224 | 2,641,461 | 3,179,259 |
Income from operations | 619,915 | 1,867,179 | 1,938,961 | 3,211,834 |
Other income (expenses) | Â | Â | Â | Â |
Interest income | 23,236 | 4,738 | 58,786 | 4,952 |
Other income | 184,851 | 95,228 | 194,860 | 95,228 |
Total Other income(expenses) | 208,087 | 99,966 | 253,646 | 100,180 |
Income before income taxes | 828,002 | 1,967,145 | 2,192,607 | 3,312,014 |
Provision for income taxes | 206,497 | 596,269 | 639,451 | 892,437 |
Net income | 621,505 | 1,370,876 | 1,553,156 | 2,419,577 |
Less: net income attributable to non-controlling interest | (2,392) | 1,349 | 34,372 | 2,202 |
Net income attributable to China Executive Education Corp | 623,897 | 1,369,527 | 1,518,784 | 2,417,375 |
Net income | 621,505 | 1,370,876 | 1,553,156 | 2,419,577 |
Foreign currency translation adjustment | 71,473 | (36,253) | 93,472 | (46,703) |
Comprehensive income | 692,978 | 1,334,623 | 1,646,628 | 2,372,874 |
Comprehensive income attributable to non-controlling interest | (3,574) | 1,813 | (4,674) | 2,335 |
Comprehensive income attributable to China Executive Education Corp | $ 689,404 | $ 1,336,436 | $ 1,641,954 | $ 2,375,209 |
Basic and diluted income per common share | $ 0.03 | $ 0.06 | $ 0.07 | $ 0.11 |
Basic and diluted weighted average common shares outstanding | 22,834,100 | 22,199,160 | 22,834,100 | 22,119,691 |
Cash dividends per common share | $ 0 | $ 0.06 | $ 0 | $ 0.06 |
COMMITMENTS
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2011
|
|||||||||||||||||||||||||||||||||||||||||
Notes to Financial Statements | Â | ||||||||||||||||||||||||||||||||||||||||
Note 18. COMMITMENTS | From time to time, the Company leases office spaces in Shanghai and Hangzhou in China to conduct its normal business activities, such as business administration, recruiting students, holding the business conferences and providing professional training courses or featured lectures to students. On April 18, 2011, the Company entered into a new lease agreement with third party Shanghai Sanlin Investment Company to lease a large office space for its Shanghai office for three years (from May 1, 2011 to April 30, 2014), with annual lease payment of RMB 3,996,662 (equivalent to $614,871). Rent expense for May, June and July 2011 will be waived due to office decoration.
The Company also has several rental arrangements which provide residential units to house key employees. These lease agreements will expire before October 2012.
Rent expenses for the above rental arrangements total $382,191 and $391,169 for the six months ended June 30, 2011 and 2010, respectively.
The minimum obligations under such commitments (unless otherwise stated) for the years ending December 31 until their expiration are summarized below:
|
Document and Entity Information (USD $)
|
6 Months Ended | |
---|---|---|
Jun. 30, 2011
|
Aug. 12, 2011
|
|
Document And Entity Information | Â | Â |
Entity Registrant Name | China Executive Education Corp | Â |
Entity Central Index Key | 0001464305 | Â |
Document Type | 10-Q | Â |
Document Period End Date | Jun. 30, 2011 | |
Amendment Flag | false | Â |
Current Fiscal Year End Date | --12-31 | Â |
Is Entity a Well-known Seasoned Issuer? | No | Â |
Is Entity a Voluntary Filer? | No | Â |
Is Entity's Reporting Status Current? | Yes | Â |
Entity Filer Category | Smaller Reporting Company | Â |
Entity Public Float | Â | $ 84,800,000 |
Entity Common Stock, Shares Outstanding | Â | 22,834,100 |
Document Fiscal Period Focus | Q2 | Â |
Document Fiscal Year Focus | 2011 | Â |
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ADVANCE TO VENDORS
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
|
Notes to Financial Statements | Â |
Note 7. ADVANCE TO VENDORS | Advance to vendors primarily represent cash advance payments made to invited foreign lecturers or world masters in order to arrange for them to provide educational trainings or speeches to Chinese students. Such advances are expensed as cost of sales as the planned services have been performed.
Advance to vendors are generally short-term in nature and management believes that no allowance for the uncollectible amounts was deemed necessary.
|
RELATED PARTY TRANSACTIONS
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
|
Notes to Financial Statements | Â |
Note 12. RELATED PARTY TRANSACTIONS | During the normal course of business, the Company, from time to time, temporarily borrows money from its principal stockholders or officers to finance working capital needs. The amounts are usually unsecured, non-interest bearing and due on demand. The Company had stockholder loans in the amount of $20,133 and $19,690 as of June 30, 2011 and December 31, 2010, respectively.
During the six months ended June 30, 2011, the Company paid a bonus totaling RMB 4,312,000 (equivalent to $665,440) to its Chief Executive Officer, Mr. Liang Kaien, who is also one of the major lecturers providing educational trainings services to the students. The Company recorded the executive compensation as cost of sales.
The Company has several rental arrangements providing residential units to house key employees, including the Chief Executive Officer, Mr. Liang Kaien, Chief Operating Officer, Mr. Xu Pokai, and Chief Strategy Officer, Mr. Chen Tingyuan. For the six months ended June 30, 2011 and 2010, housing benefits provided to these officers totaled $112,335 and $57,137, respectively.
|
RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
|
Notes to Financial Statements | Â |
Note 3. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS | The Company has restated certain items in its interim condensed financial statements for the six months ended June 30, 2010, as previously disclosed in Form 10-K for 2010 filed on April 15, 2011.
|
LONG-TERM DEPOSIT
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
|
Notes to Financial Statements | Â |
Note 9. LONG-TERM DEPOSIT | Pursuant to the contract terms with a local hotel, the Company is required to make advance deposits with the local hotels in order for the Company to book hotel rooms or conference rooms at favorable rates to hold various meetings or provide training courses to students. Such deposits are long-term in nature.
|
STATUTORY RESERVES
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
|
Notes to Financial Statements | Â |
Note 14. STATUTORY RESERVES | The Company is required to make appropriations to certain reserve funds, comprising the statutory surplus reserve and discretionary surplus reserve, based on after-tax net income determined in accordance with generally accepted accounting principles of the PRC (PRC GAAP). Appropriations to the statutory surplus reserve are required to be at least 10% of the after tax net income determined in accordance with PRC GAAP until the reserve is equal to 50% of the entities registered capital. Appropriations to the discretionary surplus reserve are made at the discretion of the Board of Directors.
The statutory surplus reserve fund is non-discretionary other than during liquidation and can be used to fund previous years losses, if any, and may be utilized for business expansion or converted into share capital by issuing new shares to existing shareholders in proportion to their shareholding or by increasing the par value of shares currently held by them, provided that the remaining statutory surplus reserve balance after such issue is not less than 25% of the registered capital before the conversion.
Pursuant to the Companys articles of incorporation, the Company is to appropriate 50% of the entities registered capital as statutory surplus reserve. The appropriation to statutory reserve is conducted on an annual basis. As of June 30, 2011 and December 31, 2010, the balance of statutory surplus reserve was $43,917.
The discretionary surplus reserve may be used to acquire fixed assets or to increase the working capital to expend on production and operation of the business. The Companys Board of Directors decided not to make an appropriation to this reserve for the six months ended June 30, 2011 and 2010, respectively.
|
PROPERTY AND EQUIPMENT
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2011
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes to Financial Statements | Â | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Note 10. PROPERTY AND EQUIPMENT | As of June 30, 2011 and December 31, 2010, the detail of property and equipment was as follows:
|
CONSTRUCTION IN PROGRESS
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
|
Notes to Financial Statements | Â |
Note 8. CONSTRUCTION IN PROGRESS | In April 2011, the Company entered into an office lease agreement with third party Shanghai Sanlin Investment Company to lease an office space of 3,443 square meters for its Shanghai headquarter office for three years (from May 1, 2011 to April 30, 2014). In order to decorate the newly leased office space, the Company prepaid RMB 2.5 million (equivalent to $401,683) to several vendors to be used in the decoration project. The Company recorded such amount as construction in progress and will capitalized it when the planned decoration project is completed which is expected by the end of August 2011.
|
ORGANIZATION
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
|
Notes to Financial Statements | Â |
Note 1. ORGANIZATION | China Executive Education Corp (the Company), formerly known as On Demand Heavy Duty Corp, is a corporation organized under the laws of the State of Nevada.
On February 12, 2010, the Company acquired all of the outstanding capital stock of Surmounting Limit Marketing Adviser Limited (SLM), a Hong Kong Corporation, through China Executive Education Corp., a Nevada corporation (the Merger Sub) wholly owned by the Company. SLM is a holding company whose only asset, held through a subsidiary, is 100% of the registered capital of Hangzhou MYL Business Administration Consulting Co., Ltd. (MYL Business), a limited liability company organized under the laws of the Peoples Republic of China (PRC). Substantially all of SLM's operations are conducted in China through MYL Business, and through contractual arrangements with several of MYL Businesss affiliated entities in China, including Hangzhou MYL Commercial Services Co., Ltd. (MYL Commercial) and its subsidiaries. MYL Commercial is a fast-growing executive education company with dominant operation in Shanghai, the commercial center of China, providing comprehensive consulting services such as business administration, marketing strategy, designing of enterprise image, corporate investment and commerce, business conference as well as professional training programs designed to fit the needs of Chinese entrepreneurs to improve their leadership, management and marketing skills.
In connection with the acquisition, the Merger Sub issued 20 shares of the common stock of the Merger Sub which constituted no more than 10% ownership interest in the Merger Sub to the shareholders of SLM, in exchange for all the shares of the capital stock of SLM (the Share Exchange or Merger). The 20 shares of the common stock of the Merger Sub were converted into approximately 21,560,000 shares of the common stock of the Company so that upon completion of the Merger, the shareholders of SLM owned approximately 98% of the common stock of the Company.
As part of the Merger, pursuant to a stock purchase agreement (the Stock Purchase Agreement), the Company transferred all of the outstanding capital of its subsidiary, On Demand Heavy Duty Holdings, Inc. (Holdings) to certain of its shareholders in exchange for the cancellation of 3,000,000 shares of the Companys common stock (the Split Off Transaction). In addition, an aggregate of 3,070,000 shares were returned to the transfer agent for cancelation by other shareholders of Holdings. Following the Merger and the Split-Off Transaction, the Company discontinued its former business and is now engaged in the executive education business.
Upon completion of the Merger, there were 22,000,000 shares of the Companys common stock issued and outstanding.
As a result of these transactions, persons affiliated with the SLM and MYL Business owned securities that in the aggregate represent approximately 98% of the equity in the Company. In addition, in connection with the change of control contemplated by the Share Exchange, the directors and officers of the Company resigned from their positions and new directors and officers affiliated with MYL Business controlled the Board of Directors. Consequently, the Companys name was changed from On Demand Heavy Duty Corp. to the Merger Subs name China Executive Education Corp. in order to more effectively reflect the Companys business and communicate the Companys brand identity to customers.
The above mentioned merger transaction has been accounted for as a reverse merger under the purchase method of accounting since there was a change of control. Accordingly, SLM is treated as the continuing entity for accounting purposes. SLM did not commence business operations until April 2009.
SLM does not conduct any substantive operations of its own. Instead, through its subsidiary, MYL Business, it had entered into certain exclusive contractual agreements with Hangzhou MYL Commercial Services Co., Ltd. (MYL Commercial), a company incorporated in Hangzhou City, Zhejiang Province, Peoples Republic of China (PRC) on March 25, 2009. Pursuant to these agreements, SLM is obligated to absorb a majority of the risk of loss from MYL Commercials activities and entitled it to receive a majority of its expected residual returns. In addition, MYL Commercials shareholders have pledged their equity interest in MYL Commercial to SLM, irrevocably granted SLM an exclusive option to purchase, to the extent permitted under PRC Law, all or part of the equity interests in MYL Commercial and agreed to entrust all the rights to exercise their voting power to the persons appointed by MYL Commercial. Through these contractual arrangements, the Company and SLM hold substantially all the variable interests of MYL Commercial. Therefore, the Company is the primary beneficiary of MYL Commercial.
Based on these contractual arrangements, management believes that MYL Commercial should be considered as a Variable Interest Entity (VIE) under ASC 810 Consolidation, because the Company is the primary beneficiary. Accordingly, the Company consolidates MYL Commercial and its subsidiarys results, assets and liabilities.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
6 Months Ended | |||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2011
|
||||||||||||||||||||||||||||||||||||
Notes to Financial Statements | Â | |||||||||||||||||||||||||||||||||||
Note 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Non-controlling interest
Non-controlling interest represents two minority shareholders 5% proportionate share of the results of the Companys subsidiary Hangzhou MYL Commercial Services Co., Ltd., based on the contractual arrangements between the Company, MYL Commercial and its shareholders.
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes, and disclosure of contingent liabilities at the date of the consolidated financial statements. Estimates are used for, but not limited to, the selection of the useful lives of property and equipment, provision necessary for contingent liabilities, taxes and other similar charges. Management believes that the estimates utilized in preparing its consolidated financial statements are reasonable and prudent. Actual results could differ from these estimates.
Property and equipment
Property and equipment are recorded at cost less accumulated depreciation. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditures incurred after the assets have been put into operation, such as repairs and maintenance and overhaul costs, are normally charged to an expense account in the year in which it is incurred.
Depreciation is computed using the straight-line method over the estimated useful lives of the assets, less any estimated residual value. Estimated useful lives of the assets are as follows:
Impairment of long-lived assets
In accordance with ASC 360, Property, Plant and Equipment, the Company is required to review its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value. The Company estimates fair value based on the information available in making whatever estimates, judgments and projections are considered necessary. There was no impairment of long-lived assets during the six months ended June 30, 2011 and 2010.
Revenue recognition
The Company recognizes revenue in accordance with ASC 605, Revenue Recognition, which requires that revenue be recognized when it is earned and either realized or realizable. In general, the Company generates revenue from the delivery of professional services and records revenues when the services are completed, payment is collected or collectability is reasonably assured, there is no future obligation and there is remote chance of future claim or refund to the customers. It is reported net of business taxes and refunds. Deposits or advance payments from customers prior to delivery of services are recorded as customer deposits.
Advertising costs
Advertising costs are expensed when incurred, consisting primarily of costs of promotion for corporate image and costs of direct advertising for marketing the Companys course training programs. Advertising expenses totaled $162,540 and $1,084 for the six months ended June 30, 2011 and 2010, respectively.
Income taxes
The Company utilizes ASC 740, Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. There are no deferred taxes for the six months ended June 30, 2011 and 2010.
ASC 740-10-25 prescribes a more-likely-than-not threshold for consolidated financial statement recognition and measurement of a tax position taken (or expected to be taken) in a tax return. This Interpretation also provides guidance on the recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods and income tax disclosures. There are no material uncertain tax positions as of June 30, 2011 and 2010, respectively.
All tax returns of the Company since inception are subject to tax examination by tax authorities.
Foreign currency translation
The Companys financial information is presented in US dollars, which is the functional currency of the U.S. parent. The functional currency of the operating subsidiaries and VIEis Renminbi (RMB),the currency of the PRC.
The financial statements of the Company have been translated into U.S. dollars in accordance with FASB ASC 830-30 Translation of Financial Statements. The financial information is first prepared in RMB and then is translated into U.S. dollars at period-end exchange rates as to assets and liabilities and average exchange rates as to revenue and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred. The effects of foreign currency translation adjustments are included as a component of accumulated other comprehensive income in shareholders equity.
The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into US dollars at the rates used in translation.
Comprehensive income
Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. The Companys only components of comprehensive income during the six months ended June 30, 2011 and 2010 were net income and the foreign currency translation adjustment.
Earnings per share
Basic EPS is measured as net income divided by the weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS. There were no potential common shares for the periods presented.
In February 2010, the Company entered into a share exchange transaction which has been accounted for as a reverse merger since there has been a change of control. The Company computes the weighted-average number of common shares outstanding in accordance with ASC 805, Business Combinations, which states that in calculating the weighted average shares when a reverse merger takes place in the middle of the year, the number of common shares outstanding from the beginning of that period to the acquisition date shall be computed on the basis of the weighted-average number of common shares of the legal acquiree (the accounting acquirer) outstanding during the period multiplied by the exchange ratio established in the merger agreement. The number of common shares outstanding from the acquisition date to the end of that period shall be the actual number of common shares of the legal acquirer (the accounting acquiree) outstanding during that period.
Concentration of credit risk
Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of other receivables. The Company does not require collateral or other security to support these receivables. The Company conducts periodic reviews of its clients' financial condition and customer payment practices to minimize collection risk on its receivables.
Risks and uncertainties
The operations of the Company are located in the PRC. Accordingly, the Companys operations are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Companys results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things.
Recent Accounting Pronouncements
In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRSs (ASU 2011-04), an update to Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures (ASC 820). ASU 2011-04 provides guidance to change the wording used to describe many of the requirements in U.S. generally accepted accounting principles for measuring fair value and for disclosing information about fair value measurements. For public entities, ASU 2011-04 is effective for interim and annual periods beginning after December 15, 2011 and is to be applied prospectively. Early application by public entities is not permitted. As ASU 2011-04 impacts presentation only, the adoption of this update will not impact our consolidated financial statements.
In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income (ASU 2011-05), an update to ASC 220, Comprehensive Income. This ASU requires the components of net income and the components of other comprehensive income to be presented either in a single continuous statement of comprehensive income or in two separate but continuous statements. ASU 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders equity. This guidance does not change the items that must be reported in other comprehensive income, when an item of other comprehensive income must be reclassified to net income or how earnings per share is calculated or presented. ASU 2011-05 is effective for public entities for interim and annual periods beginning after December 15, 2011. Early adoption is permitted. As ASU 2011-05 impacts presentation only, the adoption of this update will not impact our consolidated financial statements.
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RESTRICTED CASH
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6 Months Ended |
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Jun. 30, 2011
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Notes to Financial Statements | Â |
Note 5. RESTRICTED CASH | Restricted cash has been set aside because the Company is required by the Chinese government to have basic infrastructure, necessary facility, place and fund to conduct educational business in China. Since the Company does not have a physical facility and campus in Hangzhou, a restricted cash deposit with PRC Bank for RMB 2 million is required by the local educational authority in order to maintain the Companys subsidiary Hangzhou Chaoyue School. Restricted cash amounted to $309,433 and $302,924 as of June 30, 2011 and December 31, 2010, respectively.
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TAXES
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Jun. 30, 2011
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Notes to Financial Statements | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Note 13. TAXES | (a) Business sales tax
The Company is subject to 5% business sales tax on actual revenue generated. It is the Companys continuing practice to accrue 5% of the sales tax on estimated revenue and file its tax returns based on the actual result, as the local tax authority may exercise broad discretion in applying the tax amount. As a result, the Companys accrual sales tax may differ from the actual tax clearance.
(b) Corporation income tax (CIT)
China Executive Education Corp was incorporated in the United States. It had net operating loss carry forwards for United States income tax purposes of $47,390 as of June 30, 2011, which may be available to reduce future years' taxable income. These carry forwards will expire in 2030. However, due to the change in control, the amount of loss to be utilized each year may be limited. As the result of the share exchange agreement, management doesn't expect to remit any of its net income back to the United States in the foreseeable future. Accordingly, the Company recorded a full valuation allowance of $47,390 as of June 30, 2011.
The Companys Chinese subsidiaries are governed by the Income Tax Law of the Peoples Republic of China concerning private-run enterprises, which are generally subject to tax at a statutory rate of 25% on income reported in the statutory financial statements after appropriate tax adjustments. For the six months ended June 30, 2011 and 2010, the Company recorded income tax expense of $639,451 and $892,437, respectively.
The following table reconciles the U.S. statutory rate to the Companys PRC effective tax rate for the six months ended June 30, 2011 and 2010:
Note (1): non-deductible expenditure related to executive compensation. See Note 12.
(c) Taxes payable
As of June 30, 2011 and December 31, 2010, taxes payable consisted of the following:
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ADVANCES TO MANAGEMENT
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6 Months Ended |
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Jun. 30, 2011
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Notes to Financial Statements | Â |
Note 6. ADVANCES TO MANAGEMENT | Advances to management include short-term advances made to certain managers for business marketing, hotel negotiation, and student recruiting purposes. Such advances will be expensed as the planned marketing and recruiting tasks have been performed. The Company has full oversight and control over such advanced amounts. As of December 31, 2010, the advances amounted $328,791 and these amounts have been fully collected during the six months ended June 30, 2011.
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EMPLOYEE DEFINED CONTRIBUTION PLAN
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6 Months Ended |
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Jun. 30, 2011
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Notes to Financial Statements | Â |
Note 16. EMPLOYEE DEFINED CONTRIBUTION PLAN | Full time employees of the Companys subsidiaries in the PRC participate in a government-mandated defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations require that the PRC subsidiaries of the Company make contributions to the government for these benefits based on 23% of the employees salaries. The Companys PRC subsidiaries have no legal obligation for the benefits beyond the contributions made. The total amounts for such employee benefits, which were expensed as incurred, were $12,280 and $32,479 for the six months ended June 30, 2011 and 2010, respectively and are included in selling, general and administrative expenses.
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COST OF REVENUE
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6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
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Notes to Financial Statements | Â | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Note 17. COST OF REVENUE | The Companys costs of revenue primarily include expenditures incurred in connection with providing educational services to the students, such as renting conference rooms, booking hotels, compensation for lecturers, consulting fees paid to various service providers who help to plan and organize the trainings, renting training equipment and materials as well as sales taxes.
As of June 30, 2011 and 2010, costs of revenue consisted of the following:
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BASIS OF PRESENTATION
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6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
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Notes to Financial Statements | Â | ||||||||||||||||||||||||||||||||||||||||||||||||
Note 2. BASIS OF PRESENTATION | The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission for interim financial statements. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of the management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. These condensed consolidated financial statements and notes should be read in conjunction with the audited consolidated December 31, 2010 financial statements and footnotes included in Form 10-K filed with the Securities and Exchange Commission (SEC) on April 15, 2011. Operating results for the six months ended June 30, 2011 may not be necessarily indicative of the results that may be expected for the full year.
The condensed consolidated financial statements of the Company will reflect the principal activities of the following entities. All material intercompany transactions have been eliminated.
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CUSTOMER DEPOSITS
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6 Months Ended |
---|---|
Jun. 30, 2011
|
|
Notes to Financial Statements | Â |
Note 11. CUSTOMER DEPOSITS | Customer deposits represent amounts received in advance from students for tuition paid to attend the Companys professional training courses and featured lectures. Customer deposits are refundable if the training doesnt occur within the specified time. The Company recognizes these funds as a current liability until the revenue can be recognized.
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NON-CONTROLLING INTEREST
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6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
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Notes to Financial Statements | Â | |||||||||||||||||||||||||||||||||||||||||||||||||
Note 15. NON-CONTROLLING INTEREST | Non-controlling interest represents two minority shareholders 5% proportionate share of the results of the Companys subsidiary Hangzhou MYL Commercial Services Co., Ltd. As of June 30, 2011 and December 31, 2010, non-controlling interest consisted of the following:
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