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EX-31.1 - Tsingda eEDU Corpc66665_ex31-1.htm
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EX-32.1 - Tsingda eEDU Corpc66665_ex32-1.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-Q


 

 

(Mark One)

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the quarterly period ended June 30, 2011

 

 

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 000-52347


TSINGDA EEDU CORPORATION
(Exact name of registrant as specified in its charter)



 

 

 

Cayman Islands

 

N/A

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

 

 

No. 0620, Yongleyingshiwenhuanan

 

 

Rd.,

 

 

Yongledian Town, Tongzhou District,

 

 

Beijing, PR China

 

 

 

 

101105

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number (including area code): +45-8842 9181

(Former name, former address and former fiscal year, if changed since last report)

Check whether the issuer (1) 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 issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days x Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o 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.

 

 

 

 

 

Large accelerated filer

o

 

Accelerated filer

o

 

 

 

 

 

Non-accelerated filer

o

(Do not check if a smaller reporting company)

Smaller reporting company

x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 37,629,862 ordinary shares, par value $0.000128 per share, as of August 10, 2011.


TABLE OF CONTENTS

 

 

 

 

 

Page

PART I – FINANCIAL INFORMATION

 

 

 

 

Item 1:

Financial Statements

1

Item 2:

Management’s Discussion and Analysis of Financial Condition and Results of Operations

10

Item 3:

Quantitative and Qualitative Disclosures About Market Risk

18

Item 4T:

Controls and Procedures

18

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

Item 1:

Legal Proceedings

18

Item 1A:

Risk Factors

18

Item 2:

Unregistered Sales of Equity Securities and Use of Proceeds

18

Item 3:

Defaults Upon Senior Securities

19

Item 4:

Submission of Matters to a Vote of Security Holders

19

 

 

 

Item 5:

Other Information

19

Item 6:

Exhibits

19

 


PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

 

Tsingda eEDU Corporation

(Formerly “Compass Acquisition Corporation”)

Consolidated Balance Sheets

(Stated in US dollars)


 

 

 

 

 

 

 

 

 

 

June 30,
2011

 

December 31,
2010

 

 

 


 


 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,945,964

 

$

4,086,214

 

Accounts receivable, net

 

 

8,850,671

 

 

6,555,936

 

Advances to suppliers

 

 

8,997,363

 

 

8,488,751

 

Other receivables

 

 

1,012,263

 

 

1,103,083

 

Receivable from escrow account

 

 

100,000

 

 

520,000

 

Stockholder advances

 

 

 

 

37,749

 

Deferred tax assets

 

 

226,727

 

 

382,758

 

 

 



 



 

Total Current Assets

 

 

21,132,988

 

 

21,174,491

 

 

 

 

 

 

 

 

 

Advances for leasehold improvements

 

 

1,882,641

 

 

6,604,628

 

Property, plant and equipment, net

 

 

17,670,314

 

 

10,652,830

 

Intangible assets, Net

 

 

8,630,049

 

 

5,021,983

 

 

 



 



 

TOTAL ASSETS

 

$

49,315,992

 

$

43,453,932

 

 

 



 



 

 

 

 

 

 

 

 

 

LIABILITIES & SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

Accounts payable

 

 

1,158,212

 

 

305,165

 

Customer deposit

 

 

1,560,522

 

 

1,642,642

 

Taxes payable

 

 

6,312,268

 

 

5,070,919

 

Accrued and other liabilities

 

 

349,759

 

 

222,512

 

Deferred revenue

 

 

1,511,514

 

 

2,551,722

 

 

 



 



 

Total Current Liabilities

 

$

10,892,275

 

$

9,792,960

 

 

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

Preferred shares: 781,250 shares of $.000128 par value authorized; None shares issued and outstanding

 

$

 

$

 

 

 

 

 

 

 

 

 

Ordinary shares (par value $0.000384 per share; 100,000,000 shares authorized; 34,629,862 and 33,729,862 shares issued and outstanding as of June 30, 2011 and December 31, 2010, respectively)

 

 

13,298

 

 

12,952

 

Additional paid in capital

 

 

14,964,950

 

 

13,523,180

 

Statutory reserves

 

 

2,398,464

 

 

2,398,464

 

Retained earnings

 

 

19,446,504

 

 

16,762,941

 

Accumulated other comprehensive income

 

 

1,600,501

 

 

963,435

 

 

 



 



 

TOTAL SHAREHOLDERS’ EQUITY

 

 

38,423,717

 

 

33,660,972

 

 

 



 



 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

49,315,992

 

$

43,453,932

 

 

 



 



 

The accompanying notes are an integrated part of these consolidated financial statements

1



 

Tsingda eEDU Corporation

(Formerly “Compass Acquisition Corporation”)

Consolidated Statements of Operations and Comprehensive Income

(Stated in US dollars)


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 


 


 


 


 

 

 

2011

 

2010

 

2011

 

2010

 

 

 


 


 


 


 

 

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

Sales revenue

 

$

8,861,189

 

$

5,616,047

 

$

17,090,536

 

$

9,467,108

 

Cost of revenue

 

 

2,931,294

 

 

739,339

 

 

5,133,295

 

 

1,458,130

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

 

5,929,895

 

 

4,876,708

 

 

11,957,241

 

 

8,008,978

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling expenses

 

 

2,617,754

 

 

988,690

 

 

4,362,302

 

 

1,562,132

 

General and administrative expenses

 

 

2,567,683

 

 

1,007,747

 

 

4,166,404

 

 

1,332,640

 

 

 



 



 



 



 

Total operating expenses

 

 

5,185,437

 

 

1,996,437

 

 

8,528,706

 

 

2,894,772

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

 

744,458

 

 

2,880,271

 

 

3,428,535

 

 

5,114,206

 

Interest income

 

 

4,177

 

 

101,361

 

 

4,816

 

 

101,361

 

Other expenses

 

 

(19,785

)

 

 

 

(20,154

)

 

(885

)

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income tax

 

 

728,850

 

 

2,981,632

 

 

3,413,197

 

 

5,214,682

 

Income tax expenses

 

 

326,303

 

 

449,817

 

 

729,509

 

 

784,775

 

 

 



 



 



 



 

Net Income

 

$

402,547

 

$

2,531,815

 

$

2,683,688

 

$

4,429,907

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income/(loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

547,096

 

 

127,567

 

 

637,066

 

 

129,714

 

 

 



 



 



 



 

 

Total Comprehensive Income

 

$

949,643

 

$

2,659,382

 

$

3,320,754

 

$

4,559,621

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share, basic and diluted

 

$

0.01

 

$

0.10

 

$

0.08

 

$

0.17

 

Average number of weighted average shares, basic and diluted

 

 

34,352,939

 

 

25,400,553

 

 

34,043,122

 

 

25,400,553

 

The accompanying notes are an integrated part of these consolidated financial statements

2



 

Tsingda eEDU Corporation

(Formerly “Compass Acquisition Corporation”)

Consolidated Statement of Shareholders’ Equity

(Stated in US dollars)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional Paid-
in Capital

 

Statutory
Reserve

 

Accumulated Other
Comprehensive
Income

 

Retained
Earnings

 

Total
Shareholder’s
Equity

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

No. of Shares

 

Amount

 

 

 

 

 

 

 

 


 


 


 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2010

 

 

33,729,862

 

$

12,952

 

$

13,523,180

 

$

2,398,464

 

$

963,435

 

$

16,762,941

 

$

33,660,972

 

Net income for six months ended June 30, 2011

 

 

 

 

 

 

 

 

 

 

 

 

2,683,688

 

 

2,683,688

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of 900,000 shares to the executives on April 29, 2011

 

 

900,000

 

 

346

 

 

1,439,654

 

 

 

 

 

 

 

 

1,440,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation cost

 

 

 

 

 

 

2,116

 

 

 

 

 

 

 

 

2,116

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

637,066

 

 

 

 

637,066

 

 

 



 



 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2011

 

 

34,629,862

 

$

13,298

 

$

14,964,950

 

$

2,398,464

 

$

1,600,501

 

$

19,446,629

 

$

38,423,842

 

 

 



 



 



 



 



 



 



 

The accompanying notes are an integrated part of these consolidated financial statements

3



 

Tsingda eEDU Corporation

(Formerly “Compass Acquisition Corporation”)

Consolidated Statements of Cash Flows

(Stated in US dollars)


 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

 

 

 


 

 

 

2011

 

2010

 

 

 


 


 

 

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

2,683,688

 

$

4,429,907

 

 

 

 

 

 

 

 

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,720,770

 

 

684,816

 

Share-based compensation costs

 

 

1,442,116

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

(2,141,666

)

 

(173,236

)

Advances to suppliers

 

 

(310,415

)

 

241,385

 

Other receivables

 

 

128,716

 

 

2,014,426

 

Deferred tax assets

 

 

164,968

 

 

68,593

 

Accounts payable

 

 

845,922

 

 

(11,245

)

Customer deposit

 

 

(120,473

)

 

(2,739,889

)

Accrued and other liabilities

 

 

91,960

 

 

(146,960

)

Taxes payable

 

 

1,122,952

 

 

1,229,980

 

Deferred revenue

 

 

(1,087,195

)

 

(457,237

)

 

 



 



 

CASH PROVIDED BY OPERATING ACTIVITIES

 

 

4,541,343

 

 

5,140,540

 

 

 



 



 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(720,404

)

 

(476,343

)

Addition of intangible assets

 

 

(4,581,785

)

 

(50,171

)

Payments for leasehold improvements not completed

 

 

(1,882,641

)

 

 

Advances to related parties

 

 

(94,961

)

 

 

Collection of advances to related parties

 

 

164,783

 

 

 

 

 



 



 

CASH USED IN INVESTING ACTIVITIES

 

 

(7,115,008

)

 

(526,514

)

 

 



 



 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

Cash release from escrow accounts

 

 

420,000

 

 

 

 

 



 



 

CASH PROVIDED BY FINANCING ACTIVITIES

 

 

420,000

 

 

 

 

 



 



 

Effect of exchange rate changes on cash and cash equivalents

 

 

13,415

 

 

241

 

 

 

 

 

 

 

 

 

NET INCREASE/(DECREASE) IN CASH

 

 

(2,140,250

)

 

4,614,267

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

 

$

4,086,214

 

$

457,219

 

 

 



 



 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

$

1,945,964

 

$

5,071,486

 

 

 



 



 

 

 

 

 

 

 

 

 

Supplementary Disclosures for Cash Flow Information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income taxes paid

 

$

414,059

 

$

165,042

 

 

 



 



 

The accompanying notes are an integrated part of these consolidated financial statements

4


TSINGDA EEDU CORPORATION
Notes to the Consolidated Financial Statements
June 31, 2011
(Unaudited)

NOTE 1- ORGANIZATION AND BUSINESS OPERATIONS

Tsingda Century Investment Consultant of Education Co., Ltd. (“Tsingda Century”) was incorporated on October 23, 2003, in Beijing, the People’s Republic of China (the “PRC”). Beijing Tsingda Century Network Technology Co., Ltd. (“Tsingda Network”), the wholly owned subsidiary of Tsingda Century was incorporated in the PRC on February 14, 2004. Tsingda Century and its subsidiary provide high quality offline and online educational services for students ranging from six to eighteen years of age in the PRC. Tsingda eEDU Corporation (“Tsingda eEDU” or “the Company”, formerly “Compass Acquisition Corporation”) was incorporated in the Cayman Islands on September 27, 2006. The Company was originally organized as a “blank check” company to investigate and acquire a target company or business seeking the advantages of being a publicly held corporation.

Tsing Da Century Education Technology Co., Ltd. (“Tsingda Technology”) was incorporated on December 11, 2009, in the British Virgin Islands, to serve as the intermediate holding company.

Tsingda Century Beijing Management Consulting Co., Ltd. (“Tsingda Management”) was incorporated on November 26, 2007 and was serving as the wholly owned foreign enterprise (“WOFE”) of Tsingda Technology.

On April 22, 2010, Tsingda Century Training School (“Tsingda School”) was incorporated in Beijing, the PRC, and it is a wholly owned subsidiary of Tsingda Century.

As part of the restructuring, on April 26, 2010, Tsingda Management entered into a series of agreements with Tsingda Century and its shareholders, including an Operating Agreement, Proxy Agreement, Consulting Services Agreement, Equity Pledge Agreement and Option Agreement, which entitled Tsingda Management to receive substantially all of the economic benefits of Tsingda Century in consideration for consulting services provided by Tsingda Management to Tsingda Century. An Option Agreement allows Tsingda Management to acquire the shares of Tsingda Century when permitted by the PRC laws. The Proxy Agreement provides Tsingda Management with the voting rights of Tsingda Century’s shareholder and Equity Pledge Agreement pledges the shares in Tsingda Century to Tsingda Management without transferring legal ownership in Tsingda Century to Tsingda Management. Under the Consulting Services Agreement, Tsingda Management is the exclusive service provider, to Tsingda Century, for services, including general business operation, human resources, business development and Tsingda Century is obligated to make regular payments for such services provided. Under the Operating Agreement, Tsingda Century shall not conduct any transactions which may materially affect the assets, obligations, rights or the operations, without the written consent of Tsingda Management and Tsingda Century accepted Tsingda Management’s corporate policy provide by Tsingda Management in connection with Tsingda Century’s daily operations, financial management and the employment and dismissal of Tsingda Century’s employees. Through those agreements, Tsingda Management has the power to direct the activities that most significantly impact the economic performance of Tsingda Century and Tsingda Century became a variable interest entity (“VIE”) and is included in the consolidated group.

As all of the companies are under common control, this structure has been accounted for as a reorganization of entities under common control and the financial statements have been prepared as if the reorganization had occurred retroactively.

On May 24, 2010, the Company and its controlling shareholders entered into a share exchange agreement (the Agreement) with Tsingda Technology and all of the shareholders of Tsingda Technology. Under the Agreement, the Company acquired 100% of the outstanding equity interests of Tsingda Technology in exchange for 244,022.78 preferred shares of the Company. Each such share of preferred stock was convertible into 100 ordinary shares of the Company at such time as the number of authorized ordinary shares is increased. The transaction was closed in May 2010 and was accounted for as a reverse merger with a shell company and a recapitalization of Tsingda Technology. Tsingda eEDU Corporation is the accounting acquiree. Tsingda Technology is the accounting acquirer and the surviving entity.

The corporate structure of the Company is as follows:

5


(FLOW CHART)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The unaudited interim financial statements of Tsingda eEDU Corporation (formerly “Compass Acquisition Corporation”) as of June 30, 2011 and for the six month periods ended June 30, 2011 and 2010 have been prepared in accordance with U.S. generally accepted accounting principles. In the opinion of management, such information contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of such periods. The results of operations for the six month period ended June 30, 2011 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2011.

Certain information and disclosures normally included in the notes to financial statements have been condensed or omitted as permitted by the rules and regulations of the Securities and Exchange Commission, although the Company believes the disclosure is adequate to make the information presented not misleading. The accompanying unaudited financial statements should be read in conjunction with the financial statements of the Company for the year ended December 31, 2010.

BASIS OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of the Company, and its wholly owned subsidiaries, (Tsingda Technology, and Tsingda Management), and Tsingda Century and its subsidiaries, Tsingda Network and Tsingda Century Training School. All intercompany balances and transactions have been eliminated in consolidation.

USE OF ESTIMATES

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the useful lives of fixed assets; the allowance for doubtful accounts; the fair value determination of financial and equity instruments, the reliability of deferred tax assets; the recoverability of intangible asset and property, plant and equipment; and accruals for income tax uncertainties and other contingencies.

REVENUE RECOGNITION

Online Courses

The Company provides online education programs to its franchisees, agents and individual customers. Revenue is realized through sales to franchisees and other agents of rights to conduct education services. The Company authorized the franchised locations to use its logo, all education programs and products and the Company receives a onetime licensing fee, annual management fee, and 20% of student generated revenue from the franchised location by providing them prepaid e-cards of 5 times the cash amount. All the mentioned fees are revenues or unearned revenues from the sale of e-cards. Revenue is recognized until the services are consummated upon the e-cards are opened and used by the students to purchase online education courses and is reported net of business tax. The

6


opening of cards is tracked by our IT system automatically and the revenue is proportionally recognized based on the progress of the e-cards usage.

Virtual Internet Classroom

The Company sold prepaid e-cards to the customers. Revenue is recognized until the services are consummated upon the e-cards are opened and used by the students to purchase online education courses and is reported net of business tax. The opening of cards is tracked by our IT system automatically and the revenue is proportionally recognized based on the progress of the e-cards usage.

Sales of Materials and Publications

The revenue is recognized upon the products are delivered to the customers.

Offline courses

Offline tutorial courses are provided by the Company owned learning centers and the revenue is recognized based on the progress of courses the students completed during the period.

FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS

The financial position and results of operations of the Company’s subsidiaries in the PRC are measured using the Chinese currency Renminbi as the functional currency, while the Company’s reporting currency is the US dollar. Balance sheet accounts with exception of equity of the subsidiaries are translated at the prevailing exchange rate in effect at each period end, income statement accounts are translated at the average rate of exchange during the period, and equity accounts were stated at their historical exchange rate. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income (loss) for the respective periods. Translation adjustments are included in the accumulated other comprehensive income in the consolidated statements of shareholders’ equity and comprehensive income.

The exchange rates used for foreign currency translation were as follows (USD$1 = RMB):

 

 

 

 

 

 







Period Covered

 

Balance Sheet Date Rates

 

Average Rates

 







Six months ended June 30, 2010

 

6.8086

 

6.8347

 

Six months ended June 30, 2011

 

6.4716

 

6.5465

 

SHARE BASED COMPENSATION

The Company recognizes share-based compensation based on grant date fair value of the award. The Company recognizes compensation cost for an award with only service conditions that have a graded vesting schedule on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in-substances, multiple awards.

SEGMENT REPORTING

The Company uses the “management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. The Company’s chief operating decision maker has been identified as the chief executive officer of the Company who reviews financial information of separate operating segments based on US GAAP. The chief operating decision maker now reviews results analyzed by service line. This analysis is only presented at the revenue level with no allocation of direct or indirect costs. Consequently, the Company has determined that it has only one operating segment.

RECLASSIFICATION

Certain amounts in the consolidated financial statements for the prior year have been reclassified to conform to the presentation of the current year for the comparative purposes.

EARNINGS PER SHARE

Basic earnings per share are computed by dividing net income by weighted average number of shares of common stock outstanding during each period. Diluted earnings per share is computed by dividing net income by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. At June 30, 2011 and 2010, the Company had no common stock equivalents that could potentially dilute future earnings per share.

7


NOTE 3 - ADVANCES TO SUPPLIERS

Advances to suppliers represent amounts prepaid for advertising, network, rent, store construction and decoration:

 

 

 

 

 

 

 

 

 

 

June 30,
2011

 

December 31,
2010

 

 

 


 


 

Advance for advertising and printing

 

$

4,391,831

 

$

3,466,970

 

Advance for network service

 

 

3,406,629

 

 

2,304,492

 

Others

 

 

1,198,903

 

 

2,717,289

 

 

 



 



 

Total

 

$

8,997,363

 

$

8,488,751

 

 

 



 



 

NOTE 4 – SHAREHOLDER ADVANCES

Shareholder advances represent the money provided to one shareholder and executive and were used for the Company’s operation. During the six month periods ended June 30, 2011 and 2010, the advances were paid to the shareholders and executives at amounts of $94,961 and $0, respectively; and the repayments to the Company were amounted to $164,783 and $0, respectively.

NOTE 5 - INCOME TAXES

The Company is incorporated in the Cayman Islands, and is not subject to tax on income or capital gain under the current laws of the Cayman Islands. In addition, upon payment of dividends by the Company to its shareholders, no Cayman Islands withholding tax is imposed. The Company’s other subsidiaries are subject to income tax as described below.

British Virgin Islands (“BVI”)

Under the current laws of BVI, our BVI subsidiaries are not subject to tax on income or capital gain. In addition, payments of dividends by our BVI subsidiaries to their shareholders are not subject to withholding tax in the BVI.

PRC

Prior to January 1, 2008, the Company was governed by the previous Income Tax Law (the “Previous Tax Law”) of China. Under the Previous Tax Law, the Company’s PRC subsidiaries, Tsingda Management, Tsingda Century and Tsingda network, were entitled various preferential tax treatments.

On March 16, 2007, the National People’s Congress passed the new Enterprise Income Tax law (the “new EIT law”) which imposes a single income tax rate of 25% for most domestic enterprises and foreign investment enterprises. The new EIT law was effective as of January 1, 2008. The new EIT law provides a five-year transition period from its effective date for those enterprises which were established before March 16, 2007 and which were entitled to a preferential lower tax rate under the then effective tax laws or regulations, as well as grandfathering tax holidays. Further, according to the new EIT law, entities that qualify as “High and New Technology Enterprises” are entitled to the preferential EIT rate of 15%. Tsingda Century has received approval for the status as a “High and New Technology Enterprises”. The status is valid for three years starting from June 2009 and will be renewed after evaluation by relevant government authorities every three years. Further, on December 26, 2007, the PRC government passed the detailed implementing rules which allow enterprises to continue to enjoy their unexpired tax holiday under the previous income tax laws and rules. As a result, under the new EIT law, Tsingda Century’s tax rate are 15% for the calendar years from 2010 to 2012 and subject to renewal of the status of “High and New Technology Enterprises” after calendar year 2012; and Tsingda Network and Tsingda School’s tax rates are 25%. Tsingda Management’s tax rates are 22% and 24% for 2010 and 2011 and 25% thereafter.

The provision for taxes on earnings consisted of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Six months ended

 

 

 


 


 

 

 

June 30,
2011

 

June 30,
2010

 

June 30,
2011

 

June 30,
2010

 

 

 


 


 


 


 

 

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

PRC Enterprise Income Tax

 

$

326,303

 

$

449,817

 

$

729,509

 

$

784,775

 

United States Federal Income Tax

 

 

 

 

 

 

 

 

 

 

 



 



 



 



 

Income tax, net

 

$

326,303

 

$

449,817

 

$

729,509

 

$

784,775

 

 

 



 



 



 



 

8


A reconciliation between the income tax computed at the U.S. statutory rate and the Company’s provision for income tax is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Six months ended

 

 

 


 


 

 

 

June 30,
2011

 

June 30,
2010

 

June 30,
2011

 

June 30,
2010

 

 

 


 


 


 


 

 

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Federal income tax statutory rate

 

 

35

%

 

35

%

 

35

%

 

35

%

PRC Statutory rate (25%) difference

 

 

-10

%

 

-10

%

 

-10

%

 

-10

%

Preferential tax rate

 

 

-10

%

 

-10

%

 

-10

%

 

-10

%

Share-based compensation cost

 

 

30

%

 

 

 

6

%

 

 

 

 



 



 



 



 

Effective tax rate

 

 

45

%

 

15

%

 

21

%

 

15

%

 

 



 



 



 



 

The tax effect of temporary differences that gives rise to significant portions of the deferred income tax assets are presented below:

 

 

 

 

 

 

 

 

 

 

June 30,
2011

 

December 31,
2010

 

 

 


 


 

Deferred tax assets:

 

 

 

 

 

 

 

Deferred revenue

 

$

226,727

 

$

382,758

 

 

 



 



 

Deferred tax assets, total

 

$

226,727

 

$

382,758

 

 

 



 



 

NOTE 6 – SHARE-BASED COMPENSATION

On April 29, 2011, the Company adopted the 2011 Equity Incentive Plan (the “Plan”) pursuant to which the Board of Directors may grant ordinary shares and stock options to its employees. The Company granted 900,000 ordinary shares to three executives with no cost and granted one executive 100,000 non-qualified stock options to purchase 100,000 shares of the Company’s ordinary shares at an exercise price of $2 per share. The stock options vest over a term of 5 years.

The fair value of the ordinary shares was estimated on the date of issuance. The amount of compensation cost recognized for the shares issued were $1,440,000 and $0 and were recorded in the general and administrative expenses for the six months ended June 30, 2011 and 2010, respectively.

The Company uses the Black-Sholes option-pricing model to estimate the fair value of its stock options. The fair value of stock options was estimated on the date of grant. Valuation assumptions used in the Black-Sholes option-pricing model for stock options granted include (1) discount rate of 2.13% based upon United States 5- year Treasury yields in effect at the time of the grant; (2) expected term of 5 years; (3) expected volatility of 51% and (4) zero expected dividends. The calculated fair value of the options was $0.63 per share. No stock options were exercised during the six months ended June 30, 2011. The amount of compensation cost recognized for the options granted were $2,116 and $0 and were recorded in the general and administrative expenses for the six months ended June 30, 2011 and 2010, respectively.

No income tax benefit was recognized in the income statement for the share shares and stock options as such compensation expenses were recorded and incurred by Tsingda eEDU Corporation, a Cayman Island incorporated entity.

NOTE 7 – SUBSEQUENT EVENTS

On July 12, 2011, the Company entered into a definitive Securities Purchase Agreement (the “Agreement”) with AMI Corporation (“AMI” or the “Purchaser”). Under this Agreement, the Company sold 3,000,000 ordinary shares to the Purchaser at the price of $4.56 per share receiving total cash proceeds of $13,680,000.

9


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC. Readers of this Quarterly Report are strongly encouraged to review the risk factors relating to the Company which are set forth in the Company’s Registration Statement on Form S-1 filed on October 12, 2010 and the Annual Report on Form 10-K for the year ending December 31, 2010 filed with the Securities and Exchange Commission.

COMPANY OVERVIEW

On May 24, 2010, Compass Acquisition Corporation and its controlling shareholders entered into a share exchange agreement (“Share Exchange Agreement”) with Tsing Da Century Education Technology Co. Ltd., a British Virgin Islands business company (“ Tsingda Technology “), and its shareholders. On November 15, 2010, the Company’s shareholders approved the change of the Company’s name from “Compass Acquisition Corporation” to “Tsingda eEDU Corporation” and the name change is effective immediately following the shareholder’s approval.

Tsingda Technology owns 100% of the issued and outstanding capital stock of Beijing Tsingda Century Management Consulting Ltd. (“Tsingda Management “), a wholly foreign owned enterprise incorporated under the laws of the People’s Republic of China (“PRC”). On April 26, 2010, Tsingda Management entered into a series of contractual agreements with Beijing Tsingda Century Investment Consultant of Education Co. Ltd (“ Tsingda Education “), a company incorporated under the laws of the PRC, and its shareholders, in which Tsingda Management effectively assumed management of the business activities of Tsingda Education. Beijing Tsingda Century Network Technology Co. Ltd., a PRC company, is a wholly owned subsidiary of Tsingda Education. The contractual arrangements are comprised of a series of agreements, including a Consulting Services Agreement, Operating Agreement, Proxy Agreement, and Option Agreement, through which Tsingda Management has the right to advise, consult, manage and operate Tsingda Education for a quarterly fee in the amount of 100% of Tsingda Education’s quarterly, after tax net profits. Additionally, Tsingda Education’s shareholders have pledged their rights, titles and equity interest in Tsingda Education as security for Tsingda Management to collect consulting and service fees through an Equity Pledge Agreement. In order to further reinforce Tsingda Management’s rights to control and operate Tsingda Education, Tsingda Education’s shareholders have granted Tsingda Management the exclusive right and option to acquire all of their equity interests in Tsingda Education through the Option Agreement. As all of the companies are under common control, this structure has been accounted for as a reorganization of entities and the financial statements have been prepared as if the reorganization had occurred retroactively.

Tsingda Education, with its subsidiary Tsingda Network, is a leading offline and online provider of educational services in the PRC. It has established the largest chain of education centers in the PRC, known as “Tsingda Learning Centers.” These offline educational centers principally target elementary school students and consist mainly of franchised locations. As of June 30, 2011, it has approximately 2,496 learning centers nationwide. It also has developed a robust, interactive educational platform which allows students to search and subscribe to virtual classrooms offered by a wide range of teachers in the PRC.

Results of Operations (Unaudited) for the Three and Six Months Ended June 30, 2011 Compared to Three and Six Months Ended June 30, 2010

The following table sets forth key components of Tsingda Education’s results of operations for the periods indicated in dollars. The discussion following the table addresses these results.

10


Tsingda eEDU Corporation
(Formerly “Compass Acquisition Corporation”)
Consolidated Statements of Operations and Comprehensive Income
(Stated in US dollars)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 


 


 

 

 

2011

 

2010

 

2011

 

2010

 

 

 


 


 


 


 

 

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

Sales revenue

 

$

8,861,189

 

$

5,616,047

 

$

17,090,536

 

$

9,467,108

 

Cost of revenue

 

 

2,931,294

 

 

739,339

 

 

5,133,295

 

 

1,458,130

 

 

 



 



 



 



 

Gross Profit

 

 

5,929,895

 

 

4,876,708

 

 

11,957,241

 

 

8,008,978

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling expenses

 

 

2,617,754

 

 

988,690

 

 

4,362,302

 

 

1,562,132

 

General and administrative expenses

 

 

2,567,683

 

 

1,007,747

 

 

4,166,404

 

 

1,332,640

 

 

 



 



 



 



 

Total operating expenses

 

 

5,185,437

 

 

1,996,437

 

 

8,528,706

 

 

2,894,772

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

 

744,458

 

 

2,880,271

 

 

3,428,535

 

 

5,114,206

 

Interest income

 

 

4,177

 

 

101,361

 

 

4,816

 

 

101,361

 

Other expenses

 

 

(19,785

)

 

 

 

(20,154

)

 

(885

)

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income tax

 

 

728,850

 

 

2,981,632

 

 

3,413,197

 

 

5,214,682

 

Income tax expenses

 

 

326,303

 

 

449,817

 

 

729,509

 

 

784,775

 

 

 



 



 



 



 

Net Income

 

$

402,547

 

$

2,531,815

 

$

2,683,688

 

$

4,429,907

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income/(loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

547,096

 

 

127,567

 

 

637,066

 

 

129,714

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Comprehensive Income

 

$

949,643

 

$

2,659,382

 

$

3,320,754

 

$

4,559,621

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share, basic and diluted

 

$

0.01

 

$

0.10

 

$

0.08

 

$

0.17

 

Average number of weighted average shares, basic and diluted

 

 

34,352,939

 

 

25,400,553

 

 

34,043,122

 

 

25,400,553

 

The accompanying notes are an integrated part of these consolidated financial statements

11


Revenues. For the three months ended June 30, 2011, we had revenues of $8,861,189 as compared to revenues of $5,616,047 for the three months ended June 30, 2010, an increase of approximately 57.78%. For the six months ended June 30, 2011, we had revenues of $17,090,536 as compared to revenues of $9,467,108 for the six months ended June 30, 2010, an increase of approximately 80.53%. We experienced strong growth in our revenues during the second quarter ended June 30, 2011. This growth is due to an increase in the number of franchise locations for the Company’s offline businesses, along with the continued growth of its online learning platform. As of June 30, 2011, we had 2,464 franchise locations and 32 company owned locations, compared with 2,225 franchise locations and three company owned locations respectively as of June 30, 2010. In addition, online revenues for six months ended June 30, 2011 increased to $2,929,007 from $478,032 for the comparable period in 2010. We launched our online virtual classroom platform in September 2008.

Expenses. For the six months ended June 30, 2011, we incurred expenses, composed of selling and general and administrative expenses, of $8,528,706 compared with expenses of $2,894,772 for the six months ended June 30, 2010, an increase of approximately 194.62%. Moreover, for the three months ended June 30, 2011, we incurred expenses, composed of selling and general and administrative expenses, of $5,185,437 compared with expenses of $1,996,437 for the three months ended June 30, 2010, an increase of approximately 159.73%.

Selling expenses include salaries of our sales department and company owned learning centers, advertising, printing, logo manufacturing, transportation and others. For the three months ended June 30, 2011, we had selling expenses of $2,617,754 as compared to $988,690 for the comparable period of the prior year, an increase of 164.77% or $1,629,064. In addition, for the six months ended June 30, 2011, we had selling expenses of $4,362,302 as compared to $1,562,132 for the comparable period of the prior year, an increase of 179.25% or $2,800,170. The increase reflected the marketing efforts spent on two new business projects: the Family Baby Club and Huang Gang Supplementary Education Center, and the continued promotion for our online education platform. The Family Baby Club targets pre-school children from zero to six years old and Huang Gang Supplementary Education Center provides well-regarded supplementary education to high school students. Huang Gang is an area in Hubei, China and is famous for its nationally top-ranked high school and the excellent academic performance of its students. The Education Department of Huang Gang City has reached an agreement with the Company to establish supplemental tutoring programs throughout China started in May 2011.

Key components of selling expenses for the three month periods ended June 30, 2011 and 2010 were:

 

 

 

 

 

 

 

 

 

 

Three months ended
June 30, 2011

 

Three months ended
June 30, 2010

 

 

Salaries and wages

 

$

411,664

 

$

110,344

 

Advertising

 

 

1,598,517

 

 

455,763

 

Printing

 

 

324,206

 

 

209,776

 

Shipping

 

 

63,646

 

 

40,798

 

Key components of selling expenses for the six month periods ended June 30, 2011 and 2010 were:

 

 

 

 

 

 

 

 

 

 

Six months ended
June 30, 2011

 

Six months ended
June 30, 2010

 

 

 

 

 

 

 

Salaries and wages

 

$

725,547

 

$

186,867

 

Advertising

 

 

2,462,080

 

 

961,749

 

Printing

 

 

662,274

 

 

242,293

 

Shipping

 

 

145,862

 

 

53,950

 

-Salaries and wages increase by approximately 273.07% and 288.27% respectively for the three and six months ended June 30, 2011 from the comparable 2010 periods. The increase represents an increase in our sales personnel at our headquarters consistent with our increased franchise sales and the establishment of two new business projects mentioned above.

-Advertising expenses increase by approximately 250.73% and 156% respectively for the three and six months ended June 30, 2011 from the comparable 2010 periods. Theses expenses represent third party print media costs related to new company-owned centers and the two new business projects, online platform, as well as our ongoing promotional efforts to attract new franchisees.

-Printing expenses increase by approximately 54.55% and 173.34% respectively for the three and six months ended June 30, 2011 from the comparable 2010 periods. These expenses represent internal costs for printing of our company newsletter and other promotional costs related to the enhancement of our brand name and increase in the numbers of newly owned locations, as well as the promotional materials of the two new business projects.

-Shipping Expenses increase by approximately 56% and 170.37% respectively for the three and six months ended June 30, 2011 from the comparable 2010 periods as a result of increasing sales activities.

General and administrative expenses include rent, salaries and wages, insurance, training and related expenses. For the three and six months ended June 30, 2011, we had general and administrative expenses of $2,567,683 and $4,166,404 respectively as compared to $1,007,747 and $1,332,640 respectively for the comparable period from the prior year.

Key components of general and administrative expenses for the three month periods ended June 30, 2011 and 2010 were:

 

 

 

 

 

 

 

 

 

 

Three months ended
June 30, 2011

 

Three months ended
June 30, 2010

 

 

 

 

 

 

 

Office supplies

 

$

60,077

 

$

11,237

 

Salaries and wages

 

 

189,681

 

 

95,886

 

Entertainment expenses

 

 

84,379

 

 

11,941

 

Rent

 

 

78,157

 

 

61,298

 

Share-based compensation cost

 

 

1,442,116

 

 

 

Depreciation

 

 

187,107

 

 

146,450

 

Consulting fee

 

 

390,356

 

 

8,214

 

12


Key components of general and administrative expenses for the six month periods ended June 30, 2011 and 2010 were:

 

 

 

 

 

 

 

 

 

 

Six months ended
June 30, 2011

 

Six months ended
June 30, 2010

 

 

 

 

 

 

 

Office supplies

 

$

169,478

 

$

12,987

 

Salaries and wages

 

 

378,366

 

 

189,683

 

Entertainment expenses

 

 

438,827

 

 

17,404

 

Rent

 

 

302,778

 

 

146,569

 

Share-based compensation cost

 

 

1,442,116

 

 

 

Depreciation

 

 

367,766

 

 

293,184

 

Consulting

 

 

701,512

 

 

41,105

 


 

-Office supplies increased by 434.63% and 1,205% respectively for the three and six months ended June 30, 2011 from the comparable 2010 periods. The increase was to satisfy the needs of newly owned locations and the two new business projects as mentioned above.

 

-Salaries and wages increased by 97.82% and 99.47% respectively for the three and six months ended June 30, 2011 from the comparable 2010 period as the company hired more management personnel for newly owned locations and two new business projects.

 

-Entertainment expenses increased by 606.63% and 2,421.41% respectively for the three and six months ended June 30, 2011 from the comparable 2010 period as the company opened more stores and spent more efforts on market promotion during this period.

 

-Rent increased by 27.52% and 106.58% respectively for the three and six months ended June 30, 2011 from the comparable 2010 period. These expenses mainly come from the lease of the new Shijingshan Headquarter-Tsingda Century Plaza.

 

-The Company granted 3 executives 900,000 shares with no cost and 100,000 on April 29, 2011 pursuant to the 2011 Equity Incentive Plan. The stock options are exercisable at $2 per share and vest over a term of 5 years. The Company valuates the fair value of the shares and stock options granted at the grant date using the Black-Sholes option-pricing model and the total cost of $1,442,116 was recorded in the three and six month period ended June 30, 2011 and $0 was recorded in the three and six month period ended June 30, 2010.

 

-Depreciation increased by 27.76% and 25.44% respectively for the three and six months ended June 30, 2011 from the comparable 2010 periods as the company bought more fixed assets for newly owned locations and two new business projects, Family Baby Club and Huanggang School.

 

-Consulting expenses increased by 4652.33% and 1606.63% respectively for the three and six months ended June 30, 2011 from the comparable 2010 periods as the company engaged more third-party consulting services related to Finance, IT and HR in lines with the expansion of business.

Income Before Taxes. Income before taxes for the three and six months ended June 30, 2011 was $728,850 and $3,413,197 respectively compared with $2,981,632 and $5,214,682 respectively for the comparable period of 2010.

Net Income. For the reasons discussed above, we had net income for three and six months ended June 30, 2011 of $402,547 and $2,683,688, respectively, compared with $2,531,815 and $4,429,907 respectively for the corresponding quarterly period in 2010. The first reason for the decrease in net income was the increase in selling expenses. The increase of $1,629,064 and $2,800,170 in selling expenses respectively for the three and six months ended June 30, 2011 was utilized to promote our online education platform and two new business projects to prepare for the summer vacation – generally the best season of the year for our business. We expect such expenditures will boost the Company’s revenue and net profits in the second half of the year. In addition, the decrease was partially due to our adoption of the 2011 Equity Incentive Plan (the Plan) under which the Board of Directors may issue shares and grant stock options to senior management. Under the Plan, 900,000 ordinary shares were issued to three key executives as of April 29, 2011 with no cost, and granted one executive 100,000 non-qualified stock options to purchase 100,000 shares of the Company’s ordinary shares at an exercise price of $2 per share, calculated based on the Black-Scholes pricing model. The calculated fair value of the options was $0.63 per share. The amount of compensation cost recognized for the options granted was $2,116 and recorded in the general and administrative expenses for the three months ended June 30, 2011. The amount of compensation cost recognized for the shares issued was $1,440,000 and recorded in general and administrative expenses for the three months ended June 30, 2011.

Other Comprehensive Income. We had other comprehensive income of $547,096 and $637,066 respectively for the three and six months ended June 30, 2011 compared with $127,567 and $129,714 respectively during corresponding 2010 periods as a result of foreign currency translation gain/loss.

Total Comprehensive Income. We had total comprehensive income of $949,643 and $3,320,754 respectively for the three and six months ended June 30, 2011, representing a decrease of 64.29% and 27.18%. The reason for the decrease is due to the various reasons stated above.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2011, we had working capital of $10,240,713 compared with working capital of $11,381,581 as of December 31, 2010. Changes in our working capital are summarized as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,
2011
(unaudited)

 

December 31,
2010
(audited)

 

Increase in
Working Capital

 

 

 

 

 

 

 

 

 

Total current assets

 

$

21,132,988

 

 

21,174,491

 

 

(41,503

)

Total current liabilities

 

 

10,892,275

 

 

9,792,960

 

 

(1,099,315

)

Working Capital

 

$

10,240,713

 

 

11,381,531

 

 

(1,140,818

)

13


Our decrease in working capital is primarily attributable to the decrease in advances for leasehold improvements and the decrease in cash and cash equivalents of approximately $4,721,987 and $2,140,250 respectively. The decrease was reflected by an increase of $7,017,484 in the value of property, plant and equipment resulting from certain improvements to the new office building. The improvements to the new office building are a temporary factor on our working capital and such improvements will be completed in the third quarter of 2011. In addition, tax payable and account payable were increased by $1,241,349 and $853,047, respectively. While tax payable reflects the increase in revenue and business tax, account payable was increased due to the improvements of the new office building and our internet infrastructure environment.

Our primary uses of cash have been for selling and marketing expenses, employee compensation, and working capital. The main sources of cash have been revenues from franchisees and from our company owned locations.

We believe the following trends are reasonably likely to result in a material decrease in our liquidity over the near to long term:

 

 

 

 

An increase in working capital requirements to finance the growth of our company owned locations,

 

 

 

 

Addition of administrative and marketing personnel as the business grows,

 

 

 

 

Increases in advertising, public relations and sales promotions for our franchising efforts in new and existing markets,

 

 

 

 

Software development and the purchase of servers commensurate with student population growth, and

 

 

 

 

The cost of being a public company and the continued increase in costs due to governmental compliance activities.

The Company currently generates cash flow through operations which we believe will be sufficient to sustain current operations for at least the next twelve months.

Cash flows from operations are calculated based upon the local currencies using the average translation rate. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets.

The following summarizes the key components of our cash flows for the three months ended June 30, 2011 and 2010:

 

 

 

 

 

 

 

 

 

 

Three Months Ended
June 30

 

 

 

 

2011

 

2010

 

 

 


 


 

 

 

 

 

 

 

Net cash provided by operating activities

 

$

3,911,568

 

$

3,205,579

 

Net cash consumed by investing activities

 

$

(4,886,992

)

$

1,481,451

 

Net cash provided by financing activities

 

$

 

$

 

Effect on cash of foreign exchange rates

 

$

168,915

 

$

(317,331

)

Net change in cash

 

$

(806,509

)

$

4,368,273

 

Cash Balance (Beginning of Period)

 

$

2,752,473

 

$

703,213

 

Cash Balance (End of Period)

 

$

1,945,964

 

$

5,071,486

 

14


The following summarizes the key components of our cash flows for the six months ended June 30, 2011 and 2010:

 

 

 

 

 

 

 

 

 

 

Six Months Ended
June 30

 

 

 

 

2011

 

2010

 

 

 


 


 

 

 

 

 

 

 

Net cash provided by operating activities

 

$

4,541,343

 

$

5,140,540

 

Net cash consumed by investing activities

 

$

(7,115,008

)

$

(526,514

)

Net cash provided by financing activities

 

$

420,000

 

$

 

Effect on cash of foreign exchange rates

 

$

13,415

 

$

241

 

Net change in cash

 

$

(2,140,250

)

$

4,614,267

 

Cash Balance (Beginning of Period)

 

$

4,086,214

 

$

457,219

 

Cash Balance (End of Period)

 

$

1,945,964

 

$

5,071,486

 

15


The net cash provided by operating activities for the three and six months ended June 30, 2011 were $3,911,568 and $4,541,343, respectively, compared with $3,205,579 and $5,140,540, respectively, for the comparable periods in 2010. The increase on the operating cash inflows primarily reflected the results of revenue increase and expenses of market promotion activities and the implementation of share incentive plan as mentioned above.

The net cash consumed by investing activities for the three and six months ended June 30, 2011 were $4,886,992 and $7,115,008 respectively, compared with $1,481,451 and -$526,514 respectively for the comparable periods in 2010. The decrease was primarily due to the additions to the intangible assets which were primarily composed on line teaching software and materials and the purchase of property and equipments for new office location.

The net cash provided by financing activities for the six months ended June 30, 2011 was $420,000 compared with zero for the six months ended June 30, 2010. The increase was primarily due to the retrieval of $420,000 from the escrow account.

The effect on cash of exchange rates was a gain of $168,915 and $13,415 for the three and six months ended June 30, 2011 respectively, compared with ($317,331)and $241 respectively for the comparable periods in 2010.

The difference between the closing balance of cash and cash equivalents for the three months ended June 30, 2011 and 2010 is due to the reasons mentioned above.

OFF-BALANCE SHEET ARRANGEMENTS

There are no off-balance sheet arrangements between us and any other entity that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.

CRITICAL ACCOUNTING POLICIES

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We continually evaluate our estimates, including those related to bad debts, inventories, recovery of long-lived assets, income taxes, and the valuation of equity transactions. We base our estimates on historical experience and on various other assumptions that we believed 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. Any future changes to these estimates and assumptions could cause a material change to our reported amounts of revenues, expenses, assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the financial statements

A summary of significant accounting policies is included in Note 2 to the audited consolidated financial statements for the year ended December 31, 2010. Management believes that the application of these policies on a consistent basis enables us to provide useful and reliable financial information about our operating results and financial condition. Other than as indicated in this quarterly report, there have been no material revisions to the critical accounting policies as filed in our Annual Report on Form 10-K as of and for the year ended December 31, 2010 with the SEC on March 11, 2011.

Variable Interest Entities

Pursuant to Financial Accounting Standards Board Interpretation No. 46 (Revised), “Consolidation of Variable Interest Entities - an Interpretation of ARB No. 51” (“FIN 46R”) we are required to include in our consolidated financial statements the financial statements of variable interest entities. FIN 46R requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss for the variable interest entity or is entitled to receive a majority of the variable interest entity’s residual returns. Variable interest entities are those entities in which we, through contractual arrangements, bear the risk of, and enjoy the rewards normally associated with ownership of the entity, and therefore we are the primary beneficiary of the entity.

Tsingda Education is considered a variable interest entity (“VIE”), and we are the primary beneficiary. On April 26, 2010, we entered into agreements with Tsingda Education pursuant to which we shall receive a quarterly fee in an amount equal Tsingda Education’s quarterly, after tax net profits. In accordance with these agreements, Tsingda Education shall pay consulting fees equal to 100% of its quarterly, after tax net profits to our wholly-owned subsidiary, Tsingda Management, and Tsingda Management shall supply the technology and administrative services needed to service Tsingda Education.

16


The accounts of Tsingda Education are consolidated in the accompanying financial statements pursuant to FIN 46R. As a VIE, Tsingda Education’s sales are included in our total sales, its income from operations is consolidated with ours, and our net income includes all of Tsingda Education’s net income. We do not have any non-controlling interest and accordingly, did not subtract any net income in calculating the net income attributable to us. Because of the contractual arrangements, we have pecuniary interest in Tsingda Education that requires consolidation of Tsingda Education’s financial statements with our financial statements.

17



 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

A smaller reporting company is not required to provide the information required by this Item.

 

Item 4T. Controls and Procedures.

 

Evaluation of disclosure controls and procedures

 

Management, with the participation of our Principal Executive Officer and Principal Financial Officer, carried out an evaluation of the effectiveness of our “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) pursuant to Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this quarterly report on Form 10-Q (the “Evaluation Date”). Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures are not effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

 

Notwithstanding the conclusion that our disclosure controls and procedures were not effective as of the end of the period covered by this Quarterly Report, the Principal Executive Officer and Principal Financial Officer believe that the condensed consolidated financial statements and other information contained in this Quarterly Report present fairly, in all material respects, our business, financial condition and results of operations.

 

Our Principal Executive Officer and Principal Financial Officer determined that our disclosure controls and procedures are not effective due to our lack of formalized policies with respect to such disclosure controls and procedures. Further, as of June 30, 2011, the Company had an advance outstanding in the amount of $134,691to the chief executive officer, Zhang Hui. As of the date of this report, the entire advance has been repaid to the Company. Management subsequently evaluated this transaction and determined that the transfers violated Section 402 of the Sarbanes-Oxley Act of 2002. Management is taking actions to eliminate such transactions in the future.

 

Changes in Internal Control Over Financial Reporting

 

There were no material changes in the Company’s internal control over financial reporting as of the end of the period covered by this report as such term is defined in Rule 13a-15(f) of the Exchange Act.

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We are not a party to any pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us

 

Item 1A: Risk Factors

 

A smaller reporting company is not required to provide the information required by this Item.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

Other than as disclosed in our current report on Form 8-K filed on July 26, 2011, no other unregistered sales of equity securities was made during the period covered by this report.

18



Item 3. Defaults upon Senior Securities

 

Other than disclosed in Company’s Form 8-K filings with the Securities and Exchange Commission there have been no defaults in any material payments during the covered period.

 

Item 4. (Removed and Reserved).

 

Item 5. Other Information

 

Item 6. Exhibits


 

 

4.1

2011 Equity Incentive Plan (1)

10.1

Securities Purchase Agreement dated July 12, 2011 by and between the Company and AMI. (2)

31.1*

Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*

Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*

Certification by the Chief Executive Officer pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*

Certification by the Chief Financial Officer pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


 

(1) Filed as Exhibit 4.1 to the Registration Statement on Form S-8 filed with the SEC on May 27, 2011.

(2) Filed as Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on July 26, 2011.

* Filed herewith.

19


SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the Company caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

Tsingda eEdu Corporation

 

(Company)

 

 

Date: August 15, 2011

By: /s/ Zhang Hui

 


 

 

 

President, Chief Executive Officer and Chairman of the Board

 

 

Date: August 15, 2011

By: /s/ Kang Chungmai

 


 

 

 

Chief Financial Officer (Principal

 

Financial and Accounting Officer)

20