Attached files
file | filename |
---|---|
EX-32.1 - Tsingda eEDU Corp | c67564_ex32-1.htm |
EX-31.2 - Tsingda eEDU Corp | c67564_ex31-2.htm |
EX-31.1 - Tsingda eEDU Corp | c67564_ex31-1.htm |
EXCEL - IDEA: XBRL DOCUMENT - Tsingda eEDU Corp | Financial_Report.xls |
EX-32.2 - Tsingda eEDU Corp | c67564_ex32-2.htm |
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UNITED STATES |
SECURITIES AND EXCHANGE COMMISSION |
Washington, D.C. 20549 |
FORM 10-Q
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(Mark One) |
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x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended September 30, 2011 |
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o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from to |
TSINGDA EEDU CORPORATION
(Exact name of registrant as specified in its charter)
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Cayman Islands |
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N/A |
(State or other jurisdiction of |
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(I.R.S. Employer |
incorporation or organization) |
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Identification No.) |
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No. 0620, Yongleyingshiwenhuanan |
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Rd., |
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Yongledian Town, Tongzhou District, |
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Beijing, PR China |
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101105 |
(Address of principal executive offices) |
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(Zip Code) |
Registrants telephone number (including area code): +45-8842 9181 |
(Former name, former address and former fiscal year, if changed since last report)
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 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.
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Large accelerated filer o |
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Accelerated filer |
o |
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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 issuers classes of common stock, as of the latest practicable
date: 35,754,862 ordinary shares, par value $0.000384 per share, as of
September 30, 2011.
TABLE OF CONTENTS
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Page |
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3 |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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2
PART I - FINANCIAL INFORMATION
Tsingda eEDU Corporation
Consolidated Balance Sheets
(Stated in US dollars)
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September 30, |
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December 31, |
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(Unaudited) |
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(Audited) |
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ASSETS |
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Current assets |
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Cash and cash equivalents |
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$ |
8,157,008 |
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$ |
4,086,214 |
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Accounts receivable, net |
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14,320,540 |
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6,555,936 |
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Advances to suppliers |
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10,000,444 |
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8,488,751 |
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Other receivables |
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1,069,022 |
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1,103,083 |
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Receivable from escrow account |
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100,000 |
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520,000 |
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Stockholder advances |
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37,749 |
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Deferred tax assets |
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434,698 |
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382,758 |
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Total Current Assets |
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34,081,712 |
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21,174,491 |
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Advances for leasehold improvements |
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1,861,115 |
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6,604,628 |
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Prepayment for investment and acquisition |
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4,200,000 |
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Property, plant and equipment, net |
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18,124,978 |
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10,652,830 |
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Intangible assets, net |
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9,917,532 |
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5,021,983 |
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TOTAL ASSETS |
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$ |
68,185,337 |
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$ |
43,453,932 |
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LIABILITIES & SHAREHOLDERS EQUITY |
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Current Liabilities |
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Accounts payable |
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1,690,919 |
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305,165 |
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Customer Deposit |
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2,546,444 |
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1,642,642 |
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Taxes payable |
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8,648,817 |
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5,070,919 |
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Accrued and other liabilities |
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423,103 |
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222,512 |
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Deferred revenue |
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2,897,984 |
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2,551,722 |
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Total Current Liabilities |
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$ |
16,207,267 |
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$ |
9,792,960 |
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SHAREHOLDERS EQUITY |
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Preferred stock: 781,250 shares of $.000128 par value authorized; None shares issued and outstanding |
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$ |
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$ |
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Common Stock: par value $0.000384 per share; 100,000,000 shares authorized; 35,754,862 and 33,729,862 shares issued and outstanding as of September 30, 2011 and December 31, 2010, respectively |
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13,730 |
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12,952 |
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Additional paid in capital |
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21,365,793 |
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13,523,180 |
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Statutory reserves |
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2,398,464 |
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2,398,464 |
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Retained earnings |
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25,802,719 |
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16,762,941 |
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Accumulated other comprehensive income |
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2,397,364 |
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963,435 |
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TOTAL SHAREHOLDERS EQUITY |
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51,978,070 |
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33,660,972 |
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TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |
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$ |
68,185,337 |
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$ |
43,453,932 |
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The accompanying notes are an integrated part of these unaudited consolidated financial statements.
3
Tsingda eEDU Corporation
Consolidated Statements of Operations and Comprehensive Income
(Stated in US dollars)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2011 |
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2010 |
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2011 |
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2010 |
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(Unaudited) |
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(Unaudited) |
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(Unaudited) |
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(Unaudited) |
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Sales revenue |
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$ |
15,506,300 |
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$ |
9,265,163 |
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$ |
32,596,836 |
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$ |
18,732,271 |
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Cost of revenue |
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3,575,002 |
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401,583 |
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8,708,297 |
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1,859,713 |
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Gross profit |
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11,931,298 |
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8,863,580 |
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23,888,539 |
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16,872,558 |
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Operating expenses |
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Selling expenses |
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2,961,866 |
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2,935,631 |
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7,324,168 |
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4,497,763 |
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General and administrative expenses |
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1,484,223 |
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246,211 |
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5,650,627 |
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1,578,851 |
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Total operating expenses |
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4,446,089 |
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3,181,842 |
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12,974,795 |
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6,076,614 |
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Income from operations |
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7,485,209 |
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5,681,738 |
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10,913,744 |
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10,795,944 |
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Interest income |
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447 |
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885 |
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5,263 |
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101,220 |
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Other expenses |
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(7,753 |
) |
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(141 |
) |
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(27,907 |
) |
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Income before income tax |
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7,477,903 |
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5,682,482 |
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10,891,100 |
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10,897,164 |
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Income tax expenses |
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1,121,813 |
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655,595 |
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1,851,322 |
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1,440,370 |
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Net income |
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$ |
6,356,090 |
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$ |
5,026,887 |
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$ |
9,039,778 |
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$ |
9,456,794 |
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Other comprehensive income/(loss) |
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Foreign currency translation adjustments |
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806,637 |
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(811,208 |
) |
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1,433,929 |
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(681,494 |
) |
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Total Comprehensive Income |
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$ |
7,162,727 |
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$ |
4,215,679 |
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$ |
10,473,707 |
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$ |
8,775,300 |
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Weighted average number of shares basic |
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36,835,959 |
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35,950,246 |
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34,849,367 |
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31,644,339 |
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Weighted average number of shares -diluted |
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37,677,296 |
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35,950,246 |
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35,690,704 |
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31,644,339 |
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Earnings per share |
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Basic |
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$ |
0.17 |
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$ |
0.14 |
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$ |
0.26 |
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$ |
0.30 |
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Diluted |
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0.17 |
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0.14 |
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0.25 |
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0.30 |
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The accompanying notes are an integrated part of these unaudited consolidated financial statements.
4
Tsingda eEDU Corporation
Consolidated Statements of Cash Flows
(Stated in US dollars)
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Nine Months Ended September 30, |
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2011 |
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2010 |
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(Unaudited) |
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(Unaudited) |
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CASH FLOWS FROM OPERATING ACTIVITIES |
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Net income |
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$ |
9,039,778 |
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$ |
9,456,794 |
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Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
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Depreciation and amortization |
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3,139,112 |
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1,555,058 |
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Stock issuance in exchange for the consulting services |
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|
799 |
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Share-based compensation costs |
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1,445,291 |
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Deferred tax assets |
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(35,810 |
) |
|
77,550 |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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(7,488,332 |
) |
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(2,583,393 |
) |
Advances to suppliers |
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(1,153,971 |
) |
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(5,464,672 |
) |
Prepaid expenses |
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(10,040 |
) |
Other receivables |
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102,459 |
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105,533 |
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Accounts payable |
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1,372,894 |
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5,394 |
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Customer deposits |
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834,580 |
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663,164 |
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Accrued and other liabilities |
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160,570 |
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929,114 |
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Taxes payable |
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3,364,206 |
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2,271,001 |
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Deferred revenue |
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233,826 |
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(517,002 |
) |
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CASH PROVIDED BY OPERATING ACTIVITIES |
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11,014,603 |
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6,489,300 |
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CASH FLOWS FROM INVESTING ACTIVITIES |
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Purchase of property, plant and equipment |
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(1,661,956 |
) |
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(646,641 |
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Addition of intangible assets |
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(6,661,369 |
) |
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(3,272,928 |
) |
Payments for leasehold improvements not completed |
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(1,861,115 |
) |
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(4,762,545 |
) |
Cash received for short-term investment matured |
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2,060,286 |
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Cash payment for acquisition deposit |
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(1,800,000 |
) |
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Cash payment for equity investment deposit |
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(2,400,000 |
) |
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Advances/loans to related parties |
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(93,392 |
) |
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Collection of advances/loan to related parties |
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165,335 |
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CASH USED IN INVESTING ACTIVITIES |
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(14,312,497 |
) |
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(6,621,828 |
) |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Cash proceeds from the private placement |
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12,585,600 |
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8,591,226 |
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Stock Repurchase |
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(6,187,500 |
) |
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Cash release from escrow accounts |
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420,000 |
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Repayment to related parties |
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(834,786 |
) |
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CASH PROVIDED BY FINANCING ACTIVITIES |
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|
6,818,100 |
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7,756,440 |
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Effect of exchange rate changes on cash and cash equivalents |
|
$ |
550,588 |
|
$ |
(836,854 |
) |
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NET INCREASE (DECREASE) IN CASH |
|
$ |
4,070,794 |
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$ |
6,787,058 |
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CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR |
|
$ |
4,086,214 |
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$ |
458,645 |
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CASH AND CASH EQUIVALENTS AT END OF YEAR |
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$ |
8,157,008 |
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$ |
7,245,703 |
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Supplementary Disclosures for Cash Flow Information: |
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Income taxes paid |
|
$ |
162,429 |
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$ |
137,755 |
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|
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The accompanying notes are an integrated part of these unaudited consolidated financial statements
5
Tsingda eEDU Corporation
Consolidated Statements of Shareholders Equity
(Stated in US dollars)
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Additional |
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Statutory |
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Accumulated |
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Retained |
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Total |
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No. of Shares |
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Amount |
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|
Balance as of December 31, 2010 (Audited) |
|
$ |
33,729,862 |
|
$ |
12,952 |
|
$ |
13,523,180 |
|
$ |
2,398,464 |
|
$ |
963,435 |
|
$ |
16,762,941 |
|
$ |
33,660,972 |
|
Net income for nine months ended September 30, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,039,778 |
|
|
9,039,778 |
|
Issuance of 900,000 shares to the management on April 29, 2011 |
|
|
900,000 |
|
|
346 |
|
|
1,439,654 |
|
|
|
|
|
|
|
|
|
|
|
1,440,000 |
|
Stock based compensation costs |
|
|
|
|
|
|
|
|
5,291 |
|
|
|
|
|
|
|
|
|
|
|
5,291 |
|
|
||||||||||||||||||||||
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,433,929 |
|
|
|
|
|
1,433,929 |
|
|
||||||||||||||||||||||
Private placement on July 12, 2011 |
|
|
3,000,000 |
|
|
1,152 |
|
|
13,678,848 |
|
|
|
|
|
|
|
|
|
|
|
13,680,000 |
|
|
||||||||||||||||||||||
Stock issuance costs related to the private placement on July 12, 2011 |
|
|
|
|
|
|
|
|
(1,094,400 |
) |
|
|
|
|
|
|
|
|
|
|
(1,094,400 |
) |
Shares repurchased and retired on August 21, 2011 |
|
|
(1,875,000 |
) |
|
(720 |
) |
|
(6,186,780 |
) |
|
|
|
|
|
|
|
|
|
|
(6,187,500 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2011 (Unaudited) |
|
$ |
35,754,862 |
|
$ |
13,730 |
|
$ |
21,365,793 |
|
$ |
2,398,464 |
|
$ |
2,397,364 |
|
$ |
25,802,719 |
|
$ |
51,978,070 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integrated part of these unaudited consolidated financial statements.
6
TSINGDA EEDU CORPORATION
Notes to the Consolidated Financial Statements
September 30, 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 Peoples 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.
On September 23, 2011, Family Baby Kindergarten (Family Baby) 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 Centurys 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 Managements corporate policy provide by Tsingda Management in connection with Tsingda Centurys daily operations, financial management and the employment and dismissal of Tsingda Centurys 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 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.
7
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION 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
The unaudited interim financial statements of Tsingda eEDU Corporation as of September 30, 2011 and for the three and nine month periods ended September 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 three months and nine months periods ended September 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, Tsingda Century Training School and Family Baby. 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
Certain expense amounts in the consolidated financial statements for the three and nine months ended September 30, 2010 have been reclassified to conform to the presentation of the three and nine months ended September 30, 2011 for the comparative purposes.
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 when the services are consummated when 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.
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 when 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.
8
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
The financial position and results of operations of the Companys subsidiaries in the PRC are measured using the Chinese currency Renminbi as the functional currency, while the Companys 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 |
|
||
|
|
||||||
|
|
|
|
|
|
|
|
Nine months ended September 30, 2010 |
|
|
6.6981 |
|
|
6.8164 |
|
|
|
|
|
|
|
|
|
Nine months ended September 31, 2011 |
|
|
6.3549 |
|
|
6.4882 |
|
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 Companys chief operating decision maker for making operating decisions and assessing performance as the source for determining the Companys reportable segments. The Companys 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.
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 September 30, 2011, the Company had common stock equivalents that could potentially dilute future earnings per share. See NOTE 10.
NOTE 3 - ADVANCE TO SUPPLIERS
Advance to suppliers represents amounts prepaid for advertising, network and rent.
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
Advance for advertising and printing |
|
$ |
6,035,333 |
|
$ |
3,466,970 |
|
Advance for network services |
|
|
3,143,110 |
|
|
2,304,492 |
|
Others |
|
|
822,001 |
|
|
2,717,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
10,000,444 |
|
$ |
8,488,751 |
|
|
|
|
|
|
|
|
|
9
NOTE 4 PREPAYMENTS FOR INVESTMENT AND ACQUISITION
On August 5, 2011, the Company entered into a definitive Investment Agreement (the Investment Agreement) with Mr. Guozhen Zhou, the founder of Asia Outstanding Students Admissions Union Ltd. (AOSA), a Company registered in British Columbia, Canada. Under the Investment Agreement, both parties agree to invest $5,500,000 in total in AOSA, in which Tsingda will invest $3,000,000, representing 55% of the total equity interest of AOSA. As of September 30, 2011, the Company paid $2,400,000 as the deposit.
On August 10, 2011, the Company entered into a definitive Shares Investment Agreement (the Acquisition Agreement) with Beijing YIYING Angel Education Consulting Co., Ltd. (YIYING Angel) and Ms. Yitong Chen, the owner of YIYING Angel to acquire 70% equity interest of YIYING Angel at the consideration of $2,800,000 and 200,000 shares options at the exercise price of $5 to be granted to Ms. Yitong Chen. As of September 30, 2011, the Company paid $1,800,000 as the deposit and the options have not been granted.
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
Prepayment for acquisition of YIYING Angel |
|
$ |
1,800,000 |
|
$ |
|
|
Prepayment for investment in AOSA |
|
|
2,400,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,200,000 |
|
$ |
|
|
|
|
|
|
|
|
|
|
NOTE 5 SHAREHOLDER ADVANCES
Shareholder advances represent the money provided to one shareholder and executive and were used for the Companys operation. During the nine month periods ended September 30, 2011 and 2010, the advances were paid to the shareholders and executives at amounts of $93,392 and $0, respectively; and the repayments to the Company were amounted to $165,335 and $0, respectively.
NOTE 6 - 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 Companys 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 Companys PRC subsidiaries, Tsingda Management, Tsingda Century and Tsingda network, were entitled various preferential tax treatments.
On March 16, 2007, the National Peoples 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
10
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 Centurys 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 Schools tax rates are 25%. Tsingda Managements tax rates are 22% and 24% for 2010 and 2011 and 25% thereafter.
The provision for taxes on earnings consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
|
||||||||
|
|
September 30, |
|
September 30, |
|
September 30, |
|
September 30, |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
|
|
(Unaudited) |
|
(Unaudited) |
|
(Unaudited) |
|
(Unaudited) |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PRC Enterprise Income Tax |
|
$ |
1,121,813 |
|
$ |
665,595 |
|
$ |
1,851,322 |
|
$ |
1,440,370 |
|
United States Federal Income Tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax, net |
|
$ |
1,121,813 |
|
$ |
665,595 |
|
$ |
1,851,322 |
|
$ |
1,440,370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation between the income tax computed at the U.S. statutory rate and the Companys provision for income tax is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
|
||||||||
|
|
September 30, |
|
September 30, |
|
September 30, |
|
September 30, |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
|
|
(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 |
% |
Stock issuance cost |
|
|
|
|
|
-3 |
% |
|
|
|
|
-2 |
% |
Share-based compensation cost |
|
|
|
|
|
|
|
|
2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate |
|
|
15 |
% |
|
12 |
% |
|
17 |
% |
|
13 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tax effect of temporary differences that gives rise to significant portions of the deferred income tax assets are presented below:
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
Deferred tax assets: |
|
|
|
|
|
|
|
Deferred revenue |
|
$ |
434,698 |
|
$ |
382,758 |
|
|
|
|
|
|
|
|
|
Deferred tax assets, total |
|
$ |
434,698 |
|
$ |
382,758 |
|
|
|
|
|
|
|
|
|
NOTE 7 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 Companys 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
11
shares issued were $1,440,000 and $0 and were recorded in the general and administrative expenses for the nine months ended September 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 nine months ended September 30, 2011. The amount of compensation cost recognized for the options granted were $5,291 and $0 and were recorded in the general and administrative expenses for the nine months ended September 30, 2011 and 2010, respectively.
No income tax benefit was recognized in the income statement for the shares and stock options as such compensation expenses were recorded and incurred by Tsingda eEDU Corporation, a Cayman Island incorporated entity.
NOTE 8 PRIVATE PLACEMENT
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. In relation to the private placement, the Company paid consulting service fee of $1,094,400, which is accounted for as a stock issuance cost and the payment was directly deducted from the cash proceeds received from the private placement.
NOTE 9 SHARES REPURCHASE AND RETIREMENT
On August 21, 2011, the Company entered into a Share Purchase Agreement (the Repurchase Agreement) with ZHR Fund, one of the Companys original shareholders, to buy back 1,875,000 ordinary shares of the Company held by ZHR Fund at the price of $3.3, and the total cash payment is $6,187,500. On the same day, the Company retired such shares repurchased. As of September 30, 2011, the number of the Companys outstanding ordinary shares is 35,754,862. Concurrent with the shares repurchase, 656,250 shares of outstanding warrants attached with the shares repurchased were cancelled.
NOTE 10 EARNINGS PER SHARE
Basic earnings per share (EPS) excludes the dilutive effect of common stock equivalents and is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted EPS includes the dilutive effect of common stock equivalents, which consists primarily of stock options and warrants, and is computed using the weighted-average number of common stock and common stock equivalents outstanding during the period.
The following table is a reconciliation of basic and diluted EPS for the three and nine months ended September 30, 2011 and 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
September 30, |
|
September 30, |
|
||||||||
|
|
|
|
|
|
||||||||
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Tsingda eEDU |
|
$ |
6,356 |
|
$ |
5,027 |
|
$ |
9,040 |
|
$ |
9,457 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
36,836 |
|
|
35,950 |
|
|
34,849 |
|
|
31,664 |
|
Dilutive effect of common stock equivalents |
|
|
841 |
|
|
|
|
|
841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted weighted-average common shares outstanding, assuming conversion of common stock equivalents |
|
|
37,677 |
|
|
35,950 |
|
|
35,690 |
|
|
31,664 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income attributable to Tsingda eEDU per common share |
|
$ |
0.17 |
|
$ |
0.14 |
|
$ |
0.26 |
|
$ |
0.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income attributable to Tsingda eEDU per common share |
|
$ |
0.17 |
|
$ |
0.14 |
|
$ |
0.25 |
|
$ |
0.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
Item 2. Managements 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 Companys 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 Companys shareholders approved the change of the Companys name from Compass Acquisition Corporation to Tsingda eEDU Corporation and the name change is effective immediately following the shareholders 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 Peoples 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 Educations quarterly, after tax net profits. Additionally, Tsingda Educations 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 Managements rights to control and operate Tsingda Education, Tsingda Educations 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 September 30, 2011, it has approximately 2,701 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 Nine Months Ended September 30, 2011 Compared to Three and Nine Months Ended September 30, 2010
The following table sets forth key components of Tsingda Educations results of operations for the periods indicated in dollars. The discussion following the table addresses these results.
13
|
Tsingda eEDU Corporation |
Consolidated Statements of Operations and Comprehensive Income |
(Stated in US dollars) |
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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||||||||
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2011 |
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2010 |
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2011 |
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2010 |
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||||
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Sales revenue |
|
$ |
15,506,300 |
|
$ |
9,265,163 |
|
$ |
32,596,836 |
|
$ |
18,732,271 |
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|
|
|
|
|
|
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Cost of revenue |
|
|
3,575,002 |
|
|
401,583 |
|
|
8,708,297 |
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|
1,859,713 |
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Gross profit |
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11,931,298 |
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8,863,580 |
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23,888,539 |
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16,872,558 |
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Operating expenses |
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Selling expenses |
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2,961,866 |
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|
2,935,631 |
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7,324,168 |
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4,497,763 |
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General and administrative expenses |
|
|
1,484,223 |
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246,211 |
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5,650,627 |
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1,578,851 |
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Total operating expenses |
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4,446,089 |
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3,181,842 |
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12,974,795 |
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6,076,614 |
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Income from operations |
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7,485,209 |
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5,681,738 |
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10,913,744 |
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10,795,944 |
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Interest income |
|
|
447 |
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|
885 |
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5,263 |
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101,220 |
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Other expenses |
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(7,753 |
) |
|
(141 |
) |
|
(27,907 |
) |
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Income before income tax |
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7,477,903 |
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5,682,482 |
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10,891,100 |
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10,897,164 |
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Income tax expenses |
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|
1,121,813 |
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|
655,595 |
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|
1,851,322 |
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|
1,440,370 |
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Net income |
|
$ |
6,356,090 |
|
$ |
5,026,887 |
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$ |
9,039,778 |
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$ |
9,456,794 |
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Other comprehensive income/(loss) |
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Foreign currency translation adjustments |
|
|
806,637 |
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(811,208 |
) |
|
1,433,929 |
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(681,494 |
) |
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Total Comprehensive Income |
|
$ |
7,162,727 |
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$ |
4,215,679 |
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$ |
10,473,707 |
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$ |
8,775,300 |
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Weighted average number of shares basic |
|
|
36,835,959 |
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35,950,246 |
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34,849,367 |
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31,644,339 |
|
Weighted average number of shares -diluted |
|
|
37,677,296 |
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|
35,950,246 |
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|
35,690,704 |
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31,644,339 |
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Earnings per share |
|
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Basic |
|
$ |
0.17 |
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$ |
0.14 |
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$ |
0.26 |
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$ |
0.30 |
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Diluted |
|
|
0.17 |
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|
0.14 |
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0.25 |
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|
0.30 |
|
The accompanying notes are an integrated part of these unaudited consolidated financial statements.
14
Revenues. For the three months ended September 30, 2011, we had revenues of $15,506,300 as compared to revenues of $9,265,163 for the three months ended September 30, 2010, an increase of approximately 67.36%. For the nine months ended September 30, 2011, we had revenues of $32,596,836 as compared to revenues of $18,732,271 for the nine months ended September 30, 2010, an increase of approximately 74.01%. We experienced strong growth in our revenues during the third quarter ended September 30, 2011. This growth is due to an increase in the number of franchise locations for the Companys offline businesses, along with the continued growth of its online learning platform. As of September 30, 2011, we had 2,669 franchise locations and 32 company owned locations, compared with 2,253 franchise locations and 18 company owned locations respectively as of September 30, 2010. In addition, online revenues for nine months ended September 30, 2011 increased to $4,883,615 from $1,188,310 or the comparable period in 2010. We launched our online virtual classroom platform in September 2008.
Expenses. For the nine months ended September 30, 2011, we incurred expenses, composed of selling and general and administrative expenses, of $12,974,795 compared with expenses of $6,076,614 for the nine months ended September 30, 2010, an increase of approximately 113.52%. Moreover, for the three months ended September 30, 2011, we incurred expenses, composed of selling and general and administrative expenses, of $4,446,089 compared with expenses of $3,181,842 for the three months ended September 30, 2010, an increase of approximately 39.73%.
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 September 30, 2011, we had selling expenses of $2,961,866 as compared to $2,935,631 for the comparable period of the prior year, an increase of 0.89% or $26,235. In addition, for the nine months ended September 30, 2011, we had selling expenses of $7,324,168 as compared to $4,497,763 for the comparable period of the prior year, an increase of 62.84% or $2,826,405. 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 months periods ended September 30, 2011 and 2010 were:
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Three months ended |
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Three months ended |
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September 30, 2011 |
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September 30, 2010 |
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Salaries and wages |
|
$ |
736,770 |
|
$ |
158,840 |
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|
|
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Advertising |
|
|
1,271,003 |
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|
1,194,711 |
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Printing |
|
|
536,767 |
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|
540,049 |
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Shipping |
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|
125,254 |
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|
217,851 |
|
Key components of selling expenses for the nine months periods ended September 30, 2011 and 2010 were:
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Nine months ended |
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Nine months ended |
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September 30, 2011 |
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September 30, 2010 |
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Salaries and wages |
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$ |
1,545,843 |
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$ |
375,946 |
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Advertising |
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3,735,018 |
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2,300,612 |
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Printing |
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|
1,198,461 |
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|
783,038 |
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Shipping |
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|
270,904 |
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|
269,702 |
|
-Salaries and wages increase by approximately 363.84% and 311.19% respectively for the three and nine months ended September 30, 2011 from the comparable 2010 periods. The increase represents an increase in our sales personnel at our headquarters consistent with
15
our increased franchise sales and the establishment of two new business projects mentioned above.
-Advertising expenses increased by 6.39% and 62.35%, respectively, for the three and nine months ended September 30, 2011 from the comparable 2010 periods. These 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 in the first half year.
-Printing expenses decrease by approximately 0.61% and increase by 53.05% respectively for the three and nine months ended September 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 decrease by approximately 42.50% and 0.45% respectively for the three and nine months ended September 30, 2011 from the comparable 2010 periods as a result of the change in the way delivering Tsingda Newsletters. In 2010, the Company printed and sent a lump sum of Newsletter to our franchisee periodically. However, the policy was changed in 2011 that the Company delivered such information through internet.
General and administrative expenses include rent, salaries and wages, insurance, training and related expenses. For the three and nine months ended September 30, 2011, we had general and administrative expenses of $1,484,223 and $5,650,627 respectively as compared to $246,211 and $1,578,851 respectively for the comparable period from the prior year.
Key components of general and administrative expenses for the three months periods ended September 30, 2011 and 2010 were:
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Three
months ended |
|
Three
months ended |
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||
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Office supplies |
|
$ |
32,914 |
|
$ |
22,732 |
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|
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Salaries and wages |
|
|
306,915 |
|
|
146,119 |
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Entertainment expenses |
|
|
7,433 |
|
|
53,043 |
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Rent |
|
|
227,592 |
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|
152,981 |
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Share-based compensation cost |
|
|
3,175 |
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Depreciation expenses |
|
|
255,442 |
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|
171,700 |
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|
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|
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|
|
Consulting fees |
|
|
470,613 |
|
|
133,518 |
|
Key components of general and administrative expenses for the nine months periods ended September 30, 2011 and 2010 were:
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|
Nine
months ended |
|
Nine
months ended |
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||
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Office supplies |
|
$ |
203,759 |
|
$ |
35,528 |
|
|
|
|
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|
Salaries and wages |
|
|
787,904 |
|
|
401,737 |
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|
|
|
|
|
|
|
|
Entertainment expenses |
|
|
437,267 |
|
|
69,948 |
|
|
|
|
|
|
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|
Rent |
|
|
530,318 |
|
|
351,311 |
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|
Share-based compensation cost |
|
|
1,445,291 |
|
|
|
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|
|
|
|
|
|
|
|
Depreciation Expenses |
|
|
624,021 |
|
|
464,513 |
|
|
|
|
|
|
|
|
|
Consulting Fees |
|
|
1,187,451 |
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|
173,358 |
|
16
-Office supplies increased by 44.79% and 473.52% respectively for the three and nine months ended September 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 110.04% and 96.12%, respectively, for the three and nine months ended September 30, 2011 from the comparable 2010 period as the company adopted Equity Incentive Plan and hired more management personnel for newly owned locations and two new business projects.
-Entertainment expenses decreased by 85.99% and increased by 525.13% respectively for the three and nine months ended September 30, 2011 from the comparable 2010 period as the company opened more stores and spent more efforts on market promotion in the first nine months of 2011.
-Rent increased by 48.77% and 50.95% respectively for the three and nine months ended September 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 shares of non-qualified stock options 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 $1,445,291 was recorded in the three and nine month period ended September 30, 2011 and $0 was recorded in the three and nine month period ended September 30, 2010.
-Depreciation increased by 48.77% and 34.34% respectively for the three and nine months ended September 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 252.47% and 584.97% respectively for the three and nine months ended September 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 nine months ended September 30, 2011 was $7,477,903 and $10,891,100 respectively compared with $5,682,482 and $10,897,864 respectively for the comparable period of 2010.
Net Income. For the reasons discussed above, for the three months ended September 30, 2011, we had net income of $6,356,090 as compared to $5,026,887 for the comparable period of the prior year, an increase of 26.44% or $1,329,203. In addition, for the nine months ended September 30, 2011, we had net income of $9,039,778 as compared to $9,456,794 for the comparable period of the prior year, a decrease of 4.41% or $417,016. The reason for the decrease in net income was the increase in G&A expenses. The increase of $4,071,776 in G&A expenses for nine months ended September 30, 2011was utilized to execute our IPO project and 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 Companys 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 $5,291 and recorded in the general and administrative expenses for the nine months ended September 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 nine months ended September 30, 2011.
Other Comprehensive Income. We had other comprehensive income of $806,637 and $1,433,929 respectively for the three and nine months ended September 30, 2011 compared with loss $811,208 and loss $681,494 respectively during corresponding 2010 periods as a result of foreign currency translation gain/loss.
Total Comprehensive Income. We had total comprehensive income of $7,162,727 and $10,473,707 respectively for the three and nine months ended September 30, 2011, representing a increase of 69.91% and 19.35% from the comparable periods in prior year. The reason for the decrease is due to the various reasons stated above.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2011, we had working capital of $17,874,445 compared with working capital of $11,381,531 as of December 31,
17
2010. Changes in our working capital are summarized as follows:
|
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|
June
30, |
|
December
31, |
|
Increase
in |
|
|||
|
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|
|||
Total current assets |
|
$ |
34,081,712 |
|
|
21,174,491 |
|
|
12,907,221 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
16,207,267 |
|
|
9,792,960 |
|
|
6,414,307 |
|
|
|
|
|
|
|
|
|
|
|
|
Working capital |
|
$ |
17,874,445 |
|
|
11,381,531 |
|
|
6,492,914 |
|
Our increase in working capital is primarily attributable to an increase in cash and cash equivalents of $4,070,794, an increase in accounts receivable of $7,764,604, and an increase of advance to suppliers of $1,511,693. In addition, taxes payable and account payable were increased by $3,577,898 and $1,385,754, respectively. While taxes payable reflects the increase in revenue and business tax, accounts payable were 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, |
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Software development and the purchase of servers commensurate with student population growth, and |
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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 September 30, 2011 and 2010:
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Three
Months Ended |
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2011 |
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2010 |
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||
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||
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||
Net cash provided by operating activities |
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$ |
6,473,260 |
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$ |
1,348,760 |
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|
|
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|
Net cash consumed by investing activities |
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$ |
(7,197,489 |
) |
$ |
(6,095,314 |
) |
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|
|
|
|
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|
Net cash provided by financing activities |
|
$ |
6,398,100 |
|
$ |
7,756,440 |
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|
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|
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|
Effect on cash of foreign exchange rates |
|
$ |
537,173 |
|
$ |
(835,669 |
) |
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|
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Net change in cash |
|
$ |
6,211,044 |
|
$ |
2,174,217 |
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Cash Balance (Beginning of Period) |
|
$ |
1,945,964 |
|
$ |
5,071,486 |
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Cash Balance (End of Period) |
|
$ |
8,157,008 |
|
$ |
7,245,703 |
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18
The following summarizes the key components of our cash flows for the nine months ended September 30, 2011 and 2010:
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Nine
Months Ended |
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2011 |
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2010 |
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||
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||
|
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|
|
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||
Net cash provided by operating activities |
|
$ |
11,014,603 |
|
$ |
6,489,300 |
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|
|
|
|
|
|
|
|
Net cash consumed by investing activities |
|
$ |
(14,312,497 |
) |
$ |
(6,621,828 |
) |
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
$ |
6,818,100 |
|
$ |
7,756,440 |
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|
|
|
|
|
|
|
|
Effect on cash of foreign exchange rates |
|
$ |
550,588 |
|
$ |
(836,854 |
) |
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|
|
|
|
|
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|
Net change in cash |
|
$ |
4,070,794 |
|
$ |
6,787,058 |
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|
|
|
|
|
|
|
Cash Balance (Beginning of Period) |
|
$ |
4,086,214 |
|
$ |
458,645 |
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|
|
|
|
|
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|
Cash Balance (End of Period) |
|
$ |
8,157,008 |
|
$ |
7,245,703 |
|
The net cash provided by operating activities for the three and nine months ended September 30, 2011 were $6,473,260 and $11,014,603, respectively, compared with $1,348,760 and $6,489,300, 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 detailed changes include the followings:
- Depreciation and amortization increased by$1,584,054 for the nine months ended September 30, 2011 from the comparable 2010 period due to the increases in fixed assets and intangible assets.
- Accounts receivable increased by $4,904,939 for the nine months ended September 30, 2011 from the comparable 2010 period. The increase was primarily due to the growth of our revenues, which increased by 74.01% or $13,864,565 in the nine months period ended September 30, 2011 compared with the same period in 2010.
- Advances to suppliers decreased by$4,310,701 for the nine months ended September 30, 2011 from the comparable 2010 period. The Company printed its newspaper amounting to over one million for the comparable period of 2010, while the promotion strategy was revised in 2011 and newsletter was released through the internet. In addition, the Company entrusted approximately $3,130,000 to its agents to open 15 company-owned learning centers and pay for the rent in 2010.
- Accounts payable increased by $1,367,500 for the nine months ended September 30, 2011 from the comparable 2010 period. The material increase was partly due to the continued improvement and interior decoration as well as new facilities acquired for our new headquarters and two new projects at the amount of $760,000. Furthermore, payables for advertising fees, bandwidth expansion and servers together account for over $215,000 for the nine months ended September 30, 2011.
- Taxes payable increased by $1,093,205 for the nine months ended September 30, 2011 from the comparable 2010 period due to the sustained increase in our sales revenue.
The net cash consumed by investing activities for the three and nine months ended September 30, 2011 were $7,197,489 and $14,312,497, respectively, compared with $6,095,314 and $6,621,828, respectively, for the comparable periods in 2010. The increase
19
was primarily due to the additions to the intangible assets of $3,388,441 which were primarily composed of on-line teaching software and materials, including infant touch screen, courseware, multimedia network platform, CRM Calling center, senior high school network courses, Micro-blog, bonus platform, etc.
The net cash provided by financing activities for the three and nine months ended September 30, 2011 were $6,398,100 and $6,818,100, respectively, compared with $7,756,440 for the same three and nine months periods in 2010. The increases were primarily due to the followings:
- Cash received from the private placement increased by $3,994,374. On July 12, 2011, the Company offered up to 3,000,000 ordinary shares at $4.56 per share to AMI, while the Company issued 6,000,000 ordinary shares at $1.6 to ZHR Fund for the comparable 2010 period.
- Cash paid to repurchase shares. On August 21, 2011, the Company repurchased from ZHR Fund 1,875,000 ordinary shares at $3.3 per share, for a total of $6,187,500.
- Cash payments for stock issuance costs of $1,094,400 in the nine months period of 2011.
The effect on cash of exchange rates was a gain of $550,588 and a loss of $836,854 for the nine months periods ended September 30, 2011 and September 30, 2010, respectively. For the three months periods ended September 30, 2011 and 2010 the numbers were a gain of $537,173 and a loss of $835,669, respectively.
The differences between the closing balance of cash and cash equivalents for the three and nine months ended September 30, 2011 and 2010 are 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.
Certain expense amounts in the consolidated financial statements for the three and nine months ended September 30, 2010 have been reclassified to conform to the presentation of the three and nine months ended September 30, 2011 for the comparative purposes.
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 entitys 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 Educations quarterly, after tax net profits. In accordance with these agreements, Tsingda Education shall pay consulting fees equal to 100% of its
20
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.
The accounts of Tsingda Education are consolidated in the accompanying financial statements pursuant to FIN 46R. As a VIE, Tsingda Educations sales are included in our total sales, its income from operations is consolidated with ours, and our net income includes all of Tsingda Educations 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 Educations financial statements with our financial statements.
21
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 Companys 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.
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|
Legal Proceedings |
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|
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 |
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Risk Factors |
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|
A smaller reporting company is not required to provide the information required by this Item. |
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Unregistered Sales of Equity Securities and Use of Proceeds |
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None |
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Defaults upon Senior Securities |
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|
|
None |
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|
|
(Removed and Reserved). |
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Other Information |
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|
|
Exhibits |
22
|
|
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. |
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101.INS |
XBRL Instance Document** |
101.SCH |
XBRL Taxonomy Extension Schema Document** |
101.CAL |
XBRL Taxonomy Extension Calculation Linkbase Document** |
101.DEF |
XBRL Taxonomy Extension Definition Linkbase Document** |
101.LAB |
XBRL Taxonomy Extension Labels Linkbase Document** |
101.PRE |
XBRL Taxonomy Extension Presentation Linkbase Document** |
* Filed herewith.
** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
23
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.
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Tsingda eEdu Corporation |
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(Company) |
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Date: November 14, 2011 |
By: |
/s/ Zhang Hui |
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President, Chief Executive Officer and Chairman of the Board |
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Date: November 14, 2011 |
By: |
/s/ Kang Chungmai |
|
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Chief Financial Officer (Principal |
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24