Attached files
(Exact name of registrant as specified in its charter )
Arizona | 26-2773442 |
(State of | (I.R.S. Employer |
Incorporation) | I.D. Number) |
(State of jurisdiction of incorporation incorporation or other organization) | (I.R.S. Employer Identification No) |
(Registrant’s telephone number, including area code)
Large accelerated filer £ | £ Accelerated filer |
Non-accelerated filer £ (Do not check if a smaller reporting company) | S Smaller Reporting Company |
2 |
September 30, 2013 | December 31, 2012 | |||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash | $ | 1,441,574 | $ | 1,490,802 | ||||
Miscellaneous receivables | 177,087 | 782,583 | ||||||
Other current assets | 89,794 | 55,575 | ||||||
Investment held for sale | 39,110,879 | — | ||||||
Total current assets | 40,819,334 | 2,328,960 | ||||||
Fixed Assets: | ||||||||
Buildings and related land rights | 4,715,356 | 4,566,810 | ||||||
Computers and related furniture and equipment | 18,015,081 | 11,986,681 | ||||||
Vehicles | 1,040,117 | 1,005,257 | ||||||
Construction in progress | 9,940,682 | — | ||||||
Total fixed assets | 33,711,236 | 17,558,748 | ||||||
Less accumulated depreciation | 7,437,019 | 6,026,250 | ||||||
Net fixed assets | 26,274,217 | 11,532,498 | ||||||
Other Assets: | ||||||||
Related party receivables | 2,139,792 | 3,232,062 | ||||||
Investment in related party , at cost | — | 37,998,132 | ||||||
Total other assets | 2,139,792 | 41,230,194 | ||||||
Total Assets | $ | 69,233,343 | $ | 55,091,652 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current Liabilities: | ||||||||
Bank loans payable | $ | 3,748,126 | $ | 2,058,232 | ||||
Accounts payable | 2,178,026 | 1,460,984 | ||||||
Deferred revenue | 12,629,599 | 8,841,163 | ||||||
Accrued liabilities | 26,531 | 395,671 | ||||||
Taxes payable | 2,944,564 | 2,117,875 | ||||||
Total current liabilities | 21,526,846 | 14,873,925 | ||||||
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 | 32,351,353 | 26,118,339 | ||||||
Earnings appropriated for statutory reserves | 2,929,391 | 2,929,391 | ||||||
Accumulated other comprehensive income | 6,566,971 | 5,311,215 | ||||||
Total stockholders’ equity | 47,706,497 | 40,217,727 | ||||||
Total Liabilities and Stockholders’ Equity | $ | 69,233,343 | $ | 55,091,652 |
3 |
Three Months Ended
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Nine Months Ended
|
|||||||||||||||
September 30,
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September 30,
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|||||||||||||||
2013
|
2012
|
2013
|
2012
|
|||||||||||||
Revenue
|
$ | 5,089,969 | $ | 4,871,336 | $ | 14,853,173 | $ | 14,137,203 | ||||||||
Cost of Sales
|
1,463,842 | 1,468,736 | 4,118,132 | 3,771,517 | ||||||||||||
Gross Profit
|
3,626,127 | 3,402,600 | 10,735,041 | 10,365,686 | ||||||||||||
Expenses:
|
||||||||||||||||
Selling and Administrative Expenses
|
1,934,343 | 2,143,997 | 4,074,375 | 4,619,524 | ||||||||||||
Operating Income
|
1,691,784 | 1,258,603 | 6,660,666 | 5,746,162 | ||||||||||||
Other Income and Expense:
|
||||||||||||||||
Other Income
|
—
|
5,901 |
—
|
33,516 | ||||||||||||
Interest Income
|
2,056 |
—
|
32,403 |
—
|
||||||||||||
Interest Expense
|
(54,319 | ) | (61,212 | ) | (135,336 | ) | (204,805 | ) | ||||||||
Other Expense
|
(103,324 | ) | (74,913 | ) | (324,719 | ) | (221,474 | ) | ||||||||
Net Income
|
1,536,197 | 1,128,379 | 6,233,014 | 5,353,399 | ||||||||||||
Other comprehensive income – foreign currency translation adjustments
|
274,335 | (58,649 | ) | 1,255,756 | 81,445 | |||||||||||
Comprehensive income
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$ | 1,810,532 | $ | 1,069,730 | $ | 7,488,770 | $ | 5,434,844 | ||||||||
Income Per Share -
|
||||||||||||||||
Basic and Diluted
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$ | 0.08 | $ | 0.06 | $ | 0.31 | $ | 0.27 | ||||||||
Weighted average number of shares outstanding
|
20,000,000 | 20,000,000 | 20,000,000 | 20,000,000 |
4 |
Nine Months Ended September 30 | ||||||||
2013 | 2012 | |||||||
CASH FLOWS FROM OPERATIONS: | ||||||||
Net income | $ | 6,233,014 | $ | 5,353,399 | ||||
Adjustments to reconcile net income with net cash | ||||||||
provided by operating activities: | ||||||||
Depreciation | 1,219,038 | 735,647 | ||||||
Changes in assets and liabilities: | ||||||||
Increases in advanced tuition payments | 3,485,901 | 2,934,647 | ||||||
Decreases in other accounts receivable | 20,422 | 34,665 | ||||||
Increases in prepaid expenses | (32,189 | ) | (607,118 | ) | ||||
Decrease in dividend receivable | 600,224 | — | ||||||
(Increase) decrease in advances to related parties | 1,172,247 | (3,535,604 | ) | |||||
Increase (decrease) in accounts payable | 539,728 | (101,318 | ) | |||||
Increases in taxes payable | 755,217 | 655,070 | ||||||
Decreases in accrued liabilities | (249,824 | ) | (561,846 | ) | ||||
Net Cash Provided from Operating Activities | 13,743,778 | 4,907,542 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchases of plant, property and equipment | (15,444,992 | ) | (4,551,435 | ) | ||||
Net Cash Used By Investing Activities | (15,444,992 | ) | (4,551,435 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from bank loans | 3,701,797 | 1,585,163 | ||||||
Repayments of bank loans | (2,092,320 | ) | (1,585,163 | ) | ||||
Net Cash Provided from Financing Activities | 1,609,477 | — | ||||||
Effect of exchange rate changes on cash | 42,509 | 3,838 | ||||||
Net changes in cash | (49,228 | ) | 359,945 | |||||
Cash balances, beginning of period | 1,490,802 | 1,646,542 | ||||||
Cash balances, end of period | $ | 1,441,574 | $ | 2,006,487 |
5 |
The Company is in the process of constructing a teaching facility on the grounds of Anhui Wonder University of Information Engineering. Because the University holds the land use rights to the grounds, title to the completed facility will be in the name of the University with a beneficial right of use agreement for the Company.
Three Months Ended
September 30
|
Nine Months Ended
September 30 |
|||||||||||||||
2013
|
2012
|
2013
|
2012
|
|||||||||||||
Advertising and publicity
|
$ | 1,198,245 | $ | 1,464,236 | $ | 1,904,051 | $ | 2,516,687 | ||||||||
Sales tax
|
385,281 | 349,016 | 640,204 | 596,514 | ||||||||||||
Management salaries and benefits
|
69,531 | 68,464 | 184,124 | 205,738 | ||||||||||||
Staff salary and benefits
|
106,654 | 118,234 | 331,897 | 288,454 | ||||||||||||
Recruitment
|
64,025 | 143,650 | 621,004 | 640,167 | ||||||||||||
Office and other expense
|
110,607 | 397 | 393,095 | 371,964 | ||||||||||||
Total expenses
|
$ | 1,934,343 | $ | 2,143,997 | $ | 4,074,375 | $ | 4,619,524 |
6 |
Lender
|
September
30,2013 |
Maturity
|
Int.
Rate/Year |
|||||||
Hangzhou Bank
|
$ | 488,886 |
August 18, 2014
|
7.8% | ||||||
HuiShang Bank
|
1,629,620 |
July 2, 2014
|
Base+30%
|
|||||||
HuiShang Bank
|
1,629,620 |
September 23, 2014
|
Base+30%
|
|||||||
Total
|
$ | 3,748,126 |
9. SUBSEQUENT EVENTS
On October 28, 2013, the Company entered into an Equity Agreement with Anhui Wonder University of Information Engineering to sell the 7% Equity Interest the Company holds in the University for the sum of $42,765,303. The purchase price is to be paid in cash before December 31, 2013. Because of the pending transaction the Investment in related party is moved from the Balance Sheet category of Other Assets to the category of Current Assets as an investment held for sale.
7 |
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 for the Annual Report for the period ending December 31, 2012 filed with the Securities and Exchange Commission on April 16, 2013. 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.
Recent Developments
In June 2013, China Wonder signed an agreement with Anhui Wonder Education Investment Management Co. Ltd. (“Wonder University”), an entity owned by our Chairman, for the use of new teaching facilities to be built on the grounds of Wonder University. A total of four classroom buildings and one academic exchange center will be constructed over a period of two years. China Wonder will have rights to use three of the classroom buildings and to share use of the academic exchange center with Wonder University. Pursuant to the agreement, China Wonder agreed to pay a total of RMB90 million fees to cover the full cost of constructing the new facilities, of which 70% is to be paid to the construction company by the end of 2013 and the remaining 30% is to be paid within 6 months of satisfactory completion of the facilities.
8 |
2013
|
2012
|
|||||||
Revenue
|
$ | 14,853,173 | $ | 14,137,203 | ||||
Cost of sales
|
4,118,132 | 3,771,517 | ||||||
Gross Profit
|
$ | 10,735,041 | $ | 10,365,686 |
Expenses:
|
2013
|
2012
|
||||||
Selling and Administrative Expenses
|
$
|
4,074,375
|
$
|
4,619,524
|
||||
Operating Income
|
$
|
6,660,666
|
$
|
5,746,162
|
Three Months Ended
September 30
|
Nine Months Ended
September 30 |
|||||||||||||||
2013
|
2012
|
2013
|
2012
|
|||||||||||||
Advertising and publicity
|
$ | 1,198,245 | $ | 1,464,236 | $ | 1,904,051 | $ | 2,516,687 | ||||||||
Sales tax
|
385,281 | 349,016 | 640,204 | 596,514 | ||||||||||||
Management salaries and benefits
|
69,531 | 68,464 | 184,124 | 205,738 | ||||||||||||
Staff salary and benefits
|
106,654 | 118,234 | 331,897 | 288,454 | ||||||||||||
Recruitment
|
64,025 | 143,650 | 621,004 | 640,167 | ||||||||||||
Office and other expense
|
110,607 | 397 | 393,095 | 371,964 | ||||||||||||
Total expenses
|
$ | 1,934,343 | $ | 2,143,997 | $ | 4,074,375 | $ | 4,619,524 |
9 |
Operating Income increased from $5,746,162 in the nine months ended September 30, 2012 to $6,660,666 in the nine months ended September 30, 2013, an increase of $914,504 or 15.9% due to increases in revenue and resultant gross profit combined with reductions in selling and administrative costs.
Net income for the nine months ended September 302013 was $6,233,014 compared with $5,353,399 for the comparable 2012 period. The increase of $879,615 or 16.4% is primarily due to increases in revenue and cost reductions as noted above.
2012
|
2011
|
|||||||
Revenue
|
$
|
5,089,969
|
$
|
4,871,336
|
||||
Cost of revenue
|
1,463,842
|
1,468,736
|
||||||
Gross Profit
|
$
|
3,626,127
|
$
|
3,402,600
|
For the three months ended September 30, 2013, our revenues grew to $5,089,969 from $4,871,336 for the comparable period in 2012. The increase of $218,633 or 4.5% is the result of an aggressive marketing and promotional campaign that began in 2009 and continued into 2013. The growth of Company sales, although somewhat inhibited by the worldwide economic recession, occurred at five Company schools. For the three months ended September 30, 2013, our cost of sales decreased from $1,468,842 during the three months ended September 30, 2012 to $1,463,842 for the three months ended September 30, 2013. The decrease of $4,894 or 0.3% is the result of general cost savings.
Expenses:
|
2012
|
2011
|
||||||
Selling and Administrative Expenses
|
$
|
1,934,343
|
$
|
2,143,997
|
||||
Operating Income
|
$
|
1,691,784
|
$
|
1,258,603
|
Selling and Administrative Expenses (which includes advertising, office expense, salaries and benefits, travel and promotion, technical support and related overhead) for the three months ended September 30, 2013 period were $1,934,343, which represents an decrease of $209,654 or 9.8% from the expenses of $2,143,997 of the three months ended September 30, 2012. The decrease is mainly from decreases in advertising and publicity (promotional) expenditures.
10 |
Comprehensive Income
For the three months ended September 30, 2013, we had total comprehensive income of $1,810,532 compared with total comprehensive income for the three months ended September 30, 2013 of $1,069,730. Total comprehensive income is the combined sum of net income and comprehensive income.
Income applicable to common stock holders was $0.08 per share for the three months ended September 30, 2013 compared with $0.06 per share for the comparable period in 2012. The change in income per share is reflective of the earnings increase as the number of common shares outstanding has not changed.
As of September 30, 2013, we had a working capital of $19,292,488, compared to a working capital deficit of $12,544,965 as of December 31, 2012. The increase in the working capital of $31,837,453 for the nine months ended September 30, 2013 from the December 31, 2012 is primarily due to reclassification of investment in Anhui Wonder University of Information Engineering in the amount of $39,110,879 to investment held for sale. On October 28, 2013, Wonder University and the Company had reached an agreement under which the Company will sell the investment to Wonder University for $42,765,303.
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 sales of $19,000,000. See plans for expansion below for additional capital needs to grow the business.
In 2013, we signed an agreement with Wonder University for the construction of new teaching facilities on the Wonder University campus, pursuant to which we agreed to pay approximately $15,000,000 to cover construction costs in exchange for the use of four of the five buildings to be constructed.
As of September 30, 2013, the Company has paid $9,940,682 for the construction of new instructional facilities as listed on the balance sheet under "Construction in Progress." The project will be over approximately two years and the total cost is estimated to be $15,000,000. Funding for the additional five million required has not been established at this time but it is anticipated that this will come from a combination of earnings and capital received from the sale of the Company’s equity interest in the University.
Lender
|
September
30,2013 |
Maturity
|
Int.
Rate/Year |
||||||
Hangzhou Bank
|
$ | 488,886 |
August 18, 2014
|
7.8% | |||||
HuiShang Bank
|
1,629,620 |
July 2, 2014
|
Base+30%
|
||||||
HuiShang Bank
|
1,629,620 |
September 23, 2014
|
Base+30%
|
||||||
Total
|
$ | 3,748,126 |
The current base interest rate is 6.31% from the People’s Bank of China. The loans were renewed during the year to the maturity dates indicated. As in prior periods the loans may be reduced and later increased based on cash flow requirements.
11 |
Given sufficient funding, we expect to expand our operations throughout China by establishing additional schools. Each new school will have a full complement of staff. The capital needed for each new school is about $1,500,000 and is not included in the working capital needs. The proceeds from sales of our investment in Wonder University will be sufficient for our expansion plans.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
As a smaller reporting company, we are not required to provide the information required by this Item.
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)) within the end of the period covered by this Quarterly Report on Form 10-Q and have concluded that the disclosure controls and procedures are not effective to ensure that material information relating to the Company is recorded, processed, summarized, and reported in a timely manner. Such determination was based on: (i) the Company’s inability to retain sufficient qualified accounting personnel at its headquarters in China to prepare financial statements in accordance with accounting principles generally accepted in the US (including a qualified Chief Financial Officer); and (ii) the limited knowledge and experience of the Company’s accounting department personnel.
To remediate the deficiencies in the Company’s disclosure controls and procedures, we plan to hire additional personnel with sufficient knowledge and experience in US GAAP and provide ongoing training courses in US GAAP to existing personnel, including our chief accountant in China. As of the date of this report, these remediation initiatives had not yet been put in place.
Item 5. Other Information
On October 28, 2013, the Company entered into an Equity Purchase Agreement with Wonder University to sell its 7% equity interest in Wonder University for the purchase price of $42,765,303. The purchase price is to be paid in cash on or before the closing date of December 31, 2013.
10.1 | Agreement dated June 8, 2013, between Anhui Wonder Education Investment Management Co., Ltd and Anhui Wonder University of Information Engineering. | |
10.2 | Agreement dated June 18, 2013, between Anhui Wonder University of Information Engineering and Anhui Guanghui Construction Decoration Engineering Co., Ltd. | |
10.3 | Equity Purchase Agreement, dated October 28, 2013, between Anhui Wonder Education Investment Management Co., Ltd and Anhui Wonder University of Information Engineering | |
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 | |
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 | |
32.1 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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 Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
12 |
Date: November 14, 2013
|
By: /s/ Xie Chungui
|
|
Xie Chungui
|
||
Chairman
|
Date: November 14, 2013 | By: /s/ WenMing Xie | |
WenMing Xie | ||
Chief Financial Officer |
13 |