x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
o
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
ACT
|
North
Carolina
(State
or other jurisdiction of incorporation or
organization)
|
56-2012361
(I.R.S.
Employer Identification No.)
|
|
58
Heng Shan Road, Kun Lun Shopping Mall,
Harbin, The
People’s Republic of China
(Address
of principal executive offices)
|
150090
(Zip
Code)
|
Large
accelerated filer o
|
Accelerated
filer o
|
Non-accelerated
filer o
|
Smaller
reporting company x
|
Page
|
||||
PART
I
|
FINANCIAL
INFORMATION
|
1
|
||
Item
1. Financial Statements ( Unaudited)
|
1
|
|||
|
||||
Consolidated
Balance Sheets as of March 31, 2010 (Unaudited) and December
31, 2009
|
2
|
|||
Consolidated
Statements of Income for the Three Months Ended March 31, 2010 and 2009
(Unaudited)
|
3
|
|||
Consolidated
Statements of Cash Flows for the Three Months Ended March 31, 2010 and
2009 (Unaudited)
|
4
|
|||
Notes
to Consolidated Financial Statements as of March 31, 2010
(Unaudited)
|
5
|
|||
Item
2. Management’s Discussion and Analysis of Financial Condition
or Plan of Operation
|
24
|
|||
Item
3. Quantitative and Qualitative Disclosures About Market
Risk.
|
34
|
|||
|
||||
Item
4. Controls and Procedures
|
35
|
|||
|
||||
PART
II
|
OTHER
INFORMATION
|
35
|
||
Item
1. Legal Proceedings.
|
35
|
|||
Item
1A. Risk Factors.
|
35
|
|||
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds.
|
35
|
|||
Item
3. Defaults Upon Senior Securities.
|
35
|
|||
Item
4. (Removed and Reserved).
|
35
|
|||
Item
5. Other Information.
|
36
|
|||
Item
6. Exhibits
|
36
|
March
31,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
ASSETS
|
(Unaudited)
|
(Audited)
|
||||||
Current
Assets
|
||||||||
Cash
and cash equivalents
|
$ | 68,566,927 | $ | 65,035,332 | ||||
Accounts
receivables
|
992,539 | 1,274,727 | ||||||
Prepaid
expenses
|
2,352,580 | 2,692,310 | ||||||
Total
current assets
|
71,912,046 | 69,002,369 | ||||||
Property
and equipment, net
|
6,338,616 | 6,589,982 | ||||||
Intangibles,
net
|
1,492,278 | 737,761 | ||||||
Advance
on acquisition
|
932,000 | 932,000 | ||||||
Long
term investment
|
339,589 | 341,686 | ||||||
$ | 81,014,529 | $ | 77,603,798 | |||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
Current
Liabilities
|
||||||||
Accounts
payable and accrued expenses
|
$ | 840,419 | $ | 1,255,991 | ||||
Deferred
revenues
|
870,051 | 1,008,884 | ||||||
Total
current liabilities
|
1,710,470 | 2,264,875 | ||||||
Stockholders'
Equity
|
||||||||
Preferred
stock ($0.001 par value, 20,000,000 shares authorized, 0 and 4,502,142
issued and outstanding, respectively, aggregate liquidation preference of
0 and $1,665,793, respectively)
|
- | 1,867,644 | ||||||
Common
stock ($0.001 par value, 150,000,000 shares authorized, 31,654,581 and
30,040,954 issued and outstanding, respectively)
|
31,655 | 30,041 | ||||||
Additional
paid-in capital
|
40,513,924 | 38,231,623 | ||||||
Statutory
reserve
|
3,016,143 | 3,016,143 | ||||||
Accumulated
other comprehensive income
|
2,813,652 | 2,886,087 | ||||||
Retained
earnings
|
33,707,559 | 30,044,687 | ||||||
Stockholders'
equity - CEU and Subsidiaries
|
80,082,933 | 76,076,225 | ||||||
Noncontrolling
interests in subsidiaries
|
(778,874 | ) | (737,302 | ) | ||||
Total
stockholders' equity
|
79,304,059 | 75,338,923 | ||||||
$ | 81,014,529 | $ | 77,603,798 |
Three
months ended
March
31
|
||||||||
2010
|
2009
|
|||||||
Revenues
|
||||||||
Online
education revenues
|
$ | 5,231,063 | $ | 4,829,488 | ||||
Training
center revenues
|
2,857,197 | 2,547,099 | ||||||
Other
revenues
|
529,474 | 827,492 | ||||||
Total
revenue
|
8,617,734 | 8,204,079 | ||||||
Cost
of Goods Sold
|
||||||||
Online
education costs
|
1,113,558 | 1,199,107 | ||||||
Training
center costs
|
631,969 | 864,650 | ||||||
Other
costs
|
40,777 | 55,139 | ||||||
Total cost of goods
sold
|
1,786,304 | 2,118,896 | ||||||
Gross
Profit
|
||||||||
Online
education gross profit
|
4,117,505 | 3,630,381 | ||||||
Training
center gross profit
|
2,225,228 | 1,682,449 | ||||||
Other
gross profit
|
488,697 | 772,353 | ||||||
Total gross
profit
|
6,831,430 | 6,085,183 | ||||||
Operating
Expenses
|
||||||||
Selling
expenses
|
2,240,954 | 2,210,688 | ||||||
Administrative
|
454,193 | 254,751 | ||||||
Depreciation
and amortization
|
232,811 | 245,453 | ||||||
Total operating
expenses
|
2,927,958 | 2,710,892 | ||||||
Other
Income (Expense)
|
||||||||
Other
Income
|
18,893 | - | ||||||
Interest
income
|
46,693 | 22,756 | ||||||
Investment
loss
|
(1,530 | ) | (411 | ) | ||||
Total other income
(expense)
|
64,056 | 22,345 | ||||||
Net
Income Before Provision for Income Tax
|
3,967,528 | 3,396,636 | ||||||
Provision
For Income Taxes
|
343,179 | 167,155 | ||||||
Net
Income
|
3,624,349 | 3,229,481 | ||||||
Net
loss attributable to the noncontrolling interests
|
(38,523 | ) | (49,326 | ) | ||||
Net
Income –attributable to CEU and Subsidiaries
|
$ | 3,662,872 | $ | 3,278,807 | ||||
Basic
Earnings Per Share
|
$ | 0.12 | $ | 0.15 | ||||
Basic
Weighted Average Shares Outstanding
|
31,323,734 | 21,892,631 | ||||||
Diluted
Earnings Per Share
|
$ | 0.12 | $ | 0.13 | ||||
Diluted
Weighted Average Shares Outstanding
|
31,389,803 | 24,425,179 | ||||||
The
Components of Other Comprehensive Income
|
||||||||
Net
Income
|
$ | 3,662,872 | $ | 3,278,807 | ||||
Foreign
currency translation adjustment
|
(72,435 | ) | (38,084 | ) | ||||
Comprehensive
Income
|
$ | 3,590,437 | $ | 3,240,723 |
Three
Months Ended
March
31,
|
||||||||
2010
|
2009
|
|||||||
Cash
flows from operating activities
|
||||||||
Net
Income
|
$ | 3,662,872 | $ | 3,278,807 | ||||
Adjustments
to reconcile net income to net cash provided by operating
activities
|
||||||||
Depreciation
and amortization
|
447,516 | 287,338 | ||||||
Stock
based compensation
|
78,865 | 1,518 | ||||||
Loss
on equity investment
|
2,097 | 411 | ||||||
Loss
attributable to the noncontrolling interests
|
(38,523 | ) | (49,326 | ) | ||||
Net
change in assets and liabilities
|
||||||||
Account
receivables
|
282,188 | (862,796 | ) | |||||
Prepaid
expenses and other
|
339,730 | 1,088,961 | ||||||
Advances
to related parties
|
- | 162,894 | ||||||
Accounts
payable and accrued liabilities
|
(415,572 | ) | 121,739 | |||||
Deferred
revenue
|
(138,833 | ) | (85,191 | ) | ||||
Net
cash provided by operating activities
|
4,220,340 | 3,944,355 | ||||||
Cash
flows from investing activities
|
||||||||
Purchases
of fixed assets
|
(72,973 | ) | 82,584 | |||||
Acquisition
of intangible asset
|
(877,694 | ) | ||||||
Long-term
investment
|
- | 227,964 | ||||||
Net
Cash (used in) provided by investing activities
|
(950,667 | ) | 310,548 | |||||
Cash
flows from financing activities
|
||||||||
Warrants
exercised
|
298,749 | - | ||||||
Options
exercised
|
38,657 | - | ||||||
Net
Cash Provided by Financing Activity
|
337,406 | - | ||||||
Effect
of exchange rate on cash
|
(75,484 | ) | (38,084 | ) | ||||
Net
increase in cash
|
3,531,595 | 4,216,819 | ||||||
Cash
and cash equivalents at beginning of period
|
65,035,332 | 23,418,098 | ||||||
Cash
and cash equivalents at end of period
|
$ | 68,566,927 | $ | 27,634,917 | ||||
Supplemental
disclosure of cash flow information:
|
||||||||
Taxes
paid
|
$ | 1,274,074 | $ | - | ||||
Non-cash
investing and financing activities:
|
||||||||
Conversion
of preferred stock to common
|
$ | 1,867,644 | $ | - |
1.
|
Description
of Business
|
2
|
Basis
of Preparation of Financial
Statements
|
3.
|
Summary
of Significant Accounting Policies
|
Buildings
|
20
years
|
|
Communication
Equipment
|
10
years
|
|
Motor
vehicles
|
5
years
|
|
Furniture,
Fixtures, and Equipment
|
5
years
|
Level 1:
|
Observable
inputs such as quoted market prices in active markets for identical assets
or liabilities
|
Level 2:
|
Observable
market-based inputs or unobservable inputs that are corroborated by market
data
|
|
Level 3:
|
Unobservable
inputs for which there is little or no market data, which require the use
of the reporting entity’s own
assumptions.
|
—
|
In
June 2009, the FASB issued Accounting Standards Update No. 2009-01,
“Generally Accepted Accounting Principles” (ASC Topic 105) which
establishes the FASB Accounting Standards Codification (“the Codification”
or “ASC”) as the official single source of authoritative U.S. generally
accepted accounting principles (“GAAP”). All existing accounting standards
are superseded. All other accounting guidance not included in the
Codification will be considered non-authoritative. The Codification also
includes all relevant Securities and Exchange Commission (“SEC”) guidance
organized using the same topical structure in separate sections within the
Codification. Following the Codification, the Board will not
issue new standards in the form of Statements, FASB Staff Positions or
Emerging Issues Task Force Abstracts. Instead, it will issue Accounting
Standards Updates (“ASU”) which will serve to update the Codification,
provide background information about the guidance and provide the basis
for conclusions on the changes to the Codification. The Codification is
not intended to change GAAP, but it will change the way GAAP is organized
and presented. The Codification was effective for our third-quarter 2009
financial statements and the principal impact on our financial statements
is limited to disclosures as all future references to authoritative
accounting literature will be referenced in accordance with the
Codification. In order to ease the transition to the Codification, we are
providing the Codification cross-reference alongside the references to the
standards issued and adopted prior to the adoption of the
Codification.
|
—
|
In
April 2009, the FASB issued FASB Staff Positions FAS 115-2 and FAS 124-2,
“Recognition and Presentation of Other-Than-Temporary Impairments” (ASC
Topic 320-10-65). This update provides guidance for allocation of charges
for other-than-temporary impairments between earnings and other
comprehensive income. It also revises subsequent accounting for
other-than-temporary impairments and expands required disclosure. The
update was effective for interim and annual periods ending after June 15,
2009. The adoption of FAS 115-2 and FAS 124-2 did not have a material
impact on the results of operations and financial
condition.
|
—
|
In
April 2009, the FASB issued FSP SFAS 107-1 and APB 28-1, “Interim
Disclosures About Fair Value of Financial Instruments” (ASC Topic
320-10-65). This update requires fair value disclosures for financial
instruments that are not currently reflected on the balance sheet at fair
value on a quarterly basis and is effective for interim periods ending
after June 15, 2009. The Company’s financial instruments
include cash and cash equivalents, accounts receivable, accounts payable
and accrued expenses. At March 31, 2010 and December 31, 2009
the carrying value of the Companies financial instruments approximated
fair value, due to their short term
nature.
|
—
|
In
May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (ASC Topic
855). This guidance is intended to establish general standards of
accounting for and disclosure of events that occur after the balance sheet
date but before financial statements are issued or available to be issued.
It is effective for interim and annual reporting periods ending after June
15, 2009. The adoption of this guidance did not have a material
impact on our consolidated financial statements. The Company
evaluated all events and transactions that occurred after March 31, 2010
up through May 11, 2010. During this period no material
subsequent events came to our
attention.
|
—
|
In
June 2009, the FASB issued SFAS No. 167, “Amendments to FASB
Interpretation No. 46(R)” (ASC Topic 810-10). This updated guidance
requires a qualitative approach to identifying a controlling financial
interest in a variable interest entity (VIE), and requires ongoing
assessment of whether an entity is a VIE and whether an interest in a VIE
makes the holder the primary beneficiary of the VIE. It is effective for
annual reporting periods beginning after November 15, 2009. The adoption
of SFAS No. 167 has had minimal to no impact on our consolidated financial
statements.
|
—
|
In
October 2009, the FASB issued ASU No. 2009-13, “Multiple-Deliverable
Revenue Arrangements.” This ASU establishes the accounting and reporting
guidance for arrangements including multiple revenue-generating
activities. This ASU provides amendments to the criteria for separating
deliverables, measuring and allocating arrangement consideration to one or
more units of accounting. The amendments in this ASU also establish a
selling price hierarchy for determining the selling price of a
deliverable. Significantly enhanced disclosures are also required to
provide information about a vendor’s multiple-deliverable revenue
arrangements, including information about the nature and terms,
significant deliverables, and its performance within arrangements. The
amendments also require providing information about the significant
judgments made and changes to those judgments and about how the
application of the relative selling-price method affects the timing or
amount of revenue recognition. The amendments in this ASU are effective
prospectively for revenue arrangements entered into or materially modified
in the fiscal years beginning on or after June 15, 2010. Early application
is permitted. The adoption of this ASU is expected to have minimal to no
impact on our consolidated financial
statements.
|
—
|
In
October 2009, the FASB issued ASU No. 2009-14, “Certain Revenue
Arrangements That Include Software Elements.” This ASU changes the
accounting model for revenue arrangements that include both tangible
products and software elements that are “essential to the functionality,”
and scopes these products out of current software revenue guidance. The
new guidance will include factors to help companies determine what
software elements are considered “essential to the functionality.” The
amendments will now subject software-enabled products to other revenue
guidance and disclosure requirements, such as guidance surrounding revenue
arrangements with multiple-deliverables. The amendments in this ASU are
effective prospectively for revenue arrangements entered into or
materially modified in the fiscal years beginning on or after June 15,
2010. Early application is permitted. The Company is currently evaluating
this new ASU.
|
—
|
In
October 2009, the FASB issued an ASU regarding accounting for own-share
lending arrangements in contemplation of convertible debt issuance or
other financing. This ASU requires that at the date of issuance
of the shares in a share-lending arrangement entered into in contemplation
of a convertible debt offering or other financing, the shares issued shall
be measured at fair value and be recognized as an issuance cost, with an
offset to additional paid-in capital. Further, loaned shares are excluded
from basic and diluted earnings per share unless default of the
share-lending arrangement occurs, at which time the loaned shares would be
included in the basic and diluted earnings-per-share
calculation. This ASU is effective for fiscal years beginning
on or after December 15, 2009, and interim periods within those fiscal
years for arrangements outstanding as of the beginning of those
fiscal years. The adoption of this ASU has had minimal to no impact on our
consolidated financial statements.
|
—
|
In
December 2009, FASB issued ASU No. 2009-16, Accounting for Transfers of
Financial Assets. This Accounting Standards Update amends the FASB
Accounting Standards Codification for the issuance of FASB Statement No.
166, Accounting for
Transfers of Financial Assets—an amendment of FASB Statement No.
140.The amendments in this Accounting Standards Update improve
financial reporting by eliminating the exceptions for qualifying
special-purpose entities from the consolidation guidance and the exception
that permitted sale accounting for certain mortgage securitizations when a
transferor has not surrendered control over the transferred financial
assets. In addition, the amendments require enhanced disclosures about the
risks that a transferor continues to be exposed to because of its
continuing involvement in transferred financial assets. Comparability and
consistency in accounting for transferred financial assets will also be
improved through clarifications of the requirements for isolation and
limitations on portions of financial assets that are eligible for sale
accounting. The Company does not expect the adoption of this ASU to have a
material impact on its consolidated financial
statements.
|
—
|
In
December, 2009, FASB issued ASU No. 2009-17, Improvements to Financial
Reporting by Enterprises Involved with Variable Interest Entities. This
Accounting Standards Update amends the FASB Accounting Standards
Codification for the issuance of FASB Statement No. 167, Amendments to FASB
Interpretation No. 46(R). The amendments in this Accounting
Standards Update replace the quantitative-based risks and rewards
calculation for determining which reporting entity, if any, has a
controlling financial interest in a variable interest entity with an
approach focused on identifying which reporting entity has the power to
direct the activities of a variable interest entity that most
significantly impact the entity’s economic performance and (1) the
obligation to absorb losses of the entity or (2) the right to receive
benefits from the entity. An approach that is expected to be primarily
qualitative will be more effective for identifying which reporting entity
has a controlling financial interest in a variable interest entity. The
amendments in this Update also require additional disclosures about a
reporting entity’s involvement in variable interest entities, which will
enhance the information provided to users of financial statements. The
Company is currently evaluating the impact of this ASU. The Company does
not expect the adoption of this ASU to have a material impact on its
consolidated financial statements.
|
—
|
In
January 2010, FASB issued ASU No. 2010-02 regarding accounting and
reporting for decreases in ownership of a subsidiary. Under this
guidance, an entity is required to deconsolidate a subsidiary when the
entity ceases to have a controlling financial interest in the
subsidiary. Upon deconsolidation of a subsidiary, and entity
recognizes a gain or loss on the transaction and measures any
retained investment in the subsidiary at fair value. In contrast, an
entity is required to account for a decrease in its ownership interest of
a subsidiary that does not result in a change of control of the subsidiary
as an equity transaction. This ASU clarifies the scope of the
decrease in ownership provisions, and expands the disclosures about the
deconsolidation of a subsidiary or de-recognition of a group of assets.
This ASU is effective for beginning in the first interim or annual
reporting period ending on or after December 31, 2009. The adoption
of this ASU has had minimal to no impact on our consolidated financial
statements.
|
—
|
In
January 2010, FASB issued ASU No. 2010-01- Accounting for Distributions to
Shareholders with Components of Stock and Cash. The amendments in this
Update clarify that the stock portion of a distribution to shareholders
that allows them to elect to receive cash or stock with a potential
limitation on the total amount of cash that all shareholders can elect to
receive in the aggregate is considered a share issuance that is reflected
in EPS prospectively and is not a stock dividend for purposes of applying
Topics 505 and 260 (Equity and Earnings Per Share). The amendments in
this update are effective for interim and annual periods ending on or
after December 15, 2009, and should be applied on a retrospective basis.
The adoption of this ASU has had minimal to no impact on our consolidated
financial statements.
|
—
|
In
January 2010, FASB issued ASU No. 2010-02 – Accounting and Reporting for
Decreases in Ownership of a Subsidiary – a Scope Clarification. The
amendments in this Update affect accounting and reporting by an entity
that experiences a decrease in ownership in a subsidiary that is a
business or nonprofit activity. The amendments also affect accounting and
reporting by an entity that exchanges a group of assets that constitutes a
business or nonprofit activity for an equity interest in another
entity. The amendments in this update are effective beginning in the
period that an entity adopts SFAS No. 160, “Non-controlling Interests in
Consolidated Financial Statements – An Amendment of ARB No. 51.” If an
entity has previously adopted SFAS No. 160 as of the date the amendments
in this update are included in the Accounting Standards Codification, the
amendments in this update are effective beginning in the first interim or
annual reporting period ending on or after December 15, 2009. The
amendments in this update should be applied retrospectively to the first
period that an entity adopted SFAS No. 160. The adoption of this ASU did
not have a material impact on the Company’s consolidated financial
statements.
|
|
|
—
|
In
January 2010, FASB issued ASU No. 2010-06 – Improving Disclosures about
Fair Value Measurements. This update provides amendments to Subtopic
820-10 that requires new disclosure as follows: 1) Transfers in and
out of Levels 1 and 2. A reporting entity should disclose
separately the amounts of significant transfers in and out of Level 1 and
Level 2 fair value measurements and describe the reasons for the
transfers. 2) Activity in Level 3 fair value
measurements. In the reconciliation for fair value measurements
using significant unobservable inputs (Level 3), a reporting entity should
present separately information about purchases, sales, issuances, and
settlements (that is, on a gross basis rather than as one net number).
This update provides amendments to Subtopic 820-10 that clarifies existing
disclosures as follows: 1) Level of disaggregation. A reporting
entity should provide fair value measurement disclosures for each class of
assets and liabilities. A class is often a subset of assets or liabilities
within a line item in the statement of financial position. A reporting
entity needs to use judgment in determining the appropriate classes of
assets and liabilities. 2) Disclosures about inputs and valuation
techniques. A reporting entity should provide disclosures about the
valuation techniques and inputs used to measure fair value for both
recurring and nonrecurring fair value measurements. Those disclosures are
required for fair value measurements that fall in either Level 2 or Level
3. The new disclosures and clarifications of existing disclosures are
effective for interim and annual reporting periods beginning after
December 15, 2009, except for the disclosures about purchases, sales,
issuances, and settlements in the roll forward of activity in Level 3 fair
value measurements. Thos disclosures are effective for fiscal years
beginning after December 15, 2010, and for interim periods within those
fiscal years. The adoption of this ASU has had minimal to no impact on our
consolidated financial statements.
|
4.
|
Concentrations
of Business and Credit Risk
|
5.
|
Cash
and Cash Equivalents
|
March
31,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
(Unaudited)
|
(Audited)
|
|||||||
Cash
on Hand —
China
|
$ | 609 | $ | 1,398 | ||||
Bank
Deposits — China
|
53,591,184 | 49,898,143 | ||||||
Bank
Deposits — US
|
14,975,134 | 15,135,791 | ||||||
$ | 68,566,927 | $ | 65,035,332 |
March
31,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
(Unaudited)
|
(Audited)
|
|||||||
Mobi
Advertising
|
$ | 807,624 | $ | 966,308 | ||||
Others
|
184,915 | 308,419 | ||||||
$ | 992,539 | $ | 1,274,727 |
7.
|
Prepaid
Expenses
|
March
31,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
(Unaudited)
|
(Audited)
|
|||||||
Prepaid
rent
|
$ | 292,387 | $ | 305,853 | ||||
Prepaid
teachers and online material
|
292,949 | 294,622 | ||||||
Prepaid
services and professional fees
|
52,662 | 81,441 | ||||||
Prepaid
advertising
|
1,531,367 | 1,812,973 | ||||||
Other
prepaid expenses
|
183,215 | 197,421 | ||||||
$ | 2,352,580 | $ | 2,692,310 |
8.
|
Property
and Equipment
|
March
31,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
(Unaudited)
|
(Audited)
|
|||||||
Buildings
|
$ | 4,449,308 | $ | 4,455,227 | ||||
Transportation
vehicles
|
264,975 | 192,189 | ||||||
Communication
equipment and software
|
3,153,523 | 3,148,972 | ||||||
Furniture
and fixtures
|
2,027,418 | 2,030,114 | ||||||
9,895,224 | 9,826,502 | |||||||
Less:
Accumulated Depreciation
|
(3,556,608 | ) | (3,236,520 | ) | ||||
Property
and Equipment, Net
|
$ | 6,338,616 | $ | 6,589,982 |
9.
|
Intangibles
|
—
|
The
ACCP training course is an authority for training software engineers under
authorized training procedures with authorized
textbooks.
|
—
|
The
BENET training course is an authority for training internet engineers
under authorized training procedures with authorized
textbooks.
|
—
|
The
Usage rights for job seekers is software to help university students to
search jobs, post their resumes, and communicate with potential
employers.
|
—
|
The
Usage right for learners is software to help elementary and secondary
students to do assignments, test papers, and get instructions from
teachers.
|
March
31,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
(Unaudited)
|
(Audited)
|
|||||||
ACCP
training course
|
$ | 730,387 | $ | 790,975 | ||||
BENET
training course
|
58,513 | 58,591 | ||||||
Usage
rights - Job Seekers
|
438,847 | 439,430 | ||||||
Usage
rights - Learners
|
292,564 | 292,954 | ||||||
Other
Softwares
|
577,900 | 622,364 | ||||||
New
Shifan
|
877,694 | - | ||||||
2,975,905 | 2,204,314 | |||||||
Less:
accumulated amortization
|
(1,483,627 | ) | (1,466,553 | ) | ||||
Intangibles,
net
|
$ | 1,492,278 | $ | 737,761 |
Year
Ended December 31,
|
||||
2010
|
$ | 271,060 | ||
2011
|
240,332 | |||
2012
|
80,283 | |||
2013
|
13,745 | |||
2014
|
9,164 | |||
$ | 614,584 |
10.
|
Deferred
revenue
|
11.
|
Stockholders’
Equity
|
·
|
Warrants
for the acquisition of 99,583 shares of common stock were exercised,
resulting in the issuance of 99,583 share of common stock. Total cash
received from exercised warrants were
$298,749.
|
·
|
Options
for the acquisition of 13,330 shares of common stock were exercised at
price $2.90, resulting in the issuance of 13,330 share of common stock.
Total cash received from exercised options were
$38,657.
|
·
|
Total
of 4,502,143 Series A Preferred Shares were converted into 1,500,714
shares of common stock.
|
—
|
On
June 5, 2009, the Company issued 17,000 common shares with par value
US$0.001 per share to Red Chip Companies Inc. for its services at a market
value of $46,070.
|
—
|
On
June 18, 2009, the Company issued 16,334 common shares with par value
US$0.001 per share to certain employees according to the Company’s 2009
Incentive Stock Plan Inc. at a market value of
$47,369.
|
—
|
On
October 5, 2009, the Company issued 3,162,055 common shares according to
the Underwriting Agreement with Rodman & Renshaw, LLC (the
"Underwriter") for the sale of 3,162,055 shares of the Company's common
stock, par value $0.001 per share, for a purchase price of $5.17 per share
(net of discounts and commissions), which is 94% of the per share public
offering price of $5.50 per share.
|
—
|
On
October 16, 2009, the Company issued 434,308 common shares according to
the Underwriting Agreement with Rodman & Renshaw, LLC (the
"Underwriter") for the sale of additional 434,308 shares (overallotment),
par value $0.001 per share, for a purchase price of $5.17 per share (net
of discounts and commissions), which is 94% of the per share public
offering price of $5.50 per share.
|
—
|
On
October 29, 2009, the Company issued 137,005 common shares with par value
US$0.001 per share to certain employees according to the Company’s 2009
Incentive Stock Plan Inc. at a market value of
$685,025.
|
—
|
On
November 30, 2009, the Company issued 53,000 common shares with par value
US$0.001 per share to Red Chip Companies Inc. for its services according
to a Joint Marketing Agreement at a market value of
$265,000.
|
—
|
During
the year ended December 31, 2009 a total of 3,095,502 Series A Preferred
Shares were converted into 1,031,834 shares of common
stock.
|
—
|
During
the year ended December 31, 2009, warrants for the acquisition of
3,497,825 shares of common stock were exercised, resulting in the issuance
of 3,296,787 share of common stock, of which 364,804 shares were from
cashless exercises. Total cash received from exercised warrants were
$6,429,725.
|
12.
|
Warrants
and Options
|
Shares
underlying
warrants
|
Weighted
average
Exercise
Price
|
|||||||
Outstanding
as of January 1, 2010
|
99,584 | $ | 3.00 | |||||
Granted
|
- | - | ||||||
Exercised
|
(99,584 | ) | 3.00 | |||||
Expired
or cancelled
|
- | - | ||||||
Outstanding
as of March 31, 2010
|
- | - |
Number
of
Options
|
Weighted
average
Exercise
Price
|
|||||||
Balance
as of January 1, 2009
|
10,000 | $ | 3.05 | |||||
Granted
|
456,000 | 3.33 | ||||||
Exercised
|
- | - | ||||||
Expired/
Cancelled/ Forfeifed
|
(10,000 | ) | 3.05 | |||||
Outstanding
as of December 31, 2009
|
456,000 | 3.33 | ||||||
Granted
|
- | - | ||||||
Exercised
|
(13,330 | ) | 2.90 | |||||
Expired/
Cancelled/ Forfeifed
|
- | - | ||||||
Outstanding
as of March 31, 2010
|
442,670 | 3.33 |
Exercise
Price
|
Outstanding
March
31,
2010
|
Weighted
Average
Remaining
Life
in Years
|
Number
exercisable
|
|||||||||||
$ | 3.19 | 300,000 | 2.22 | 100,000 | ||||||||||
$ | 2.90 | 102,670 | 2.22 | 28,670 | ||||||||||
$ | 5.59 | 30,000 | 2.48 | 10,000 | ||||||||||
$ | 5.40 | 10,000 | 0.62 | 10,000 | ||||||||||
442,670 | 2.19 | 148,670 |
Three
Months ended
March
31,
|
||||||||
2010
|
2009
|
|||||||
Net
income available to common shareholders
|
$ | 3,662,871 | $ | 3,278,807 | ||||
Weighted
average shares outstanding - basic
|
31,323,734 | 21,892,631 | ||||||
Effect
of dilutive securities
|
66,069 | 2,532,548 | ||||||
Weighted
average shares outstanding - diluted
|
31,839,803 | 24,425,179 | ||||||
Earnings
per share – basic
|
$ | 0.12 | $ | 0.15 | ||||
Earnings
per share - diluted
|
$ | 0.12 | $ | 0.13 |
14.
|
Commitments
and Contingencies
|
15.
|
Operating
Risk
|
16.
|
Subsequent
Events
|
—
|
In
June 2009, the FASB issued Accounting Standards Update No. 2009-01,
“Generally Accepted Accounting Principles” (ASC Topic 105) which
establishes the FASB Accounting Standards Codification (“the Codification”
or “ASC”) as the official single source of authoritative U.S. generally
accepted accounting principles (“GAAP”). All existing accounting standards
are superseded. All other accounting guidance not included in the
Codification will be considered non-authoritative. The Codification also
includes all relevant Securities and Exchange Commission (“SEC”) guidance
organized using the same topical structure in separate sections within the
Codification. Following the Codification, the Board will not
issue new standards in the form of Statements, FASB Staff Positions or
Emerging Issues Task Force Abstracts. Instead, it will issue Accounting
Standards Updates (“ASU”) which will serve to update the Codification,
provide background information about the guidance and provide the basis
for conclusions on the changes to the Codification. The Codification is
not intended to change GAAP, but it will change the way GAAP is organized
and presented. The Codification was effective for our third-quarter 2009
financial statements and the principal impact on our financial statements
is limited to disclosures as all future references to authoritative
accounting literature will be referenced in accordance with the
Codification. In order to ease the transition to the Codification, we are
providing the Codification cross-reference alongside the references to the
standards issued and adopted prior to the adoption of the
Codification.
|
—
|
In
April 2009, the FASB issued FASB Staff Positions FAS 115-2 and FAS 124-2,
“Recognition and Presentation of Other-Than-Temporary Impairments” (ASC
Topic 320-10-65). This update provides guidance for allocation of charges
for other-than-temporary impairments between earnings and other
comprehensive income. It also revises subsequent accounting for
other-than-temporary impairments and expands required disclosure. The
update was effective for interim and annual periods ending after June 15,
2009. The adoption of FAS 115-2 and FAS 124-2 did not have a material
impact on the results of operations and financial
condition.
|
—
|
In
April 2009, the FASB issued FSP SFAS 107-1 and APB 28-1, “Interim
Disclosures About Fair Value of Financial Instruments” (ASC Topic
320-10-65). This update requires fair value disclosures for financial
instruments that are not currently reflected on the balance sheet at fair
value on a quarterly basis and is effective for interim periods ending
after June 15, 2009. The Company’s financial instruments
include cash and cash equivalents, accounts receivable, accounts payable
and accrued expenses. At March 31, 2010 and December 31, 2009
the carrying value of the Companies financial instruments approximated
fair value, due to their short term
nature.
|
—
|
In
May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (ASC Topic
855). This guidance is intended to establish general standards of
accounting for and disclosure of events that occur after the balance sheet
date but before financial statements are issued or available to be issued.
It is effective for interim and annual reporting periods ending after June
15, 2009. The adoption of this guidance did not have a material
impact on our consolidated financial statements. The Company
evaluated all events and transactions that occurred after March 31, 2010
up through May 11, 2010. During this period no material
subsequent events came to our
attention.
|
—
|
In
June 2009, the FASB issued SFAS No. 167, “Amendments to FASB
Interpretation No. 46(R)” (ASC Topic 810-10). This updated guidance
requires a qualitative approach to identifying a controlling financial
interest in a variable interest entity (VIE), and requires ongoing
assessment of whether an entity is a VIE and whether an interest in a VIE
makes the holder the primary beneficiary of the VIE. It is effective for
annual reporting periods beginning after November 15, 2009. The adoption
of SFAS No. 167 has had minimal to no impact on our consolidated financial
statements.
|
—
|
In
October 2009, the FASB issued ASU No. 2009-13, “Multiple-Deliverable
Revenue Arrangements.” This ASU establishes the accounting and reporting
guidance for arrangements including multiple revenue-generating
activities. This ASU provides amendments to the criteria for separating
deliverables, measuring and allocating arrangement consideration to one or
more units of accounting. The amendments in this ASU also establish a
selling price hierarchy for determining the selling price of a
deliverable. Significantly enhanced disclosures are also required to
provide information about a vendor’s multiple-deliverable revenue
arrangements, including information about the nature and terms,
significant deliverables, and its performance within arrangements. The
amendments also require providing information about the significant
judgments made and changes to those judgments and about how the
application of the relative selling-price method affects the timing or
amount of revenue recognition. The amendments in this ASU are effective
prospectively for revenue arrangements entered into or materially modified
in the fiscal years beginning on or after June 15, 2010. Early application
is permitted. The adoption of this ASU is expected to have minimal to no
impact on our consolidated financial
statements.
|
—
|
In
October 2009, the FASB issued ASU No. 2009-14, “Certain Revenue
Arrangements That Include Software Elements.” This ASU changes the
accounting model for revenue arrangements that include both tangible
products and software elements that are “essential to the functionality,”
and scopes these products out of current software revenue guidance. The
new guidance will include factors to help companies determine what
software elements are considered “essential to the functionality.” The
amendments will now subject software-enabled products to other revenue
guidance and disclosure requirements, such as guidance surrounding revenue
arrangements with multiple-deliverables. The amendments in this ASU are
effective prospectively for revenue arrangements entered into or
materially modified in the fiscal years beginning on or after June 15,
2010. Early application is permitted. The Company is currently evaluating
this new ASU.
|
—
|
In
October 2009, the FASB issued an ASU regarding accounting for own-share
lending arrangements in contemplation of convertible debt issuance or
other financing. This ASU requires that at the date of issuance
of the shares in a share-lending arrangement entered into in contemplation
of a convertible debt offering or other financing, the shares issued shall
be measured at fair value and be recognized as an issuance cost, with an
offset to additional paid-in capital. Further, loaned shares are excluded
from basic and diluted earnings per share unless default of the
share-lending arrangement occurs, at which time the loaned shares would be
included in the basic and diluted earnings-per-share
calculation. This ASU is effective for fiscal years beginning
on or after December 15, 2009, and interim periods within those fiscal
years for arrangements outstanding as of the beginning of those
fiscal years. The adoption of this ASU has had minimal to no impact on our
consolidated financial statements.
|
—
|
In
December 2009, FASB issued ASU No. 2009-16, Accounting for Transfers of
Financial Assets. This Accounting Standards Update amends the FASB
Accounting Standards Codification for the issuance of FASB Statement No.
166, Accounting for
Transfers of Financial Assets—an amendment of FASB Statement No.
140.The amendments in this Accounting Standards Update improve
financial reporting by eliminating the exceptions for qualifying
special-purpose entities from the consolidation guidance and the exception
that permitted sale accounting for certain mortgage securitizations when a
transferor has not surrendered control over the transferred financial
assets. In addition, the amendments require enhanced disclosures about the
risks that a transferor continues to be exposed to because of its
continuing involvement in transferred financial assets. Comparability and
consistency in accounting for transferred financial assets will also be
improved through clarifications of the requirements for isolation and
limitations on portions of financial assets that are eligible for sale
accounting. The Company does not expect the adoption of this ASU to have a
material impact on its consolidated financial
statements.
|
—
|
In
December, 2009, FASB issued ASU No. 2009-17, Improvements to Financial
Reporting by Enterprises Involved with Variable Interest Entities. This
Accounting Standards Update amends the FASB Accounting Standards
Codification for the issuance of FASB Statement No. 167, Amendments to FASB
Interpretation No. 46(R). The amendments in this Accounting
Standards Update replace the quantitative-based risks and rewards
calculation for determining which reporting entity, if any, has a
controlling financial interest in a variable interest entity with an
approach focused on identifying which reporting entity has the power to
direct the activities of a variable interest entity that most
significantly impact the entity’s economic performance and (1) the
obligation to absorb losses of the entity or (2) the right to receive
benefits from the entity. An approach that is expected to be primarily
qualitative will be more effective for identifying which reporting entity
has a controlling financial interest in a variable interest entity. The
amendments in this Update also require additional disclosures about a
reporting entity’s involvement in variable interest entities, which will
enhance the information provided to users of financial statements. The
Company is currently evaluating the impact of this ASU. The Company does
not expect the adoption of this ASU to have a material impact on its
consolidated financial statements.
|
—
|
In
January 2010, FASB issued ASU No. 2010-02 regarding accounting and
reporting for decreases in ownership of a subsidiary. Under this
guidance, an entity is required to deconsolidate a subsidiary when the
entity ceases to have a controlling financial interest in the
subsidiary. Upon deconsolidation of a subsidiary, and entity
recognizes a gain or loss on the transaction and measures any
retained investment in the subsidiary at fair value. In contrast, an
entity is required to account for a decrease in its ownership interest of
a subsidiary that does not result in a change of control of the subsidiary
as an equity transaction. This ASU clarifies the scope of the
decrease in ownership provisions, and expands the disclosures about the
deconsolidation of a subsidiary or de-recognition of a group of assets.
This ASU is effective for beginning in the first interim or annual
reporting period ending on or after December 31, 2009. The adoption
of this ASU has had minimal to no impact on our consolidated financial
statements.
|
—
|
In
January 2010, FASB issued ASU No. 2010-01- Accounting for Distributions to
Shareholders with Components of Stock and Cash. The amendments in this
Update clarify that the stock portion of a distribution to shareholders
that allows them to elect to receive cash or stock with a potential
limitation on the total amount of cash that all shareholders can elect to
receive in the aggregate is considered a share issuance that is reflected
in EPS prospectively and is not a stock dividend for purposes of applying
Topics 505 and 260 (Equity and Earnings Per Share). The amendments in
this update are effective for interim and annual periods ending on or
after December 15, 2009, and should be applied on a retrospective basis.
The adoption of this ASU has had minimal to no impact on our consolidated
financial statements.
|
—
|
In
January 2010, FASB issued ASU No. 2010-02 – Accounting and Reporting for
Decreases in Ownership of a Subsidiary – a Scope Clarification. The
amendments in this Update affect accounting and reporting by an entity
that experiences a decrease in ownership in a subsidiary that is a
business or nonprofit activity. The amendments also affect accounting and
reporting by an entity that exchanges a group of assets that constitutes a
business or nonprofit activity for an equity interest in another
entity. The amendments in this update are effective beginning in the
period that an entity adopts SFAS No. 160, “Non-controlling Interests in
Consolidated Financial Statements – An Amendment of ARB No. 51.” If an
entity has previously adopted SFAS No. 160 as of the date the amendments
in this update are included in the Accounting Standards Codification, the
amendments in this update are effective beginning in the first interim or
annual reporting period ending on or after December 15, 2009. The
amendments in this update should be applied retrospectively to the first
period that an entity adopted SFAS No. 160. The adoption of this ASU did
not have a material impact on the Company’s consolidated financial
statements.
|
|
|
—
|
In
January 2010, FASB issued ASU No. 2010-06 – Improving Disclosures about
Fair Value Measurements. This update provides amendments to Subtopic
820-10 that requires new disclosure as follows: 1) Transfers in and
out of Levels 1 and 2. A reporting entity should disclose
separately the amounts of significant transfers in and out of Level 1 and
Level 2 fair value measurements and describe the reasons for the
transfers. 2) Activity in Level 3 fair value
measurements. In the reconciliation for fair value measurements
using significant unobservable inputs (Level 3), a reporting entity should
present separately information about purchases, sales, issuances, and
settlements (that is, on a gross basis rather than as one net number).
This update provides amendments to Subtopic 820-10 that clarifies existing
disclosures as follows: 1) Level of disaggregation. A reporting
entity should provide fair value measurement disclosures for each class of
assets and liabilities. A class is often a subset of assets or liabilities
within a line item in the statement of financial position. A reporting
entity needs to use judgment in determining the appropriate classes of
assets and liabilities. 2) Disclosures about inputs and valuation
techniques. A reporting entity should provide disclosures about the
valuation techniques and inputs used to measure fair value for both
recurring and nonrecurring fair value measurements. Those disclosures are
required for fair value measurements that fall in either Level 2 or Level
3. The new disclosures and clarifications of existing disclosures are
effective for interim and annual reporting periods beginning after
December 15, 2009, except for the disclosures about purchases, sales,
issuances, and settlements in the roll forward of activity in Level 3 fair
value measurements. Thos disclosures are effective for fiscal years
beginning after December 15, 2010, and for interim periods within those
fiscal years. The adoption of this ASU has had minimal to no impact on our
consolidated financial statements.
|
(Dollars)
|
||||||||||||||||
Three
Months Ended March 31,
|
||||||||||||||||
2010
|
2009
|
|||||||||||||||
Revenue
|
$ | 8,617,734 | 100.0 | % | $ | 8,204,079 | 100.0 | % | ||||||||
Cost
of sales
|
1,786,304 | 20.7 | % | 2,118,896 | 25.8 | % | ||||||||||
Gross
profit
|
6,831,430 | 79.3 | % | 6,085,183 | 74.2 | % | ||||||||||
Income
from operations
|
3,903,472 | 45.3 | % | 3,374,291 | 41.1 | % | ||||||||||
Other
income
|
64,056 | 0.7 | % | 22,345 | 0.3 | % | ||||||||||
Income
before income taxes
|
3,967,528 | 46.0 | % | 3,396,636 | 41.4 | % | ||||||||||
Provision
for income taxes
|
343,179 | 4.0 | % | 167,155 | 2.0 | % | ||||||||||
Net
income
|
3,624,349 | 42.1 | % | 3,229,481 | 39.4 | % | ||||||||||
Less:
Net loss attributable to the
noncontrolling interest
|
(38,523 | ) | -0.4 | % | (49,326 | ) | -0.6 | % | ||||||||
Net
income - attributable to CEU
and Subsidiaries
|
3,662,872 | 42.5 | % | 3,278,807 | 40.0 | % |
Three
Months Ended March 31
|
||||||||
2010
|
2009
|
|||||||
Online
Education:
|
||||||||
Revenue
|
$ | 5,231,063 | $ | 4,829,488 | ||||
Cost
of sales
|
1,113,558 | 1,199,107 | ||||||
Gross
profit
|
4,117,505 | 3,630,381 | ||||||
Gross
margin
|
78.7 | % | 75.2 | % | ||||
Training
center
|
||||||||
Revenue
|
2,857,197 | 2,547,099 | ||||||
Cost
of sales
|
631,969 | 864,650 | ||||||
Gross
profit
|
2,225,228 | 1,682,449 | ||||||
Gross
margin
|
77.9 | % | 66.1 | % | ||||
Other
|
||||||||
Revenue
|
529,474 | 827,492 | ||||||
Cost
of sales
|
40,777 | 55,139 | ||||||
Gross
profit
|
488,697 | 772,353 | ||||||
Gross
margin
|
92.3 | % | 93.3 | % |
Exhibit
No.
|
SEC Ref. No.
|
Title of Document
|
||
1
|
|
31.1
|
|
Certification
of the Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 *
|
2.
|
|
31.2
|
|
Certification
of the Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 *
|
3
|
32.1
|
Certification
of the Principal Executive Officer pursuant to U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002*
|
||
4
|
32.2
|
Certification
of the Principal Financial Officer pursuant to U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002*
|
CHINA
EDUCATION ALLIANCE, INC.
|
|||
Date:
May 11 , 2010
|
|
/s/
Xiqun Yu
|
|
Xiqun
Yu
|
|||
Chief
Executive Officer and President (Principal Executive
Officer)
|
|||
Date:
May 11 , 2010
|
/s/
Zibing Pan
|
||
Zibing
Pan
|
|||
Chief
Financial Officer (Principal Financial
|
|||
and
Accounting Officer)
|