Attached files
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EX-32.2 - EXHIBIT 32.2 - China Executive Education Corp | ex32x2.htm |
EX-31.1 - EXHIBIT 31.1 - China Executive Education Corp | ex31x1.htm |
EX-32.1 - EXHIBIT 32.1 - China Executive Education Corp | ex32x1.htm |
EX-31.2 - EXHIBIT 31.2 - China Executive Education Corp | ex31x2.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
quarterly period ended: March
31, 2010
OR
o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
transition period from _______________to ________________
Commission File Number: 333-153574
CHINA
EXECUTIVE EDUCATION CORP.
(Exact
Name of Registrant as Specified in Its Charter)
NEVADA
|
75-3268300
|
(State
or Other jurisdiction of Incorporation or Organization)
|
(I.R.S.
Employer Identification No.)
|
Hangzhou
MYL Business Administration Consulting Co. Ltd.
Room
307, Hualong Business Building
110
Moganshan Road, Hangzhou, P.R. China
|
310005
|
(Address
of Principal Executive Offices)
|
(Zip
Code)
|
+86-571-8880-8109
(Registrant’s
Telephone Number, Including Area Code)
On
Demand Heavy Duty, Corp.
9916
Elbow Drive SW, Calgary Alberta, Canada T2V 1M5
(Former
Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No o
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).
Yes o No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of “large accelerated filer”, “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act. (Check one)
Large
accelerated filer o
Accelerated filer o
Non-accelerated filer o
Smaller reporting company x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
o No
x
As of May
13, 2010, there were 22,050,000 shares of Common Stock of the Company
outstanding.
TABLE OF
CONTENTS
|
|
Page
|
|
PART
I - FINANCIAL INFORMATION
|
1 |
Item
1. Financial Statements.
|
1 |
Item
2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations.
|
21 |
Item
3. Quantitative and Qualitative Disclosures About Market
Risk.
|
32 |
Item
4. Controls and Procedures.
|
32 |
PART
II - OTHER INFORMATION
|
33 |
Item
1. Legal Proceedings.
|
33 |
Item
1A. Risks Factors.
|
33 |
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds.
|
33 |
Item
3. Defaults Upon Senior Securities.
|
33 |
Item
5. Other Information.
|
33 |
Item
6. Exhibits.
|
34 |
SIGNATURES
|
35 |
Use
of Certain Defined Terms
In this
Form 10-Q, unless indicated otherwise, references to:
·
|
“Securities
Act” refers to the Securities Act of 1933, as amended, and “Exchange Act”
refer to the Securities Exchange Act of 1934, as
amended;
|
·
|
“China”
and “PRC” refer to the People’s Republic of China, and “BVI” refers to the
British Virgin Islands;
|
·
|
“RMB”
refers to Renminbi, the legal currency of China;
and
|
·
|
“U.S.
dollar,” “$” and “US$” refer to the legal currency of the United
States. For all U.S. dollar amounts reported, the dollar amount
has been calculated on the basis that $1 = RMB6.8282 for its December 31,
2009 audited balance sheet, and $1 = RMB6.8259 for its March 31, 2010
unaudited balance sheet, which were determined based on the currency
conversion rate at the end of each respective period. The
conversion rates of $1 = RMB6.8259 is used for the condensed consolidated
statement of income and other comprehensive income and consolidated
statement of cash flows for the first fiscal quarter of 2010, and $1=
RMB6.8282 is used for the condensed consolidated statement of income and
other comprehensive income and consolidated statement of cash flows for
the first fiscal quarter of 2009; both of which were based on the average
currency conversion rate for each respective
quarter.
|
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TABLE
OF CONTENTS
March
31, 2010
(Stated
in US dollars)
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2010 (UNAUDITED) AND DECEMBER 31, 2009 | 1 |
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (UNAUDITED) | 2 |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (UNAUDITED) | 3 |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) | 4 - 20 |
PART
I
|
ITEM 1. FINANCIAL
STATEMENTS.
|
CHINA EXECUTIVE EDUCATION CORP.
AND SUBSIDIARIES
(FORMERLY ON DEMAND HEAVY DUTY,
CORP)
CONDENSED CONSOLIDATED BALANCE
SHEETS
March
31,
2010
|
December
31,
2009
|
|||||||
(Unaudited)
|
||||||||
CURRENT
ASSETS
|
||||||||
Cash
and cash equivalents
|
$ | 3,784,855 | $ | 6,381,770 | ||||
Accounts
receivable, net of allowance
|
29,095 | 33,324 | ||||||
Other
receivables
|
2,748,801 | 1,008,565 | ||||||
Advances
to vendors
|
986,199 | 731,365 | ||||||
Total
current assets
|
7,548,950 | 8,155,024 | ||||||
PROPERTY
AND EQUIPMENT, NET
|
79,346 | 87,369 | ||||||
OTHER
ASSET
|
91,533 | 91,505 | ||||||
TOTAL
ASSETS
|
7,719,829 | 8,333,898 | ||||||
CURRENT
LIABILITIES
|
||||||||
Advance
from customers
|
2,841,047 | 3,628,810 | ||||||
Taxes
payable
|
443,155 | 537,541 | ||||||
Payroll
payable
|
90,449 | 90,419 | ||||||
Other
payables and accrued liabilities
|
1,905 | 592,788 | ||||||
Total
current liabilities
|
3,376,556 | 4,849,558 | ||||||
STOCKHOLDERS'
EQUITY
|
||||||||
Common
Stock, $0.0001 par value 70,000,000 shares authorized,
|
||||||||
22,050,000
shares and 21,560,000 shares issued and outstanding
|
||||||||
at
March 31, 2010 and December 31, 2009, respectively
|
22,050 | 21,560 | ||||||
Additional
paid-in capital
|
170,821 | 66,311 | ||||||
Statutory
reserve
|
358,026 | 358,026 | ||||||
Retained
earnings
|
3,901,440 | 3,131,806 | ||||||
Accumulated
other comprehensive income
|
3,032 | 1,591 | ||||||
Total
stockholders' equity
|
4,455,369 | 3,579,295 | ||||||
Non-controlling
interest
|
(112,096 | ) | (94,955 | ) | ||||
Total
equity
|
4,343,273 | 3,484,340 | ||||||
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ | 7,719,829 | $ | 8,333,898 |
The accompanying notes are an intergral part of
these condensed consolidated financial statements
1
CHINA
EXECUTIVE EDUCATION CORP. AND SUBSIDIARIES
(FORMERLY
ON DEMAND HEAVY DUTY, CORP)
CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
(UNAUDITED)
For
the three months ended March 31,
|
||||||||
2010
|
2009
|
|||||||
Revenues
|
$ | 4,445,631 | $ | - | ||||
Cost
of revenue
|
1,514,745 | - | ||||||
Gross
profit
|
2,930,886 | - | ||||||
Operating
expenses
|
||||||||
Selling
expenses
|
719,101 | - | ||||||
General
and administrative expenses
|
1,163,282 | - | ||||||
Total
operating expenses
|
1,882,383 | - | ||||||
Income
from operations
|
1,048,503 | - | ||||||
Other
income (expenses)
|
238 | - | ||||||
|
||||||||
Income
before income taxes
|
1,048,741 | - | ||||||
Provision
for income taxes
|
296,169 | - | ||||||
Net
income
|
752,572 | - | ||||||
Less:
net income attributable to non-controlling interest
|
(17,062 | ) | - | |||||
Net
income attributable to the Company
|
769,634 | - | ||||||
Comprehensive
income
|
||||||||
Net
income
|
752,572 | - | ||||||
Foreign
currency translation gain
|
1,441 | - | ||||||
Total
comprehensive Income
|
754,013 | - | ||||||
Less:
net income attributable to non-controlling interest
|
(17,062 | ) | ||||||
Comprehensive
income attributable to the Company
|
$ | 771,075 | $ | - | ||||
Basic
and diluted income per common share
|
$ | 0.03 | $ | - | ||||
Basic
and diluted weighted average common shares outstanding
|
21,795,222 | 21,560,000 |
The accompanying notes are an intergral part of
these condensed consolidated financial statements
2
CHINA
EXECUTIVE EDUCATION CORP. AND SUBSIDIARIES
(FORMERLY ON
DEMAND HEAVY DUTY, CORP)
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOW
(UNAUDITED)
For
the three months ended March 31,
|
||||||||
2010
|
2009
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net income
|
$ | 752,572 | $ | - | ||||
Adjustments to reconcile net income to net cash
|
||||||||
provided by operating activities:
|
||||||||
Depreciation and amortization
|
9,620 | - | ||||||
Stock issued for services
|
105,000 | |||||||
(Increase) decrease in -
|
||||||||
Accounts receivable
|
4,240 | - | ||||||
Other receivables
|
(1,733,070 | ) | - | |||||
Advances to vendors
|
(254,588 | ) | - | |||||
Due from related party
|
- | - | ||||||
Increase (decrease) in -
|
||||||||
Advance from customers
|
(788,985 | ) | - | |||||
Taxes payable
|
(97,726 | ) | - | |||||
Other payables and accrued liabilities
|
(583,628 | ) | - | |||||
Net
cash used in operating activities
|
(2,586,565 | ) | - | |||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Acquisition of property & equipment
|
(1,567 | ) | - | |||||
Net
cash used in investing activities
|
(1,567 | ) | - | |||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
- | - | ||||||
EFFECT
OF EXCHANGE RATE CHANGE ON CASH & CASH EQUIVALENT
|
(8,781 | ) | - | |||||
NET
DECREASE IN CASH & CASH EQUIVALENTS
|
(2,596,914 | ) | - | |||||
CASH
& CASH EQUIVALENTS, BEGINNING OF PERIOD
|
6,381,770 | - | ||||||
CASH
& CASH EQUIVALENTS, END OF PERIOD
|
$ | 3,784,855 | $ | - | ||||
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION
|
||||||||
Income tax paid
|
$ | 404,125 | $ | - | ||||
Interest paid
|
$ | - | $ | - | ||||
NONCASH
INVESTING AND FINANCING ACTIVITIES
|
||||||||
Common stock issued for services
|
$ | 105,000 | $ | - |
The accompanying notes are an intergral part of
these condensed consolidated financial statements
3
CHINA
EXECUTIVE EDUCATION CORP. AND SUBSIDIARIES
(FORMERLY
ON DEMAND HEAVY DUTY, CORP)
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
1. ORGANIZATION AND BASIS OF PRESENTATION
China
Executive Education Corp (the “Company”), formerly known as On Demand Heavy
Duty, Corp, is a corporation organized under the laws of the State of
Nevada.
On
February 12, 2010, the Company acquired all of the outstanding capital stock of
Surmounting Limit Marketing Adviser Limited (“SLM”), a Hong Kong
Corporation, through China Executive Education Corp., a Nevada
corporation (the “Merger Sub”) wholly owned by the Company. SLM is a holding
company whose only asset, held through a subsidiary, is 100% of the registered
capital of Hangzhou MYL Business Administration Consulting Co., Ltd. (“MYL
Business”), a limited liability company organized under the laws of the People’s
Republic of China (“PRC”). Substantially all of SLM's operations are conducted
in China through MYL Business, and through contractual arrangements with several
of MYL Business’s affiliated entities in China, including Hangzhou MYL
Commercial Services Co., Ltd. (“MYL Commercial”) and its subsidiaries. MYL
Commercial is a fast-growing executive education company with dominant operation
in Shanghai, the commercial center of China, providing comprehensive consulting
services such as business administration, marketing strategy, designing of
enterprise image, corporate investment and commerce, business conference as well
as professional training programs designed to fit the needs of Chinese
entrepreneurs to improve their leadership, management and marketing
skills.
In
connection with the acquisition, the Merger Sub issued 20 shares of the common
stock of the Merger Sub which constituted no more than 10% ownership interest in
the Merger Sub to the shareholders of SLM, in exchange for all the shares of the
capital stock of SLM (the “Share Exchange” or “Merger”). The 20 shares of the
common stock of the Merger Sub were converted into approximately 21,560,000
shares of the common stock of the Company so that upon completion of the Merger,
the shareholders of SLM own approximately 98% of the common stock of the
Company.
4
CHINA
EXECUTIVE EDUCATION CORP. AND SUBSIDIARIES
(FORMERLY
ON DEMAND HEAVY DUTY, CORP)
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
1. ORGANIZATION AND BASIS OF PRESENTATION
(continued)
As part
of the Merger, pursuant to a stock purchase agreement (the “Stock Purchase
Agreement”), the Company transferred all of the outstanding capital of its
subsidiary, On Demand Heavy Duty Holdings, Inc. (“Holdings”) to certain of its
shareholders in exchange for the cancellation of 3,000,000 shares of
the Company’s common stock (the “Split Off Transaction”). In
addition, an aggregate of 3,070,000 shares were returned to the transfer agent
for cancellation by other shareholders of the Holdings. Following the
Merger and the Split-Off Transaction, the Company discontinued its former
business and is now engaged in the executive education business.
Upon
completion of the Merger, there were 22,000,000 shares of the Company’s common
stock issued and outstanding.
As a
result of these transactions, persons affiliated with the SLM and MYL Business
now own securities that in the aggregate represent approximately 98% of the
equity in the Company. In addition, in connection with the change of control
contemplated by the Share Exchange, the directors and officers of the Company
resigned from their positions and new directors and officers affiliated with MYL
Business controlled the Board of Directors of the Company ten days after the
notice pursuant to Rule 14F-1 has been mailed to the shareholders of
record.
Consequently,
the Company’s name was changed from “On Demand Heavy Duty, Corp.” to the Merger
Sub’s name “China Executive Education Corp.” in order to more effectively
reflect the Company’s business and communicate the Company’s brand identity to
customers.
The above
mentioned merger transaction has been accounted for as a reverse merger under
the purchase method of accounting since there was a change of control.
Accordingly, SLM will be treated as the continuing entity for accounting
purposes.
5
CHINA
EXECUTIVE EDUCATION CORP. AND SUBSIDIARIES
(FORMERLY
ON DEMAND HEAVY DUTY, CORP)
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
1. ORGANIZATION AND BASIS OF PRESENTATION
(continued)
SLM does
not conduct any substantive operations of its own. Instead, through its
subsidiary, MYL Business, it had entered into certain exclusive contractual
agreements with MYL Commercial on March 25, 2009. Pursuant to certain
agreements, SLM is obligated to absorb a majority of the risk of loss from MYL
Commercial’s activities and entitled it to receive a majority of its expected
residual returns. In addition, MYL Commercial’s shareholders have pledged their
equity interest in MYL Commercial to SLM, irrevocably granted SLM an exclusive
option to purchase, to the extent permitted under PRC Law, all or part of the
equity interests in MYL Commercial and agreed to entrust all the rights to
exercise their voting power to the persons appointed by MYL Commercial. Through
these contractual arrangements, the Company and SLM hold all the variable
interests of MYL Commercial. Therefore, the Company is the primary beneficiary
of MYL Commercial.
Based on
these contractual arrangements, the Company believes that MYL Commercial should
be considered as Variable Interest Entity (“VIE”) under ASC 510 “Consolidation
of Variable Interest Entities, and Interpretation of ARB No. 51”. Accordingly,
the Company consolidates MYL Commercial and its subsidiary’s results, assets and
liabilities.
The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the management, all adjustments
(consisting only of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three months ended
March 31, 2010 and 2009 are not necessarily indicative of the results that may
be expected for the full years.
6
CHINA
EXECUTIVE EDUCATION CORP. AND SUBSIDIARIES
(FORMERLY
ON DEMAND HEAVY DUTY, CORP)
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Basis
of presentation and consolidation
The
consolidated financial statements of the Company reflect the principal
activities of the following subsidiaries. All material intercompany transactions
have been eliminated.
Name of the entity | Place of Incorporation | Ownership Percentage | |||
Summouting Limited Marketing Advisor Limited ("SLM") | Hong Kong, China | 100% | |||
Hangzhou MYL Business Administration Co., Ltd ("MYL Business") | Hangzhou, China | 100% | |||
Shanghai MYL Consulting Co., Ltd. ("MYL Consulting") | Shanghai, China | 100% | |||
Hangzhou MYL Commerical Service., Ltd. ("MYL Commerical") | Hangzhou, China | VIE | |||
The
accompanying consolidated financial statements have been prepared in accordance
with the accounting principles generally accepted in the United States of
America and include the accounts of all directly and indirectly owned
subsidiaries listed above.
Non-controlling
interest
Non-controlling
interest represents two minority shareholders’ 5% proportionate share of the
results of the Company’s subsidiary Hangzhou MYL Commercial Services Co., Ltd.,
based on the contractual arrangements between the Company, MYL Commercial and
its shareholders.
Use
of estimates
The
preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes, and disclosure of contingent
liabilities at the date of the consolidated financial statements. Estimates are
used for, but not limited to, the selection of the useful lives of property and
equipment, provision necessary for contingent liabilities, taxes and other
similar charges. Management believes that the estimates utilized in preparing
its consolidated financial statements are reasonable and prudent. Actual results
could differ from these estimates.
7
CHINA
EXECUTIVE EDUCATION CORP. AND SUBSIDIARIES
(FORMERLY
ON DEMAND HEAVY DUTY, CORP)
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair
value of financial instruments
The
Company adopted ASC 820, Fair Value Measurements and Disclosures. ASC 820
clarifies the definition of fair value, prescribes methods for measuring fair
value, and establishes a fair value hierarchy to classify the inputs used in
measuring fair value as follows:
Level
1-Inputs are unadjusted quoted prices in active markets for identical assets or
liabilities available at the measurement date.
Level
2-Inputs are unadjusted quoted prices for similar assets and liabilities in
active markets, quoted prices for identical or similar assets and liabilities in
markets that are not active, inputs other then quoted prices that are
observable, and inputs derived from or corroborated by observable market
data.
Level
3-Inputs are unobservable inputs which reflect the reporting entity’s own
assumptions on what assumptions the market participants would use in pricing the
asset or liability based on the best available information.
The
carrying amounts reported in the balance sheets for cash, accounts receivable,
advance to vendors, accounts payable and other accrued expenses, and advances
from customers approximate their fair market value based on the short-term
maturity of these instruments. The Company did not identify any assets or
liabilities that are required to be presented on the consolidated balance sheets
at fair value in accordance with ASC 820.
Accounts
receivable
Accounts
receivable consists of balances due from the enterprises for the education
services provided. Accounts receivable are recorded at net realizable value
consisting of the carrying amount less an allowance for uncollectible
amounts.The Company does periodical reviews as to whether the carrying values of
accounts have become impaired. The assets are considered to be
impaired if the collectability of the balances become doubtful, accordingly, the
management estimates the valuation allowance for anticipated uncollectible
receivable balances. When facts subsequently become available to indicate that
the allowance provided requires an adjustment, then the adjustment will be
classified as a change in estimate. The Company determined that no
reserve was necessary at March 31, 2010 and December 31, 2009.
8
CHINA
EXECUTIVE EDUCATION CORP. AND SUBSIDIARIES
(FORMERLY
ON DEMAND HEAVY DUTY, CORP)
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Advances
to vendors
Advances
to vendors consist of payments made and recorded in advance for featured
lectures that have not been provided to or received by the Company from invited
foreign speakers. Such advances are expensed through cost of revenue
as the speeches are performed. Advances to vendors are reviewed periodically to
determine whether their carrying value has become impaired. Advances to vendors
as of March 31, 2010 and December 31, 2009 amounted to $986,199 and $731,365,
respectively.
Property
and equipment
Property
and equipment are recorded at cost less accumulated depreciation and any
impairment losses. The cost of an asset comprises of its purchase
price and any directly attributable costs of bringing the asset to its working
condition and location for its intended use. Expenditure incurred
after the fixed assets have been put into operation, such as repairs and
maintenance and overhaul costs, is normally charged to the profit and loss
account in the year in which it is incurred.
Depreciation
is computed using the straight-line method over the estimated useful lives of
the assets, less any estimated residual value. Estimated useful lives
of the assets are as follows:
Computer electronics equipments | 3 years |
Other equipments | 3 years |
Leasehold improvements | 2 years |
Any gain
or loss on disposal or retirement of a fixed asset is recognized in the profit
and loss account and is the difference between the net sales proceeds and the
carrying amount of the relevant asset. When property and equipment are retired
or otherwise disposed of, the assets and accumulated depreciation are removed
from the accounts and the resulting profit or loss is reflected in
income.
9
CHINA
EXECUTIVE EDUCATION CORP. AND SUBSIDIARIES
(FORMERLY
ON DEMAND HEAVY DUTY, CORP)
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Impairment
of long-lived assets
In
accordance with ASC 360, “Accounting for the Impairment or Disposal of
Long-Lived Assets”, the Company is required to review its long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable through the estimated
undiscounted cash flows expected to result from the use and eventual disposition
of the assets. Whenever any such impairment exists, an impairment
loss will be recognized for the amount by which the carrying value exceeds the
fair value. The Company estimates fair value based on the information available
in making whatever estimates, judgments and projections are considered
necessary. There was no impairment of long-lived assets during the
three months ended March 31, 2010 and 2009.
Revenue
recognition
The
Company recognizes revenue in accordance with ASC 605, which requires that
revenue be recognized when it is earned and either realized or realizable. In
general, the Company generates revenue from the delivery of professional
services and records revenues when the services are completed,
already collected or collectability is reasonably assured, there is no future
obligation and there is remote chance of future claim or refund to the
customers. It is reported net of business taxes and refunds.
Income
taxes
The
Company utilizes ASC 740, “Accounting for Income Taxes,” which requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each period end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized.
10
CHINA
EXECUTIVE EDUCATION CORP. AND SUBSIDIARIES
(FORMERLY
ON DEMAND HEAVY DUTY, CORP)
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
The
Company adopted the provisions of ASC 740-10-25, "Accounting for Uncertainty in
Income Taxes". ASC 740-10-25 prescribes a more-likely-than-not threshold for
consolidated financial statement recognition and measurement of a tax position
taken (or expected to be taken) in a tax return. This Interpretation also
provides guidance on the recognition of income tax assets and liabilities,
classification of current and deferred income tax assets and liabilities,
accounting for interest and penalties associated with tax positions, accounting
for interest and penalties associated with tax positions, accounting for income
taxes in interim periods and income tax disclosures. The adoption of ASC
740-10-25 has not resulted in any material impact on the Company's financial
position or results.
Foreign
currency translation
The
Company’s financial information is presented in US dollars. The functional
currency of the Company is Renmini (“RMB”), the currency of the
PRC.
The
financial statements of the Company have been translated into U.S. dollars in
accordance with FASB ASC 830-30 “Translation of Financial
Statements”. The financial information is first prepared in RMB and then
is translated into U.S. dollars at period-end exchange rates as to assets and
liabilities and average exchange rates as to revenue and expenses. Capital
accounts are translated at their historical exchange rates when the capital
transactions occurred. The effects of foreign currency translation adjustments
are included as a component of accumulated other comprehensive income in
shareholders’ equity.
March
31,
2010
|
December
31,
2009
|
|||||||
Period end RMB: US$ exchange rate | 6.8259 | 6.8282 | ||||||
Average RMB: US$ exchange rate | 6.8274 | 6.8341 |
The RMB
is not freely convertible into foreign currency and all foreign exchange
transactions must take place through authorized institutions. No representation
is made that the RMB amounts could have been, or could be, converted into US
dollars at the rates used in translation.
11
CHINA
EXECUTIVE EDUCATION CORP. AND SUBSIDIARIES
(FORMERLY
ON DEMAND HEAVY DUTY, CORP)
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Comprehensive
income
In
accordance with FASB ASC 220-10-55, comprehensive income is defined to include
all changes in equity except those resulting from investments by owners and
distributions to owners. The Company’s only components of comprehensive income
during the three months ended March 31, 2010 and 2009 were net income and the
foreign currency translation adjustment. Other comprehensive income for the
three months ended March 31, 2010 and 2009 was $1,441 and $-0-,
respectively.
Earnings
per share
The
Company computes earnings per share (“EPS’) in accordance with ASC 260 “Earnings
per Share” (“ASC 260”), and SEC Staff Accounting Bulletin No. 98 (“SAB
98”). ASC 260 requires companies with complex capital structures to
present basic and diluted EPS. Basic EPS is measured as net income divided
by the weighted average common shares outstanding for the period. Diluted
EPS is similar to basic EPS but presents the dilutive effect on a per share
basis of potential common shares (e.g., convertible securities, options and
warrants) as if they had been converted at the beginning of the periods
presented, or issuance date, if later. Potential common shares that have
an anti-dilutive effect (i.e., those that increase income per share or decrease
loss per share) are excluded from the calculation of diluted EPS.
Statement
of cash flows
In
accordance with ASC 230, "Statement of Cash Flows," cash flows from the
Company's operations is calculated based upon the local currencies. As a result,
amounts related to assets and liabilities reported on the statements of cash
flows will not necessarily agree with changes in the corresponding balances on
the balance sheets.
12
CHINA
EXECUTIVE EDUCATION CORP. AND SUBSIDIARIES
(FORMERLY
ON DEMAND HEAVY DUTY, CORP)
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Concentration
of credit risk
Financial
instruments that potentially subject the Company to concentration of credit risk
consist primarily of accounts receivables and other receivables. The
Company does not require collateral or other security to support these
receivables. The Company conducts periodic reviews of its clients'
financial condition and customer payment practices to minimize collection risk
on accounts receivables.
Risks
and uncertainties
The
operations of the Company are located in the PRC. Accordingly, the Company’s
operations are subject to special considerations and significant risks not
typically associated with companies in North America and Western Europe. These
include risks associated with, among others, the political, economic and legal
environment and foreign currency exchange. The Company’s results may be
adversely affected by changes in the political and social conditions in the PRC,
and by changes in governmental policies with respect to laws and regulations,
anti-inflationary measures, currency conversion, remittances abroad, and rates
and methods of taxation, among other things.
Recent accounting
pronouncements
In
January 2010, the FASB issued ASU 2010-04, Accounting for Various Topics –
Technical Corrections to SEC Paragraphs. ASU 2010-04 makes technical
corrections to existing SEC guidance, including the following topics: accounting
for subsequent investments, termination of an interest rate swap, issuance of
financial statements - subsequent events, use of residential method to value
acquired assets other than goodwill, adjustments in assets and liabilities for
holding gains and losses, and selections of discount rate used for measuring
defined benefit obligation. The Company does not expect the adoption of ASU
2010-04 to have a material impact on its consolidated financial
statements.
13
CHINA
EXECUTIVE EDUCATION CORP. AND SUBSIDIARIES
(FORMERLY
ON DEMAND HEAVY DUTY, CORP)
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
In
January 2010, the FASB issued new standards in ASC 820, Fair Value Measurements and
Disclosures: Improving Disclosures About Fair Value Measurements. ASU
2010-06 amends Subtopic 820-10 to clarify existing disclosures, require new
disclosures, and include conforming amendments to guidance on employers’
disclosures about postretirement benefit plan assets. ASU 2010-06 is effective
for interim and annual periods beginning after December 15, 2009, except for
disclosures about purchases, sales, issuances, and settlements in the roll
forward of activity in Level 3 fair value measurements. Those disclosures are
effective for fiscal years beginning after December 15, 2010, and for interim
periods within those fiscal years. The Company is currently
evaluating the impact these standards will have on its financial condition,
results of operations, or cash flows and does not expect the adoption of ASU
2010-06 to have a material impact on its consolidated financial
statements.
In
January 2010, the FASB issued ASU No. 2010-01, Equity (ASC 505): Accounting
for distributions to
Shareholders with Components of Stock and Cash (A Consensus of the FASB
Emerging Issues Task Force). This amendment to ASC 505 clarifies the stock
portion of a distribution to shareholders that allow them to elect to receive
cash or stock with a limit on the amount of cash that will be distributed is not
a stock dividend for purposes of applying ASC 505 and 260. Effective for interim
and annual periods ending on or after December 15, 2009, and would be applied on
a retrospective basis. The Company does not expect the provisions of ASU No.
2010-01 to have a material effect on the financial position, results of
operations or cash flows of the Company.
In
February 2010, the FASB issued ASU 2010-08, Technical Corrections to Various
Topics. ASU 2010-08 clarifies guidance on embedded derivatives and
hedging. ASU 2010-08 is effective for interim and annual periods beginning after
December 15, 2009. The Company does not expect the adoption of ASU 2010-08 to
have a material impact on its consolidated financial statements.
14
CHINA
EXECUTIVE EDUCATION CORP. AND SUBSIDIARIES
(FORMERLY
ON DEMAND HEAVY DUTY, CORP)
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
In
February 2010, FASB issued ASU 2010-09 Subsequent Event (Topic 855) Amendments
to Certain Recognition and Disclosure Requirements. ASU 2010-09 removes the
requirement for an SEC filer to disclose a date through which subsequent events
have been evaluated in both issued and revised financial statements. All of the
amendments in ASU 2010-09 are effective upon issuance of the final ASU, except
for the use of the issued date for conduit debt obligors. That amendment is
effective for interim or annual periods ending after June 15, 2010. The Company
adopted ASU 2010-09 in February 2010 and did not disclose the date through which
subsequent events have been evaluated.
NOTE
3. OTHER RECEIVABLES
Other
receivables represent a short-term contract deposit with a local hotel in order
for the Company to book hotel rooms or conference rooms at negotiated rates to
hold various meetings or provide training courses to students. Other receivables
also include short-term advances made to certain managers, employees and
internal units for business marketing and recruiting purposes. Such advances
will be expensed as general and administrative costs as the planned marketing
and recruiting tasks have been performed. The Company has full
oversight and control over such advanced amounts. As of March 31, 2010, no
allowance for the uncollectible amounts was deemed necessary. The following
table summarizes the balance of other receivables as of March 31, 2010 and
December 31, 2009:
As
of
March
31,
2010
(Unaudited)
|
As of
December 31,
2009
|
|||||||
Marketing and recruiting advances | $ | 2,238,037 | $ | 466,414 | ||||
Contract deposit | 510,764 | 542,151 | ||||||
Total | $ | 2,748,801 | $ | 1,008,565 |
15
CHINA
EXECUTIVE EDUCATION CORP. AND SUBSIDIARIES
(FORMERLY
ON DEMAND HEAVY DUTY, CORP)
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
4. PROPERTY, PLANT AND EQUIPMENTS
As of
March 31, 2010 and December 31, 2009, the detail of property, plant and
equipments was as follows:
As of
March 31,
2010
(Unaudited)
|
As of
December 31,
2009
|
|||||||
Computer electronic equipments | $ | 39,468 | $ | 39,170 | ||||
Other equipments | 9,327 | 8,042 | ||||||
Leasehold improvements | 47,741 | 47,291 | ||||||
Sub-total | 95,536 | 94,503 | ||||||
Less: accumulated depreciation | (17,190 | ) | (7,134 | ) | ||||
Property, plant and equipment, net | $ | 79,346 | $ | 87,369 | ||||
Depreciation
expense for the three months ended March 31, 2010 and 2009 was $9,620 and $-0-,
respectively.
NOTE
5. OTHER ASSET
In late
2009, one of the students who attended the Company’s professional training
courses went bankrupt and pledged a personal residential property located in
Dalian City, China, to offset the unpaid tuition. The Company acquired the
property and recorded the amount based on the fair market value of the
acquisition date. As of March 31, 2010, other asset totaled
$91,533. Management determined that there was no impairment of this
asset because the book amount approximates its fair market value based on the
short-term nature of this instrument.
NOTE
6. ADVANCE FROM CUSTOMERS
Advance
from customers represent amounts received in advance from students for tuition
paid to attend the Company’s professional training courses and featured
lectures. Advance from customers is refundable if the training doesn’t occur
within the specified time. The Company recognizes these funds as a current
liability until the revenue can be recognized. As of March 31, 2010 and December
31, 2009, the balance of advance from customers totaled $ 2,841,047 and
$3,628,810, respectively.
16
CHINA
EXECUTIVE EDUCATION CORP. AND SUBSIDIARIES
(FORMERLY
ON DEMAND HEAVY DUTY, CORP)
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 7. TAXES
(a) Business sales
tax
The
Company is subject to 5% business sales tax on actual revenue
generated. It is the Company’s continuing practice to accrue 5% of
the sales tax on estimated revenue and file tax return based on the actual
result, as the local tax authority may exercise broad discretion in applying the
tax amount. As a result, the Company’s accrual sales tax may differ
from the actual tax clearance.
(b)
Corporation income tax (“CIT”)
The
Company is governed by the Income Tax Law of the People’s Republic of China
concerning the private-run enterprises, which are generally subject to tax at a
new statutory rate of 25% on income reported in the statutory financial
statements after appropriate tax adjustments. For the three months
ended March 31, 2010 and 2009, the Company incurred income taxes of $296,169 and
$-0-, respectively.
(c)
Taxes payable
As of
March 31, 2010 and December 31, 2009, taxes payable consisted of the
following:
As
of
March
31,
2010
(Unaudited)
|
As of
December 31,
2009
|
|||||||
Corporation income tax | $ | 296,234 | $ | 403,989 | ||||
Business tax | 130,519 | 124,452 | ||||||
Other tax and fees | 16,402 | 9,100 | ||||||
Total tax payable | $ | 443,155 | $ | 537,541 |
17
CHINA
EXECUTIVE EDUCATION CORP. AND SUBSIDIARIES
(FORMERLY
ON DEMAND HEAVY DUTY, CORP)
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
8. STOCKHOLDERS’ EQUITY
(a)
|
Common
stock
|
Prior to
the Share Exchange, the Company had 6,510,000 shares of common stock issued
and outstanding at $.001 per share.
Before
the closing of the Share Exchange transaction, the Company retired 3,000,000
shares of common stock in connection with the spin-off of the Company’s
subsidiary, On Demand Heavy Duty Holdings, Inc. In addition, an aggregate
of 3,070,000 shares were returned to the transfer agent for cancellation
by other shareholders of the Holdings. In connection with the
Share Exchange consummated on February 12, 2010, the Company issued 21,560,000
shares of its common stock to SLM shareholder, so that upon completion of the
Merger, the shareholders of SLM own approximately 98% of the common stock of the
Company.
Upon
completion of the Merger, there were 22,000,000 shares of the Company’s common
stock issued and outstanding.
On March
29, 2010, the Company issued 50,000 common shares to a consulting firm for
services rendered and recorded the fair value of $105,000 at the grant
date.
As of
March 31, 2010, there were a total of 22,050,000 shares of the Company’s common
stock issued and outstanding.
(b)
|
Statutory
reserve
|
The
Company is required to make appropriations to certain reserve funds, comprising
the statutory surplus reserve and discretionary surplus reserve, based on
after-tax net income determined in accordance with generally accepted accounting
principles of the PRC (“PRC GAAP”). Appropriations to the statutory surplus
reserve is required to be at least 10% of the after tax net income determined in
accordance with PRC GAAP until the reserve is equal to 50% of the entities’
registered capital. Appropriations to the discretionary surplus reserve are made
at the discretion of the Board of Directors.
18
CHINA
EXECUTIVE EDUCATION CORP. AND SUBSIDIARIES
(FORMERLY
ON DEMAND HEAVY DUTY, CORP)
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
8. STOCKHOLDERS’ EQUITY (continued)
The
statutory surplus reserve fund is non-discretionary other than during
liquidation and can be used to fund previous years’ losses, if any, and may be
utilized for business expansion or converted into share capital by issuing new
shares to existing shareholders in proportion to their shareholding or by
increasing the par value of shares currently held by them, provided that the
remaining statutory surplus reserve balance after such issue is not less than
25% of the registered capital before the conversion.
Pursuant
to the Company’s articles of incorporation, the Company is to appropriate 10% of
its net profits as statutory surplus reserve. As of March 31, 2010, the balance
of statutory surplus reserve was $358,026.
The
discretionary surplus reserve may be used to acquire fixed assets or to increase
the working capital to expend on production and operation of the business. The
Company’s Board of Directors decided not to make an appropriation to this
reserve for the quarter ended March 31, 2010.
NOTE
9. COMMITMENTS AND CONTINGENCIES
From time
to time, the Company leases office spaces in Shanghai and Hangzhou in China to
conduct its normal business activities, such as business administration,
recruiting students, holding the business conferences and providing professional
training courses or featured lectures to students. The Company also
has several rental arrangements which provide residential units to house key
employees. These lease agreements are short-term in nature and will expire
before October 2012.
Rent
expenses for the above rental arrangements total $210,133 for the three months
ended March 31, 2010.
19
CHINA
EXECUTIVE EDUCATION CORP. AND SUBSIDIARIES
(FORMERLY
ON DEMAND HEAVY DUTY, CORP)
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
9. COMMITMENTS AND CONTINGENCIES (continued)
The
minimum obligations under such commitments (unless otherwise stated) for the
years ended December until their expiration are summarized below:
2010 | $ | 546,732 | ||
2011 | 588,491 | |||
2012 | 29,172 | |||
Total | $ | 1,164,395 |
NOTE
10. WEIGHTED AVERAGE NUMBER OF SHARES
In
February 2010, the Company entered into a share exchange transaction which has
been accounted for as a reverse merger under the purchase method of accounting
since there has been a change of control. The Company computes the
weighted-average number of common shares outstanding in accordance with ASC 805,
Business Combinations, which states that in calculating the weighted average
shares when a reverse merger takes place in the middle of the year, the number
of common shares outstanding from the beginning of that period to the
acquisition date shall be computed on the basis of the weighted-average number
of common shares of the legal acquiree (the accounting acquirer) outstanding
during the period multiplied by the exchange ratio established in the merger
agreement. The number of common shares outstanding from the acquisition date to
the end of that period shall be the actual number of common shares of the legal
acquirer (the accounting acquiree) outstanding during that period.
20
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
|
Forward
Looking Statements
You
should read the following discussion and analysis of our financial condition and
results of operations in conjunction with our consolidated financial statements
and the related notes included elsewhere in this document. The following
discussion contains forward-looking statements. China Executive Education Corp.
is referred to herein as “we”, “us”, “our”, the “Registrant” or the
“Company.”
The
words or phrases “would be,” “will allow,” “expect to”, “intends to,” “will
likely result,” “are expected to,” “will continue,” “is anticipated,”
“estimate,” or similar expressions are intended to identify forward-looking
statements. Such statements include, among others, those statements concerning
our expected financial performance, our corporate strategy and operational
plans. Actual results could differ materially from those projected in the
forward-looking statements as a result of a number of risks and uncertainties,
including, among others: (a) those risks and uncertainties related to general
economic conditions in China, including regulatory factors that may affect such
economic conditions; (b) whether we are able to manage our planned growth
efficiently and operate profitable operations, including whether our management
will be able to identify, hire, train, retain, motivate and manage required
personnel or that management will be able to successfully manage and exploit
existing and potential market opportunities; (c) whether we are able to generate
sufficient revenues or obtain financing to sustain and grow our operations; and
(d) whether we are able to successfully fulfill our primary requirements for
cash which are explained below under “Liquidity and Capital Resources”. Unless
otherwise required by applicable law, we do not undertake, and we specifically
disclaim any obligation, to update any forward-looking statements to reflect
occurrences, developments, unanticipated events or any other circumstances after
the date of such statement unless required by law. For additional information
regarding these risks and uncertainties, see “Risk Factors”. Our consolidated
financial statements have been prepared in accordance with U.S. GAAP. In
addition, our consolidated financial statements and the financial data included
in this document reflect the Merger and have been prepared as if our current
corporate structure had been in place throughout the relevant
periods.
Overview
We are a
fast-growing executive education company in China and mainly operate through MYL
Business. We operate comprehensive business training programs through
our controlled affiliates and subsidiaries in Hangzhou and Shanghai, which are
two prosperous and commercial cities of China. Our executive training
programs are designed to fit the needs of Chinese entrepreneurs, and to improve
their leadership skill, management skills and marketing skills, as well as
bottom-line results. Our comprehensive business training initiatives
integrate research-based, proprietary content with processes that are
specifically and explicitly connected to the critical business issues that most
private Chinese companies are facing. This allows the trainees to
better achieve their potentials and better align individual goals and
competencies with organizational objectives of their employers or
business. We have developed 22 training courses which include a core
course, named “Seven Essential Classes for Business Executives”.
We derive
our sales revenue from selling our proprietary training courses. We
also generate sales revenue from our “Featured Lectures” events which are
organized by us periodically with the presence of world masters or well-known
keynote speakers.
Our
open-enrollment training programs include our proprietary training courses and
featured lectures. Our proprietary training courses include one
package of 7 courses for CEO and C-Level managers, as well as 21 leadership and
personal development courses, which are on the topic of management skills,
negotiation skills, leadership skills, public speaking skills,
etc. Featured Lectures are delivered by world masters invited by
us. Those world masters are experts or well-known speakers in each
relevant field. Lectures are delivered to a large
audience. MYL Business’s network of speaking professionals is a
leading platform in China at inspiring audiences to new levels of motivation and
commitment.
Since the
formal launching of our operation in April 2009, we have provided our training
programs to 2,874 of Chinese business owners and executives. They
come from different provinces and from different industries. And,
they also represent different sizes of business. Some of our top
corporation clients have millions of dollars in sales, such as Tieniu Group,
Jiangsu Shenhua Real Estate Co., Ltd., Beijing Holliland Enterprise Investment
Management Co., Ltd., WanLong Ski Resort, and Shenzhen Baoan Fenda Industrial
Co., Ltd.
21
Our
principal executive offices are located at Hangzhou MYL Business Administration
Consulting Co. Ltd., Room 307, Hualong Business Building, 110 Moganshan Road,
Hangzhou, P.R.China 310005 and our telephone number is (86)
0571-8880-8109.
Since our
business inception, our client base and sales revenue have been continuing to
climb from time to time. As of March 31, 2010 and December 31, 2009, we have
generated sales revenue of RMB30.35 million (equivalent to approximately USD
4.44 million) and RMB 62.44 million (equivalent to approximately USD 9.14
million), respectively. Our net income for the above periods was
approximately $0.76 and $3.31 million, respectively.
Our
management plans to continue the execution of our business expansion strategy
that will result in increased market penetration of our educational services and
expanded revenue growth in our 2010 fiscal year and beyond. Part of
this strategy involves increasing and improving our marketing activities,
strengthening our sales force, and solidifying our client
network.
Our
management believes that our emphasis on further commercializing and broadening
our professional training courses and service scope, enhanced sales and
marketing efforts shall continue to yield significant increases in our revenue
in 2010 and beyond.
Our
Industry
We
operate in China’s professional training industry, which is one of the fastest
growing sectors in China’s education industry. According to the China Education
Yearbook, China’s total educational expenditures were approximately RMB 214.8
billion in 2007 (approximately $178.6 billion), representing a compound annual
growth rate, or CAGR, of approximately 15.4%, since 2000, as illustrated in the
following chart. The school system run by the State and local government
accounts for over 60% of the funding and expenditure.
According
to the Report of Investment Analysis and Prospect of China Training Industry
2010-2015, as of the end of 2007, the estimated size of the vocational training
and professional training market was around RMB 300 billion
(approximately USD 44 billion). And as one of the major segments of the
professional training industry, China’s executive training has emerged and grown
rapidly in the last few years. The market was estimated with a size about RMB 2
billion (approximately $294 million) in 2002; then was increased to over RMB 16
billion (approximately 2.35 billion) in 2004, and jumped to RMB 30 billion
(approximately $4.41 billion) in 2006.
China’s
professional training industry has also been further divided in more
sub-segments, such as, career development training, foreign language training,
technique and skills training, and executive training. As Chinese companies and
working force confront competition in the global market, the needs for steady
improvement of the skills and efficiency on different levels will stimulate
continuing growth in demand for specialized professional education services in
different fields.
22
Executive
training is a special business segment. The target clients for executive
training business are corporation executives, C-level managers and private
business owners. The training programs mainly include leadership development,
corporation strategy, decision making and other personal skill development.
China’s executive education sector is characterized with the following
nature:
(1)
|
Young
and in early development stage. In comparison with other professional
training segments, China’s executive training industry is young and just
has 10 years history. It was first introduced by foreign education
institute to top Chinese business schools in late 1990s, then expanded to
the private sector with many active
participants.
|
(2)
|
Strong
market demand. Driven by the booming Chinese economy and spirit of
entrepreneurism in the private business sector, demand for open-enrollment
and easy access high-level education program from more than 6 million of
Chinese private business owners and over 10 million business executives in
China is strong.
|
(3)
|
Fragmented
market. Because low entry barrier, now there are thousands of executive
training providers in China. There is no dominant player in the national
market yet. According to the study conducted by China Investment &
Industry Research Center, there were more than 70,000 training companies
nationwide, of which more than 10,000 located in Beijing and Shanghai, But
quite few of them have generated RMB 10 million or more of sales revenue
annually.
|
Corporate
History & Background
China
Executive Education Corp (the “Company”), formerly known as On Demand Heavy
Duty, Corp. is a corporation organized under the laws of the State of
Nevada.
We were
incorporated under the laws of the State of Nevada, U.S. on May 9, 2008, under
the name of On Demand Heavy Duty, Corp. From our inception until our
reverse acquisition of Surmounting Limit Marketing Adviser Limited, a Hong Kong
corporation (“SLM”) on February 12, 2010, we were in the development stage as
defined under Statement on Financial Accounting Standards No. 7, Development
Stage Enterprises (“SFAS No.7”) and intended to commence business operations by
purchasing and distributing eco-friendly building supplies for sale throughout
Europe and North America.
On
February 12, 2010, we acquired all of the outstanding capital stock of
Surmounting Limit Marketing Adviser Limited (“SLM”), a Hong Kong
Corporation, through China Executive Education Corp., a Nevada
corporation (the “Merger Sub”) wholly owned by the Company. SLM is a holding
company whose only asset, held through a subsidiary, is 100% of the registered
capital of Hangzhou MYL Business Administration Consulting Co., Ltd. (“MYL
Business”), a limited liability company organized under the laws of the People’s
Republic of China (“China” or “PRC”). Substantially all of SLM's operations are
conducted in China through MYL Business, and through contractual arrangements
with several of MYL Business affiliated entities in China, including Hangzhou
MYL Commercial Services Co., Ltd. (“MYL Commercial”) and its subsidiaries. MYL
Commercial is a fast-growing executive education company with dominant operation
in Shanghai, the commercial center of China, providing comprehensive consulting
services such as business administration, marketing strategy, designing of
enterprise image, corporate investment and commerce, business conference as well
as professional training programs designed to fit the needs of Chinese
entrepreneurs to improve their leadership, management and marketing
skills.
In
connection with the acquisition, the Merger Sub issued 20 shares of the common
stock of the Merger Sub which constituted no more than 10% ownership interest in
the Merger Sub to the shareholders of SLM, in exchange for all the shares of the
capital stock of SLM (the “Share Exchange” or “Merger”). The 20 shares of the
common stock of the Merger Sub were converted into approximately 21,560,000
shares of the common stock of the On Demand so that upon completion of the
Merger, the shareholders of SLM own approximately 98% of the common stock of the
Company.
As part
of the Merger, pursuant to a stock purchase agreement (the “Stock Purchase
Agreement”), the Company transferred all of the outstanding capital of its
subsidiary, On Demand Heavy Duty Holdings, Inc. (“Holdings”) to certain of its
shareholders in exchange for the cancellation of 3,000,000 shares of the
Company’s common stock (the “Split Off Transaction”). In addition, an
aggregate of 3,070,000 shares were returned to the transfer agent for
cancellation by other shareholders of the Holdings. Following the
Merger and the Split-Off Transaction, the Company discontinued its former
business and is now engaged in the executive education business.
Upon
completion of the Merger, there were 22,000,000 shares of the Company’s common
stock issued and outstanding.
23
As a
result of these transactions, persons affiliated with the SLM and MYL Business
now own securities that in the aggregate represent approximately 98% of the
equity in the Company. In addition, in connection with the change of control
contemplated by the Share Exchange, the directors and officers of the Company
resigned from their positions and new directors and officers affiliated with MYL
Business controlled the Board of Directors of the Company ten days after the
notice pursuant to Rule 14f-1 has been mailed to the shareholders of
record.
Consequently,
our name was changed from “On Demand Heavy Duty, Corp.” to the Merger Sub’s name
“China Executive Education Corp.” in order to more effectively reflect the
Company’s business and communicate the Company’s brand identity to
customers.
The above
mentioned merger transaction has been accounted for as a reverse merger under
the purchase method of accounting since there was a change of control.
Accordingly, SLM will be treated as the continuing entity for accounting
purposes.
On April
9, 2010, Company received approval from FINRA clearing Company’s name change
from “On Demand Heavy Duty, Corp.” to “China Executive
Education Corp.” in connection with the merger of the Company on February 12,
2010. According to FINRA’s approval, the name change took effect on
April 12, 2010. Company’s new trading symbol on April 12, 2010 was
changed from “ODHD. OB” to “CECX.OB” to effect the name change.
SLM does
not conduct any substantive operations of its own. Instead, through its
subsidiary, MYL Business, it had entered into certain exclusive contractual
agreements with Hangzhou MYL Commercial on March 25, 2009. Pursuant
to these agreements, SLM is obligated to absorb a majority of the risk of loss
from MYL Commercial’s activities and entitled it to receive a majority of its
expected residual returns. In addition, MYL Commercial’s shareholders have
pledged their equity interest in MYL Commercial to SLM, irrevocably granted SLM
an exclusive option to purchase, to the extent permitted under PRC Law, all or
part of the equity interests in MYL Commercial and agreed to entrust all the
rights to exercise their voting power to the persons appointed by MYL
Commercial. Through these contractual arrangements, the Company and SLM hold all
the variable interests of MYL Commercial. Therefore, the Company is the primary
beneficiary of MYL Commercial.
Based on
these contractual arrangements, we believe that MYL Commercial should be
considered as Variable Interest Entity (“VIE”) under ASC 510 “Consolidation of
Variable Interest Entities, and Interpretation of ARB No. 51”. Accordingly, the
Company consolidates MYL Commercial and its subsidiary’s results, assets and
liabilities.
24
Corporate
Structure
We
conduct our operations in China through MYL Business and through contractual
arrangements with several of MYL Business’s consolidated affiliated entities in
China, including Hangzhou MYL Commercial and its subsidiaries. The
following chart reflects our current organizational structure:
*non-active subsidiaries with
no operations.
Competition
We face
the competition on two different fronts. First is from the major
Chinese university and business schools. They provide EMBA program
targeting on corporation executives and entrepreneurs. The most
popular EMBA programs available in China are from Euro-China International
Business College in Shanghai, Cheung Kong Graduate School of Business, Tsinghua
University and Shanghai Jiaotong University, etc. These universities’
EMBA programs provide their students with approximately 300 hours of formal
in-class training programs in the curriculum and issue degree certificates to
students at graduation. The tuition ranges from RMB 60,000
(approximately USD 9,000) to RMB 568,000 (approximately USD 85,000) for the
entire program. The top business schools enroll 400–600 students
annually. Due to the strict admission requirements, many young and
less qualified candidates are turned away. This increases the market
opportunities for Company’s programs.
Open-enrollment
programs provided by private education institutions, like ours, have emerged and
constituted serious competition to the top business schools that provide formal
executive training programs. These peer companies also constitute
direct competition with us. Jucheng Group (founded in 2003 in
Shenzhen), Action Success International Education Group (founded in 2001 in
Shanghai), and Sparta Group (founded in 2002 in Beijing) are the most prominent
companies in our business sector. We compete with them primarily on
the basis of training courses, lecturers, prices, effectiveness of training
execution and our brand name. Since those three companies have been
in business longer than us and they have cross-region presence, they possess
their strength in market coverage and pricing. We believe that we
have a competitive advantage in our international network and broad
offering.
25
Factors
Affecting Our Results of Operation
The
increase in our operating results was attributable to a number of factors, which
include the strong market demand for quality executive training programs in
China, and our effective execution of our business formation plan in Hangzhou
and Shanghai. We believe that our business model and quick
establishment in the target market have given us a considerable advantage over
our competitors. We expect our business will continue its growth in
the years to come, and our future growth will depend primarily on the following
factors:
Increasing
Domestic Spending in Executive Training in China
The
demand for our training program is directly related to the training spending in
China. The increase in training spending is largely determined by the
economic conditions in our country. According to the data released by
National Bureau of Statistics of China on January 21, 2010, China’s economy has
expanded by 8.7% in 2009, and its annual growth rate has been in the range of 8%
to 13% in the recent decade. We believe the fast growing economy is
going to generate more demand for professional training, including business
executive training programs. We expect the training spending in China
will maintain its double-digit growth in the years to come. However,
we cannot give you any assurance that post growth will continue or stay the
same.
Increasing
Numbers of Private Businesses
According
to the Report of Investment
Analysis and Prospect of China Training Industry 2010-2015 by China
Investment & Industry Research Center in January 2010, there were
approximately 31.5 million of small and middle-sized business in China in 2006,
increased by 11.2% compared to 2005, and in the coming three years, the number
of small and middle-sized company is expected to keep growing at annual growth
rate of 7%-8%. It is estimated that by 2012, the number of small and
middle-sized company will reach approximately 50 million. The
business owners and executives are eager to improve their skills of management,
leadership, marketing, negotiating and investment skills.
Promotion
of Our Brand Name to Attract More Clients Cross the Country
We plan
to promote our brand name, Magic Your LifeTM in
China. We believe that the enhancement of public awareness to our
brand name will help to broaden our client base all over China.
Network
with and Retain More Featured Lecturers
Since
Featured Lectures are one of the major revenue generating venues for us, we need
to expand business networking and retain more top talent to our lecturer and
guest speaker team. In 2010, we intend to host more Featured Lectures
or large session events to attract more enrollments and sell our programs to
more clients.
New
Training Program Offered for the Affluent Second Generation
As China
becomes the country with the second largest number of billionaires and its
number of highly affluent people increases, the inheritance of the wealth and
business has become a big concern in the nation and for families. We
intend to develop and launch our special training programs for the children of
the most affluent Chinese. The program will help this specific group
of clients to improve their business management skills and personal
skills. We believe that this business initiative will help to further
expand our business in the coming years.
Intellectual
Property
MYL
Business has officially filed with the respective trademark offices in the PRC,
Hong Kong, and the U.S. the application for registration of (FORBOSS Business Mentor Group) as a registered
trademark. Such application is subject to review and authorization by
the respective trademark offices. In Hong Kong, the said application
is pending as it has been challenged by third parties. Ms. Chiayeh
LIN, one of the management of MYL, has officially filed with the trademark
office of the PRC the application for registration of (Magic You Life) as registered trademark. Such
application is subject to review and authorization by the trademark office of
the PRC.
Mr. Kaien
Liang, our Chairman and controlling shareholder of MYL, is of the author of the
books Who Is The Next
Magic? and Never Say
Impossible, which sell in thousands. Meanwhile, Mr. Pokai Hsu,
is the author of How to be
No.1 in China.
26
Marketing
We market
our executive training service directly to business executives. As of
March 31, 2010, we had 220 sales and marketing personnel. Our sales
team generates sales and sales leads through telemarketing campaigns,
mass-mailing campaigns, and business referrals. We also market our
training program by organizing or sponsoring business seminars or other social
and business events.
We will
further increase the size of our sales and marketing team as we continuously
grow our business and add more training programs.
Employees
MYL
Business currently has around 274 full-time employees as of December 31, 2009,
including 10 in research and development, 19 in the administration and HR
departments, 8 in the financial department, 12 in the customer service
department, 5 in the network department, and 220 in sales and
marketing.
Growth
Strategy
We intend
to grow our business by pursuing the following:
Increase our market
coverage. We expect to increase our market coverage through
extensive telemarketing campaigns and mass mailings. We also intend
to establish and expand our sales agent network in inland
provinces. We believe there are many untouched opportunities
there.
Expand course
offerings. We intend to expand our executive training program
by adding more courses, such as, Effective Corporation Finance Management,
Strategic Investment, and Capital Market Operation, etc. We also
intend to add our course offerings to the second generation of the affluent
families.
Pursue strategic
acquisitions. We plan to make strategic acquisitions to expand
into other C-level management training segment, which has a large potential
client base. We also seek acquisition opportunities in other major
commercial centers to expand our business presence.
Strengthen our international
network. We intend to establish strategic alliances with major
international executive training and leadership development
institutions. Leveraging their capacity and bringing them to our
classes will generate more value to our clients. We also seek the
opportunity of business cooperation with major international education
institutions and develop some jointly operated programs.
27
HIGHLIGHTS
OF FISCAL QUARTER ENDED MARCH 31, 2010
For the
three months ended March 31, 2010, we have provided our training programs to
1,564 of Chinese business owners and executives. They come from different
provinces and from different industries. In addition, we have provided 12
promote seminars to sell our training programs.
For the
three months ended March 31, 2010, the gross margin of the Company was 66%.
Total operating expenses were approximately $1,882,383, representing 42.34% of
our revenues for the period indicated. we reported net income of $752,572 for
the quarter ended March 31, 2010. We expect to experience the ongoing positive
trend in our financial performance to continue through fiscal year 2010 and
beyond.
The
increase in our revenue was attributable to a number of factors, which include
the strong market demand for quality executive training programs in China, and
our effective execution of our business formation plan in Hangzhou and Shanghai.
We believe that our business model and quick establishment in the target market
have given us a considerable advantage over our competitors.
RECENT
DEVELOPMENTS
As
the number of entrepreneurs and affluent businessmen in China increases, we will
continue to expand our network into the commercial cities of China to offer a
different variety of business programs that serve their needs. We believe our
proprietary business training programs serve a need in the rapidly changing and
surging economy of China. Both our client base and sales have experienced
continuous growth from month to month since our operation. At the same time, we
look forward to collaborating with other education consulting companies to offer
more courses to our clients in different regions of China which we believe will
continue to lead to a strong increase on the numbers of companies we can
serve.
RESULTS
OF OPERATIONS
The
results of our operations for the three months ended March 31, 2010 as compared
to the prior comparative period are as follows:
For the three months ended | ||||||||
March 31, 2010 | March 31, 2009 | |||||||
Revenues | $ | 4,445,631 | $ | - | ||||
Cost of Sales | 1,514,745 | - | ||||||
Gross Profit | 2,930,886 | - | ||||||
Selling, general & aministrative expenses | 1,882,383 | - | ||||||
Other income (expenses) | 238 | - | ||||||
Income before income taxes | 1,048,741 | - | ||||||
Provision of income taxes | 296,169 | - | ||||||
Net income | 752,572 | - | ||||||
Less: net income attributable to non-controlling interest | (17,062 | ) | - | |||||
Net income attributable to the company | 769,634 | - | ||||||
Foreign currency translation adjustments | 1,441 | - | ||||||
Comprehensive income | $ | 771,075 | $ | - |
REVENUES,
COST OF SALES AND GROSS PROFIT
Revenue
For the
three months ended March 31, 2010, we generated revenue of $4,445,631 which
represents a 100% increase over the prior comparative period. We started our
business since April 2009 and therefore we did not report any sales revenue for
the three months ended March 31, 2009. The following table sets forth
the breakdown about our revenue sources for the periods indicated:
As of | ||||||||
March 31, 2010 | March 31, 2009 | |||||||
Revenue from Proprietary Training Courses | $ | 1,389,386 | $ | - | ||||
Revenue from Featured Lectures | 3,056,245 | - | ||||||
Total Revenue | $ | 4,445,631 | $ | - |
28
For
the three months ended March 31, 2010, we have provided our training programs to
1,564 of Chinese business owners and executives. They come from different
provinces and from different industries. In addition, we have
provided 12 promote similar to sell our training programs.
The
increase in our revenue was attributable to a number of factors, which include
the strong market demand for quality executive training programs in China, and
our effective execution of our business formation plan in Hangzhou and Shanghai,
We believe that our business model and quick establishment in the target market
have given us a considerable advantage over our competitors.
Costs
of sales
Cost
of sales was approximately $1,514,745 for the three months ended March 31, 2010
which represents a 100% increase as compared to the three months ended March 31,
2009. Cost of sales as a percentage of revenue was 34.0%.
Operating
expenses
The
following table set forth a breakdown of our operating expenses for the period
indicated:
As of | ||||||||
March 31, 2010 | March 31, 2009 | |||||||
General & administrative expenses | $ | 1,163,282 | $ | - | ||||
Selling expenses | 719,101 | - | ||||||
Total Operating expenses | $ | 1,882,383 | $ | - |
Total
operating expenses were approximately $1,882,383 for the three months ended
March 31, 2010, representing 42.34% of our revenues for the period
indicated. We did not incur any operating expenses for the three
months ended March 31, 2009.
Our
selling expense was $719,101 for the three months ended March 31, 2010,
representing 38.2 % of the total operating expenses.
Our
selling expenses primarily include sales commission paid to outside agents for
student recruiting and salaries paid to out-source marketing and sales forces.
Our selling expense incurred was in line with our increased sales
volume.
We expect
our selling and marketing expense to increase in the near future as we increase
our sales efforts, launch more comprehensive training courses and target new
markets to expand our operations.
General
and Administrative Expenses
For the
three months ended March 31, 2010, our general and administrative expenses were
$1,163,282, representing 61.79% of the total operating expenses as compared to
the general and administrative expenses for the three months ended March 31,
2009.
Our
general and administrative expenses principally include:
(1) Staff
salaries and benefits;
(2)
Traveling and entertainment expenses;
(3)
Professional fees, such as consulting, audit and legal fees, and
(4)
Office spaces rent expenses
(5) Other
associated fees.
29
From
time to time, we lease office spaces in Shanghai and Hangzhou in China to
conduct our normal business activities, such as business administration,
recruiting students, holding the business conferences and providing professional
training courses or featured lectures to students. We also have
several rental arrangements which provide residential units to house key
employees. These lease agreements are short-term in nature and will expire
before October 2012.
Rent
expenses for the above rental arrangements total $210,133 for the three months
ended March 31, 2010.
We
expect that general and administrative expenses will increase as we expand our
business and operations. In addition, as a result of the Company’s shares of
common stock being quoted on the Over-the-Counter Bulletin Board, the Company
will need to enhance our management’s skills and levels to adapt to the complex
business environment because we will be subject to the rules and regulations of
United States securities laws and corporate governance and internal controls. We
believe that we will need to hire more personnel as our business continues to
grow, and we believe that we will need to incur additional general and
administrative costs in the near future.
Income
taxes
Our
Company is governed by the Income Tax Law of the People’s Republic of China
concerning the private-run enterprises, which are generally subject to tax at a
new statutory rate of 25% on income reported in the statutory financial
statements after appropriate tax adjustments. For the three months
ended March 31, 2010 and 2009, we incurred income taxes of $296,169 and $-0-,
respectively.
Net
income
As a
result of the above factors, we reported net income of $752,572 for the quarter
ended March 31, 2010. We expect to experience the ongoing positive trend in our
financial performance to continue through fiscal year 2010 and
beyond.
Other
comprehensive income
We
operate primarily in the PRC and the functional currency of our operating
subsidiary is the Chinese Renminbi (”RMB”). The RMB is not freely
convertible into foreign currency and all foreign exchange transactions must
take place through authorized institutions. No representation is made that the
RMB amounts could have been, or could be, converted into USD at the rates used
in translation.
The
financial information is first prepared in RMB and then is translated into U.S.
dollars at period-end exchange rates as to assets and liabilities and average
exchange rates as to revenue and expenses. Capital accounts are translated at
their historical exchange rates when the capital transactions occurred. The
effects of foreign currency translation adjustments are included as a component
of accumulated other comprehensive income in shareholders’ equity.
March
31,
2010
|
December
31,
2009
|
|||||
Period
end RMB: US$ exchange rate
|
6.8259 | 6.8282 | ||||
Average
RMB: US$ exchange rate
|
6.8274 | 6.8341 |
For the
three months ended March 31, 2010, other comprehensive income resulted from the
currency translation gain amounted to $1,441.
LIQUIDITY
AND CAPITAL RESOURCES
To date,
we have financed our operations primarily through cash flows from operations, as
well as borrowings from the members of our management.
Total
current assets decreased to approximately $7,548,950 as of March 31, 2010 from
$8,155,024 as of ended December 31, 2009. The primary changes in our
current assets during this period were from changes in other
receivables. The increase of other receivables from $1,008,565 as of
December 31, 2009 to the amount of $2,748,801 as of March 31, 2010 was due to
the increased short-term advances made to certain employees and internal units
to ensure student-recruiting are performed in a timely manner.
Total
current liabilities as of March 31, 2010 amounted to $3,376,556 as compared to
$4,849,558 at December 31, 2009. The decrease in current liabilities was
primarily due to decrease in our customer deposits. The decrease of customer
deposits by the amount of $787,763 from $3,628,810 at December 31, 2009 to
$2,841,047 at March 31, 2010 was primarily due to certain of our training
services has been provided and completed and these amounts have been transferred
into sales revenue when conditions of revenue recognition have been
met.
Based on
our current operating plan, we believe that existing cash and cash equivalents
balances, as well as cash forecast by management to be generated by operations
will be sufficient to meet our working capital and capital requirements for our
current operations.
DISCUSSION
OF CASH FLOWS
Comparison
of cash flows results for the quarters ended March 31, 2010 and 2009
respectively is summarized as follows:
As
of March 31
|
||||||||
2010
|
2009
|
|||||||
Cash
flow from operating activities
|
$ | (2,586,565 | ) | $ | - | |||
Cash
flow from investing activities
|
$ | (1,567 | ) | $ | - | |||
Cash
flow from financing activities
|
$ | - | $ | - |
30
Operating
Activities
Net cash
used in operating activities during the three months ended March 31, 2010
amounted to $2,586,565, which consists of our net income of $752,572, adds back
noncash adjustments of $114,620 and offset by net changes in operating assets
and liabilities due to our expanded operating activities, including increase in
our other receivables of $1,733,070 which was affected by increased short-term
advances made to certain employees and internal units to ensure
student-recruiting are performed in a timely manner, increase in our advance to
vendors of $254,588 which primarily represents payments made and recorded in
advance for featured lectures that have not been provided to or received by the
Company from invited foreign speakers, as well as a decrease of
advance from customers in the amount of $788,985 which was attributable to
increased sales resulted in recognition of the related amounts as revenues after
meeting all conditions of revenue recognition method.
No cash
was provided or used in operating activities in the three months ended March 31,
2009.
Investing
Activities
Net cash
used in investing activities in the three months ended March 31, 2010 amounted
to $1567, representing the addition of property and equipment in the same amount
into the Company’s fixed assets.
Financing
Activities
No cash
was provided by or used in financing activities for the three months ended March
31, 2010 and 2009.
Off-Balance
Sheet Arrangements
As of the
date of this report, we do not have any off-balance sheet arrangements that have
or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that are
material to investors. The term “off-balance sheet arrangement” generally means
any transaction, agreement or other contractual arrangement to which an entity
unconsolidated with us is a party, under which we have: (i) any obligation
arising under a guarantee contract, derivative instrument or variable interest;
or (ii) a retained or contingent interest in assets transferred to such entity
or similar arrangement that serves as credit, liquidity or market risk support
for such assets.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Basis
of presentation and consolidation
The
consolidated financial statements of our Company reflect the principal
activities of the following subsidiaries. All material intercompany transactions
have been eliminated.
Name of the entity | Place of Incorporation | Ownership Percentage | |||
Summouting Limited Marketing Advisor Limited ("SLM") | Hong Kong, China | 100% | |||
Hangzhou MYL Business Administration Co., Ltd ("MYL Business") | Hangzhou, China | 100% | |||
Shanghai MYL Consulting Co., Ltd. ("MYL Consulting") | Shanghai, China | 100% | |||
Hangzhou MYL Commerical Service., Ltd. ("MYL Commerical") | Hangzhou, China | VIE | |||
The
accompanying consolidated financial statements have been prepared in accordance
with the accounting principles generally accepted in the United States of
America and include the accounts of all directly and indirectly owned
subsidiaries listed above.
31
Reclassification
Certain
prior period amounts have been reclassified to conform to the current period
presentation. These reclassifications have no effect on net income or cash
flows.
Non-controlling
interest
Non-controlling
interest represents two minority shareholders’ 5% proportionate share of the
results of the Company’s subsidiary Hangzhou MYL Commercial Services Co., Ltd.,
based on the contractual arrangements between the Company, MYL Commercial and
its shareholders.
Revenue
recognition
The
Company recognizes revenue in accordance with ASC 605. ASC 605 states that
revenue should not be recognized until it is realized or realizable and earned.
In general, the Company records revenue when persuasive evidence of an
arrangement exists, services have been rendered or product delivery has
occurred, the sales price to the customer is fixed or determinable, and
collectability is reasonably assured.
RECENT
ACCOUNTING PRONOUNCEMENTS
See “Note 2. Summary of Significant
Accounting Policies” in “Item 1. Financial Statements”
herein for a discussion of the new accounting pronouncements adopted in
this Quarterly Report on Form 10-Q.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
As a
“smaller reporting company” as defined by Item 10 of Regulation S-K, the Company
is not required to provide this information.
ITEM
4. CONTROLS AND PROCEDURES.
Evaluation
of Disclosure Controls and Procedures
Under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we conducted an evaluation of the
effectiveness of the design and operation of our disclosure controls and
procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended, as of the end of the period covered by this
Quarterly Report on Form 10- Q (the “Evaluation Date”). The evaluation of our
disclosure controls and procedures included a review of our processes and the
effect on the information generated for use in this Quarterly Report on Form
10-Q. In the course of this evaluation, we sought to identify any material
weaknesses in our disclosure controls and procedures and to confirm that any
necessary corrective action, including process improvements, was taken. The
purpose of this evaluation is to determine if, as of the Evaluation Date, our
disclosure controls and procedures were operating effectively such that the
information, required to be disclosed in our Securities and Exchange Commission
(“SEC”) reports (i) was recorded, processed, summarized and reported within the
time periods specified in SEC rules and forms, and (ii) was accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required
disclosure.
As of
March 31, 2010, the Company’s Chief Executive Officer and its Chief Financial
Officer have concluded that, as of that date, the Company’s controls and
procedures were not effective due to some significant deficiencies (as defined
in Public Company Accounting Oversight Board Standard No. 2) in the Company’s
internal controls over financial reporting. This is due to the fact that the
Company lacks sufficient personnel with the appropriate level of knowledge,
experience and training in the application of US generally accepted accounting
principals (“GAAP”) standards, especially related to complicated accounting
issues. This could cause the Company to be unable to fully identify and resolve
certain accounting and disclosure issues that could lead to a failure to
maintain effective controls over preparation, review and approval of certain
significant account reconciliation from Chinese GAAP to US GAAP and necessary
journal entries.
The
Company has relatively small number of professionals employed by the Company in
bookkeeping and accounting functions, which prevents the Company from
appropriately segregating duties within its internal control systems. The
inadequate segregation of duties is a weakness because it could lead to the
untimely identification and resolution of accounting and disclosure matters or
could lead to a failure to perform timely and effective reviews.
Based on
the control deficiency identified above, we have designed and plan to implement,
or in some cases have already implemented, the specific remediation initiatives
described below:
32
● We are
evaluating the roles of our existing accounting personnel in an effort to
realign the reporting structure of our internal auditing staff in China that
will test and monitor the implementation of our accounting and internal control
procedures.
● We are
in the process of completing a review and revision of the documentation of the
Company’s internal control procedures and policies.
● We will
begin implementation an initiative and training in China to ensure the
importance of internal controls and compliance with established policies and
procedures are fully understood throughout the organization and will provide
additional U.S. GAAP training to all employees involved with the performance of
or compliance with those procedures and policies.
● We will
implement a formal financial reporting process that includes review by our Chief
Executive Officer and the full Board of Directors of financial statements prior
to filing with the SEC.
● We will
increase our accounting and financing personnel resources, by retaining more
U.S. GAAP knowledgeable financial professionals.
The
remedial measures being undertaken may not be fully effectuated or may be
insufficient to address the significant deficiencies we identified, and there
can be no assurance that significant deficiencies or material weaknesses in our
internal control over financial reporting will not be identified or occur in the
future. If additional significant deficiencies (or if material weaknesses) in
our internal controls are discovered or occur in the future, among other similar
or related effects: (i) the Company may fail to meet future reporting
obligations on a timely basis, (ii) the Company’s consolidated financial
statements may contain material misstatements, (iii) the Company’s business and
operating results may be harmed.
Based on
this evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that, as of the Evaluation Date, our disclosure controls and
procedures were not operating effectively.
Changes
in Internal Control over Financial Reporting
There
were no changes in our internal control over financial reporting for the three
months ended March 31, 2010 that materially affected, or are reasonably likely
to materially affect, our internal control over financial
reporting.
PART
II - OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS.
None for the period covvered by this
report.
ITEM
1A. RISK FACTORS.
Not
applicable.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS.
On March
29, 2010, the Company issued 50,000 restricted shares of its common stock to
RedChip Companies Inc. for the investor relations service provided pursuant to a
joint marketing agreement dated as of March 1, 2010.
ITEM
3. DEFAULTS UPON SENIOR SECURITIES.
There
were no defaults upon senior securities during the three-month period ended on
March 31, 2010.
ITEM
5. OTHER INFORMATION.
Not
applicable.
33
ITEM
6. EXHIBITS
(a)
Exhibits
Exhibit
Number
|
Description
|
|
31.1
|
Certification
of CEO
|
|
31.2
|
Certification
of CEO
|
|
32.1
|
Certification
of the CEO pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, as filed
herewith.
|
|
32.2
|
Certification
of the CFO pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, as filed
herewith.
|
34
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 hereunto
duly authorized.
CHINA EXECUTIVE EDUCATION
CORP.
|
|
Date:
May 17, 2010
|
By:
/s/ Kaien Liang
|
Kaien
Liang
|
|
Chief
Executive Officer and Chairman
|
|
Date:
May 17, 2010
|
By:
/s/ Zhiwei
Huang
|
Zhiwei
Huang
|
|
Chief
Financial Officer
|
|
35