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EX-32.1 - CERTIFICATION - WONDER INTERNATIONAL EDUCATION & INVESTMENT GROUP Corp | wiei_ex32.htm |
EX-31.1 - CERTIFICATION - WONDER INTERNATIONAL EDUCATION & INVESTMENT GROUP Corp | wiei_ex311.htm |
EXCEL - IDEA: XBRL DOCUMENT - WONDER INTERNATIONAL EDUCATION & INVESTMENT GROUP Corp | Financial_Report.xls |
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
þ
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934
|
for the period ended September 30, 2011
o
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE Act of 1934
|
for the transition period from ___ to ___.
Commission file number: 333-163635
Wonder International Education & Investment Group Corporation
(Name of Small Business Issuer in its charter)
Arizona
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26-2773442
|
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(State of Incorporation)
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(I.R.S. Employer I.D. Number)
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8040 E. Morgan Trail, #18, Scottsdale, AZ 85258
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 480-966-2020
Securities registered under Section 12 (b) of the Act:
Title of each class to be registered
|
Name of exchange on which each class is to be registered
|
|
None
|
None
|
Securities registered under Section 12(g) of the Act:
None
Check whether issuer (1) filed all reports to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
(1). þ Yes o No
(2). þ Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes þ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. þ Smaller Reporting Company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No
The number of shares issued and outstanding of issuer's common stock, $0.001 par value, as of November 4, 2011 was 20,000,000.
TABLE OF CONTENT
Page No.
|
|||||
PART I - FINANCIAL INFORMATION | |||||
Item 1.
|
Financial Statements.
|
||||
-Consolidated Balance Sheets as of December 31, 2010 (audited) and September 30, 2011 (unaudited).
|
3 | ||||
-Consolidated Statements of Income for the Nine Month Periods Ended September 30, 2011 and September 30, 2010 (unaudited).
|
4 | ||||
-Consolidated Statements of Income for the Three Month Periods Ended September 30, 2011 and September 30, 2010 (unaudited).
|
5 | ||||
-Consolidated Statements of Cash Flows for the Nine Months Periods Ended September 30, 2011 and September 30, 2010 (unaudited).
|
6 | ||||
-Notes to the Consolidated Financial Statements (unaudited).
|
7 - 8 | ||||
Item 2.
|
Management's Discussion and Analysis and Plan of Operations.
|
9 | |||
Item 4.
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Controls and Procedures
|
15 | |||
PART II - OTHER INFORMATION
|
|||||
Item 6.
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Exhibits.
|
16 | |||
Signatures
|
17 |
2
PART I –FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WONDER INTERNATIONAL EDUCATION & INVESTMENT GROUP CORPORATION
CONSOLIDATED BALANCE SHEETS
|
|
September 30, 2011
(unaudited)
|
|
|
December 31, 2010
(audited)
|
|||
ASSETS
|
||||||||
Current Assets:
|
|
|
|
|
||||
Cash
|
|
$
|
1,965,527
|
|
|
$
|
1,338,316
|
|
Restricted cash
|
|
|
-
|
|
|
|
1,512,447
|
|
Other accounts receivable
|
|
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496,534
|
|
|
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226,048
|
|
Accrued interest receivable
|
|
|
-
|
|
|
|
11,034
|
|
Deferred tax asset
|
|
|
2,681,658
|
|
|
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1,231,072
|
|
Other current assets
|
|
|
105,034
|
|
|
|
18,619
|
|
Total current assets
|
|
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5,248,753
|
|
|
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4,337,536
|
|
|
|
|
|
|
|
|
|
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Fixed Assets:
|
|
|
|
|
|
|
|
|
Total fixed assets
|
|
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11,917,446
|
|
|
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11,431,161
|
|
Less accumulated depreciation
|
|
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4,594,400
|
|
|
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3,729,958
|
|
Net fixed assets
|
|
|
7,323,046
|
|
|
|
7,701,203
|
|
|
|
|
|
|
|
|
|
|
Other Assets:
|
|
|
|
|
|
|
|
|
Advances to related parties
|
|
|
38,678,975
|
|
|
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28,282,424
|
|
Total other assets
|
|
|
38,678,975
|
|
|
|
28,282,424
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
51,250,774
|
|
|
$
|
40,321,163
|
|
|
|
|
|
|
|
|
|
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LIABILITIES AND STOCKHOLDERS’ EQUITY
|
||||||||
Current Liabilities:
|
|
|
|
|
|
|
|
|
Bank loans payable
|
|
$
|
3,600,219
|
|
|
$
|
1,966,182
|
|
Bank drafts payable
|
|
|
-
|
|
|
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3,024,895
|
|
Other accounts payable
|
|
|
4,156,120
|
|
|
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2,768,527
|
|
Advanced tuition payments
|
|
|
10,726,633
|
|
|
|
4,924,289
|
|
Accrued liabilities
|
|
|
100,030
|
|
|
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433,983
|
|
Stockholder advances
|
|
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782,656
|
|
|
|
756,223
|
|
Taxes payable
|
|
|
10,763,845
|
|
|
|
7,678,460
|
|
Total current liabilities
|
|
|
30,129,503
|
|
|
|
21,552,559
|
|
|
|
|
|
|
|
|
|
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Stockholders’ Equity:
|
|
|
|
|
|
|
|
|
Common stock: authorized, 100,000,000 shares without
|
|
|
|
|
|
|
|
|
par value; issued and outstanding, 20,000,000 shares
|
|
|
5,858,782
|
|
|
|
5,858,782
|
|
Retained earnings
|
|
|
7,251,463
|
|
|
|
6,249,154
|
|
Earnings appropriated for statutory reserves
|
|
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4,834,308
|
|
|
|
4,166,101
|
|
Accumulated other comprehensive income
|
|
|
3,176,718
|
|
|
|
2,494,567
|
|
Total stockholders’ equity
|
|
|
21,121,271
|
|
|
|
18,768,604
|
|
Total Liabilities and Stockholders’ Equity
|
|
$
|
51,250,774
|
|
|
$
|
40,321,163
|
|
The accompanying notes are an integral part of these financial statements.
3
WONDER INTERNATIONAL EDUCATION & INVESTMENT GROUP CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
For The Nine Month Periods Ended September 30,
(Unaudited)
|
2011
|
2010
|
||||||
Revenue
|
$
|
10,386,967
|
$
|
9,717,451
|
||||
Cost of Sales
|
3,627,948
|
3,056,675
|
||||||
Gross Profit
|
6,759,019
|
6,660,776
|
||||||
|
||||||||
Expenses:
|
||||||||
Selling and Administrative Expenses
|
3,944,849
|
2,764,606
|
||||||
Operating Income
|
2,814,170
|
3,896,170
|
||||||
Other Income and Expense:
|
||||||||
Other Income
|
57,969
|
84,636
|
||||||
Interest Income
|
761,740
|
-
|
||||||
Interest Expense
|
(162,166
|
)
|
(68,470
|
)
|
||||
Other Expense
|
(931,599
|
)
|
(724,586
|
)
|
||||
Inc Income Before Income Taxes
|
2,540,114
|
3,187,750
|
||||||
Provision for Income Taxes:
|
||||||||
Current Provision
|
2,255,483
|
1,489,867
|
||||||
Deferred Provision
|
(1,385,884
|
)
|
(522,785
|
)
|
||||
Total Tax Provision
|
869,599
|
967,082
|
||||||
|
||||||||
Net Income
|
1,670,515
|
2,220,668
|
||||||
|
||||||||
Accumulated Other Comprehensive Income – foreign
|
||||||||
currency translation adjustments
|
682,151
|
151,136
|
||||||
Total Comprehensive Income
|
$
|
2,352,666
|
$
|
2,371,804
|
||||
Income Per Share -
|
||||||||
Basic and Diluted
|
$
|
.08
|
$
|
.12
|
||||
Weighted average number of shares outstanding
|
20,000,000
|
20,000,000
|
The accompanying notes are an integral part of these financial statements.
4
WONDER INTERNATIONAL EDUCATION & INVESTMENT GROUP CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
For The Three Month Periods Ended September 30,
(Unaudited)
|
2011
|
2010
|
||||||
Revenue
|
$ | 3,599,640 | $ | 4,267,908 | ||||
Cost of Sales
|
1,275,103 | 1,042,362 | ||||||
Gross Profit
|
2,324,537 | 3,225,546 | ||||||
|
||||||||
Expenses:
|
||||||||
Selling and Administrative Expenses
|
2,056,142 | 1,441,829 | ||||||
Operating Income
|
268,395 | 1,783,717 | ||||||
Other Income and Expense:
|
||||||||
Other Income
|
6,884 | 27,636 | ||||||
Interest Income
|
279,790 | - | ||||||
Interest Expense
|
(82,556 | ) | (29,837 | ) | ||||
Other Expense
|
(315,889 | ) | (304,716 | ) | ||||
Inc Income Before Income Taxes
|
156,624 | 1,476,800 | ||||||
Provision for Income Taxes:
|
||||||||
Current Provision
|
1,429,988 | 993,171 | ||||||
Deferred Provision
|
(1,463,474 | (677,103 | ) | |||||
Total Tax Provision
|
(33,486 | 316,068 | ||||||
|
||||||||
Net Income
|
190,110 | 1,160,732 | ||||||
|
||||||||
Accumulated Other Comprehensive Income (Loss) – foreign
|
||||||||
currency translation adjustments
|
233,923 | 278,643 | ||||||
Total Comprehensive Income
|
$ | 424,033 | $ | 1,439,375 | ||||
Income Per Share - | ||||||||
Basic and Diluted | $ | .01 | $ | .06 | ||||
Weighted Average Number of Shares Outstanding |
20,000,000
|
20,000,000
|
The accompanying notes are an integral part of these financial statements.
5
WONDER INTERNATIONAL EDUCATION & INVESTMENT GROUP CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Month Periods Ended September 30,
(Unaudited)
|
2011
|
2010
|
||||||
CASH FLOWS FROM OPERATIONS:
|
||||||||
Net income from continuing operations
|
$
|
1,670,516
|
$
|
2,220,688
|
||||
Adjustments to reconcile net income with net cash
|
||||||||
provided (consumed) by operating activities:
|
||||||||
Charges not requiring the outlay of cash:
|
||||||||
Depreciation
|
722,765
|
379,367
|
||||||
Increase in advanced tuition payments
|
5,543,536
|
2,091,128
|
||||||
Deferred tax benefit
|
(1,385,884
|
)
|
(522,782
|
)
|
||||
Changes in assets and liabilities:
|
||||||||
Increases in other receivables
|
(195,797
|
)
|
(2,931,193
|
)
|
||||
Increases in other current assets
|
(84,444
|
)
|
(62,887
|
)
|
||||
Decrease in accrued interest receivable
|
11,244
|
-
|
||||||
Increases in other accounts payable
|
1,270,946
|
735,166
|
||||||
Decrease in amounts due to employees
|
-
|
-
|
||||||
Increases in taxes payable
|
2,773,623
|
1,853,621
|
||||||
Increase (decrease) in accrued liabilities
|
(323,002
|
)
|
236,060
|
|||||
Increases in advances to related parties
|
(17,976,319
|
)
|
(6,242,366
|
)
|
||||
Decreases in advances to related parties | 8,629,704 | 1,515,722 | ||||||
Increase in loans from stockholder
|
-
|
184,407
|
||||||
Net Cash Provided (Consumed) By Operating Activities
|
656,888
|
(543,039
|
)
|
|||||
|
||||||||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Purchases of fixed assets
|
(85,392
|
)
|
(14,778
|
)
|
||||
Decreases in restricted cash
|
1,541,212
|
1,467,050
|
||||||
Net Cash Provided By Investing Activities
|
1,455,820
|
1,452,272
|
||||||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Repayments of drafts payable
|
(3,082,424
|
)
|
(1,462,837
|
)
|
||||
Increases in bank loans
|
1,541,212
|
1,462,837
|
|
|||||
Net Cash Consumed By Financing Activities
|
(1,541,212
|
)
|
-
|
|||||
|
||||||||
Effect on cash of exchange rate changes
|
55,715
|
35,268
|
||||||
Net change in cash
|
627,211
|
944,501
|
||||||
Cash balance, beginning of period
|
1,338,316
|
925,011
|
||||||
|
||||||||
Cash balance, end of period
|
$
|
1,965,527
|
$
|
1,869,512
|
The accompanying notes are an integral part of these financial statements.
6
WONDER INTERNATIONAL EDUCATION & INVESTMENT GROUP CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
(Unaudited)
1. BASIS OF PRESENTATION
The unaudited interim financial statements of Wonder International Education & Investment Group Corporation (“the Company”) as of September 30, 2011 and for the 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 nine month period 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.
2. SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash paid for interest during the nine month periods ended September 30, 2011 and September 30, 2010 was $162,166 and $68,470, respectively. Cash paid for income taxes during the nine month periods ended September 30, 2011 and September 30, 2010 was $4,307 and $3,461, respectively.
There were no noncash investing or financing activities during either of the periods presented.
3. DETAILS OF EXPENSES
The major items of expenses incurred during the three and nine month periods ended September 30, 2011 and 2010 are presented below:
Three Month Periods
|
Nine Month Periods
|
|||||||||||||||
|
2011
|
2010
|
2011
|
2010
|
||||||||||||
|
||||||||||||||||
Advertising
|
$
|
1,021,007
|
$
|
541,933
|
$
|
1,662,125
|
$
|
1,139,005
|
||||||||
Sales tax
|
323,221
|
242,887
|
560,772
|
412,506
|
||||||||||||
Management salary and benefits
|
104,012
|
105,844
|
216,712
|
244,351
|
||||||||||||
Staff salary and benefits
|
116,595
|
67,792
|
295,241
|
228,568
|
||||||||||||
Office expense
|
50,569
|
108,389
|
151,991
|
193,578
|
||||||||||||
Recruitment
|
130,451
|
126,187
|
473,502
|
174,937
|
||||||||||||
Maintenance
|
2,321
|
51,445
|
147,365
|
87,790
|
||||||||||||
Publicity
|
27,268
|
74,825
|
136,738
|
126,187
|
7
WONDER INTERNATIONAL EDUCATION & INVESTMENT GROUP CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
(Unaudited)
4. RELATED PARTY TRANSACTIONS
During the nine month period ended September 30, 2011, the Company advanced $17,976,319 to related parties and received payments against these advances of $8,629,704. Our President and controlling shareholder is the majority equity owner of these related parties. As of September 30, 2011, the related party receivables totaled $38,678,975. The main recipient of the advances is Anhui Wenda Information Technology Professional College. As of September 30, 2011, the amount due from the college was $17,679,306. Interest is charged on advances to the College at the basic rate charged for borrowing by the Peoples Bank of China; total interest charged during the three and nine month periods ended September 30, 2011 was $279,790 and $761,740, respectively.
5. BANK LOANS PAYABLE
Bank loans were not increased during the three month period ended September 30, 2011. This loan is due May 20, 2012 and bears interest at 7.57%.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATIONS.
Unless the context indicates otherwise, as used in this Form 10-Q, references to the “Company,” “we,” “our” or “us” refer to Wonder International Education & Investment Group Corporation and our subsidiaries and variable interest entities.
Forward-Looking Statements
The following discussion should be read in conjunction with our financial statements, which are included elsewhere in this Form 10-Q (the “Report”). This Report contains forward-looking statements which relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties, and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
For a description of such risks and uncertainties refer to our Form 10-K filed with the Securities and Exchange Commission on April 15, 2011. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
General.
Organizational History
Wonder International Education & Investment Group Corporation (“US Wonder”) is a US holding company, incorporated in Arizona on April 21, 2008. On November 1, 2010, US Wonder acquired all of the outstanding capital stock of Anhui Lang Wen Tian Cheng Consulting & Management Co., Ltd. (“WFOE”), a Chinese company. WOFE is a wholly owned subsidiary of US Wonder. On November 3, 2010, WFOE entered into a series of agreements with each of Anhui Wonder Education and Management Company, Ltd, a PRC company (“China Wonder”) and its seven wholly owned subsidiaries. These included Voting Right Proxy Agreements, Option Agreements, Equity Pledge Agreements, Consulting Services Agreements and Operating Agreements. China Wonder wholly owns seven separate vocational training schools in seven provinces in China. These schools are non-governmental vocational education institutions in China. The core business of China Wonder and of its seven soubsidiares is to provide IT education. China Wonder's seven (7) vocational schools are in the following provinces of China: Anhui, Jiangsu, Zhejiang, Fujian, Henan, Hubei and Liaoning. Through our ownership of WFOE, we control China Wonder and the schools and have the ability to control any income produced by China Wonder.
Our United States offices are located at 8040 E. Morgan Trail, #18, Scottsdale, AZ 85258 and our phone number is 480-966-2020. Our PRC headquarters are located at 4-5/F, Xingke Building, 441 Huangshanlu, Hefei, Anhui, China and our phone number is 86-0551-3687892.
Business Introduction
China Wonder owns and operates seven separate vocational training schools located in seven provinces in China, namely Anhui, Jiangsu, Zhejiang, Fujian, Henan, Hubei and Liaoning. These schools are non-state owned vocational education institutions in China. Wonder’s core business is to provide IT education to students enrolled in its training schools. It also provides job placement services to its students at no charge through its 12 employment centers located nationwide.
9
Results of Operations for Nine Months ended September 30, 2011 compared with September 30, 2010.
The following tables and related discussions set forth key components of Wonder’s results of operations for the periods above indicated in dollars.
2011
|
2010
|
|||||||
Revenue
|
$
|
10,386,967
|
$
|
9,717,451
|
||||
Cost of Sales
|
3,627,948
|
3,056,675
|
||||||
Gross Profit
|
$
|
6,759,019
|
6,660,776
|
For the nine months ended September 30, 2011, our revenues grew to $10,386,967 from $9,717,451 for the comparable 2010 period. The increase in revenues of $669,516 or 6.9% is the result of an aggressive marketing and promotional campaign that began in 2009. In 2009, we determined to increase our advertising budget on a year to year basis. As a result, we had higher student count and higher revenues for the current period compared to the same quarter of 2010. The growth of Company sales, although somewhat inhibited by the worldwide economic recession, occurred at most of the seven Company schools. Revenue from sales is recognized over the contracted school tuition period. The deferred revenue account has increased by $5,802,344 over the nine months ended September 30, 2011. We expect further growth in our revenues for the remainder of fiscal 2011.
Expenses:
|
2011
|
2010
|
||||||
Selling and Administrative Expenses
|
$
|
3,944,849
|
$
|
2,764,606
|
||||
Operating Income
|
$
|
2,814,170
|
$
|
3,896,170
|
Selling and Administrative Expenses (which include advertising, office expense, salaries and benefits, travel and promotion, technical support and related overhead) for the 2011 nine month period were $3,944,849, which represents an increase of $1,180,243 or 42.7% from the expenses of $2,764,606 of the prior period.
Major items included in Selling and Administrative Expenses were the following:
2011
|
2010
|
|||||||
Advertising
|
$
|
1,662,125
|
$
|
1,139,005
|
||||
Sales tax
|
560,772
|
412,506
|
||||||
Management salary and benefits
|
216,712
|
244,351
|
||||||
Staff salary and benefits
|
295,241
|
228,568
|
||||||
Recruitment
|
473,502
|
174,937
|
During the nine month period of fiscal 2011, our advertising and promotional expenditures increased by 45.9% from to those of the prior year comparable period. As mentioned above, we began to increase our advertising and promotional efforts commencing in fiscal 2009 which continued through this period. As a result, during the 2011 period, we incurred $1,662,125 in advertising costs, compared with $1,139,005 for the prior period. Sales tax for the current quarter increased by 36% from the prior quarter coincident with our growth in sales contracts. We pay sales tax on sales of our classes to students. Management salary and benefits for the current period decreased by 11.3% from those of the prior period because we delayed filling some management positions that became open during the quarter. We plan to fill these positions in the next quarter. Staff salary and benefits for the current period increase by 29.2% from the prior period due to an increase of recruiting staff in Liaoning and Fujian. Recruitment which represents principally travel and entertainment expenses incurred in promoting our schools to high school students increased during the year by 171% from the prior period due to intensive promotional efforts at four of our school locations. Our management decided to increase our recruiting efforts in the first fiscal quarter of this year and this effort continues through this current period. Previously, we have not focused on this method of attracting students.
10
Operating Income
We generated operating income for the 2011 period of $2,814,170 compared with $3,896,170 for the 2010 period. The primary reason for the decrease in operating income is the increase in selling and administrative expenses, which is discussed above. This increase in these expenses has resulted in higher sales that will be recognized as revenue over the next year which is reflected in our deferred revenue increase.
Other Income and Expenses
Other income was $57,969 for the current nine month period, a decrease of 31.5% from that of the prior year’s period. Other income represents income from the sales of books and school related services. Interest income for the current nine month period was $761,740 compared with nil for the comparable prior period. In the fourth quarter of 2010, we changed our arrangement with Anhui Wenda Information Technology Professional College, an accredited university located in Anhui Province, PRC, whereby the Company now receives interest at 5.85% per year on the university’s borrowings. Our President and controlling shareholder is the majority equity owner of the university. Historically, we have made significant loans to the university. As of September 30, 2011, this related party receivable was $17,679,306. We have not charged interest on other related party loans. Interest expense was $162,166 for the current nine month period, compared with $68,470 for the 2010 comparable period due to an increase in the balance of short term loans. Other expense was $931,599 for the current period compared with $724,586 for the 2010 period. We have an outstanding tax liability of $10,763,845 as of September 30, 2011 with the provincial and national taxing authorities. Other expense is principally the accrual of penalties we may pay to resolve the taxes payable described in the preceding sentence.
Provision for Income Taxes
During the current period, we had total income tax of $869,599 compared with $967,082 for the 2010 period. The decrease in taxes reflects the lower pre-tax income.
Net Income
Net Income for the current period was $1,670,515 compared with $2,220,668 for the 2010 period. The decrease of $550,153 or 24.8% is due to the reasons discussed above.
Foreign currency translation adjustment
The foreign currency translation adjustment, which is the impact of different foreign exchange rates applied to balance sheet accounts, versus those applied to income statement accounts, was $682,151 for the 2011 period compared with $151,136 for the 2010 period. The increase reflects the strengthening of the conversion rate during 2011 period of the Yuan (RMB) against the US Dollar.
11
Total Comprehensive Income
For the current 2011 period, we had total comprehensive income of $2,352,666 compared with total comprehensive income for the 2010 comparable period of $2,371,804. Total comprehensive income is the combined sum of net income and comprehensive income.
Income Per Share
Income applicable to common stock holders was $0.08 per share for the 2011 period compared with $0.12 per share for the 2010 comparable quarter.
Results of Operations for Three Months ended September 30, 2011 compared with September 30, 2010.
The following tables and related discussions set forth key components of Wonder’s results of operations for the periods above indicated in dollars.
2011
|
2010
|
|||||||
Revenue
|
$
|
3,599,640
|
$
|
4,267,908
|
||||
Cost of Sales
|
1,275,103
|
1,042,362
|
||||||
Gross Profit
|
$
|
2,324,567
|
3,225,546
|
For the three months ended September 30, 2011, our revenues decreased to $3,599,640 from $4,267,908 for the comparable 2010 period. The decrease of $668,268 is due to income deferred into future periods. Revenue from sales is recognized over the contracted school tuition period, typically one year. The deferred revenue account has increased by approximately $6 million during the current three month period. We expect relative growth in our revenues for the remainder of fiscal 2011.
Expenses:
|
2011
|
2010
|
||||||
Selling and Administrative Expenses
|
$
|
2,056,142
|
$
|
1,441,829
|
||||
Operating Income
|
$
|
268,395
|
$
|
1,783,717
|
Selling and Administrative Expenses (which include advertising, office expense, salaries and benefits, travel and promotion, technical support and related overhead) for the 2011 three month period were $2,056,142, which represents an increase of $614,313 or 42.6% from the expenses of $1,441,829 of the prior period.
Major items included in Selling and Administrative Expenses were the following:
2011
|
2010
|
|||||||
Advertising
|
$
|
1,021,007
|
$
|
541,933
|
||||
Sales tax
|
323,221
|
242,887
|
||||||
Management salary and benefits
|
104,012
|
105,844
|
||||||
Staff salary and benefits
|
116,595
|
67,792
|
||||||
Recruitment
|
130,451
|
126,187
|
12
During the third fiscal quarter of fiscal 2011, our advertising and promotional expenditures increased to $1,021,007 from $541,933 for the comparable period in 2010, representing an increase of 88% from the prior year’s quarter. As mentioned above, we began to increase our advertising and promotional efforts commencing in fiscal 2009 which continued through the current quarter. Sales tax for the current quarter increased by 33.0% from the prior quarter coincident with our revenue growth. We pay sales tax on sales of our classes to students. Management salary and benefits for the current quarter decreased by 1.7% from the prior quarter because we delayed hiring of some management positions that became open during the quarter. We plan to fill these positions in the next quarter. Staff salary and benefits for the current period increased by 72% from the prior quarter due to an increase of recruiting staff in Liaoning and Fujian. Recruitment which represents principally travel and entertainment expenses incurred in promoting our schools to high school students increased during the current quarter by 3.4% from the prior period due to intensive promotional efforts at four of our school locations. Our management decided to increase our recruiting efforts in the first fiscal quarter of this year and this effort carried through this current quarter. Previously, we have not focused on this method of attracting students.
Operating Income
We generated operating income for the 2011 period of $268,395 compared with $1,783,717 for the 2010 period. The reasons for this decrease are discussed above.
Other Income and Expenses
Other income was $6,884 for the 2011 quarter, a decrease of 75% from the prior year’s quarter. Other income represents income from the sales of books and school related services. Interest income for the current quarter was $279,790 compared with nil for the comparable prior period. In the fourth quarter of 2010, we changed our arrangement with Anhui Wenda Information Technology Professional College, an accredited university located in Anhui Province, PRC, whereby the Company now receives interest at 5.85% per year on the university’s borrowings. We have not charged interest on other related party loans. Our President and controlling shareholder is the majority equity owner of the university. Historically, we have made significant loans to the university. As of September 30, 2011, this related party receivable was $17,679,306. Interest expense was $82,556 for the 2011 quarter, compared with $29,837 for the 2010 comparable quarter due to an increase in the balance of short term loans. Other expense was $315,889 for the current quarter compared with $304,716 for the 2010 quarter. We have an outstanding tax liability of $10,763,845 as of September 30, 2011 with the provincial and national taxing authorities. Other expense is the accrual of penalties we may pay to resolve the taxes payable described in the preceding sentence.
Provision for Income Taxes
During the current quarter, we had total income tax benefit of $33,486 compared with tax of $316,068 for the 2010 quarter. The decrease in taxes reflects the lower pre-tax income.
Net Income
Net Income for the current quarter was $190,110 compared with $1,160,732 for the 2010 period. The decrease of $970,622 or 83.6% is due to the reasons discussed above.
Foreign currency translation adjustment
The foreign currency translation adjustment, which is the impact of different foreign exchange rates applied to balance sheet accounts, versus those applied to income statement accounts, was $233,923 for the 2011 period compared with $278,643 for the 2010 period. These gains reflect the strengthening of the conversion rate during both periods of the Yuan (RMB) against the US Dollar.
13
Total Comprehensive Income
For the current 2011 quarter, we had total comprehensive income of $424,033 compared with total comprehensive income for the 2010 comparable quarter of $1,439,375. Total comprehensive income is the combined sum of net income and comprehensive income.
Income Per Share
Income applicable to common stock holders was $0.01 per share for the 2011 period compared with $0.06 per share for the 2010 comparable quarter.
Liquidity and Capital Resources
As of September 30, 2011, we had a working capital deficit of $24,880,750 compared to a working capital deficit of $17,215,023 as of December 31, 2010. The working capital deficit is a result of the substantial advances to related parties which totaled $38,678,975 as of September 30, 2011. The increase in the deficit of $7,665,727 for the current quarter end from the 2010 year end is directly related to the increase in related party advances.
Over the next 12 months, we will require additional working capital of approximately $1,000,000 to sustain our working capital needs based on projected annual sales of $11,500,000: See plans for expansion below for additional capital needs to grow the business.
Sources of Capital.
We expect our revenues generated from operations to cover our projected working capital needs; however, if additional capital is needed, we will explore financing through options such as shareholder loans We have no formal agreement that ensures that we will receive such loans as needed. In the event shareholder loans are not available, we may seek long or short term financing from local banks.
We have credit facilities with two local banks. The combined balances at September 30, 2011 and December 31, 2010 were $3,600,219 and $1,966,182, respectively. Interest on the loans is at rates of 5.84%, 6.116% and 7.57%.
In addition, we have an over-draft arrangement with a local bank similar to a letter of credit, under which drafts are drawn to satisfy our obligations. These drafts are usually due in less than one year and payment is guaranteed by the bank. We are required to maintain a collateral deposit with the bank to cover the overdraft. The deposit is reported on the balance sheet as Restricted Cash. There is no interest charged for these drafts, but the bank charges a fee for the service. Drafts totaling $3,024,895 were outstanding at December 31, 2010, and as of September 30, 2001, the amount was nil.
As of September 30, 2011, we have taxes payable of $10,763,845. Since our inception, we have not fully paid taxes to our provincial and national governments. While we have accounted for the tax liability in our consolidated financial statements, we have not established a reserve account pursuant to which we would deposit an amount equal to our accrued tax liability.
14
Plans for Expansion
Given sufficient funding, we expect to expand our operations throughout China by establishing additional schools. The initial capital, which includes staffing, equipment and build-outs, for each new school is estimated to be approximately $1,500,000. We are currently seeking up to $10 million in investment capital which will be used for our expansion plans. As of the date of this filing, we do not have any formal arrangement with any third party to provide such capital to us. Accordingly, we can not predict whether we will be successful with our efforts to obtain investment capital.
We do not know of any trends, events or uncertainties that are likely to have a material impact on our short-term or long-term liquidity other than those factors discussed above.
Material Commitments
We do not have any material commitments for capital expenditures other than what was discussed relating to establishment of new facilities.
Seasonal Aspects
Our business is seasonal in that sales are particularly low in the summer months, due to school vacations. Sales are usually higher at the start of new semesters.
Off Balance Sheet Arrangements
We have no off balance sheet financing arrangements.
ITEM 4. CONTROLS AND PROCEDURES.
Our disclosure controls and procedures are designed to ensure that information required to be disclosed in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the United States Securities and Exchange Commission. Our principal executive officer and principal financial and accounting officers have reviewed the effectiveness of our “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13(a)-15(e) and 15(d)-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q and have concluded that the disclosure controls and procedures are effective to ensure that material information relating to the Company is recorded, processed, summarized, and reported in a timely manner.
Changes in Internal Controls over Financial Reporting
There have been no changes in the Company's internal control over financial reporting during the last quarterly period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
15
Part II OTHER INFORMATION
ITEM 6. EXHIBITS.
Exhibit 31 –
|
Certification Pursuant To Section 302 of The Sarbanes-Oxley Act Of 2002.
|
Exhibit 32 –
|
Certification Pursuant To Section 906 of The Sarbanes-Oxley Act Of 2002.
|
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Wonder International Education & Investment Group Corporation
|
|||
Date: November __, 2011
|
By:
|
/s/ Xie Chungui
|
|
Xie Chungui,
|
|||
Chairman
|
17