Attached files
file | filename |
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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 |
Total Stockholders' |
||||||||||||||||||||||
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.
|