Attached files

file filename
EX-31.2 - CHINA IVY SCHOOL, INC.e606068_ex31-2.htm
EX-32.1 - CHINA IVY SCHOOL, INC.e606068_ex32-1.htm
EX-32.2 - CHINA IVY SCHOOL, INC.e606068_ex32-2.htm
EX-31.1 - CHINA IVY SCHOOL, INC.e606068_ex31-1.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2009
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _______________ to _______________
 
Commission File Number: 000-50240
 
CHINA IVY SCHOOL, INC.
(Exact name of small business as specified in its charter)
 
Nevada   98-0534456
(State or other jurisdiction
of incorporation or organization)
  (IRS Employer Identification Number)
 
1 Suhua Road, Shiji Jinrong Building, Suite 801,
Suzhou Industrial Park, Jiangsu Province, China, 215020
(Address of principal executive offices)
 
(852) 2511-1665
(Issuer's telephone number, including area code)

 
(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 x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer o   Accelerated filer o
Non-accelerated filer   o   Smaller reporting company x
(Do not check if a smaller reporting company)  
 
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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. The Issuer had 3,082,500 shares of common stock outstanding as of November 10, 2009.



Table of Contents


Page
Item 1.  Financial Statements
                                      F-1
   
Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations
3
 
                                    
Item 3   Quantitative and Qualitative Disclosures About Market Risk
                      6
   
Item 4T. Controls and Procedures
                                   7
   
PART II. OTHER INFORMATION
 
   
Item 1A  Risk Factors
                                         7
   
Item 6.  Exhibits
                                           7
   
SIGNATURES
                                         8
 
Forward Looking Statements

The Company desires to take advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. This report contains a number of forward-looking statements that reflect management's current views and expectations with respect to our business, strategies, future results and events and financial performance. All statements made in this Report other than statements of historical fact, including statements that address operating performance, events or developments that management expects or anticipates will or may occur in the future, including statements related to growth, revenues, profitability, adequacy of funds from operations, statements expressing general optimism about future operating results and non-historical information, are forward looking statements. In particular, the words "believe," "expect," "intend," " anticipate," "estimate," "may," "will," variations of such words, and similar expressions identify forward-looking statements, but are not the exclusive means of identifying such statements and their absence does not mean that a statement is not forward-looking. These forward-looking statements are subject to certain risks and uncertainties, including those discussed in our Reports previously filed with the Securities and Exchange Commission. Our actual results, performance or achievements could differ materially from historical results as well as those expressed in, anticipated or implied by forward-looking statements. We do not undertake any obligation to revise these forward-looking statements to reflect any future events or circumstances. Readers should not place undue reliance on forward-looking statements, which are based on management's current expectations and projections about future events, are not guarantees of future performance, are subject to risks, uncertainties and assumptions (including those described below) and apply only as of the date of this report. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

1




CHINA IVY SCHOOL, INC. AND SUBSIDIARIES
 
INDEX TO FINANCIAL STATEMENTS
 
 
Page
   
Condensed Consolidated Balance Sheets
       as of September 30, 2009 (Unaudited) and December 31, 2008
F-1
   
Condensed Consolidated Statements of Operations
       for the Three and Nine Months ended September 30, 2009 and 2008 (Unaudited)
F-2
   
Condensed Consolidated Statements of Stockholders’ Equity
       for the Nine Months ended September 30, 2009 (Unaudited) and the Year ended December 31, 2008
F-3
   
Condensed Consolidated Statements of Cash Flows
       for the Nine Months ended September 30, 2009 and 2008 (Unaudited)
F-4
   
Notes to Condensed Consolidated Financial Statements (Unaudited)
F-5 - F-13

2


CHINA IVY SCHOOL, INC. AND SUBSIDIARIES
(FORMERLY CLAREMONT TECHNOLOGIES CORP.)
CONDENSED CONSOLIDATED BALANCE SHEETS
             
   
September 30,
2009
   
December 31,
2008
 
   
(Unaudited)
       
  ASSETS
           
Current Assets
           
Cash and cash equivalents
  $ 94,399     $ 58,984  
Prepaid expenses
    176,278       3,971  
Receivable from related party
    4,250,446       -  
Receivable from sale and leaseback of real property - related party
    1,156,639       -  
        Total Current Assets
    5,677,762       62,955  
                 
Receivable from sale and leaseback of real property - related party
    3,999,250       6,026,246  
Property, Plant and Equipment, net
    7,805,961       8,471,639  
Total Assets
  $ 17,482,973     $ 14,560,840  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Current Liabilities
               
                 
Bank borrowings
  $ 10,548,000     $ 10,699,610  
Convertible notes payable
    1,560,000       -  
Accounts payable and accrued expenses
    934,876       938,120  
Payables to related parties
    884,296       752,893  
Deferred revenue
    2,564,468       930,100  
Total Current Liabilities
    16,491,640       13,320,723  
                 
Total Liabilities
    16,491,640       13,320,723  
                 
Stockholders' Equity
               
Preferred Stock, $0.001 par value; 50,000,000 shares authorized, none issued and outstanding as of September 30, 2009 and December 31, 2008
    -       -  
Common stock, $0.001 par value; 100,000,000 shares authorized, 3,082,500 shares issued and outstanding  as of September 30, 2009 and December 31, 2008
    3,083       3,083  
Additional paid in capital
    4,302,907       4,302,907  
Statutory reserves
    480,813       480,813  
Accumulated other comprehensive income
    756,507       754,008  
Retained deficit
    (4,551,977 )     (4,300,694 )
Total Stockholders' Equity
    991,333       1,240,117  
Total Liabilities and Stockholders' Equity
  $ 17,482,973     $ 14,560,840  
 
The accompanying notes are an integral part of these unadited condensed consolidated financial statements.
 
F-1

CHINA IVY SCHOOL, INC. AND SUBSIDIARIES
(FORMERLY CLAREMONT TECHNOLOGIES CORP.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 (UNAUDITED)
                         
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2009
   
2008
   
2009
   
2008
 
                         
Net revenue
  $ 1,652,292     $ 1,684,385     $ 4,533,408     $ 4,435,089  
                                 
Operating expenses
                               
Depreciation and amortization
    225,642       230,142       677,903       915,952  
General and administrative expenses
    1,752,961       1,767,278       3,959,679       4,458,895  
Total operating expenses
    1,978,603       1,997,420       4,637,582       5,374,847  
                                 
Loss from operations
    (326,311 )     (313,035 )     (104,174 )     (939,758 )
                                 
Other (income) expense
                               
Interest income
    (621 )     (901 )     (791 )     (12,998 )
Interest expense
    187,582       217,620       513,883       801,921  
Loss on sale of real property
    -       -       -       5,169,294  
Accretion of discount on receivable from related party relating to sale of real property
    (121,994 )     (583,961 )     (365,983 )     (1,495,651 )
Total Other (Income) Expense
    64,967       (367,242 )     147,109       4,462,566  
                                 
Income (loss) from continuing operations
    (391,278 )     54,207       (251,283 )     (5,402,324 )
                                 
Income (loss) from operations of discontinued entity
    -       198       -       (7,226 )
                                 
Net income (loss)
    (391,278 )     54,405       (251,283 )     (5,409,550 )
                                 
Other comprehensive item
                               
Foreign currency translation adjustment
    4,090       (11,039 )     556       250,611  
                                 
Comprehensive income (loss)
  $ (387,188 )   $ 43,366     $ (250,727 )   $ (5,158,939 )
                                 
Basic and diluted net income (loss) per share:
                               
Continuing operations
  $ (0.13 )   $ 0.02     $ (0.08 )   $ (1.75 )
Operations of the discontinued entity
  $ -     $ 0.00     $ -     $ (0.00 )
Total
  $ (0.13 )   $ 0.02     $ (0.08 )   $ (1.75 )
                                 
                                 
Weighted average number of basic and diluted shares outstanding
    3,082,500       3,082,500       3,082,500       3,082,500  
                                 
The accompanying notes are an integral part of these unadited condensed consolidated financial statements.
 
F-2

 
CHINA IVY SCHOOL, INC. AND SUBSIDIARIES
(FORMERLY CLAREMONT TECHNOLOGIES CORP.)
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 (UNAUDITED) AND THE YEAR ENDED DECEMBER 31, 2008
 
   
Common Stock
   
 
   
 
   
 
   
 
     
   
Number of Shares
   
Amount
   
Additional
Paid in Capital
   
Accumulated other
Comprehensive
Income
   
Statutory
Reserves
   
Retained
Earnings
(Deficit)
   
Total
Stockholders'
Equity
 
Balance December 31, 2007
    3,082,500     $ 3,083     $ 4,113,446     $ 500,352     $ 480,813     $ 909,701     $ 6,007,395  
                                                         
Spinoff of Safe Cell Tab Inc. on July 31, 2008
    -       -       189,461       -       -       -       189,461  
Foreign currency translation adjustment
    -       -       -       253,656       -       -       253,656  
Net loss for the year ended December 31, 2008
    -       -       -       -       -       (5,210,395 )     (5,210,395 )
Balance December 31, 2008
    3,082,500       3,083       4,302,907       754,008       480,813       (4,300,694 )     1,240,117  
                                                         
Foreign currency translation adjustment (Unaudited)
    -       -       -       2,499       -       -       2,499  
Net loss for the nine months ended September 30, 2009 (Unaudited)
    -       -       -       -       -       (251,283 )     (251,283 )
Balance September 30, 2009 (Unaudited)
    3,082,500     $ 3,083     $ 4,302,907     $ 756,507     $ 480,813     $ (4,551,977 )   $ 991,333  
 
The accompanying notes are an integral part of these unadited condensed consolidated financial statements.
 
F-3

 
CHINA IVY SCHOOL, INC. AND SUBSIDIARIES
(FORMERLY CLAREMONT TECHNOLOGIES CORP.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 (UNAUDITED)
 
   
2009
   
2008
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net income (loss)
  $ (251,283 )   $ (5,409,550 )
Adjustments to reconcile net income (loss) to net cash
               
    provided by (used in) operating activities:
               
Depreciation and amortization
    677,903       915,952  
Imputed rent and related expense
    1,232,870       1,000,435  
Accretion of discount on receivable from related party
    (365,983 )     (1,495,651 )
Loss on sale of real property
    -       5,169,294  
Loss from operations of discontinued entity
    -       7,226  
Changes in operating assets and liabilities
               
Increase in other receivables
    -       (12,554 )
Increase in prepaid expenses
    (172,307 )     (42,254 )
Increase (decrease) in accounts payable and accrued expenses
    55,384       (995,335 )
Increase in deferred revenue
    1,634,368       1,710,065  
Net cash provided by (used in) operating activities from continuing operations
    2,810,952       847,628  
Net cash used in operating activities of the discontinued entity
    -       (8,260 )
Net cash provided by (used in) operating activities
    2,810,952       839,368  
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Acquisition of property and equipment
    (16,733 )     (7,773 )
Net cash used in investing activities from continuing operations
    (16,733 )     (7,773 )
Net cash provided by investing activities of the discontinued entity
    -       -  
Net cash used in investing activities
    (16,733 )     (7,773 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
Repayment of bank borrowings
    (1,904,500 )     (3,644,060 )
Proceeds from bank borrowings
    1,758,000       -  
Proceeds from convertible notes
    1,560,000       -  
Repayment of loans payable to and advances to related party
    (4,323,818 )     -  
Decrease in restricted cash secured for bank loans
    -       685,500  
Advances from related party
    146,500       1,845,094  
Net cash provided by financing activities from continuing operations
    (2,763,818 )     (1,113,466 )
Net cash provided by financing activities of the discontinued entity
    -       7,716  
Net cash provided by financing activities
    (2,763,818 )     (1,105,750 )
                 
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
    5,014       93,101  
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    35,415       (181,054 )
CASH AND CASH EQUIVALENTS, BEGINNING BALANCE
    58,984       227,887  
CASH AND CASH EQUIVALENTS, ENDING BALANCE
  $ 94,399     $ 46,833  
                 
SUPPLEMENTAL DISCLOSURES:
               
Income tax payments
  $ -     $ -  
Interest payments
  $ 474,758     $ 801,921  
NON CASH TRANSACTIONS:
               
Sale of real property in exchange for receivable from related party
  $ -     $ 11,228,703  
Spinoff of Safe Cell Tab, Inc.
  $ -     $ 189,461  
 
The accompanying notes are an integral part of these unadited condensed consolidated financial statements.
 
F-4

 
CHINA IVY SCHOOL, INC. AND SUBSIDIARIES
 (FORMERLY CLAREMONT TECHNOLOGIES CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
NOTE 1 - DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Organization

China Ivy School, Inc. (formerly Claremont Technologies Corp.) (“China Ivy") was incorporated on September 14, 1999 under the laws of the State of Nevada. China Ivy acquired a wholly owned subsidiary Safe Cell Tab Inc. ("Safe Cell") on August 22, 2003. Safe Cell was incorporated on May 9, 1996 under the laws of the Province of British Columbia, Canada and engaged in distributing Wi-Fi License and Mobius disposable cell phones.

On October 12, 2006, China Ivy and the shareholders of Brighter International Limited (“Brighter International”) entered into a Share Exchange Agreement in which China Ivy acquired 100% of Brighter International's outstanding common stock. Under the Share Exchange Agreement, the shareholders of Brighter International received 2,762,500 newly issued common shares of the company. This acquisition was accounted for as a reverse acquisition since after the acquisition, the former shareholders of Brighter International held a majority of the outstanding shares of China Ivy. The financial statements of the legal acquirer were not significant.

Brighter International Limited is an education investment enterprise and was incorporated in accordance with the General Corporation Act of the State of Nevada on June 1, 2006. On June 15, 2006, Brighter International entered into an agreement with Blue Tassel School, and pursuant to the agreement, all the shareholders of Blue Tassel School transferred all their ownership interests in Blue Tassel School to Brighter International. Prior to the acquisition, Brighter International and Blue Tassel School had common shareholders owning the same percentage of ownership in both companies. Therefore, the entities were under common control before the acquisition. This acquisition was accounted for at historical cost in a manner similar to the pooling of interests method. After the acquisition, Brighter International owned 100% of the outstanding shares of Blue Tassel School.

Blue Tassel School was established on July 10, 2001 under the laws of the People’s Republic of China (“PRC”). Blue Tassel School is an education center located in Suzhou city, accredited by the Jiangsu Province Educational committee as a boarding school comprising grades from kindergarten through senior school, including an international school. The five schools that comprise Blue Tassel School are kindergarten, primary school, junior high school, senior high school, and international school.

On July 31, 2008, the Company spun off its wholly owned subsidiary Safe Cell (now named Cellteck Inc.) to its stockholders. The distribution was completed on August 21, 2008. Accordingly, the operations of Safe Cell have been presented as "discontinued operations” in the accompanying condensed consolidated financial statements.

Effective January 14, 2009, the Company effectuated a 1 for 20 reverse stock split (thereby reducing the issued and outstanding shares from 61,650,001 shares to 3,082,500 shares). The financial statements have been retroactively adjusted to reflect this stock split.

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of China Ivy and its subsidiaries Safe Cell, Brighter International, and Blue Tassel School (collectively, the “Company”). All significant intercompany balances and transactions have been eliminated in consolidation.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. The Company's reporting currency is the United States dollar.
 
F-5

 
CHINA IVY SCHOOL, INC. AND SUBSIDIARIES
 (FORMERLY CLAREMONT TECHNOLOGIES CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
NOTE 1 - DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION (Continued)

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation.
 
Going Concern

The financial statements have been prepared on a “going concern” basis, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, as of September 30, 2009 and December 31, 2008, the Company had cash of $94,399 and $58,984, respectively, and negative working capital of $10,813,878 and $13,257,768, respectively. The Company had retained deficit of $4,551,977 and $4,300,694 as of September 30, 2009 and December 31, 2008, respectively. These factors create substantial doubt as to the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.
 
NOTE 2 - INTERIM FINANCIAL STATEMENTS

The unaudited condensed consolidated financial statements as of September 30, 2009 and for the three and nine months ended September 30, 2009 and 2008 have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with instructions to Form 10 - Q. In the opinion of management, the unaudited condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position as of September 30, 2009 and the results of operations and cash flows for the three and nine months ended September 30, 2009 and 2008. The financial data and other information disclosed in these notes to the interim financial statements related to these periods are unaudited. The results for the nine month period ended September 30, 2009 is not necessarily indicative of the results to be expected for any subsequent quarter of the entire year ending December 31, 2009. The balance sheet at December 31, 2008 has been derived from the audited consolidated financial statements at that date.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the Securities and Exchange Commission’s rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended December 31, 2008 included in our Form 10 –K filed April 15, 2009.

NOTE 3 - RECEIVABLE FROM RELATED PARTY

Minglong Industry Co. Ltd. (“Minglong”) is one of the Company’s significant shareholders and is controlled by the chief executive officer of the Company. Receivable from related party in the amount of $4,250,446 as of September 30, 2009 represented the net amount advanced to Minglong (see Note 13). The receivable due from Minglong is interest free and due on demand.
 
F-6

 
CHINA IVY SCHOOL, INC. AND SUBSIDIARIES
 (FORMERLY CLAREMONT TECHNOLOGIES CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 4 - RECEIVABLE FROM SALE AND LEASEBACK OF REAL PROPERTY - RELATED PARTY

On March 12, 2008, Blue Tassel School sold the land use right of 91,993.32 square meters and twenty buildings of 50,113.81 square meters to its former shareholder Minglong with the sales price of $5,563,692 and $10,405,554 respectively, totaling $15,969,247 (RMB 111,829,458). Blue Tassel School leased back the land use right and the buildings from Minglong from the date of sale.

The lease payments equaled the total sales price of $15,969,247 (RMB 111,829,458). The leases approximated $3.40 (RMB 24) per square meter annually, totaling approximately $315,280 (RMB 2,207,840) per year for using the land and $35.60 (RMB 180) per square meter annually, totaling approximately $1,288,125 (RMB 9,020,486) per year for leasing the buildings. The total annual lease was to approximate $1,603,405 (RMB 11,228,326) until a total of approximately $15,969,247 (RMB 111,829,458) has been offset against the amount receivable from related party over the 10 year term of the lease.

The total receivable from related party on the date of sale and lease back was $11,228,703. This amount represented the present value of the future cash inflows (our lease payments) at the date of the transactions. Assumptions used for the present value calculation were: (1) annual rent payments of $1,603,405; (2) term of ten years; (3) interest rate of 7% per annum.

The purpose of the sale and leaseback of the land use right and buildings was to comply with a new regulation from the government of Suzhou City, Jiangsu Province, China. According to the new regulation, "Public institutions like schools, kindergartens, hospitals etc., educational facilities and health facilities of social organizations and other lands for the use of other social welfare cannot be used as collateral for bank loans". As in 2007 the land use right and buildings were pledged for bank loans, the management of the Company decided to sell the land use right and buildings to Minglong and then lease back for the school use.


Fair value of consideration received - $15,969,247 noninterest
     
   bearing receivable from Minglong due in annual installments
     
   of $1,603,405 until repaid (discounted at 7% interest rate)
  $ 11,228,703  
Effect of change in exchange rate
    45,893  
Net carrying value of land use right and buildings
       
   (less $113,057 foreign exchange translation adjustment)
    (16,443,890 )
Loss on sale of real property
  $ (5,169,294 )
 
For the nine months ended September 30, 2009 and the year ended December 31, 2008, the receivable from sale and leaseback of real property – related party changed as follows:
 
Balance due from Minglong at March 12, 2008 in connection with the
     
  sale and leaseback of real property, noninterest bearing (discounted)
  $ 11,228,703  
         
    Amounts collected
    (7,681,172 )
    Accretion of discount on receivable
    2,280,191  
    Foreign exchange translation adjustment
    198,524  
Balance at December 31, 2008
    6,026,246  
    Amounts collected - nine months ended September 30, 2009 (Unaudited)
    (1,232,870 )
    Accretion of discount on receivable (Unaudited)
    365,983  
    Foreign exchange translation adjustment (Unaudited)
    (3,470 )
Balance at September 30, 2009 (Unaudited)
    5,155,889  
Less: current portion (Unaudited)
    1,156,639  
Receivable from sale and leaseback of real property - related party (Unaudited)
  $ 3,999,250  
         


F-7

 
CHINA IVY SCHOOL, INC. AND SUBSIDIARIES
 (FORMERLY CLAREMONT TECHNOLOGIES CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT

As of September 30, 2009 and December 31, 2008, property, plant and equipment consist of the following:
 
   
September 30,
   
December 31,
 
   
2009
   
2008
 
   
(Unaudited)
       
Infrastructure and leasehold improvements
  $ 11,060,227     $ 11,065,511  
Educational equipment
    560,867       544,394  
Automobiles
    28,834       28,848  
Total property and equipment
    11,649,928       11,638,753  
Accumulated depreciation
    (3,843,967 )     (3,167,114 )
Property and equipment, net
  $ 7,805,961     $ 8,471,639  
 
The Company had depreciation expense of $677,903 and $915,952 for the nine months ended September 30, 2009 and 2008, respectively.

NOTE 6 - BANK BORROWINGS

The Company has borrowed $10,548,000 and $10,699,610 from two banks located in China under credit agreements as of September 30, 2009 and December 31, 2008, respectively. Borrowings under credit lines consist of the following:
 
   
September 30,
   
December 31,
 
   
2009
   
2008
 
Bank Borrowings
 
(Unaudited)
       
Borrowings from Huaxia Bank Suzhou Branch
           
Interest at 5.103% per annum, due by September 18, 2009
  $ -     $ 6,009,370  
Interest at 5.841% per annum, due by September 12, 2009
    -       2,784,830  
Interest at 5.841% per annum, due by November 18, 2009
    2,197,500       -  
Interest at 5.841% per annum, due by October 28, 2009
    2,783,500       -  
Interest at 5.346% per annum, due by November 18, 2009
    3,809,000       -  
Borrowings from Huaxia Bank Subtotal
    8,790,000       8,794,200  
                 
Borrowings from Jiangsu Dongwu Rural Commercial Bank
               
Interest at 9.711% per annum, due by June 26, 2009
    -       293,140  
Interest at 9.711% per annum, due by June 25, 2009
    -       1,612,270  
Interest at 6.903% per annum, due by June 5, 2010
    293,000       -  
Interest at 6.903% per annum, due by June 5, 2010
    1,465,000       -  
Borrowings from Dongwu Rural Commercial Bank Subtotal
    1,758,000       1,905,410  
                 
Total borrowings
    10,548,000       10,699,610  
Current portion
    10,548,000       10,699,610  
Long term portion
  $ -     $ -  
 
On June 17, 2008, the Company entered into a credit agreement with Jiangsu Dongwu Rural Commercial Bank.  The Company acquired a 2,000,000 RMB (approximately $293,000) credit line from June 17, 2008 to June 17, 2011. This credit line has collateralized a 234 square meter residential unit and 62 square meter land use right owned by Ti Yin and Yan Hong, the third party assigned by the bank.

F-8

 
CHINA IVY SCHOOL, INC. AND SUBSIDIARIES
 (FORMERLY CLAREMONT TECHNOLOGIES CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 6 - BANK BORROWINGS (Continued)

On June 17, 2008, the Company entered into a credit agreement with Jiangsu Dongwu Rural Commercial Bank.  The Company acquired a 11,000,000 RMB (approximately $1,611,500) credit line from June 17, 2008 to June 17, 2011. This credit line has collateralized a 477 square meter residential unit and 837 square meter land use right owned by the Chief Executive Officer of the Company. As of September 30, 2009, the Company borrowed 10,000,000 RMB ($1,465,000).

The loans of $2,783,500 and $2,784,830 as of September 30, 2009 and December 31, 2008, respectively, are secured by the land use right of Blue Tassel School. The loans of $6,006,500 and $6,009,370 as of September 30, 2009 and December 31, 2008, respectively, are secured by four buildings totaling 20,926.86 square meters of the School.

NOTE 7 - CONVERTIBLE NOTES PAYABLE

On June 30, 2009, the Company completed the sale of $1,560,000 principal amount of the Company's 6% Convertible Notes, due June 30, 2010 (the "Notes"). The Notes were sold to four related parties ($920,000 to the Company’s chief executive officer, $448,000 to Minglong, and $192,000 to two other Company directors) outside the United States in a private transaction exempted from the registration requirements of the Securities Act of 1933 pursuant to Regulation D. The Notes will accrue interest at the rate of 6% per annum and will mature on June 30, 2010. The Company may redeem the Notes at any time prior to maturity, in whole or in part. The four related parties paid an aggregate of $1,560,000 for their Notes.

Holders of the Notes may at any time convert all or any portion of the principal amount of the Notes into shares of the Company's Common Stock at a conversion price, subject to adjustment, initially equal to eight cents ($0.08) per share. No interest shall be paid on any portion of a Note converted into Common Stock. Should the conversion price decrease or increase, the number of shares of Common Stock issuable upon conversion of the Notes shall be proportionately increased or decreased, as the case may be. In the event of default by the Company in its obligations under the Notes, Holders may, at their option, declare the principal of the Note and the interest accrued thereon to be immediately due and payable.

NOTE 8 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES

The Company's accounts payable and accrued expenses as of June 30, 2009 and December 31, 2008 are summarized as follows:
 
   
September 30,
   
December 31,
 
   
2009
   
2008
 
   
(Unaudited)
       
Accounts payable
  $ 288,148     $ 563,312  
Accrued wages
    546,413       109,903  
Other accrued expenses
    100,315       264,905  
Total accounts payable and accrued expenses
  $ 934,876     $ 938,120  
 
On September 30, 2009, the Company authorized bonuses totaling $439,200 to six managers, including the Chief Executive Officer and Chief Financial Officer of the Company, for their past services to the Company. The bonuses were accrued in September 2009, paid in October 2009, and are included above under the section “accrued wages”.
 
F-9

 
CHINA IVY SCHOOL, INC. AND SUBSIDIARIES
 (FORMERLY CLAREMONT TECHNOLOGIES CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 9 - PAYABLES TO RELATED PARTIES

Payables to related parties consist of the following:
 
   
September 30,
   
December 31,
 
   
2009
   
2008
 
   
(Unaudited)
       
Payable to Minglong
  $ -     $ 73,372  
Payable to Chief Financial Officer
    205,100       -  
Payable to Mr. Yongqi Zhu
    679,196       679,521  
                 
Total Payable to Related Parties
  $ 884,296     $ 752,893  
 
Payable to Minglong in the amount of $73,372 as of December 31, 2008 represented the net balance of payments made by Minglong on behalf of the Company (see Note 3). The payable was interest free and due on demand.

Payable to Chief Financial Officer in the amount of $205,100 as of September 30, 2009 represented the net balance of loans from the Chief Financial Officer of the Company. The payable is interest free and due on demand. $58,628 of this payable was included in accounts payable and accrued expenses as of December 31, 2008.

Payable to Mr. Yongqi Zhu, the Chief Executive Officer of the Company, was $679,196 and $679,521 as of September 30, 2009 and December 31, 2008, respectively. The balance due to Mr. Zhu is interest free and due on demand.

NOTE 10 - DEFERRED REVENUE

The Company’s revenue consists of tuition fees, accommodation fees and others. Those fees will usually be collected in advance at the beginning of a semester. Spring semester runs from February to July. Autumn semester runs from August to January. The Company prorates the fees collected to applicable months during the semester, recognizes revenue in the corresponding periods and records unrecognized fees collected as deferred income. As of September 30, 2009 and December 31, 2008, the deferred income totaled $2,564,468 and $930,100, respectively.


Statutory reserves consist of the following:

   
September 30,
   
December 31,
 
   
2009
   
2008
 
   
(Unaudited)
       
Statutory surplus reserve
  $ 307,853     $ 307,853  
Statutory common welfare fund
    172,960       172,960  
Total
  $ 480,813     $ 480,813  
 
As stipulated by the Company Law of the People's Republic of China (PRC), net income after taxation can only be distributed as dividends after appropriation has been made for the following: i. Making up cumulative prior years' losses, if any; ii. Allocations to the "Statutory surplus reserve" of at least 10% of income after tax, as determined under PRC accounting rules and regulations, until the fund amounts to 50% of Blue Tassel School's registered capital; iii. Allocations of 5-10% of income after tax, as determined under PRC accounting rules and regulations, to Blue Tassel School's "Statutory common welfare fund", which is established for the purpose of providing employee facilities and other collective benefits to the School's employees; and iv. Allocations to the discretionary surplus reserve, if approved in the stockholders' general meeting.
F-10

 
CHINA IVY SCHOOL, INC. AND SUBSIDIARIES
 (FORMERLY CLAREMONT TECHNOLOGIES CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
NOTE 11 - STATUTORY RESERVES (Continued)

As an educational institution, the Blue Tassel School has an option not to make these appropriations. For the nine months ended September 30, 2009 and the year ended December 31, 2008, the Company did not make any appropriations to the statutory reserves.
 
NOTE 12 - ACCUMULATED OTHER COMPREHENSIVE INCOME

Balances of related after-tax components comprising accumulated other comprehensive income (loss), included in stockholders' equity at September 30, 2009 and December 31, 2008, are as follows:

   
Foreign Currency
Translation Adjustments
 
Balance at December 31, 2008
  $ 754,008  
Change during the nine months ended September 30, 2009 (Unaudited)
    2,499  
         
Balance at September 30, 2009 (Unaudited)
  $ 756,507  
 
NOTE 13 - RELATED PARTY TRANSACTIONS

During 2008, the Company received funds from and advanced funds to Mr. Yongqi Zhu, one of its significant shareholders and the Chief Executive Officer of the Company. As of September 30, 2009 and December 31, 2008, the balance due to Mr. Zhu was $679,196 and $679,521, respectively, which was included in payables to related parties. The balance due to Mr. Zhu is interest free and due on demand. There was no activity between the Company and Mr. Zhu during the nine months ended September 30, 2009. See note 9.

During 2009, the Company received $146,500 from Ms. Xue, Chief Financial Officer of the Company. As of September 30, 2009, the balance due to Ms. Xue was $205,100, which is interest free and due on demand. See note 9.

Minglong is a former shareholder of Blue Tassel School. It is controlled by Mr. Zhu, the chief executive officer of the Company. On March 12, 2008, the Company sold a 91,993 square meters land use right and twenty buildings of 50,114 square meters to Minglong. The Company leased back the land use right and buildings pursuant to a 10 year lease from Minglong at the date of sale. See note 4.

During 2008, the Company recorded rent expense of $1,296,466 to offset the scheduled amount due from related party in connection with the sale and leaseback of real property. Also, the Company received net cash inflow of $2,518,999 from Minglong. Also, Company expenses of $2,181,385 and consulting fees of $1,684,322 were paid by Minglong. The Company agreed to apply and treat the above items totaling $7,681,172 as collections of the receivable from related party in connection with the sale and lease back of real property.  See note 4.

During the nine months ended September 30, 2009, the Company advanced net cash of $4,480,552 to Minglong. Minglong paid expenses of $156,734 and $73,372 on behalf of China Ivy during the nine months ended September 30, 2009 and the year ended December 31, 2008, respectively. A netted amount of $4,250,446 was recorded under the caption “Receivable from Related Party” as of September 30, 2009.

F-11

 
CHINA IVY SCHOOL, INC. AND SUBSIDIARIES
 (FORMERLY CLAREMONT TECHNOLOGIES CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 14 - COMMITMENTS
 
Operating Lease Obligations

Blue Tassel School leases a land use right and 20 buildings located in Suzhou City Wuzhong Economy Development District from Minglong, the former shareholder of Blue Tassel School (Note 4). The term of the lease agreement is 10 years starting March 12, 2008. The lease is considered an operating lease. Rent expense and related maintenance expenses for the nine months ended September 30, 2009 and the period March 12, 2008 to September 30, 2008 was $1,373,838 and $1,000,435, respectively.

 
Period ending
September 30,
 
Minimum lease
payments
 
2010
  $ 1,644,949  
2011
    1,644,949  
2012
    1,644,949  
2013
    1,644,949  
2014
    1,644,949  
Thereafter
    5,688,782  
         
Total
  $ 13,913,527  
 
Consulting Agreements

In  2008, the Company engaged over 50 individuals (the “Consultants”) to provide various education consulting services for the Company. The agreements for 2008 provided for the payment of minimum consulting fees to the Consultants totaling $1,684,332 (RMB 11,700,000) for the service period January 1, 2008 to December 31, 2008.

On June 13, 2008, the Company executed an 18 month consulting agreement with Beijing JP Investment Advisors Limited (the “Advisors”). For consideration of 30,000 RMB ($4,392) per month, the Advisors are to provide services related to business development, marketing research, and prospective acquisitions.

For the nine months ended September 30, 2009 and 2008, consulting fees expense was $39,699 and $1,305,560, respectively.
F-12

 
CHINA IVY SCHOOL, INC. AND SUBSIDIARIES
 (FORMERLY CLAREMONT TECHNOLOGIES CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 15 - DISCONTINUED OPERATIONS

On July 31, 2008, the Company spun off its wholly owned subsidiary Safe Cell (now named Cellteck Inc.) to its stockholders. Accordingly, the operating results of Safe Cell before the spinoff on July 31, 2008 are reported as discontinued operations in the accompanying unaudited condensed consolidated financial statements. The $189,461 negative stockholders’ equity of Safe Cell at July 31, 2008 has been added to additional paid-in capital.

For the nine months ended September 30, 2008, loss from operations of discontinued entity consisted of:

   
September 30,
 
   
2008
 
       
Sales, net
  $ 6,771  
Cost of sales
    -  
Gross profit
    6,771  
Selling, general and administrative expenses
    (13,997 )
Net loss from operations of discontinued entity
  $ (7,226 )
 
NOTE 16 – SUBSEQUENT EVENT

On October 28, 2009, the Company repaid $2,783,500 (19,000,000 RMB) borrowing from Huaxia Bank due October 28, 2009. On October 30, 2009, the Company received a $2,637,000 (18,000,000 RMB) borrowing from Hauxia Bank.  The new loan bears interest at 5.841% per annum and is due by October 30, 2010.

The Company has evaluated subsequent events through the date of filing of this Form 10-Q and has determined that there were no other subsequent events to recognize or disclose in these financial statements.
 
F-13

 

The following discussion should be read in conjunction with our financial statements, which are included elsewhere in this Form 10-Q (the “Report”) and Form 10-K and Form 10-K/A filed on April 15, 2009 and May 5, 2009, respectively.
 
Results of Operations
 
Comparison of Results of Operations for the Three Months Ended September 30, 2009 and 2008

   
Three Months Ended
 
   
September 30,
 
   
2009
   
2008
 
             
Net Revenue
  $ 1,652,292     $ 1,684,385  
Operating Expenses:
               
Salaries and related expenses
    782,967       529,302  
Professional and consulting fees
    48,176       425,409  
Rental and related expenses
    457,946       457,477  
Depreciation and amortization expenses
    225,642       230,142  
Other general and administrative expenses
    463,872       355,090  
Total Operating Expenses
    1,978,603       1,997,420  
Loss from operations
    (326,311 )     (313,035 )
                 
Interest expense, net
    (186,961 )     (216,719 )
Accretion of discount on leaseback receivable
    121,994       583,961  
Other (expenses) income, net
    (64,967 )     367,242  
(Loss) income from continuing operations
  $ (391,278 )   $ 54,207  
 
Net Revenue

Net revenue for the three months ended September 30, 2009 was $1,652,292, a decrease of $32,093, or 2%, compared to $1,684,385 for the three months ended September 30, 2008. Our current enrollment (as of September 30, 2009) was 1,810 students, a decrease of 79 students, or 4%, compared to an enrollment of 1,889 students as of September 30, 2008. Consequently, tuition income was reduced by $119,067. During the same comparable periods, our kindergarten and dormitory income increased $86,971, which partially offset the impact of decreased tuition income.

Operating Expenses

Operating expenses for the three months ended September 30, 2009 totaled $1,978,603, a decrease of $18,817 compared to $1,997,420 for the three months ended September 30, 2008. During the third quarter of 2009, we accrued $439,200 bonus expense, which resulted in an increase of $253,665 of salaries and related expenses during the three month ended September 30, 2009 as compared to the same period of 2008.  The consulting expense was $13,176 during the third quarter of 2009, a decrease of $412,233 as compared to $425,409 for the three months ended September 30, 2008. In 2008, the Company engaged over 50 individuals to provide various education consulting services for the Company and incurred expenses of $408,827 during the three months ended September 30, 2008. The consulting service contracts terminated on December 31, 2008 and have not been renewed in 2009.

Other Expenses, Net

The Company’s interest expense, net consists of interest income and expense. The interest expense, net for the three months ended September 30, 2009 was $186,961 a decrease of $29,758 as compared to $216,719 for the three months ended September 30, 2008. The reduced interest expense resulted from slightly reduced interest rates and reduced bank borrowings. Bank borrowings were $10,548,000 as of September 30, 2009 as compared to $10,751,440 as of September 30, 2008.

3

 
The accretion of discount on leaseback receivable represents a recovery of loss on the sale and leaseback of real property to a related party (See Note 4 to Financial Statements). The loss was the difference between the carrying value of the property sold and the fair value of the consideration received – i.e., the present value of future cash inflows (lease payments). The Company recorded a loss of $5,169,294 at the date of the transaction. The discount is accreted in proportion to the payments received and is recorded under the caption “accretion of discount” in the “Other Income” section. For the three months ended September 30, 2009 and 2008, the accretion of discount was $121,994 and $583,961, respectively.
 
Comparison of Results of Operations for the Nine Months Ended September 30, 2009 and 2008
 
   
Nine Months Ended
 
   
September 30,
 
   
2009
   
2008
 
             
Net Revenue
  $ 4,533,408     $ 4,435,089  
Operating Expenses:
               
Salaries and related expenses
    1,749,160       1,374,540  
Professional and consulting fees
    139,651       1,359,930  
Rental and related expenses
    1,326,816       1,024,101  
Depreciation and amortization expenses
    677,903       915,952  
Other general and administrative expenses
    744,052       700,324  
Total Operating Expenses
    4,637,582       5,374,847  
(Loss) income from operations
    (104,174 )     (939,758 )
                 
Interest expense, net
    (513,092 )     (788,923 )
Loss on sale of real property
    -       (5,169,294 )
Accretion of discount on leaseback receivable
    365,983       1,495,651  
Other expenses, net
    (147,109 )     (4,462,566 )
Loss from continuing operations
  $ (251,283 )   $ (5,402,324 )
                 
 
Net Revenue

Net revenue for the nine months ended September 30, 2009 was $4,533,408, an increase of $98,319, or 2%, compared to $4,435,089 for the nine months ended September 30, 2008. The increase primarily resulted from the increase of kindergarten and dormitory income during the comparable periods.

Operating Expenses

Operating expenses for the nine months ended September 30, 2009 totaled $4,637,582, a decrease of $737,265 compared to $5,374,847 for the nine months ended September 30, 2008. During the third quarter of 2009, we accrued $439,200 bonus expense, which resulted in an increase of $374,620 of salaries and related expenses during the nine month ended September 30, 2009 as compared to the same period of 2008.  The decrease in operating expenses was mainly due to a decrease in consulting expenses. The consulting expense was $39,699 for the nine months ended September 30, 2009, a decrease of $1,265,861 as compared to $1,305,560 for the nine months ended September 30, 2008. In 2008, the Company engaged over 50 individuals to provide various education consulting services for the Company and incurred expenses of $1,270,929 during the nine months ended September 30, 2008. The consulting service contracts terminated on December 31, 2008 and have not been renewed in 2009. The increase in rental and related expenses and decrease in depreciation and amortization expense was due to the sale and leaseback of real property in March 2008.

Other Expenses, Net

The Company’s interest expense, net consists of interest income and expense. The interest expense, net for the nine months ended September 30, 2009 was $513,092, a decrease of $275,831 as compared to $788,923 for the nine months ended September 30, 2008. The reduced interest expense resulted from slightly reduced interest rates and reduced bank borrowings. Bank borrowings average balance for the nine months ended September 30, 2009 were $10,623,805 as compared to an average borrowings balance of $12,573,470 for the nine months ended September 30, 2008.
 
4

 
The accretion of discount on leaseback receivable represents a recovery of loss on the sale and leaseback of real property to a related party (See Note 4 to Financial Statements). The loss was the difference between the carrying value of the property sold and the fair value of the consideration received – i.e., the present value of future cash inflows (lease payments). The Company recorded a loss of $5,169,294 at the date of the transaction. The discount is accreted in proportion to the payments received and is recorded under the caption “accretion of discount” in the “Other Income” section. For the nine months ended September 30, 2009 and 2008, the accretion of discount was $365,983 and $1,495,651, respectively.
 
Liquidity and Capital Resources
 
Cash has historically been generated from operations. Operational and liquidity needs are funded primarily through cash flows from operations and short-term borrowings. Cash and cash equivalents were $94,399 and $58,984 at September 30, 2009 and December 31, 2008, respectively.  The current assets totaled $5,677,762 and $62,955 at September 30, 2009 and December 31, 2008, respectively. The Company's total current liabilities were $16,491,640 and $13,320,723 at September 30, 2009 and December 31, 2008, respectively. Working capital deficit was $10,813,878 and $13,257,768 at September 30, 2009 and December 31, 2008, respectively.

Net cash provided by operating activities was $2,810,952 and $839,368 for the nine months ended September 30, 2009 and 2008, respectively. The improvement resulted from the $835,584 reduced loss from operations and the $1,050,719 reduced decrease in accounts payable and accrued expenses during nine months ended September 30, 2009 as compared to the same period of 2008.

During the nine months ended September 30, 2009, net repayment of bank borrowings was $146,400, compared to $3,644,060 during the same period of 2008. Net cash repaid and advanced to related parties was $4,177,318 during the nine months ended September 30, 2009, compared to net advances from related parties of $1,845,094 during the nine months ended September 30, 2008. Net proceeds from convertible notes were $1,560,000 during the nine months ended September 30, 2009.
 
Historically, operations, short term financing and the sale of our company stock have been sufficient to meet our cash needs. Our school is a reputable school in the City of Suzhou. We anticipate that tuition income will be relatively stable in the foreseeable future, and we believe that we will be able to generate enough cash to cover our daily operating needs in the next twelve months. We will focus continually our efforts on reducing operating costs, especially administrative expenses in the next twelve months. However, our actual working capital needs for the long and short term will depend upon numerous factors, including operating results, competition, and the availability of credit facilities, none of which can be predicted with certainty. Future expansion will be limited by the availability of capital.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Financial Reporting Release No. 60, published by the SEC, recommends that all companies include a discussion of critical accounting policies used in the preparation of their financial statements. While many accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our consolidated financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates.

We believe that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause a material effect on our consolidated results of operations, financial position or liquidity for the periods presented in this report.

General

The Company’s Consolidated Financial Statements are prepared in accordance with U.S. generally accepted accounting principles (GAAP), which require management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, net revenue and expenses, and the disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Senior management has discussed the development, selection and disclosure of these estimates with the Board of Directors. Management believes that the accounting estimates employed and the resulting balances are reasonable; however, actual results may differ from these estimates under different assumptions or conditions.

5


Revenue Recognition

The Company’s revenue consists of tuition fees, donated tuition fees, accommodation fees and others. Those fees will usually be paid in advance at the beginning of a semester. The spring semester runs from February to July. The autumn semester runs from August to January. The Company prorates the fees collected to applicable months during the semester, recognizes revenue in the corresponding period and records unrecognized fees collected as deferred income. As of September 30, 2009 and December 31, 2008, the deferred income totaled $2,564,468 and $930,100, respectively, which represents tuition fees applied to the future months of services.

Fair Value of Financial Instruments

In connection with the determination of the receivable from sale and leaseback of real property – related party (Note 4), the Company used the following assumptions to calculate the present value at the date of the transactions: (1) annual rent payments of $1,603,405; (2) term of ten years; (3) interest rate of 7% per annum.

Foreign Currency Translation

The consolidated financial statements of the Company are translated pursuant to Accounting Standard Codification (“ASC”) 830, “Foreign Currency Matters.” The Company’s subsidiary, Blue Tassel School, is located and operated in China. The Chinese Yuan is the functional currency. The financial statements of Blue Tassel School are translated to U.S. dollars using period-end exchange rates (published by the Federal Reserve Bank) for assets and liabilities, and average exchange rates (published by the Federal Reserve Bank) for revenues, costs and expenses. Translation adjustments are recorded in accumulated other comprehensive income as a component of stockholders’ equity. Transaction gains or losses arising from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the consolidated results of operations.
 
Off-Balance Sheet Arrangements

We have never entered into any off-balance sheet financing arrangements and have never established any special purpose entities. We have not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.


Not Applicable.


(a) We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of "disclosure controls and procedures" in Rule 13a-15(e). In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
 
6

 
As of the end of the period covered by this report, our management, including our principal executive officer and our principal financial officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15 under the Securities Exchange Act of 1934). Based upon that evaluation, our principal executive officer and our chief financial officer have concluded that our disclosure controls and procedures are not effective in timely alerting them of material information relating to us that is required to be disclosed by us in the reports we file or submit under the Exchange Act, for the reasons set forth in the Company's Report on Form 10-K for the year ended December 31, 2008, although the efforts described therein to improve our disclosure controls and procedures are ongoing. We believe that the additional costs necessary to correct the deficiencies in our disclosure controls and procedures and our financial controls will not be significant and we intend to correct all deficiencies prior to the end of the current fiscal year.


(b) Changes in Internal Controls over Financial Reporting.

During the quarterly period ended September 30, 2009, there have not been any changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during our most recently completed fiscal quarter which is the subject of this report that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
PART II--OTHER INFORMATION


Our business is subject to numerous risks and uncertainties, including but not limited to those discussed in "Risk Factors" in our Report on Form 10-K and Form 10-K/A filed on April 15, 2009 and May 5, 2009, respectively. Such discussion is incorporated herein by reference.


The following exhibits are filed as part of this report:

Exhibit No.
Description of Exhibit
 
31.1 
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Exchange Act.
 
31.2 
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Exchange Act.
 
32.1 
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
32.2 
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
7

 

In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
Dated: November 13, 2009
 
  CHINA IVY SCHOOL, INC.  
       
 
By:
/s/ Yongqi Zhu  
    Yongqi Zhu  
    Chairman and Chief Executive Officer  
    (Principal Executive Officer)  
       
       
 
By:
/s/ Jian Xue  
    Jian Xue  
    Chief Financial Officer  
    (Principal Financial and Accounting Officer)  
 
8

 


Exhibit No.
Description of Exhibit
 
31.1 
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Exchange Act.
 
31.2 
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Exchange Act.
 
32.1 
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
32.2 
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.