Attached files
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EX-31.1 - CHINA IVY SCHOOL, INC. | e608751_ex31-1.htm |
EX-31.2 - CHINA IVY SCHOOL, INC. | e608751_ex31-2.htm |
EX-32.1 - CHINA IVY SCHOOL, INC. | e608751_ex32-1.htm |
EX-32.2 - CHINA IVY SCHOOL, INC. | e608751_ex32-2.htm |
EXCEL - IDEA: XBRL DOCUMENT - CHINA IVY SCHOOL, INC. | Financial_Report.xls |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 2011
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: 000-50240
CHINA IVY SCHOOL, INC.
(Exact name of small business as specified in its charter)
Nevada
(State or other jurisdiction
of incorporation or organization)
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98-0534456
(IRS Employer Identification Number)
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1 Suhua Road, Shiji Jinrong Building, Suite 801,
Suzhou Industrial Park, Jiangsu Province, China, 215020
(Address of principal executive offices)
(852) 2511-1665
(Issuer's telephone number, including area code)
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 x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Non-accelerated filer o
(Do not check if a smaller reporting company)
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Accelerated filer o
Smaller reporting company x
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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 August 1, 2011, the Registrant had outstanding 22,582,500 shares of common stock.
The Company desires to take advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. This report contains a number of forward-looking statements that reflect management's current views and expectations with respect to our business, strategies, future results and events and financial performance. All statements made in this Report other than statements of historical fact, including statements that address operating performance, events or developments that management expects or anticipates will or may occur in the future, including statements related to growth, revenues, profitability, adequacy of funds from operations, statements expressing general optimism about future operating results and non-historical information, are forward looking statements. In particular, the words "believe," "expect," "intend," " anticipate," "estimate," "may," "will," variations of such words, and similar expressions identify forward-looking statements, but are not the exclusive means of identifying such statements and their absence does not mean that a statement is not forward-looking. These forward-looking statements are subject to certain risks and uncertainties, including those discussed in our Reports previously filed with the Securities and Exchange Commission. Our actual results, performance or achievements could differ materially from historical results as well as those expressed in, anticipated or implied by forward-looking statements. Except as required under the federal securities laws, we do not undertake any obligation to revise these forward-looking statements to reflect any future events or circumstances. Readers should not place undue reliance on forward-looking statements, which are based on management's current expectations and projections about future events, are not guarantees of future performance, are subject to risks, uncertainties and assumptions (including those described below) and apply only as of the date of this report.
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
CHINA IVY SCHOOL, INC. AND SUBSIDIARIES
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Page
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Condensed Consolidated Balance Sheets as of June 30, 2011 (Unaudited) and December 31, 2010
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F-1
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Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income for the Three and Six Months Ended June 30, 2011 and 2010 (Unaudited)
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F-2
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Condensed Consolidated Statements of Stockholders’ (Deficiency) Equity for the Six Months Ended June 30, 2011 (Unaudited) and the Year Ended December 31, 2010
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F-3
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Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2011 and 2010 (Unaudited)
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F-4
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Notes to Condensed Consolidated Financial Statements (Unaudited)
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F-5
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CHINA IVY SCHOOL, INC. AND SUBSIDIARIES
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(FORMERLY CLAREMONT TECHNOLOGIES CORP.)
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CONDENSED CONSOLIDATED BALANCE SHEETS
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June 30,
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December 31,
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|||||||
2011
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2010
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|||||||
(Unaudited)
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||||||||
ASSETS
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Current Assets
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||||||||
Cash and cash equivalents
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$ | 925,118 | $ | 217,424 | ||||
Bank notes receivable
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23,208 | - | ||||||
Advance made to vendor
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62,708 | - | ||||||
Receivable from related party
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1,440,423 | 2,643,248 | ||||||
Receivable from sale and leaseback of real property - related party
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1,221,537 | 1,196,272 | ||||||
Total Current Assets
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3,672,994 | 4,056,944 | ||||||
Property and equipment, net
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10,441,790 | 10,881,542 | ||||||
Receivable from sale and leaseback of real property - related party
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2,085,955 | 2,640,949 | ||||||
Total Assets
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$ | 16,200,739 | $ | 17,579,435 | ||||
LIABILITIES AND STOCKHOLDERS' (DEFICIENCY) EQUITY
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||||||||
Current Liabilities
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||||||||
Bank and other borrowings
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$ | 14,002,160 | $ | 12,576,160 | ||||
Accounts payable
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338,859 | 1,273,024 | ||||||
Accrued expenses
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151,047 | 911,591 | ||||||
Payables to related parties
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591,868 | 617,810 | ||||||
Deferred revenue
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1,436,142 | 933,662 | ||||||
Total Current Liabilities
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16,520,076 | 16,312,247 | ||||||
Total Liabilities
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16,520,076 | 16,312,247 | ||||||
Stockholders' (Deficiency) Equity
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||||||||
Preferred stock, $0.001 par value; 50,000,000 shares authorized, none issued and outstanding as of June 30, 2011 and December 31, 2010
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- | - | ||||||
Common stock, $0.001 par value; 100,000,000 shares authorized, 22,582,500 and 22,582,500 shares issued and outstanding as of June 30, 2011 and December 31, 2010, respectively
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22,583 | 22,583 | ||||||
Additional paid in capital
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5,906,363 | 5,906,363 | ||||||
Statutory reserves
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480,813 | 480,813 | ||||||
Accumulated deficit
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(7,542,651 | ) | (5,949,928 | ) | ||||
Accumulated other comprehensive income
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813,555 | 807,357 | ||||||
Total Stockholders' (Deficiency) Equity
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(319,337 | ) | 1,267,188 | |||||
Total Liabilities and Stockholders' (Deficiency) Equity
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$ | 16,200,739 | $ | 17,579,435 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-1
CHINA IVY SCHOOL, INC. AND SUBSIDIARIES
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(FORMERLY CLAREMONT TECHNOLOGIES CORP.)
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
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FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010 (UNAUDITED)
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Three Months Ended
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Six Months Ended
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June 30,
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June 30,
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|||||||||||||||
2011
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2010
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2011
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2010
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Net revenue
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Tuition
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$ | 1,174,299 | $ | 1,307,322 | $ | 2,459,584 | $ | 2,737,162 | ||||||||
Accommodation fees
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106,846 | 134,121 | 213,640 | 254,957 | ||||||||||||
Kindergarten income
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49,363 | 83,505 | 97,995 | 134,194 | ||||||||||||
Auxiliary activities (cafeteria, books, tutoring, dormitories, transportation)
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221,095 | 57,709 | 469,284 | 112,119 | ||||||||||||
Total operating revenue
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1,551,603 | 1,582,657 | 3,240,503 | 3,238,432 | ||||||||||||
Operating expenses
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Teachers salaries and related expenses
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502,736 | 452,556 | 1,315,364 | 1,134,800 | ||||||||||||
Auxiliary activities (cafeteria, books, tutoring, dormitories, transportation)
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227,454 | 148,091 | 555,274 | 512,541 | ||||||||||||
Professional and consulting fees
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16,500 | 31,300 | 31,500 | 61,300 | ||||||||||||
Rent and related expenses
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492,000 | 468,708 | 978,304 | 937,416 | ||||||||||||
Depreciation and amortization
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335,930 | 227,662 | 667,920 | 455,435 | ||||||||||||
Other general and administrative expenses
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544,381 | 141,477 | 1,021,608 | 323,698 | ||||||||||||
Total operating expenses
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2,119,001 | 1,469,794 | 4,569,970 | 3,425,190 | ||||||||||||
(Loss) income from operations
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(567,398 | ) | 112,863 | (1,329,467 | ) | (186,758 | ) | |||||||||
Other income (expense)
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Interest income
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881 | 194 | 1,118 | 340 | ||||||||||||
Interest expense
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(230,037 | ) | (157,085 | ) | (519,179 | ) | (329,796 | ) | ||||||||
Loss on disposal of property and equipment
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- | - | - | (2,703 | ) | |||||||||||
Accretion of discount on receivable from related party relating to sale of real property
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128,144 | 122,078 | 254,805 | 244,156 | ||||||||||||
Total Other Income (Expense)
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(101,012 | ) | (34,813 | ) | (263,256 | ) | (88,003 | ) | ||||||||
(Loss) Income Before Income Tax
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(668,410 | ) | 78,050 | (1,592,723 | ) | (274,761 | ) | |||||||||
Provision for income tax
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- | - | - | - | ||||||||||||
Net (Loss) Income
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(668,410 | ) | 78,050 | (1,592,723 | ) | (274,761 | ) | |||||||||
Other comprehensive item
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||||||||||||||||
Foreign currency translation adjustment
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511 | 12,492 | 6,286 | 12,438 | ||||||||||||
Comprehensive income (loss)
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$ | (667,899 | ) | $ | 90,542 | $ | (1,586,437 | ) | $ | (262,323 | ) | |||||
Basic net loss per share:
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$ | (0.03 | ) | $ | 0.00 | $ | (0.07 | ) | $ | (0.01 | ) | |||||
Diluted net loss per share:
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$ | (0.03 | ) | $ | 0.00 | $ | (0.07 | ) | $ | (0.01 | ) | |||||
Weighted average number of basic shares outstanding
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22,582,500 | 22,582,500 | 22,582,500 | 18,919,517 | ||||||||||||
Weighted average number of diluted shares outstanding
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22,582,500 | 22,582,500 | 22,582,500 | 18,919,517 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
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F-2
CHINA IVY SCHOOL, INC. AND SUBSIDIARIES
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(FORMERLY CLAREMONT TECHNOLOGIES CORP.)
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CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIENCY) EQUITY
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FOR THE SIX MONTHS ENDED JUNE 30, 2011 (UNAUDITED) AND THE YEAR ENDED DECEMBER 31, 2010
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Accumulated Other | Total | |||||||||||||||||||||||||||
Common Stock
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Additional
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Comprehensive
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Statutory
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Accumulated
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Stockholders'
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|||||||||||||||||||||||
Number of Shares
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Amount
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Paid in Capital
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Income (Loss)
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Reserves
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Deficit
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(Deficiency) Equity
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Balance - December 31, 2009
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3,082,500 | $ | 3,083 | $ | 4,302,907 | $ | 749,808 | $ | 480,813 | $ | (5,115,622 | ) | $ | 420,989 | ||||||||||||||
Conversion of convertible notes
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19,500,000 | 19,500 | 1,540,500 | - | - | - | 1,560,000 | |||||||||||||||||||||
Satisfaction of accrued interest on conversion of convertible notes
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- | - | 62,956 | - | - | - | 62,956 | |||||||||||||||||||||
Foreign currency translation adjustment
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- | - | - | 57,549 | - | - | 57,549 | |||||||||||||||||||||
Net loss for the year ended December 31, 2010
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- | - | - | - | - | (834,306 | ) | (834,306 | ) | |||||||||||||||||||
Balance - December 31, 2010
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22,582,500 | 22,583 | 5,906,363 | 807,357 | 480,813 | (5,949,928 | ) | 1,267,188 | ||||||||||||||||||||
Foreign currency translation adjustment
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- | - | - | 6,198 | - | - | 6,198 | |||||||||||||||||||||
Net loss for the three months ended June 30, 2011
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- | - | - | - | - | (1,592,723 | ) | (1,592,723 | ) | |||||||||||||||||||
Balance - June 30, 2011 (Unaudited)
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22,582,500 | $ | 22,583 | $ | 5,906,363 | $ | 813,555 | $ | 480,813 | $ | (7,542,651 | ) | $ | (319,337 | ) | |||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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F-3
CHINA IVY SCHOOL, INC. AND SUBSIDIARIES
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(FORMERLY CLAREMONT TECHNOLOGIES CORP.)
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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FOR THE SIX MONTHS ENDED JUNE 30, 2011 AND 2010 (UNAUDITED)
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2011
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2010
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CASH FLOWS FROM OPERATING ACTIVITIES
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Net Loss
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$ | (1,592,723 | ) | $ | (274,761 | ) | ||
Adjustments to reconcile net loss to net cash (used in)
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provided by operating activities:
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Depreciation
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667,920 | 455,435 | ||||||
Imputed rent and related expense
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858,349 | 822,475 | ||||||
Imputed interest on convertible notes
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- | 16,156 | ||||||
Accretion of discount on receivable from related party
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(254,805 | ) | (244,155 | ) | ||||
Loss from disposal of property and equipment
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- | 2,703 | ||||||
Changes in operating assets and liabilities
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Increase in bank notes receivable
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(23,208 | ) | - | |||||
(Increase)/decrease in advances made to vendors
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(62,708 | ) | 94,499 | |||||
Decrease in accounts payable
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(934,165 | ) | (177,032 | ) | ||||
Decrease in accrued expenses
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(760,544 | ) | (864,474 | ) | ||||
Increase in deferred revenue
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502,480 | 657,225 | ||||||
Net cash (used in) provided by operating activities
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(1,599,404 | ) | 488,071 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES
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Advances to contractors under Company major campus renovation plan
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- | (2,967,700 | ) | |||||
Acquisition of property and equipment
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(6,270 | ) | (16,247 | ) | ||||
Advance to "key" and other employee
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(809,363 | ) | (735,430 | ) | ||||
Repayment of advance to "key" and other employee
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809,363 | 734,397 | ||||||
Collection of prior year's advances made to related party
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2,643,248 | 2,790,207 | ||||||
New advances made to related party
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(1,440,423 | ) | (425,446 | ) | ||||
Repayment and proceeds from related party
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- | 443,284 | ||||||
Net cash provided by (used in) investing activities
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1,196,555 | (176,935 | ) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES
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Proceeds from bank and other borrowings
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9,670,000 | - | ||||||
Repayment of bank and other borrowings
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(8,509,600 | ) | (147,500 | ) | ||||
Repayment of payable to related parties
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(25,942 | ) | - | |||||
Net cash provided by (used in) financing activities
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1,134,458 | (147,500 | ) | |||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
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(23,915 | ) | 4,392 | |||||
NET INCREASE IN CASH AND CASH EQUIVALENTS
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707,694 | 168,028 | ||||||
CASH AND CASH EQUIVALENTS, BEGINNING BALANCE
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217,424 | 46,187 | ||||||
CASH AND CASH EQUIVALENTS, ENDING BALANCE
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$ | 925,118 | $ | 214,215 | ||||
Supplemental Disclosures of Cash Flow Information:
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||||||||
Income tax payments
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$ | - | $ | - | ||||
Interest payments
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$ | 523,475 | $ | 329,796 | ||||
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
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||||||||
Conversion of 6% convertible notes
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$ | - | $ | 1,560,000 | ||||
Satisfaction of accrued interest on conversion of convertible notes
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$ | - | $ | 62,956 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
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F-4
CHINA IVY SCHOOL, INC. AND SUBSIDIARIES
(FORMERLY CLAREMONT TECHNOLOGIES CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Organization
China Ivy School, Inc. (formerly Claremont Technologies Corp.) (“China Ivy") was incorporated on September 14, 1999 under the laws of the State of Nevada. China Ivy acquired a wholly owned subsidiary Safe Cell Tab Inc. ("Safe Cell") on August 22, 2003. Safe Cell was incorporated on May 9, 1996 under the laws of the Province of British Columbia, Canada and engaged in distributing Wi-Fi License and Mobius disposable cell phones. On July 31, 2008, the Company spun off Safe Cell to its stockholders.
On October 12, 2006, China Ivy and the shareholders of Brighter International Limited (“Brighter International”) entered into a Share Exchange Agreement in which China Ivy acquired 100% of Brighter International's outstanding common stock. Under the Share Exchange Agreement, the shareholders of Brighter International received 2,762,500 newly issued common shares of the company. This acquisition was accounted for as a reverse acquisition since after the acquisition, the former shareholders of Brighter International held a majority of the outstanding shares of China Ivy. The financial statements of the legal acquirer were not significant.
Brighter International Limited is an education investment enterprise and was incorporated in accordance with the General Corporation Act of the State of Nevada on June 1, 2006. On June 15, 2006, Brighter International entered into an agreement with Blue Tassel School, and pursuant to the agreement, all the shareholders of Blue Tassel School transferred all their ownership interests in Blue Tassel School to Brighter International. Prior to the acquisition, Brighter International and Blue Tassel School had common shareholders owning the same percentage of ownership in both companies. Therefore, the entities were under common control before the acquisition. This acquisition was accounted for at historical cost in a manner similar to the pooling of interests method. After the acquisition, Brighter International owned 100% of the outstanding shares of Blue Tassel School.
Blue Tassel School was established on July 10, 2001 under the laws of the People’s Republic of China (“PRC”). Blue Tassel School is an education center located in Suzhou city, accredited by the Jiangsu Province Educational Committee as a boarding school comprising grades from kindergarten through senior school, including an international school. The five schools that comprise Blue Tassel School are kindergarten, primary school, junior high school, senior high school, and international school.
Effective January 14, 2009, the Company effectuated a 1 for 20 reverse stock split (thereby reducing the issued and outstanding shares from 61,650,001 shares to 3,082,500 shares). The financial statements have been retroactively adjusted to reflect this stock split.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. The Company's reporting currency is the United States dollar.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of China Ivy and its subsidiaries Brighter International Limited, and Blue Tassel School (collectively, the “Company”). All significant intercompany balances and transactions have been eliminated in consolidation.
F-5
Going Concern
The financial statements have been prepared on a “going concern” basis, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, as of June 30, 2011 and December 31, 2010, the Company had a working capital deficit of $12,847,082 and $12,255,303, respectively. The Company also had an accumulated deficit of $7,542,651 as of June 30, 2011. These factors raise substantial doubt as to the Company’s ability to continue as a going concern. The Company plans to improve its financial condition through a debt or equity offering of its securities and /or a business combination with another business entity. However, there is no assurance that the Company will accomplish these objectives. The financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Foreign Currency Transactions and Comprehensive Income (Loss)
The functional currency of China Ivy is the United States dollar. The functional currency of Blue Tassel School is the Chinese Renminbi (“RMB”). The reporting currency of the Company is the United States dollar.
The assets and liabilities of Blue Tassel School are translated into United States dollars at period-end exchange rates. The revenues and expenses are translated into United States dollars at average exchange rates for the periods. Resulting translation adjustments are recorded as a component of accumulated other comprehensive income within stockholders’ equity.
Transaction gains or losses arising from exchange rate fluctuations on balances and transactions denominated in a currency other than the functional currency are included in the consolidated results of operations. There is no material foreign currency transaction gain or loss for the six months ended June 30, 2011 and 2010.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States ("GAAP") requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates, and such differences may be material to the financial statements.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
Revenue Recognition
The revenues of the Company are tuition fees, accommodation fees and others. Tuition fees and accommodation fees are collected in advance on or before the new semester. Tuition fees are recognized as revenue proportionately as the instructions are delivered, and are reported net of scholarships and tuition refunds. Accommodation fees are recognized as revenue in proportion to semester progress through the end of the reporting period. Tuition and accommodation fees paid in advance are recorded as deferred revenue.
Stock-Based Compensation
Stock-based compensation is accounted for at fair value in accordance with Accounting Standards Codification (“ASC”) topic 718-10, Stock Compensation. As of June 30, 2011 and December 31, 2010, no stock options or warrants have been granted and none are outstanding.
F-6
Advertising
Advertising costs are expensed as incurred. Advertising costs were not material for the six months ended June 30, 2011 and 2010.
Research and Development
In accordance with ASC 730-10, Research and Development, the Company expenses all research and development costs as incurred. There were no research and development costs incurred for the six months ended June 30, 2011 and 2010.
Segment Information
ASC 280-10 requires entity-wide disclosures about the products and services an entity provides, the material countries in which it holds assets and reports revenues, and its major customers. The Company operates as a single segment and will evaluate additional segment disclosure requirements as it expands its operations.
Income Taxes
The Company accounts for income taxes using the asset and liability method described in ASC 740-10, the objective of which is to establish deferred tax assets and liabilities for the temporary differences between the financial reporting and the tax bases of the Company’s assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. A valuation allowance related to deferred tax assets is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Blue Tassel School is governed by the Income Tax Laws of the PRC. Pursuant to the PRC relevant laws and regulations and tax law, Blue Tassel School is exempt from income tax.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, cash in demand deposit bank accounts, and all highly liquid debt instruments with original maturities of three months or less.
Property and Equipment
Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method for substantially all assets with estimated lives of:
Buildings
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20 years
|
|
Infrastructure and leasehold improvements
|
10 years
|
|
Equipment
|
10 years
|
|
Automobiles
|
10 years
|
|
Furniture and fixtures
|
5 years
|
|
Computer hardware and software
|
5 years
|
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, bank notes receivable, advances made to vendor, receivable from related party, receivable from sale and leaseback of real property - related party, bank and loan company borrowings, accounts payable and accrued expenses, and payables to related parties. The fair value of these financial instruments approximate their carrying amounts reported in the consolidated balance sheets due to the short term maturity of these instruments or based upon market quotations of instruments with similar interest rates and maturities.
F-7
Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. When these events occur, the Company measures impairment by comparing the carrying value of the long-lived assets to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flows is less than the carrying amount of the assets, the Company would recognize an impairment loss based on the fair value of the assets. Based on its review, the Company believes that, as of June 30, 2011 and December 31, 2010, there were no significant impairments of its long-lived assets.
Net Loss Per Common Share
The Company has adopted ASC 260-10, which requires presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation.
Basic net income (loss) per share was computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period.
Diluted net income (loss) per share was computed similarly to basic net income (loss) per share except that it includes the potential dilution that could occur if dilutive securities were converted. Dilutive securities having an anti-dilutive effect on diluted net loss per common share (such as the convertible notes payable (see Note 9) from July 1, 2009 to February 4, 2010) were excluded from the calculation.
NOTE 3 - INTERIM FINANCIAL STATEMENTS
The unaudited condensed consolidated financial statements as of June 30, 2011 and for the three and six months ended June 30, 2011 and 2010 were prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with instructions to Form 10-Q. In the opinion of management, the unaudited condensed consolidated financial statements prepared on the same basis as the annual consolidated financial statements and reflect all adjustments, which included only normal recurring adjustments, necessary to present fairly the financial position as of June 30, 2011 and the results of operations and cash flows for the three and six months ended June 30, 2011 and 2010. The financial data and other information disclosed in these notes to the interim financial statements related to these periods were unaudited. The results for the three and six month periods ended June 30, 2011 were not necessarily indicative of the results to be expected for any subsequent quarter of the entire year ending December 31, 2011. The balance sheet at December 31, 2010 was derived from the audited consolidated financial statements at that date.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States were condensed or omitted pursuant to the Securities and Exchange Commission’s rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended December 31, 2010 included in our Form 10-K filed March 31, 2011.
NOTE 4 – BANK NOTES RECEIVABLE
Bank notes receivable are highly liquid negotiable instruments issued by banks in the PRC on behalf of the Company’s customers. These notes typically have maturities between one to six months. With these bank notes, the Company can: (a) redeem the notes for face value at maturity, (b) endorse the notes to the Company’s vendors as a form of payment instrument at full value, or (c) factor the notes to a bank. In the event that the Company factors these notes to a bank, it will record as interest expense the difference between cash received and the face value of the note. The Company believes all of the notes are fully realizable and has not recorded any reserves as of June 30, 2011.
F-8
NOTE 5 - RECEIVABLE FROM RELATED PARTY
Minglong Industry Co. Ltd. (“Minglong”) is one of the Company’s significant shareholders and is controlled by the chief executive officer of the Company. Receivable from related party, representing the net amount advanced to Minglong (see Note 15), was $1,440,423 and $2,643,248 as of June 30, 2011 and December 31, 2010, respectively. The receivable due from Minglong is interest free and due on demand.
NOTE 6 - RECEIVABLE FROM SALE AND LEASEBACK OF REAL PROPERTY - RELATED PARTY
On March 12, 2008, Blue Tassel School sold the land use right of 91,993.32 square meters and twenty buildings of 50,113.81 square meters to its former shareholder Minglong with the sales price of $5,563,692 and $10,405,554 respectively, totaling $15,969,247 (RMB 111,829,458). Blue Tassel School leased back the land use right and the buildings from Minglong from the date of sale.
The lease payments equaled the total sales price of $15,969,247 (RMB 111,829,458). The leases were $3.40 (RMB 24) per square meter annually, totaling $315,280 (RMB 2,207,840) per year for using the land and $35.60 (RMB 180) per square meter annually, totaling $1,288,125 (RMB 9,020,486) per year for leasing the buildings. The total annual lease was $1,603,405 (RMB 11,228,326) until a total of $15,969,247 (RMB 111,829,458) has been offset against the amount receivable from related party over the 10 year term of the lease.
The total receivable from related party on the date of sale and lease back was $11,228,703. This amount represented the present value of the future cash inflows (our lease payments) at the date of the transactions. Assumptions used for the present value calculation were: (1) annual rent payments of $1,603,405; (2) term of ten years; (3) interest rate of 7% per annum.
The purpose of the sale and leaseback of the land use right and buildings was to comply with a new regulation from the government of Suzhou City, Jiangsu Province, China. According to the new regulation, "Public institutions like schools, kindergartens, hospitals etc., educational facilities and health facilities of social organizations and other lands for the use of other social welfare cannot be used as collateral for bank loans". As in 2007 the land use right and buildings were pledged for bank loans, the management of the Company decided to sell the land use right and buildings to Minglong and then lease back for the school use.
The loss on the March 12, 2008 sale of real property was $5,169,294, as follows:
Fair value of consideration received - $15,969,247 noninterest
|
||||
bearing receivable from Minglong due in annual installments
|
||||
of $1,603,405 until repaid (discounted at 7% interest rate)
|
$ | 11,228,703 | ||
Effect of change in exchange rate
|
45,893 | |||
Net carrying value of land use right and buildings
|
||||
(less $113,057 foreign exchange translation adjustment)
|
(16,443,890 | ) | ||
Loss on sale of real property
|
$ | (5,169,294 | ) |
F-9
From March 12, 2008 to June 30, 2011, the receivable from sale and leaseback of real property – related party changed as follows:
Balance due from Minglong at March 12, 2008 in connection with the
|
||||
sale and leaseback of real property, noninterest bearing (discounted)
|
$ | 11,228,703 | ||
Amounts collected - year ended December 31, 2008 (See Note 15)
|
(7,681,172 | ) | ||
Accretion of discount on receivable
|
2,280,191 | |||
Foreign exchange translation adjustment
|
198,524 | |||
Balance at December 31, 2008
|
6,026,246 | |||
Amounts collected - year ended December 31, 2009
|
(1,625,300 | ) | ||
Accretion of discount on receivable
|
482,478 | |||
Foreign exchange translation adjustment
|
(16,695 | ) | ||
Balance at December 31, 2009
|
4,866,729 | |||
Amounts collected - year ended December 31, 2010
|
(1,658,873 | ) | ||
Accretion of discount on receivable
|
492,444 | |||
Foreign exchange translation adjustment
|
136,921 | |||
Balance at December 31, 2010
|
3,837,221 | |||
Amounts collected - six months ended June 30, 2011
|
(858,349 | ) | ||
Accretion of discount on receivable
|
254,805 | |||
Foreign exchange translation adjustment
|
73,815 | |||
Balance at June 30, 2011 (Unaudited)
|
3,307,492 | |||
Less: current portion
|
1,221,537 | |||
Receivable from sale and leaseback of real property - related party
|
$ | 2,085,955 |
NOTE 7 – PROPERTY AND EQUIPMENT
As of June 30, 2011 and December 31, 2010, property plant and equipment consisted of the following:
2011
|
2010
|
|||||||
(Unaudited)
|
||||||||
Infrastructure and leasehold improvements
|
$ | 15,760,928 | $ | 15,434,952 | ||||
Educational equipment
|
533,633 | 516,376 | ||||||
Automobiles
|
47,471 | 46,489 | ||||||
Total property and equipment
|
16,342,032 | 15,997,817 | ||||||
Accumulated depreciation
|
(5,900,242 | ) | (5,116,275 | ) | ||||
Property and equipment, net
|
$ | 10,441,790 | $ | 10,881,542 |
The Company had depreciation expense of $335,930 and $227,662 for the three months ended June 30, 2011 and 2010, respectively, and $667,920 and $455,435 for the six months ended June 30, 2011 and 2010, respectively.
On May 24, 2010, the Company approved a major campus renovation plan with a total budget of RMB 26,000,000. In May 2010, the Company executed three contracts with three vendors for (1) central air conditioning system installation (RMB 12,300,000), (2) installation of 2,925 trees (RMB 7,280,000), and (3) renovation upgrade of school cafeteria (RMB 5,580,000), or for a total of RMB 25,160,000. By September 30, 2010, a total of RMB 20,120,000 had been paid to the three contractors as required advances under the contracts. The first contract provided for the work to be finished in August 2010 and provided for payments to the contractor of 80% in advance (RMB 9,840,000 was paid in June 2010), 10% within one year after project completion (RMB 1,230,000), and 10% within two years of project completion (RMB 1,230,000). The second contract provided for the work to be finished in September 2010 and provided for payments to the contractor of 80% in advance (RMB 5,820,000 was paid in June 2010), 10% within six months after project completion (RMB 728,000), and 10% within one year after project completion (RMB 732,000). The third contract provided for the work to be finished in September 2010 and provided for payments to the contractor of 80% in advance (RMB 4,460,000 was paid in June 2010), 10% within six months after project completion (RMB 558,000), and 10% within one year after project completion (RMB 562,000).
F-10
Due to inclement weather, the campus renovation project was completed in November 2010. The full amount of RMB 25,160,000 ($3,892,755) was recorded as leasehold improvements at December 31, 2010. The remaining balance of RMB 5,040,000 ($779,789) at December 31, 2010 was included in accounts payable at December 31, 2010 and was paid in full in the second quarter of 2011.
NOTE 8 - BANK AND OTHER BORROWINGS
The Company has borrowed a total of $14,002,160 and $12,576,160 from two banks, a loan company, and another entity, all located in China under credit agreements as of June 30, 2011 and December 31, 2010, respectively. Borrowings under credit lines consisted of the following:
2011
|
2010
|
|||||||
Bank and Other Borrowings
|
(Unaudited)
|
|||||||
Borrowings from Huaxia Bank Suzhou Branch
|
||||||||
Interest at 6.10% per annum, due by January 27, 2012
|
$ | 2,320,800 | $ | - | ||||
Interest at 6.10% per annum, due by January 31, 2012
|
2,320,800 | - | ||||||
Interest at 6.10% per annum, due by Februay 1, 2012
|
2,166,080 | - | ||||||
Interest at 5.61% per annum, due by January 28, 2011
|
- | 4,697,120 | ||||||
Interest at 5.61% per annum, due by January 29, 2011
|
- | 1,969,760 | ||||||
Interest at 5.838% per annum, due by November 18, 2011
|
2,320,800 | 2,272,800 | ||||||
Borrowings from Huaxia Bank Subtotal
|
9,128,480 | 8,939,680 | ||||||
Borrowings from Jiangsu Dongwu Rural Commercial Bank
|
||||||||
Interest at 6.903% per annum, due by June 12, 2011
|
- | 303,040 | ||||||
Interest at 6.903% per annum, due by June 12, 2011
|
- | 1,363,680 | ||||||
Borrowings from Dongwu Rural Commercial Bank Subtotal
|
- | 1,666,720 | ||||||
Borrowings from Suzhou Guorunfa Rural Small Loan Co. Ltd
|
||||||||
Interest at 13% per annum, due by November 15, 2011(unsecured)
|
2,011,360 | 1,969,760 | ||||||
Interest at 13% per annum, due by November 15, 2011(unsecured)
|
1,547,200 | - | ||||||
Interest at 15% per annum, due by June 9, 2012(unsecured)
|
154,720 | - | ||||||
Borrowings from Suzhou Guorunfa Rural Small Loan Co. Ltd. Subtotal
|
3,713,280 | 1,969,760 | ||||||
Borrowings from Tongying
|
||||||||
Interest at 15% per annum, due on demand (unsecured) - repaid July 6, 2011
|
1,160,400 | - | ||||||
Total borrowings
|
14,002,160 | 12,576,160 | ||||||
Current portion
|
14,002,160 | 12,576,160 | ||||||
Long term portion
|
$ | - | $ | - |
On June 17, 2008, the Company entered into a credit agreement with Jiangsu Dongwu Rural Commercial Bank. The Company acquired a 2,000,000 RMB (approximately $309,440) credit line from June 17, 2008 to June 17, 2011. This credit line was secured by a 234 square meter residential unit and a 62 square meter land use right owned by Ti Yin and Yan Hong, the third party assigned by the bank.
F-11
On June 17, 2008, the Company entered into a credit agreement with Jiangsu Dongwu Rural Commercial Bank. The Company acquired a 11,000,000 RMB (approximately $1,701,920) credit line from June 17, 2008 to June 17, 2011. This credit line was secured by a 477 square meter residential unit and a 837 square meter land use right owned by the Chief Executive Officer of the Company.
The loans from Huaxia Bank are secured by the land use right of Blue Tassel School and four buildings totaling 20,926.86 square meters of the School.
On October 28, 2010, the Company received a RMB 31,000,000 ($4,796,320) borrowing from Huaxia Bank. The loan bore interest at 5.61% per annum and was due by January 28, 2011. On October 29, 2010, the Company received a RMB 13,000,000 ($2,011,360) borrowing from Huaxia Bank. The loan was a “working capital” loan that bore interest at 5.61% per annum and was due by January 29, 2011. On November 18, 2010, the Company received a RMB 15,000,000 ($2,320,800) borrowing from Huaxia Bank. The loan was a “working capital” loan that bears interest at 5.838% per annum and is due by November 18, 2011.
From November 18 through November 23, 2010, the Company received a total of RMB 13,000,000 ($2,011,360) under a “working capital” line of credit agreement entered into on November 16, 2010 with Guorunfa Rural Small Loan Company (“Guorunfa”). Under the line of credit agreement, the Company may borrow a maximum of RMB 24,700,000 ($3,821,584) between November 16, 2010 and November 15, 2012, for which Minglong (Suzhou) Industry Co., Ltd. has currently pledged real estate located in Suzhou City, Peoples Republic of China. Minglong (Suzhou) is not required to re-provide sufficient collateral each time a fresh borrowing occurs under the line of credit during its 2 year term. The interest rate for each borrowing is fixed at the time the borrowing occurs. The interest rate was set at 1.0833% per month (approximately 13% per annum). On March 18, 2011, the Company borrowed an additional RMB 10,000,000 ($1,547,200). On June 10, 2011, the Company borrowed an additional RMB 1,000,000 ($154,720).Total borrowings from Guorunfa were RMB 24,000,000 ($3,713,280) at June 30, 2011.
On January 27, 2011, the Company repaid a RMB 31,000,000 ($4,697,120) borrowing from Huaxia Bank due January 28, 2011. On January 30, 2011 the Company repaid a RMB 13,000,000 ($1,969,760) borrowing from Huaxia Bank due January 29, 2011.
On January 27, 2011, the Company received a RMB 15,000,000 ($2,320,800) borrowing from Huaxia Bank. The loan is a “working capital” loan which bears interest at 6.10% per annum and is due by January 27, 2012. On January 31, 2011, the Company received a RMB 15,000,000 ($2,320,800) borrowing from Huaxia Bank. The loan is a “working capital” loan which bears interest at 6.10% per annum and is due by January 31, 2012. On February 1, 2011, the Company received a RMB 14,000,000 ($2,166,080) borrowing from Huaxia Bank. The loan is a “working capital” loan which bears interest at 6.10% per annum and is due by February 1, 2012. The loans from Huaxia Bank are secured by the land use right of Blue Tassel School and four buildings totaling 20,926.86 square meters of the School.
NOTE 9 - CONVERTIBLE NOTES PAYABLE
On June 30, 2009, the Company completed the sale of $1,560,000 principal amount of the Company's 6% Convertible Notes, due June 30, 2010 (the "Notes"). The Notes were sold to four related parties ($920,000 to the Company’s chief executive officer, $448,000 to Minglong Asia, and $192,000 to two other Company directors) outside the United States in a private transaction exempted from the registration requirements of the Securities Act of 1933 pursuant to Regulation D. The Notes accrued interest at the rate of 6% per annum and were to mature on June 30, 2010. The four related parties paid an aggregate of $1,560,000 for their Notes.
Holders of the Notes could at any time convert all or any portion of the principal amount of the Notes into shares of the Company's Common Stock at a conversion price, subject to adjustment, initially equal to eight cents ($0.08) per share. No interest was payable on any portion of a Note converted into Common Stock. Had the conversion price decreased or increased, the number of shares of Common Stock issuable upon conversion of the Notes would have been proportionately increased or decreased, as the case may be. In the event of default by the Company in its obligations under the Notes, Holders could have, at their option, declared the principal of the Note and the interest accrued thereon to be immediately due and payable.
F-12
On February 4, 2010, China Ivy issued a total of 19,500,000 shares of its common stock in full satisfaction of the $1,560,000 convertible notes payable due to the four related parties discussed above. Consequently, the Company’s issued and outstanding common stock increased from 3,082,500 shares to 22,582,500 shares. Accrued interest in the amount of $62,956 was treated as additional paid in capital.
NOTE 10 - ACCRUED EXPENSES
The Company's accrued expenses as of June 30, 2011 and December 31, 2010 consisted of the following:
2011
|
2010
|
|||||||
(Unaudited)
|
||||||||
Accrued wages
|
$ | 136,542 | $ | 129,492 | ||||
Accrued consulting fees
|
- | 763,661 | ||||||
Accrued interest expense
|
14,505 | 18,438 | ||||||
Total accounts payable and accrued expenses
|
$ | 151,047 | $ | 911,591 |
On December 31, 2009, the Company authorized consulting fee payments totaling $846,788 to 56 consultants who provided various education consulting services to the Company during 2009. The consulting fees were accrued in December 2009 and were paid in full on February 5, 2010.
On June 15, 2010, the Company authorized to contract with 56 consultants to provide various education consulting services for the Company from July 1, 2010 to December 31, 2010. Accordingly, consulting fees of RMB 5,040,000 ($763,661) were accrued as of December 31, 2010. The consulting fees were paid in full in February 2011.
NOTE 11 - PAYABLES TO RELATED PARTIES
Payables to related parties as of June 30, 2011 and December 31, 2010 consisted of the following:
2011
|
2010
|
|||||||
(Unaudited)
|
||||||||
Payable to Mr. Yongqi Zhu
|
$ | 591,868 | $ | 617,810 | ||||
Total Payable to Related Parties
|
$ | 591,868 | $ | 617,810 |
Payable to Mr. Yongqi Zhu, the Chief Executive Officer of the Company, was $591,868 and $617,810 as of June 30, 2011 and December 31, 2010, respectively. The payable represented the net balance of loans from Mr. Zhu advanced to the Company. The balance due to Mr. Zhu is interest free and due on demand.
NOTE 12 - DEFERRED REVENUE
The Company’s revenue consists of tuition fees, accommodation fees and others. Those fees will usually be collected in advance at the beginning of a semester. Spring semester runs from February to July. Autumn semester runs from August to January. Spring semester tuition is collected starting from December. Autumn semester tuition is collected starting from May. The Company prorates the fees collected to applicable months during the semester, recognizes revenue in the corresponding periods and records unrecognized fees collected as deferred income. As of June 30, 2011 and December 31, 2010, the deferred revenue balance totaled $1,436,142 and $933,662, respectively.
F-13
NOTE 13 - STATUTORY RESERVES
Statutory reserves as of June 30, 2011 and December 31, 2010 consisted of the following:
2011
|
2010
|
|||||||
(Unaudited)
|
||||||||
Statutory surplus reserve
|
$ | 307,853 | $ | 307,853 | ||||
Statutory common welfare fund
|
172,960 | 172,960 | ||||||
Total
|
$ | 480,813 | $ | 480,813 |
As stipulated by the Company Law of the People's Republic of China (PRC), net income after taxation can only be distributed as dividends after appropriation has been made for the following: i. Making up cumulative prior years' losses, if any; ii. Allocations to the "Statutory surplus reserve" of at least 10% of income after tax, as determined under PRC accounting rules and regulations, until the fund amounts to 50% of Blue Tassel School's registered capital; iii. Allocations of 5-10% of income after tax, as determined under PRC accounting rules and regulations, to Blue Tassel School's "Statutory common welfare fund", which is established for the purpose of providing employee facilities and other collective benefits to the School's employees; and iv. Allocations to the discretionary surplus reserve, if approved in the stockholders' general meeting.
As an educational institution, the Blue Tassel School has an option not to make these appropriations. For the three and six months ended June 30, 2011 and 2010, the Company did not make any appropriations to the statutory reserves.
NOTE 14 - ACCUMULATED OTHER COMPREHENSIVE INCOME
Balances of related after-tax components comprising accumulated other comprehensive income (loss), included in stockholders' (deficiency) equity at June 30, 2011 and December 31, 2010, were as follows:
Foreign Currency
|
||||
Translation Adjustments
|
||||
Balance at December 31, 2009
|
$ | 749,808 | ||
Change during the year ended December 31, 2010
|
57,549 | |||
Balance at December 31, 2010
|
807,357 | |||
Change during the six months ended June 30, 2011
|
6,198 | |||
Balance at June 30, 2011 (Unaudited)
|
$ | 813,555 |
NOTE 15 - RELATED PARTY TRANSACTIONS
The Company will sometimes receive funds from and advance funds to Mr. Yongqi Zhu, one of its significant shareholders and the Chief Executive Officer of the Company. As of June 30, 2011 and December 31, 2010, the balance due to Mr. Zhu was $591,868 and $617,810, respectively, which was included in payables to related parties (see Note 11). The balance due to Mr. Zhu is interest free and due on demand.
Minglong was a former shareholder of Blue Tassel School. It is controlled by Mr. Zhu, the chief executive officer of the Company. On March 12, 2008, the Company sold a 91,993 square meters land use right and twenty buildings of 50,114 square meters to Minglong. The Company leased back the land use right and buildings pursuant to a 10 year lease from Minglong at the date of sale (see Note 6).
During 2008, the Company recorded rent expense of $1,296,466 to offset the scheduled amount due from related party in connection with the sale and leaseback of real property. Also, the Company received net cash inflow of $2,518,999 from Minglong. In addition, Company expenses of $2,181,385 and consulting fees of $1,684,322 were paid by Minglong. The Company agreed to apply and treat the above items totaling $7,681,172 as collections of the receivable from related party in connection with the sale and lease back of real property (See Note 6).
F-14
During 2010, Minglong paid expenses of $36,406 on behalf of the Company. As of December 31, 2010, the net amount the Company advanced to Minglong was $2,643,248. During the six months ended June 30, 2011, the Company had an average monthly outstanding from Minglong of $3,916,255 representing variable but continuous advances for which from time to time were temporarily reduced to zero by Company collection from Minglong in a “cleanup” of the then outstanding receivable. For example, receivable from related party, representing the net amount advanced to Minglong was reported as $0 as of March 31, 2011 in the Form 10Q filed for the quarter then ended as a result of the Company receiving payment of RMB 25,300,000 ($3,833,456) from Minglong on March 30, 2011 satisfying an interest free advance receivable of $2,643,248 at December 31, 2010 plus additional advances to that entity during the first quarter of 2011. At June 30, 2011, the Company has a receivable of $1,440,423 for such advances due from Minglong.
On December 31, 2009, the Company entered into a one year lease agreement with Minglong to continue use of current office space located at 1 Suhua Road, Shiji Jinrong Building, Suite 801, Suzhou Industrial Park, Jiangsu Province, P.R. China from January 1 2010 to December 31, 2010. The rent and related maintenance expense is $242,781 (RMB 1,569,163) per annum. (See Note 16). The Company renewed the lease to December 31, 2011 with the same terms.
As discussed in Note 9, in exchange for a $448,000 convertible note payable by the Company to Minglong (Asia), Minglong (Asia) acquired 5,600,000 shares of Company common stock in February 2010, resulting in it being a 26% owner in the Company at December 31, 2010 and June 30, 2011. Mr. Zhu is a 56% owner in the Company at December 31, 2010 and June 30, 2011.
NOTE 16 - COMMITMENTS
Operating Lease Obligations
Blue Tassel School leases a land use right and 20 buildings located in Suzhou City Wuzhong Economy Development District from Minglong, the former shareholder of Blue Tassel School (Note 6). The term of the lease agreement is 10 years starting in March 12, 2008. The lease is considered an operating lease.
On December 31, 2009, the Company entered into a one year lease agreement with Minglong to continue use of current office space located at 1 Suhua Road, Shiji Jinrong Building, Suite 801, Suzhou Industrial Park, Jiangsu Province, P.R. China. The rent and related maintenance expense is RMB 1,569,163 ($242,781) per annum. On December 31, 2010, the Company renewed the lease to December 31, 2011 with the same terms.
Rent expense and related maintenance expenses totaled $492,000 and $468,708 for the three months ended June 30, 2011 and 2010, respectively, and $978,304 and $937,416 for the six months ended June 30, 2011 and 2010, respectively.
Aggregate minimum future lease payments under operating leases as of June 30, 2011 for each of the next five years and thereafter are as follows:
Years ending
June 30,
|
Minimum lease
payments
|
|||
2012
|
$ | 1,858,637 | ||
2013
|
1,737,246 | |||
2014
|
1,737,246 | |||
2015
|
1,737,246 | |||
2016
|
1,737,246 | |||
Thereafter
|
3,040,181 | |||
Total
|
$ | 11,847,802 |
F-15
Consulting Agreements
In 2009, the Company renewed one year service contracts with 56 consultants to provide various education consulting services for the Company. On December 31, 2009, the Company authorized consulting fee payments totaling $846,788 to the 56 consultants who provided various education consulting services to the Company during 2009. The consulting fees were accrued in December 2009 and were paid in full on February 5, 2010.
On June 15, 2010, the Company authorized to contract with 56 consultants to provide various education consulting services for the Company from July 1, 2010 to December 31, 2010. Total consulting fees, which were accrued over the six months ended December 31, 2010 (and paid in full in February 2011), were RMB 5,040,000 ($763,661). For the six months ended June 30, 2011 and 2010, consulting fees were $0 and $0, respectively.
NOTE 17 – RECLASSIFICATION
In prior filings, we reported certain auxiliary activities (cafeteria, books, tutoring, dormitories, and transportation) expenses in “student expenses”, net of auxiliary activities fees collected from students. Due to the growing importance of these auxiliary activities to our operations, we have decided to report auxiliary activities revenues and expenses separately in the statements of operations in this filing and future filings. The reclassifications have no effect on net income or loss.
As Previously
|
Reclassification
|
|||||||||||
Three Months Ended June 30, 2010
|
Reported
|
Adjustment
|
As Reclassified
|
|||||||||
Operating Revenue:
|
||||||||||||
Tuition
|
$ | - | $ | - | $ | 1,307,322 | ||||||
Accommodation fees
|
- | - | 134,121 | |||||||||
Kindergarten income
|
- | - | 83,505 | |||||||||
Auxiliary activities (cafeteria, books, dormitories, transportation)
|
- | 57,709 | 57,709 | |||||||||
Net Revenue (originally reported)/Total operating revenue (reclassified)
|
1,524,948 | 57,709 | 1,582,657 | |||||||||
Operating Expenses:
|
||||||||||||
Teachers salaries and related expenses
|
452,556 | - | 452,556 | |||||||||
Student expenses (originally reported) /
|
||||||||||||
Auxiliary activities (cafeteria, books, dormitories, transportation)
|
90,382 | 57,709 | 148,091 | |||||||||
Professional and consulting fees
|
31,300 | - | 31,300 | |||||||||
Rent and related expenses
|
468,708 | - | 468,708 | |||||||||
Depreciation and amortization
|
227,662 | - | 227,662 | |||||||||
Other general and administrative expenses
|
141,477 | - | 141,477 | |||||||||
Total Operating expenses
|
1,412,085 | 57,709 | 1,469,794 | |||||||||
Loss From Operations
|
112,863 | - | 112,863 | |||||||||
Other expense, net
|
(34,813 | ) | - | (34,813 | ) | |||||||
Loss Before Income Tax
|
78,050 | - | 78,050 | |||||||||
Provision for income tax
|
- | - | - | |||||||||
Net Loss
|
$ | 78,050 | $ | - | $ | 78,050 |
F-16
As Previously
|
Reclassification
|
|||||||||||
Six Months Ended June 30, 2010
|
Reported
|
Adjustment
|
As Reclassified
|
|||||||||
Operating Revenue:
|
||||||||||||
Tuition
|
$ | - | $ | - | $ | 2,737,162 | ||||||
Accommodation fees
|
- | - | 254,957 | |||||||||
Kindergarten income
|
- | - | 134,194 | |||||||||
Auxiliary activities (cafeteria, books, dormitories, transportation)
|
- | 112,119 | 112,119 | |||||||||
Net Revenue (originally reported)/Total operating revenue (reclassified)
|
3,126,313 | 112,119 | 3,238,432 | |||||||||
Operating Expenses:
|
||||||||||||
Teachers salaries and related expenses
|
1,134,800 | - | 1,134,800 | |||||||||
Student expenses (originally reported) /
|
||||||||||||
Auxiliary activities (cafeteria, books, dormitories, transportation)
|
400,422 | 112,119 | 512,541 | |||||||||
Professional and consulting fees
|
61,300 | - | 61,300 | |||||||||
Rent and related expenses
|
937,416 | - | 937,416 | |||||||||
Depreciation and amortization
|
455,435 | - | 455,435 | |||||||||
Other general and administrative expenses
|
323,698 | - | 323,698 | |||||||||
Total Operating expenses
|
3,313,071 | 112,119 | 3,425,190 | |||||||||
Loss From Operations
|
(186,758 | ) | - | (186,758 | ) | |||||||
Other expense, net
|
(88,003 | ) | - | (88,003 | ) | |||||||
Loss Before Income Tax
|
(274,761 | ) | - | (274,761 | ) | |||||||
Provision for income tax
|
- | - | - | |||||||||
Net Loss
|
$ | (274,761 | ) | $ | - | $ | (274,761 | ) |
NOTE 18 – SUBSEQUENT EVENT
On July 6, 2011, the Company repaid the RMB7,500,000 ($1,160,400) borrowing from Tongying .
On July 8, 2011, the Company received payment of RMB 3,000,000 ($464,160) from Minglong Industry Co. towards an interest free advance receivable of $1,440,423 at June 30, 2011 discussed in Notes 3 and 15 above, plus additional advances of RMB 300,000 ($46,416) made by the Company to that entity during the third quarter 2011.
F-17
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our financial statements and notes thereto included in this Form 10-Q filed with the SEC.
Results of Operations
Comparison of Revenue for the Three Months Ended June 30, 2011 and 2010
Three Months Ended June 30,
|
||||||||
2011
|
2010
|
|||||||
Revenue
|
||||||||
Tuition fees
|
$ | 1,174,299 | $ | 1,307,322 | ||||
Accommodation fees
|
106,846 | 134,121 | ||||||
Kindergarten fees
|
49,363 | 83,505 | ||||||
Auxiliary activities (cafeteria, books, tutoring, dormitories, transportation)
|
221,095 | 57,709 | ||||||
Total Revenue
|
$ | 1,551,603 | $ | 1,582,657 |
Net revenue for the three months ended June 30, 2011 totaled $1,551,603, a decrease of $31,054 or 2%, compared to $1,582,657 for the three months ended June 30, 2010. The revenue from tuition fees was $1,174,299 for the three months ended June 30, 2011, a decrease of $133,023, or 10%, compared to $1,307,322 for the three months ended June 30, 2010. The revenue from accommodation fees was $106,846 for the three months ended June 30, 2011, a decrease of $27,275, or 20% compared to $134,121 for the three months ended June 30, 2010. The revenue from kindergarten was $49,363 for the three months ended June 30, 2011, a decrease of $34,142, or 41% compared to $83,505 for the three months ended June 30, 2010. The revenue from auxiliary activities (cafeteria, books, tutoring, dormitories, and transportation) fees was $221,095 for the three months ended June 30, 2011, an increase of $163,386, or 283% compared to $57,709 for the three months ended June 30, 2010. The decrease in tuition fees, accommodation fees and kindergarten fees resulted from reduction of enrollment. Our current enrollment as of June 30, 2011 was 1,342 students, a decrease of 468 students, or 26%, compared to an enrollment of 1,810 students as of June 30, 2010. The decrease in our enrolled student numbers resulted from a new regulation by the local education authority. Under the new regulation, students are now allowed to transfer from private school to public school without limitation, and allowed to enroll across school district borders.
Comparison of Operating Expenses for the Three Months Ended June 30, 2011 and 2010
2011
|
2010
|
|||||||
Operating Expenses
|
||||||||
Teachers salaries and related expenses
|
$ | 502,736 | $ | 452,556 | ||||
Auxiliary activities
|
227,454 | 148,091 | ||||||
Professional and consulting fees
|
16,500 | 31,300 | ||||||
Rental and related expenses
|
492,000 | 468,708 | ||||||
Depreciation and amortization expenses
|
335,930 | 227,662 | ||||||
Other general and administrative expenses
|
544,381 | 141,477 | ||||||
Total Operating Expenses
|
$ | 2,119,001 | $ | 1,469,794 |
Operating expenses for the three months ended June 30, 2011 totaled $2,119,001, representing an increase of $649,207, or 44%, compared to $1,469,794 for the three months ended June 30, 2010. The increase in operating expenses resulted mainly from the increase in teachers’ salaries and related expenses and the increase in other general and administrative expenses which resulted from higher maintenance expenses, recruiting expenses and bank refinancing costs.
Comparison of Other Income and Expenses for the Three Months Ended June 30, 2011 and 2010
Other income and expenses consist of interest income, interest expense, and accretion of discount on receivable from leaseback. Other expense (net) for the three months ended June 30, 2011 was $101,012, an increase of 66,199, or 190%, compared to $34,813 for the three months ended June 30, 2010. The increase in other expense (net) was mainly attributable to the $72,952 increase in interest expense which resulted from higher interest rates and more borrowings in 2011.
Comparison of Revenue for the Six Months Ended June 30, 2011 and 2010
Six Months Ended June 30,
|
||||||||
2011
|
2010
|
|||||||
Revenue
|
||||||||
Tuition fees
|
$ | 2,459,584 | $ | 2,737,162 | ||||
Accommodation fees
|
213,640 | 254,957 | ||||||
Kindergarten fees
|
97,995 | 134,194 | ||||||
Auxiliary activities (cafeteria, books, tutoring, dormitories, transportation)
|
469,284 | 112,119 | ||||||
Total Revenue
|
$ | 3,240,503 | $ | 3,238,432 |
Net revenue for the six months ended June 30, 2011 totaled $3,240,503, an increase of $2,071, compared to $3,238,432 for the six months ended June 30, 2010. The revenue from tuition fees was $2,459,584 for the six months ended June 30, 2011, a decrease of $277,578, or 10%, compared to $2,737,162 for the six months ended June 30, 2010. The revenue from accommodation fees was $213,640 for the six months ended June 30, 2011, a decrease of $41,317, or 16% compared to $254,957 for the six months ended June 30, 2010. The revenue from kindergarten was $97,995 for the six months ended June 30, 2011, a decrease of $36,199, or 27% compared to $134,194 for the six months ended June 30, 2010. The revenue from auxiliary activities (cafeteria, books, tutoring, dormitories, and transportation) fees was $469,284 for the six months ended June 30, 2011, an increase of $357,165, or 319% compared to $112,119 for the six months ended June 30, 2010. The decrease in tuition fees, accommodation fees and kindergarten fees resulted from reduction of enrollment. Our current enrollment as of June 30, 2011 was 1,342 students, a decrease of 468 students, or 26%, compared to an enrollment of 1,810 students as of June 30, 2010. The decrease in our enrolled student numbers resulted from a new regulation by the local education authority. Under the new regulation, students are now allowed to transfer from private school to public school without limitation, and allowed to enroll across school district borders.
Comparison of Operating Expenses for the Six Months Ended June 30, 2011 and 2010
2011
|
2010
|
|||||||
Operating Expenses
|
||||||||
Teachers salaries and related expenses
|
$ | 1,315,364 | $ | 1,134,800 | ||||
Auxiliary activities
|
555,274 | 512,541 | ||||||
Professional and consulting fees
|
31,500 | 61,300 | ||||||
Rental and related expenses
|
978,304 | 937,416 | ||||||
Depreciation and amortization expenses
|
667,920 | 455,435 | ||||||
Other general and administrative expenses
|
1,021,608 | 323,698 | ||||||
Total Operating Expenses
|
$ | 4,569,970 | $ | 3,425,190 |
Operating expenses for the six months ended June 30, 2011 totaled $4,569,970, representing an increase of $1,144,780, or 33%, compared to $3,425,190 for the six months ended June 30, 2010. The increase in operating expenses resulted mainly from the increase in teachers’ salaries and related expenses and the increase in other general and administrative expenses which resulted from higher maintenance expenses, recruiting expenses and bank refinancing costs.
Comparison of Other Income and Expenses for the Six Months Ended June 30, 2011 and 2010
Other income and expenses consist of interest income, interest expense, and accretion of discount on receivable from leaseback. Other expense (net) for the six months ended June 30, 2011 was $263,256, an increase of $175,253, or 199%, compared to $88,003 for the six months ended June 30, 2010. The increase in other expense (net) was mainly attributable to the $189,383 increase in interest expense which resulted from higher interest rates and more borrowings in 2011.
Liquidity and Capital Resources
Cash has historically been generated from operations. Operations and liquidity needs are funded primarily through cash flows from operations and short-term borrowings. Cash and cash equivalents were $925,118 and $217,424 at June 30, 2011 and December 31, 2010, respectively.
Net cash (used in) provided by operating activities were ($1,599,404) and $488,071 for the six months ended June 30, 2011 and 2010, respectively. The decrease in net cash provided by operating activities during the six months ended June 30, 2011 was due primarily to the Company’s increase in net loss (as adjusted for noncash items) of $1,099,112 in 2011 as compared to 2010, and the 653,203 decrease in accounts payable and accrued expense in 2011 as compared to 2010,and the $154,745 decrease in in deferred revenue in 2011 as compared to 2010.
Net cash provided by (used in) investing activities was $1,196,555 and ($176,935) for the six months ended June 30, 2011 and 2010, respectively. During 2010, the Company collected advances of $2,790,207 made in 2009 to an entity owned by the Company’s Chief Executive Officer who is also a significant shareholder in the Company. On March 31, 2010, the Company made a temporary advance of $735,430 to a “key” employee. The advance was repaid in full on April 1, 2010. During the three months ended March 31, 2011, the Company advanced $809,363 to the same “key” employee which was collected in April 2011. During the six months ended June 30, 2011, the Company collected $2,643,248 in repayment of prior year advances made to related party and made new advances of $1,440,423.
Net cash provided by (used in) financing activities was $1,134,458 and ($147,500) for the six months ended June 30, 2011 and 2010, respectively. During the six months ended June 30, 2011, the Company borrowed $9,670,000 from banks and other companies. The Company also repaid $8,509,600 to banks and other companies. Such loan repayment was $147,500 in 2010. The Company also repaid $25,942 to a related party in 2011.
Bank and Loan Company Borrowings
The Company has borrowed a total of $14,002,160 and $12,576,160 from two banks, a loan company, and another entity, all located in China under credit agreements as of June 30, 2011 and December 31, 2010, respectively. Borrowings under credit lines consisted of the following:
2011
|
2010
|
|||||||
Bank and Other Borrowings
|
(Unaudited)
|
|||||||
Borrowings from Huaxia Bank Suzhou Branch
|
||||||||
Interest at 6.10% per annum, due by January 27, 2012
|
$ | 2,320,800 | $ | - | ||||
Interest at 6.10% per annum, due by January 31, 2012
|
2,320,800 | - | ||||||
Interest at 6.10% per annum, due by Februay 1, 2012
|
2,166,080 | - | ||||||
Interest at 5.61% per annum, due by January 28, 2011
|
- | 4,697,120 | ||||||
Interest at 5.61% per annum, due by January 29, 2011
|
- | 1,969,760 | ||||||
Interest at 5.838% per annum, due by November 18, 2011
|
2,320,800 | 2,272,800 | ||||||
Borrowings from Huaxia Bank Subtotal
|
9,128,480 | 8,939,680 | ||||||
Borrowings from Jiangsu Dongwu Rural Commercial Bank
|
||||||||
Interest at 6.903% per annum, due by June 12, 2011
|
- | 303,040 | ||||||
Interest at 6.903% per annum, due by June 12, 2011
|
- | 1,363,680 | ||||||
Borrowings from Dongwu Rural Commercial Bank Subtotal
|
- | 1,666,720 | ||||||
Borrowings from Suzhou Guorunfa Rural Small Loan Co. Ltd
|
||||||||
Interest at 13% per annum, due by November 15, 2011(unsecured)
|
2,011,360 | 1,969,760 | ||||||
Interest at 13% per annum, due by November 15, 2011(unsecured)
|
1,547,200 | - | ||||||
Interest at 15% per annum, due by June 9, 2012(unsecured)
|
154,720 | - | ||||||
Borrowings from Suzhou Guorunfa Rural Small Loan Co. Ltd. Subtotal
|
3,713,280 | 1,969,760 | ||||||
Borrowings from Tongying
|
||||||||
Interest at 15% per annum, due on demand (unsecured) - repaid July 6, 2011
|
1,160,400 | - | ||||||
Total borrowings
|
14,002,160 | 12,576,160 | ||||||
Current portion
|
14,002,160 | 12,576,160 | ||||||
Long term portion
|
$ | - | $ | - |
On June 17, 2008, the Company entered into a credit agreement with Jiangsu Dongwu Rural Commercial Bank. The Company acquired a 2,000,000 RMB (approximately $309,440) credit line from June 17, 2008 to June 17, 2011. This credit line was secured by a 234 square meter residential unit and a 62 square meter land use right owned by Ti Yin and Yan Hong, the third party assigned by the bank.
On June 17, 2008, the Company entered into a credit agreement with Jiangsu Dongwu Rural Commercial Bank. The Company acquired a 11,000,000 RMB (approximately $1,701,920) credit line from June 17, 2008 to June 17, 2011. This credit line was secured by a 477 square meter residential unit and a 837 square meter land use right owned by the Chief Executive Officer of the Company.
The loans from Huaxia Bank are secured by the land use right of Blue Tassel School and four buildings totaling 20,926.86 square meters of the School.
On October 28, 2010, the Company received a RMB 31,000,000 ($4,796,320) borrowing from Huaxia Bank. The loan bore interest at 5.61% per annum and was due by January 28, 2011. On October 29, 2010, the Company received a RMB 13,000,000 ($2,011,360) borrowing from Huaxia Bank. The loan was a “working capital” loan that bore interest at 5.61% per annum and was due by January 29, 2011. On November 18, 2010, the Company received a RMB 15,000,000 ($2,320,800) borrowing from Huaxia Bank. The loan was a “working capital” loan that bears interest at 5.838% per annum and is due by November 18, 2011.
From November 18 through November 23, 2010, the Company received a total of RMB 13,000,000 ($2,011,360) under a “working capital” line of credit agreement entered into on November 16, 2010 with Guorunfa Rural Small Loan Company (“Guorunfa”). Under the line of credit agreement, the Company may borrow a maximum of RMB 24,700,000 ($3,821,584) between November 16, 2010 and November 15, 2012, for which Minglong (Suzhou) Industry Co., Ltd. has currently pledged real estate located in Suzhou City, Peoples Republic of China. Minglong (Suzhou) is not required to re-provide sufficient collateral each time a fresh borrowing occurs under the line of credit during its 2 year term. The interest rate for each borrowing is fixed at the time the borrowing occurs. The interest rate was set at 1.0833% per month (approximately 13% per annum). On March 18, 2011, the Company borrowed an additional RMB 10,000,000 ($1,547,200). On June 10, 2011, the Company borrowed an additional RMB 1,000,000 ($154,720).Total borrowings from Guorunfa were RMB 24,000,000 ($3,713,280) at June 30, 2011.
On January 27, 2011, the Company repaid a RMB 31,000,000 ($4,697,120) borrowing from Huaxia Bank due January 28, 2011. On January 30, 2011 the Company repaid a RMB 13,000,000 ($1,969,760) borrowing from Huaxia Bank due January 29, 2011.
On January 27, 2011, the Company received a RMB 15,000,000 ($2,320,800) borrowing from Huaxia Bank. The loan is a “working capital” loan which bears interest at 6.10% per annum and is due by January 27, 2012. On January 31, 2011, the Company received a RMB 15,000,000 ($2,320,800) borrowing from Huaxia Bank. The loan is a “working capital” loan which bears interest at 6.10% per annum and is due by January 31, 2012. On February 1, 2011, the Company received a RMB 14,000,000 ($2,166,080) borrowing from Huaxia Bank. The loan is a “working capital” loan which bears interest at 6.10% per annum and is due by February 1, 2012. The loans from Huaxia Bank are secured by the land use right of Blue Tassel School and four buildings totaling 20,926.86 square meters of the School.
Convertible Notes Payable
On June 30, 2009, the Company completed the sale of $1,560,000 principal amount of the Company's 6% Convertible Notes, due June 30, 2010 (the "Notes"). The Notes were sold to four related parties ($920,000 to the Company’s chief executive officer, $448,000 to Minglong Asia, and $192,000 to two other Company directors) outside the United States in a private transaction exempted from the registration requirements of the Securities Act of 1933 pursuant to Regulation D. The Notes accrued interest at the rate of 6% per annum and were to mature on June 30, 2010. The four related parties paid an aggregate of $1,560,000 for their Notes.
Holders of the Notes could at any time convert all or any portion of the principal amount of the Notes into shares of the Company's Common Stock at a conversion price, subject to adjustment, initially equal to eight cents ($0.08) per share. No interest was payable on any portion of a Note converted into Common Stock. Had the conversion price decreased or increased, the number of shares of Common Stock issuable upon conversion of the Notes would have been proportionately increased or decreased, as the case may be. In the event of default by the Company in its obligations under the Notes, Holders could have, at their option, declared the principal of the Note and the interest accrued thereon to be immediately due and payable.
On February 4, 2010, China Ivy issued a total of 19,500,000 shares of its common stock in full satisfaction of the $1,560,000 convertible notes payable due to the four related parties discussed above. Consequently, the Company’s issued and outstanding common stock increased from 3,082,500 shares to 22,582,500 shares. Accrued interest in the amount of $62,956 was treated as additional paid in capital.
Going Concern
The financial statements have been prepared on a “going concern” basis, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, as of June 30, 2011 and December 31, 2010, the Company had a working capital deficit of $12,847,082 and $12,255,303, respectively. The Company also had an accumulated deficit of $7,542,651 as of June 30, 2011. These factors raise substantial doubt as to the Company’s ability to continue as a going concern. The Company plans to improve its financial condition through a debt or equity offering of its securities and /or a business combination with another business entity. However, there is no assurance that the Company will accomplish these objectives. The financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Historically, operations, short term financing and the sale of our company stock have been sufficient to meet our cash needs. Our school is a reputable school in the City of Suzhou. The tuition income will be relatively stable in the foreseeable future. We believe that we will be able to generate enough cash to cover our daily operating needs in the next twelve months. We will focus our efforts on reducing operating costs, especially administrative expenses, in the next twelve months. However, our actual working capital needs for the long and short term will depend upon numerous factors, including operating results, competition, and the availability of credit facilities, none of which can be predicted with certainty. Future expansion will be limited by the availability of capital.
Critical Accounting Policies and Estimates
Financial Reporting Release No. 60, published by the SEC, recommends that all companies include a discussion of critical accounting policies used in the preparation of their financial statements. While all our significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our consolidated financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates.
We believe that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause a material effect on our consolidated results of operations, financial position or liquidity for the periods presented in this report.
General
The Company’s Consolidated Financial Statements are prepared in accordance with U.S. generally accepted accounting principles, which require management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, net revenue and expenses, and the disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Senior management has discussed the development, selection and disclosure of these estimates with the Board of Directors. Management believes that the accounting estimates employed and the resulting balances are reasonable; however, actual results may differ from these estimates under different assumptions or conditions.
Revenue Recognition
The Company’s revenue consists of tuition fees, donated tuition fees, accommodation fees and others. Those fees will usually be collected in advance at the beginning of a semester. Spring semester runs from February to July. Autumn semester runs from August to January. The Company prorates the fees collected to applicable months during the semester, recognizes revenue in the corresponding periods and records unrecognized fees collected as deferred income. As of June 30, 2011 and December 31, 2010, the deferred revenue balance was $1,436,142 and $933,662, respectively.
Fair Value of Financial Instruments
In connection with the determination of the receivable from sale and leaseback of real property - related party (Note 5), the Company used the following assumptions to calculate the present value at the date of the transactions: (1) annual rent payments of $1,603,405; (2) term of ten years; (3) interest rate of 7% per annum.
Foreign Currency Translation
The consolidated financial statements of the Company are translated pursuant to Accounting Standard Codification (“ASC”) 830, “Foreign Currency Matters.” The Company’s subsidiary, Blue Tassel School, is located and operates in China. The Chinese Yuan is the functional currency. The financial statements of Blue Tassel School are translated to U.S. dollars using period-end exchange rates (published by the Federal Reserve Bank) for assets and liabilities ($0.15472, $0.14750 and $0.15152 at June 30, 2011 and 2010 and December 31, 2010, respectively), and average exchange rates (published by the Federal Reserve Bank) for revenues, costs and expenses ($0.15378 and $0.14650 for the three months ended June 30, 2011 and 2010, respectively; $0.1528 and $0.14650 for the six months ended June 30, 2011 and 2010, respectively; and 0.14774 for the year ended December 31, 2010). Translation adjustments are recorded in accumulated other comprehensive income as a component of stockholders’ equity. Transaction gains or losses arising from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the consolidated results of operations.
Certain accounting pronouncements have been issued by the FASB and other standard setting organizations which are not yet effective and have not yet been adopted by the Company. The impact on the Company’s financial position and results of operations from adoption of these standards is not expected to be material.
Off-Balance Sheet Arrangements
We have never entered into any off-balance sheet financing arrangements and have never established any special purpose entities. We have not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.
Item 4. Controls and Procedures.
(a) We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of "disclosure controls and procedures" in Rule 13a-15(e). In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As of the end of the period covered by this report, our management, including our principal executive officer and our principal financial officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15 under the Securities Exchange Act of 1934). Based upon that evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures are not effective in timely alerting them of material information relating to us that is required to be disclosed by us in the reports we file or submit under the Exchange Act, for the reasons set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 2010, although the efforts described therein to improve our disclosure controls and procedures are ongoing.
(b) Changes in Internal Controls over Financial Reporting.
During the quarterly period ended June 30 2011, there have not been any changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during our most recently completed fiscal quarter which is the subject of this report that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II--OTHER INFORMATION
Item 1A. Risk Factors
Our business is subject to numerous risks and uncertainties, including but not limited to those discussed in "Risk Factors" in our Report on Form 10-K filed on March 31, 2011. Such discussion is incorporated herein by reference.
Item 6. Exhibits
The following exhibits are filed as part of this report:
Exhibit No.
|
Description of Exhibit
|
31.1
|
Certification of Principal Executive Officer pursuant to Rule 13a-14(a) under the Exchange Act.
|
31.2
|
Certification of Principal Financial Officer pursuant to Rule 13a-14(a) under the Exchange Act.
|
32.1
|
Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of2002.
|
32.2
|
Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
101
|
Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Condensed Consolidated Statement of Operations and Comprehensive (Loss) Income for the three and six month periods ended June 30, 2011 and 2010, (ii) the Condensed Consolidated Balance Sheet at June 30, 2011 and December 31, 2010, (iii) Condensed Consolidated Statements of Stockholders’ (Deficiency) Equity for the six months ended June 30, 2011 and the year ended December 31, 2010 and (iv) the Condensed Consolidated Statement of Cash Flows for the six month periods ended June 30, 2011 and 2010 and (v) the notes to the Condensed Consolidated Financial Statements.
|
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: August 15, 2011
CHINA IVY SCHOOL, INC.
|
|||
By:
|
/s/ Yongqi Zhu
|
||
Yongqi Zhu
Chairman and Chief Executive Officer
(Principal Executive Officer)
|
|||
By:
|
/s/ Jian Xue
|
||
Jian Xue
Chief Financial Officer
(Principal Financial and Accounting Officer)
|
EXHIBIT INDEX
Exhibit No.
|
Description of Exhibit
|
31.1
|
Certification of Principal Executive Officer pursuant to Rule 13a-14(a) under the Exchange Act.
|
31.2
|
Certification of Principal Financial Officer pursuant to Rule 13a-14(a) under the Exchange Act.
|
32.1
|
Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of2002.
|
32.2
|
Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
101
|
Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Condensed Consolidated Statement of Operations and Comprehensive (Loss) Income for the three and six month periods ended June 30, 2011 and 2010, (ii) the Condensed Consolidated Balance Sheet at June 30, 2011 and December 31, 2010, (iii) Condensed Consolidated Statements of Stockholders’ (Deficiency) Equity for the six months ended June 30, 2011 and the year ended December 31, 2010 and (iv) the Condensed Consolidated Statement of Cash Flows for the six month periods ended June 30, 2011 and 2010 and (v) the notes to the Condensed Consolidated Financial Statements.
|