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EX-31.1 - EXHIBIT 31.1 - China Executive Education Corpex31x1.htm
EX-31.2 - EXHIBIT 31.2 - China Executive Education Corpex31x2.htm
EX-32.1 - EXHIBIT 32.1 - China Executive Education Corpex32x1.htm
EX-32.2 - EXHIBIT 32.2 - China Executive Education Corpex32x2.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10−Q
(Mark One)
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: 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:  000-54086

CHINA EXECUTIVE EDUCATION CORP.
(Exact Name of Registrant as Specified in Its Charter)


Nevada
 
75-3268300
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)

c/o Hangzhou MYL Business Administration Consulting Co. Ltd.
Room 307, Hualong Business Building
110 Moganshan Road, Hangzhou 310005
People’s Republic of China
(Address of principal executive offices, Zip Code)
 
(+86) 0571-8880-8109      
(Registrant’s telephone number, including area code)
 
_____________________________________________________
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x  No  ¨

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  ¨

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  ¨   Accelerated filer  ¨
  Non-accelerated filer  ¨ (Do not check if a smaller reporting company)   Smaller reporting company  x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ¨  No x

The number of shares outstanding of each of the issuer’s classes of common stock, as of August 12, 2011 is as follows:

Class of Securities
 
Shares Outstanding
Common Stock, $0.001 par value
 
22,834,100

 
 
 

 


CHINA EXECUTIVE EDUCATION CORP.

Quarterly Report on Form 10-Q
Three and Six Months Ended June 30, 2011


TABLE OF CONTENTS
   
 
Page
PART I 
FINANCIAL INFORMATION 
   
Item 1. Financial Statements.
  1
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
  23
   
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  35
   
Item 4. Controls and Procedures.
  35
   
PART II
OTHER INFORMATION
   
Item 1. Legal Proceedings.
  36
   
Item 1A. Risks Factors.
  36
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  36
   
Item 3. Defaults Upon Senior Securities.
  36
   
Item 4. [Removed and Reserved.]
  36
   
Item 5. Other Information.
  36
   
Item 6. Exhibits.
  36
   
SIGNATURES
  36
 



 
 

 
PART I
FINANCIAL INFORMATION
 
ITEM 1.
FINANCIAL STATEMENTS.



CHINA EXECUTIVE EDUCATION CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2011 AND 2010



 
   
Page(s)
 
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE30, 2011 AND DECEMBER 31, 2010 (UNAUDITED)    2
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010 (UNAUDITED)
   3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2011 AND 2010 (UNAUDITED)    4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS    5
 
 

1
 
 

 
  CHINA EXECUTIVE EDUCATION CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
               
     
June 30, 2011
   
December 31, 2010
 
ASSETS
           
               
Current assets:
           
 
Cash and cash equivalents
  $ 9,268,568     $ 10,272,391  
 
Advance to vendors
    899,363       415,619  
 
Other receivables
    285,029       285,854  
 
Advances to management
    -       328,791  
 
Total current assets
    10,452,960       11,302,655  
                   
Property, plant and equipment, net
    765,493       735,876  
Construction in progress
    401,683       -  
Restricted cash
    309,433       302,924  
Long-term deposit
    464,150       302,924  
                   
 
Total Assets
  $ 12,393,719     $ 12,644,379  
                   
LIABILITIES AND STOCKHOLDERS' EQUITY
               
                   
Current liabilities:
               
 
Customer deposits
  $ 3,919,105     $ 4,883,410  
 
Other payable
    66,725       49,381  
 
Due to shareholder
    20,113       19,690  
 
Accrued expenses
    409,086       653,261  
 
Taxes payable
    473,509       1,180,080  
 
Total current liabilities
    4,888,538       6,785,822  
                   
Commitments
               
                   
Stockholders' equity
               
 
Common stock, $0.001 par value, 70,000,000 shares
         
 
authorized, 22,834,100 shares issued and outstanding
    22,834       22,834  
 
Additional paid-in capital
    1,771,516       1,771,516  
 
Statutory surplus
    43,917       43,917  
 
Retained earnings
    5,465,711       3,946,927  
 
Accumulated other comprehensive income
    165,362       71,894  
 
Total stockholder's equity
    7,469,340       5,857,088  
 
Non-controlling interest
    35,841       1,469  
 
Total equity
    7,505,181       5,858,557  
                   
 
Total Liabilities and Stockholder's Equity
  $ 12,393,719     $ 12,644,379  

The accompanying notes are an integral part of these condensed consolidated financial statements.
 
2
 
 

 
CHINA EXECUTIVE EDUCATION CORP. AND SUBSIDIARIES
                             CONDENSED  CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
 
   
For the three months ended June 30,
   
For the six months ended June 30,
 
   
2011
   
2010
   
2011
   
2010
 
         
(Restated)
         
(Restated)
 
                         
 Revenues
  $ 3,809,951     $ 5,014,321     $ 9,587,805     $ 9,355,786  
 Cost of revenue
    1,801,083       1,628,918       5,007,383       2,964,693  
 Gross profit
    2,008,868       3,385,403       4,580,422       6,391,093  
                                 
 Operating expenses
                               
 Selling expenses
    606,880       654,730       1,101,857       1,259,008  
 General and administrative expenses
    782,073       863,494       1,539,604       1,920,251  
 Total operating expenses
    1,388,953       1,518,224       2,641,461       3,179,259  
                                 
 Income from operations
    619,915       1,867,179       1,938,961       3,211,834  
                                 
 Other income (expenses)
                               
 Interest income
    23,236       4,738       58,786       4,952  
 Other income
    184,851       95,228       194,860       95,228  
 Total Other income(expenses)
    208,087       99,966       253,646       100,180  
                                 
 Income before income taxes
    828,002       1,967,145       2,192,607       3,312,014  
                                 
 Provision for income taxes
    206,497       596,269       639,451       892,437  
                                 
 Net income
    621,505       1,370,876       1,553,156       2,419,577  
 Less: net income attributable to non-controlling interest
    (2,392 )     1,349       34,372       2,202  
 Net income attributable to China Executive Education Corp
  $ 623,897     $ 1,369,527     $ 1,518,784     $ 2,417,375  
                                 
 Net income
    621,505       1,370,876       1,553,156       2,419,577  
 Foreign currency translation adjustment
    71,473       (36,253 )     93,472       (46,703 )
 Comprehensive income
    692,978       1,334,623       1,646,628       2,372,874  
 Comprehensive income attributable to non-controlling interest
    (3,574 )     1,813       (4,674 )     2,335  
                                 
 Comprehensive income attributable to China Executive Education Corp
  $ 689,404     $ 1,336,436     $ 1,641,954     $ 2,375,209  
                                 
                                 
 Basic and diluted income per common share
  $ 0.03     $ 0.06     $ 0.07     $ 0.11  
                                 
 Basic and diluted weighted average common shares outstanding
    22,834,100       22,199,160       22,834,100       22,119,691  
                                 
 Cash dividends per common share
  $ -     $ 0.06     $ -     $ 0.06  
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

3
 
 

 
CHINA EXECUTIVE EDUCATION CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
                                                                  
           
   
For the six months ended June 30,
 
   
2011
   
2010
 
         
(Restated)
 
 Cash flows from operating activities
           
 Net income
  $ 1,553,156     $ 2,419,577  
 Adjustments to reconcile net income to net cash provided by
               
 (used in) operating activities:
               
 Depreciation and amortization
    112,687       21,607  
 Stock issued for services
    -       105,000  
 Changes in assets and liabilities:
               
 (Increase) decrease in -
               
 Other receivables
    6,888       185,428  
 Advance to vendors
    (469,378 )     (297,388 )
 Advances to management
    332,010       (837,716 )
 Increase (decrease) in -
               
 Other payables
    30,516          
 Advance from customers
    (1,056,994 )     (332,909 )
 Accrued expenses
    (254,828 )     (363,130 )
 Tax payable
    (723,548 )     269,674  
                 
 Net cash (used in) provided by  operating activities
    (469,491 )     1,170,143  
                 
 Cash flows from investing activities
               
 Long-term deposit
    (152,945 )     (368,815 )
 Acquistion of property and equipment
    (126,334 )     (101,417 )
 Incease in construction in progress
    (397,084 )     -  
 Net cash used in investing activities
    (676,363 )     (470,232 )
                 
 Cash flows from financing activities
               
 Repayment of shareholder loan
    -       (705 )
 Dividends paid
    -       (1,285,305 )
 Proceeds from issuance of common stock under a private placement
    -       1,220,400  
 Net cash (used in) financing activities
    -       (65,610 )
                 
 Effect of exchange rate changes on cash and cash equivalents
    142,030       (31,631 )
                 
 Net (decrease) increase in cash and cash equivalents
    (1,003,823 )     602,670  
                 
 Cash and cash equivalents, beginning of period
    10,272,391       6,089,919  
                 
 Cash and cash equivalents, end of period
  $ 9,268,568     $ 6,692,589  
                 
                 
 Supplemental disclosures of cash flow information:
               
      Interest paid   $ -     $ -  
      Income taxes paid   $ 1,636,867     $ 702,812  

The accompanying notes are an integral part of these condensed consolidated financial statements.
 
4
 
 

 
 
CHINA EXECUTIVE EDUCATION CORP. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
 
Note 1.   ORGANIZATION

China Executive Education Corp (the “Company”), formerly known as On Demand Heavy Duty Corp, is a corporation organized under the laws of the State of Nevada.

On February 12, 2010, the Company acquired all of the outstanding capital stock of Surmounting Limit Marketing Adviser Limited (“SLM”), a Hong Kong Corporation,  through China Executive Education Corp., a Nevada corporation (the “Merger Sub”) wholly owned by the Company. SLM is a holding company whose only asset, held through a subsidiary, is 100% of the registered capital of Hangzhou MYL Business Administration Consulting Co., Ltd. (“MYL Business”), a limited liability company organized under the laws of the People’s Republic of China (“PRC”). Substantially all of SLM's operations are conducted in China through MYL Business, and through contractual arrangements with several of MYL Business’s affiliated entities in China, including Hangzhou MYL Commercial Services Co., Ltd. (“MYL Commercial”) and its subsidiaries. MYL Commercial is a fast-growing executive education company with dominant operation in Shanghai, the commercial center of China, providing comprehensive consulting services such as business administration, marketing strategy, designing of enterprise image, corporate investment and commerce, business conference as well as professional training programs designed to fit the needs of Chinese entrepreneurs to improve their leadership, management and marketing skills.

In connection with the acquisition, the Merger Sub issued 20 shares of the common stock of the Merger Sub which constituted no more than 10% ownership interest in the Merger Sub to the shareholders of SLM, in exchange for all the shares of the capital stock of SLM (the “Share Exchange” or “Merger”). The 20 shares of the common stock of the Merger Sub were converted into approximately 21,560,000 shares of the common stock of the Company so that upon completion of the Merger, the shareholders of SLM owned approximately 98% of the common stock of the Company.
 
5
 
 

 
CHINA EXECUTIVE EDUCATION CORP. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
 
Note 1.   ORGANIZATION (continued)

As part of the Merger, pursuant to a stock purchase agreement (the “Stock Purchase Agreement”), the Company transferred all of the outstanding capital of its subsidiary, On Demand Heavy Duty Holdings, Inc. (“Holdings”) to certain of its shareholders in exchange for the cancellation of  3,000,000 shares of the Company’s common stock (the “Split Off Transaction”). In addition, an aggregate of 3,070,000 shares were returned to the transfer agent for cancelation by other shareholders of Holdings. Following the Merger and the Split-Off Transaction, the Company discontinued its former business and is now engaged in the executive education business.

Upon completion of the Merger, there were 22,000,000 shares of the Company’s common stock issued and outstanding.

As a result of these transactions, persons affiliated with the SLM and MYL Business owned securities that in the aggregate represent approximately 98% of the equity in the Company. In addition, in connection with the change of control contemplated by the Share Exchange, the directors and officers of the Company resigned from their positions and new directors and officers affiliated with MYL Business controlled the Board of Directors.
Consequently, the Company’s name was changed from “On Demand Heavy Duty Corp.” to the Merger Sub’s name “China Executive Education Corp.” in order to more effectively reflect the Company’s business and communicate the Company’s brand identity to customers.

The above mentioned merger transaction has been accounted for as a reverse merger under the purchase method of accounting since there was a change of control. Accordingly, SLM is treated as the continuing entity for accounting purposes. SLM did not commence business operations until April 2009.
 
6
 
 

 
CHINA EXECUTIVE EDUCATION CORP. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
 
Note 1.   ORGANIZATION (continued)

SLM does not conduct any substantive operations of its own. Instead, through its subsidiary, MYL Business, it had entered into certain exclusive contractual agreements with Hangzhou MYL Commercial Services Co., Ltd.  (“MYL Commercial”), a company incorporated in Hangzhou City, Zhejiang Province, People’s Republic of China (“PRC”) on March 25, 2009.  Pursuant to these agreements, SLM is obligated to absorb a majority of the risk of loss from MYL Commercial’s activities and entitled it to receive a majority of its expected residual returns. In addition, MYL Commercial’s shareholders have pledged their equity interest in MYL Commercial to SLM, irrevocably granted SLM an exclusive option to purchase, to the extent permitted under PRC Law, all or part of the equity interests in MYL Commercial and agreed to entrust all the rights to exercise their voting power to the persons appointed by MYL Commercial. Through these contractual arrangements, the Company and SLM hold substantially all the variable interests of MYL Commercial. Therefore, the Company is the primary beneficiary of MYL Commercial.

Based on these contractual arrangements, management believes that MYL Commercial should be considered as a Variable Interest Entity (“VIE”) under ASC 810 “Consolidation”, because the Company is the primary beneficiary. Accordingly, the Company consolidates MYL Commercial and its subsidiary’s results, assets and liabilities.

Note 2.   BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission for interim financial statements. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of the management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. These condensed consolidated financial statements and notes should be read in conjunction with the audited consolidated December 31, 2010 financial statements and footnotes included in  Form 10-K filed with the Securities and Exchange Commission (“SEC”) on April 15, 2011. Operating results for the six months ended June 30, 2011 may not be necessarily indicative of the results that may be expected for the full year.
 
7
 
 

 
CHINA EXECUTIVE EDUCATION CORP. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
 
Note 2.   BASIS OF PRESENTATION (continued)
 
The condensed consolidated financial statements of the Company will reflect the principal activities of the following entities. All material intercompany transactions have been eliminated.
 
 Name of the entity    Place of Incorporation   Ownership Percentage  
Surmounting Limit Marketing Advisor Limited
 ("SLM")
   Hong Kong, China   100%  
           
Hangzhou MYL Business Administration Co., Ltd.
 ("MYL Business")
  Hangzhou, China   100%  
           
Shanghai MYL Consulting Co., Ltd.
 ("MYL Consulting")
   Shanghai, China   100%  
           
Hangzhou MYL Commerical Service., Ltd.
 ("MYL Commerical")
   Hangzhou, China   VIE  
           
 
Note 3. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

The Company has restated certain  items in its interim condensed financial statements for the six months ended June 30, 2010, as previously disclosed in  Form 10-K for 2010 filed on April 15, 2011.

Note 4.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Non-controlling interest

Non-controlling interest represents two minority shareholders’ 5% proportionate share of the results of the Company’s subsidiary Hangzhou MYL Commercial Services Co., Ltd., based on the contractual arrangements between the Company, MYL Commercial and its shareholders.

8
 
 

 
 
CHINA EXECUTIVE EDUCATION CORP. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 


Note 4.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Use of estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes, and disclosure of contingent liabilities at the date of the consolidated financial statements. Estimates are used for, but not limited to, the selection of the useful lives of property and equipment, provision necessary for contingent liabilities, taxes and other similar charges. Management believes that the estimates utilized in preparing its consolidated financial statements are reasonable and prudent. Actual results could differ from these estimates.

Property and equipment

Property and equipment are recorded at cost less accumulated depreciation.  The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use.  Expenditures incurred after the assets have been put into operation, such as repairs and maintenance and overhaul costs, are normally charged to an expense account in the year in which it is incurred.

Depreciation is computed using the straight-line method over the estimated useful lives of the assets, less any estimated residual value.  Estimated useful lives of the assets are as follows:
 
Computer electronics equipments     3 years
   
Vehicles  5 years
   
Other equipments 3 years
   
Leasehold improvements  3 years
 
9
 
 

 
 
 
CHINA EXECUTIVE EDUCATION CORP. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
 
Note 4.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Impairment of long-lived assets

In accordance with ASC 360, “ Property, Plant and Equipment”, the Company is required to review its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets.  Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value. The Company estimates fair value based on the information available in making whatever estimates, judgments and projections are considered necessary.  There was no impairment of long-lived assets during the six months ended June 30, 2011 and 2010.

Revenue recognition

The Company recognizes revenue in accordance with ASC 605, “Revenue Recognition”, which requires that revenue be recognized when it is earned and either realized or realizable. In general, the Company generates revenue from the delivery of professional services and records revenues when the services are completed, payment is collected or collectability is reasonably assured, there is no future obligation and there is remote chance of future claim or refund to the customers. It is reported net of business taxes and refunds. Deposits or advance payments from customers prior to delivery of services are recorded as customer deposits.

Advertising costs

Advertising costs are expensed when incurred, consisting primarily of costs of promotion for corporate image and costs of direct advertising for marketing the Company’s course training programs. Advertising expenses totaled $162,540 and $1,084 for the six months ended June 30, 2011 and 2010, respectively. 
 

10
 
 

 
 
CHINA EXECUTIVE EDUCATION CORP. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 

 
Note 4.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 
Income taxes
 
The Company utilizes ASC 740, “Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. There are no deferred taxes for the six months ended June 30, 2011 and 2010.
 
ASC 740-10-25 prescribes a more-likely-than-not threshold for consolidated financial statement recognition and measurement of a tax position taken (or expected to be taken) in a tax return. This Interpretation also provides guidance on the recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods and income tax disclosures. There are no material uncertain tax positions as of June 30, 2011 and 2010, respectively.

All tax returns of the Company since inception are subject to tax examination by tax authorities.

Foreign currency translation

The Company’s financial information is presented in US dollars, which is the functional currency of the U.S. parent. The functional currency of the operating subsidiaries and VIEis Renminbi (“RMB”),the currency of the PRC.

The financial statements of the Company have been translated into U.S. dollars in accordance with FASB ASC 830-30 “Translation of Financial Statements”. The financial information is first prepared in RMB and then is translated into U.S. dollars at period-end exchange rates as to assets and liabilities and average exchange rates as to revenue and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred. The effects of foreign currency translation adjustments are included as a component of accumulated other comprehensive income in shareholders’ equity.
 
11
 
 

 
 
 
CHINA EXECUTIVE EDUCATION CORP. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 

 
Note 4.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 
   
June 30, 2011
 
December 31, 2010
 
June 30, 2010
Period end RMB: US$ exchange rate
 
                    6.4634
 
                    6.6023
 
6.7814
Average RMB: US$ exchange rate
 
                    6.5383
 
                    6.7682
 
6.8258
  
The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into US dollars at the rates used in translation.

Comprehensive income
 
Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. The Company’s only components of comprehensive income during the six months ended June 30, 2011 and 2010 were net income and the foreign currency translation adjustment.

Earnings per share
 
Basic EPS is measured as net income divided by the weighted average common shares outstanding for the period.  Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later.  Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS. There were no potential common shares for the periods presented.

In February 2010, the Company entered into a share exchange transaction which has been accounted for as a reverse merger since there has been a change of control. The Company computes the weighted-average number of common shares outstanding in accordance with ASC 805, Business Combinations, which states that in calculating the weighted average shares when a reverse merger takes place in the middle of the year, the number of common shares outstanding from the beginning of that period to the acquisition date shall be computed on the basis of the weighted-average number of common shares of the legal acquiree (the accounting acquirer) outstanding during the period multiplied by the exchange ratio established in the merger agreement. The number of common shares outstanding from the acquisition date to the end of that period shall be the actual number of common shares of the legal acquirer (the accounting acquiree) outstanding during that period.
 
 
12
 
 

 
 
 
CHINA EXECUTIVE EDUCATION CORP. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
 
Note 4.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 
Concentration of credit risk
 
Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of other receivables.  The Company does not require collateral or other security to support these receivables.  The Company conducts periodic reviews of its clients' financial condition and customer payment practices to minimize collection risk on its receivables.

Risks and uncertainties

The operations of the Company are located in the PRC. Accordingly, the Company’s operations are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company’s results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things.

Recent Accounting Pronouncements

In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”), an update to Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures (“ASC 820”). ASU 2011-04 provides guidance to change the wording used to describe many of the requirements in U.S. generally accepted accounting principles for measuring fair value and for disclosing information about fair value measurements. For public entities, ASU 2011-04 is effective for interim and annual periods beginning after December 15, 2011 and is to be applied prospectively. Early application by public entities is not permitted. As ASU 2011-04 impacts presentation only, the adoption of this update will not impact our consolidated financial statements.

13
 
 

 
 
CHINA EXECUTIVE EDUCATION CORP. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 

Note 4.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”), an update to ASC 220, Comprehensive Income. This ASU requires the components of net income and the components of other comprehensive income to be presented either in a single continuous statement of comprehensive income or in two separate but continuous statements. ASU 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity. This guidance does not change the items that must be reported in other comprehensive income, when an item of other comprehensive income must be reclassified to net income or how earnings per share is calculated or presented. ASU 2011-05 is effective for public entities for interim and annual periods beginning after December 15, 2011. Early adoption is permitted. As ASU 2011-05 impacts presentation only, the adoption of this update will not impact our consolidated financial statements.
 
Note 5. RESTRICTED CASH
 
Restricted cash has been set aside because the Company is required by the Chinese government to have basic infrastructure, necessary facility, place and fund to conduct educational business in China. Since the Company does not have a physical facility and campus in Hangzhou, a restricted cash deposit with PRC Bank for RMB 2 million is required by the local educational authority in order to maintain the Company’s subsidiary Hangzhou Chaoyue School. Restricted cash amounted to $309,433 and $302,924 as of June 30, 2011 and December 31, 2010, respectively.
 
Note 6. ADVANCES TO MANAGEMENT

Advances to management include short-term advances made to certain managers for business marketing, hotel negotiation, and student recruiting purposes. Such advances will be expensed as the planned marketing and recruiting tasks have been performed.  The Company has full oversight and control over such advanced amounts. As of December 31, 2010, the advances amounted $328,791 and these amounts have been fully collected during the six months ended June 30, 2011.
 
14
 
 

 
 
CHINA EXECUTIVE EDUCATION CORP. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 

Note 7. ADVANCE TO VENDORS

Advance to vendors primarily represent cash advance payments made to invited foreign lecturers or world masters in order to arrange for them to provide educational trainings or speeches to Chinese students. Such advances are expensed as cost of sales as the planned services have been performed.

Advance to vendors are generally short-term in nature and management believes that no allowance for the uncollectible amounts was deemed necessary.

Note 8. CONSTRUCTION IN PROGRESS

In April 2011, the Company entered into an office lease agreement with third party Shanghai Sanlin Investment Company to lease an office space of 3,443 square meters for its Shanghai headquarter office for three years (from May 1, 2011 to April 30, 2014). In order to decorate the newly leased office space, the Company prepaid RMB 2.5 million (equivalent to $401,683) to several vendors to be used in the decoration project. The Company recorded such amount as “construction in progress” and will capitalized it when the planned decoration project is completed which is expected by the end of August 2011.

Note 9. LONG-TERM DEPOSIT

Pursuant to the contract terms with a local hotel, the Company is required to make advance deposits with the local hotels in order for the Company to book hotel rooms or conference rooms at favorable rates to hold various meetings or provide training courses to students. Such deposits are long-term in nature.
 
15
 
 

 
 
 
CHINA EXECUTIVE EDUCATION CORP. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 

 
Note 10. PROPERTY AND EQUIPMENT

As of June 30, 2011 and December 31, 2010, the detail of property and equipment was as follows:

   
June 30, 2011
   
December 31, 2010
 
Property
  $ 96,670     $ 94,636  
Computer and electronics equipment
    183,773       175,718  
Automobiles
    620,235       486,269  
Leasehold improvements
    50,418       49,358  
        Sub-total
    951,096       805,981  
Less: accumulated depreciation
    (185,603 )     (70,105 )
                 
Property, plant and equipment, net
  $ 765,493     $ 735,876  

Note 11. CUSTOMER DEPOSITS
 
Customer deposits represent amounts received in advance from students for tuition paid to attend the Company’s professional training courses and featured lectures. Customer deposits are refundable if the training doesn’t occur within the specified time. The Company recognizes these funds as a current liability until the revenue can be recognized.
 
Note 12. RELATED PARTY TRANSACTIONS

During the normal course of business, the Company, from time to time, temporarily borrows money from its principal stockholders or officers to finance working capital needs. The amounts are usually unsecured, non-interest bearing and due on demand. The Company had stockholder loans in the amount of $20,133 and $19,690 as of June 30, 2011 and December 31, 2010, respectively.

During the six months ended June 30, 2011, the Company paid a bonus totaling RMB 4,312,000 (equivalent to $665,440) to its Chief Executive Officer, Mr. Liang Kaien, who is also  one of the major lecturers  providing educational trainings services to the students. The Company recorded the executive compensation as cost of sales.
 
16
 
 

 
 
CHINA EXECUTIVE EDUCATION CORP. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 

 
Note 12. RELATED PARTY TRANSACTIONS (continued)

The Company has several rental arrangements providing residential units to house key employees, including the Chief Executive Officer,  Mr. Liang Kaien, Chief Operating Officer, Mr. Xu Pokai, and Chief Strategy Officer, Mr. Chen Tingyuan.  For the six months ended June 30, 2011 and 2010, housing benefits provided to these officers totaled $112,335 and $57,137, respectively.
 
Note 13. TAXES
 
(a) Business sales tax
 
The Company is subject to 5% business sales tax on actual revenue generated.  It is the Company’s continuing practice to accrue 5% of the sales tax on estimated revenue and file its tax returns based on the actual result, as the local tax authority may exercise broad discretion in applying the tax amount.  As a result, the Company’s accrual sales tax may differ from the actual tax clearance.

(b) Corporation income tax (“CIT”)

China Executive Education Corp was incorporated in the United States.  It had net operating loss carry forwards for United States income tax purposes of $47,390 as of June 30, 2011, which may be available to reduce future years' taxable income. These carry forwards will expire in 2030. However, due to the change in control,   the amount of loss to be utilized each year may be limited. As the result of the share exchange agreement, management doesn't expect to remit any of its net income back to the United States in the foreseeable future.  Accordingly, the Company recorded a full valuation allowance of $47,390 as of June 30, 2011.

The Company’s Chinese subsidiaries are governed by the Income Tax Law of the People’s Republic of China concerning  private-run enterprises, which are generally subject to tax at a statutory rate of 25% on income reported in the statutory financial statements after appropriate tax adjustments. For the three months ended June 30, 2011 and 2010, the Company reported income tax expense of $206,497 and $596,269, respectively. For the six months ended June 30, 2011 and 2010, the Company recorded income tax expense of $553,972 and $892,437, respectively.
 
17
 
 

 
 
CHINA EXECUTIVE EDUCATION CORP. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 

Note 13. TAXES (continued)
 
The following table reconciles the U.S. statutory rate to the Company’s PRC effective tax rate for the six months ended June 30, 2011 and 2010:

   
2011
 
2010
U.S. Statutory income tax rate
   
35.0%
 
35.0%
Statutory tax rate difference between U.S. and China
   
(10.0%)
 
(10.0%)
Non-deductible expenditure (1)
   
4.2%
 
1.9%
Effective income tax rate
   
29.2%
 
26.9%
 
       Note (1): non-deductible expenditure related to executive compensation. See Note 12.

(c) Taxes payable

As of June 30, 2011 and December 31, 2010, taxes payable consisted of the following:

   
As of
   
As of
 
   
June 30,
   
December 31,
 
   
2011
   
2010
 
Corporation income tax
  $ 377,510     $ 919,551  
Business tax
    77,288       222,289  
Other tax and fees
    18,711       38,240  
                 
Total tax payable
  $ 473,509     $ 1,180,080  

18
 
 

 
 
 
CHINA EXECUTIVE EDUCATION CORP. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 


Note 14.  STATUTORY RESERVES

The Company is required to make appropriations to certain reserve funds, comprising the statutory surplus reserve and discretionary surplus reserve, based on after-tax net income determined in accordance with generally accepted accounting principles of the PRC (“PRC GAAP”). Appropriations to the statutory surplus reserve are required to be at least 10% of the after tax net income determined in accordance with PRC GAAP until the reserve is equal to 50% of the entities’ registered capital. Appropriations to the discretionary surplus reserve are made at the discretion of the Board of Directors.

The statutory surplus reserve fund is non-discretionary other than during liquidation and can be used to fund previous years’ losses, if any, and may be utilized for business expansion or converted into share capital by issuing new shares to existing shareholders in proportion to their shareholding or by increasing the par value of shares currently held by them, provided that the remaining statutory surplus reserve balance after such issue is not less than 25% of the registered capital before the conversion.
 
Pursuant to the Company’s articles of incorporation, the Company is to appropriate 50% of the entities’ registered capital as statutory surplus reserve. The appropriation to statutory reserve is conducted on an annual basis.  As of June 30, 2011 and December 31, 2010, the balance of statutory surplus reserve was $43,917.

The discretionary surplus reserve may be used to acquire fixed assets or to increase the working capital to expend on production and operation of the business. The Company’s Board of Directors decided not to make an appropriation to this reserve for the six months ended June 30, 2011 and 2010, respectively.
 
 
19
 
 

 
 
CHINA EXECUTIVE EDUCATION CORP. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 
Note 15. NON-CONTROLLING INTEREST

Non-controlling interest represents two minority shareholders’ 5% proportionate share of the results of the Company’s subsidiary Hangzhou MYL Commercial Services Co., Ltd. As of June 30, 2011 and December 31, 2010, non-controlling interest consisted of the following:

 
  
June 30,
2011
 
December 31,
2010
 
  
     
Original paid-in capital
  
$
 4,354
  
$
  4,354
Retained Earnings
  
 
34,372
  
 
3,773
Accumulated other comprehensive (loss)
  
 
(2,885)
  
 
(6,658)
 
  
         
Total
  
$
35,841
  
$
1,469
 
NOTE 16. EMPLOYEE DEFINED CONTRIBUTION PLAN

Full time employees of the Company’s subsidiaries in the PRC participate in a government-mandated defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations require that the PRC subsidiaries of the Company make contributions to the government for these benefits based on 23% of the employees’ salaries. The Company’s PRC subsidiaries have no legal obligation for the benefits beyond the contributions made. The total amounts for such employee benefits, which were expensed as incurred, were $12,280 and $32,479 for the six months ended June 30, 2011 and 2010, respectively and are included in selling, general and administrative expenses.
 
20
 
 

 
 
CHINA EXECUTIVE EDUCATION CORP. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 

NOTE 17. COST OF REVENUE

The Company’s costs of revenue primarily include expenditures incurred in connection with providing educational services to the students, such as renting conference rooms, booking hotels, compensation for lecturers, consulting fees paid to various service providers who help to plan and organize the trainings, renting training equipment and materials as well as sales taxes.

As of June 30, 2011 and 2010, costs of revenue consisted of the following:
 
    For the six months ended June 30,  
    2011     2010  
Cost of lecturer's compensation   $ 1,826,885     $ 583,017  
Hotel and conference-room
    1,141,599       806,282  
Educational facility costs     166,084       110,399  
Consulting fee     949,353       448,662  
Administrative support     193,514       154,728  
Sales taxes     729,949       861,604  
Total cost of sales   $ 5,007,383     $ 2,964,693  
 
NOTE 18. COMMITMENTS

From time to time, the Company leases office spaces in Shanghai and Hangzhou in China to conduct its normal business activities, such as business administration, recruiting students, holding the business conferences and providing professional training courses or featured lectures to students.  On April 18, 2011, the Company entered into a new lease agreement with third party Shanghai Sanlin Investment Company to lease a large office space for its Shanghai office for three years (from May 1, 2011 to April 30, 2014), with annual lease payment of RMB 3,996,662 (equivalent to $614,871). Rent expense for May, June and July 2011 will be waived due to office decoration.

The Company also has several rental arrangements which provide residential units to house key employees. These lease agreements will expire before October 2012.
 
21
 
 

 
 
 
CHINA EXECUTIVE EDUCATION CORP. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 


NOTE 18. COMMITMENTS (continued)
 
Rent expenses for the above rental arrangements total $382,191 and $391,169 for the six months ended June 30, 2011 and 2010, respectively.

The minimum obligations under such commitments (unless otherwise stated) for the years ending December 31 until their expiration are summarized below:
       
       
2011
  $ 417,040  
2012
    637,486  
2013
    624,478  
2014
    211,464  
         
Total
  $ 1,890,468  

22
 
 

 
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Special Note Regarding Forward Looking Statements

In addition to historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. We use words such as “believe,” “expect,” “anticipate,” “project,” “target,” “plan,” “optimistic,” “intend,” “aim,” “will” or similar expressions which are intended to identify forward-looking statements. Such statements include, among others, those concerning market and industry segment growth and demand and acceptance of new and existing products; any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including those identified in Item 1A “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2010, as well as assumptions, which, if they were to ever materialize or prove incorrect, could cause the results of the Company to differ materially from those expressed or implied by such forward-looking statements.

Readers are urged to carefully review and consider the various disclosures made by us in this report and our other filings with the SEC. These reports attempt to advise interested parties of the risks and factors that may affect our business, financial condition and results of operations and prospects. The forward-looking statements made in this report speak only as of the date hereof and we disclaim any obligation, except as required by law, to provide updates, revisions or amendments to any forward-looking statements to reflect changes in our expectations or future events.

Use of Terms

Except where the context otherwise requires and for the purposes of this report only:

·  
the “Company,” “we,” “us,” and “our” refer to the combined business of China Executive Education Corp., a Nevada corporation, and its consolidated subsidiaries and variable interest entity;
·  
“SLM” refers to our subsidiary Surmounting Limit Marketing Adviser Limited, a Hong Kong limited company;
·  
“MYL Business” refers to our indirect subsidiary Hangzhou MYL Business Administration Consulting Co., Ltd., a PRC limited company;
·  
“Shanghai MYL” refers to our indirect subsidiary Shanghai MYL Business Administration Consulting Co. Ltd., a PRC limited company;
·  
“MYL Commercial” refers to our variable interest entity Hangzhou MYL Commercial Services Co., Ltd., a PRC limited company;
·  
“MYL Training School” refers to MYL Commercial’s subsidiary Hangzhou Gongshu MYL Training School;
·  
“Hong Kong” refers to the Hong Kong Special Administrative Region of the People’s Republic of China;
·  
“PRC” and “China” refer to the People’s Republic of China, excluding Hong Kong, Macau and Taiwan;
·  
“SEC” refers to the Securities and Exchange Commission;
·  
“Securities Act” refers to the Securities Act of 1933, as amended;
·  
“Exchange Act” refers to the Securities Exchange Act of 1934, as amended;
·  
“Renminbi” and “RMB” refer to the legal currency of China; and
·  
“U.S. dollars,” “dollars” and “$” refer to the legal currency of the United States.
 
Overview of our Business

We are a fast-growing executive education company with operations in Hangzhou and Shanghai, China. We operate comprehensive business training programs that are designed to fit the needs of Chinese entrepreneurs and to improve their leadership, management and marketing skills, as well as bottom-line results. Our comprehensive business training initiatives integrate research-based, proprietary content with processes that are specifically connected to the critical business issues that most private Chinese companies are facing. Our programs enable the trainees to better achieve their potential and better align their individual goals and competencies with the organizational objectives of their employers or business.
 

23
 
 

 
Our open-enrollment training programs include our proprietary training courses and featured lectures. Our proprietary training courses include one package of 16 courses for CEO and C-Level managers, as well as 23 leadership and personal development courses, focusing on management skills, negotiation skills, leadership skills and public speaking skills, among others. Featured lectures, delivered to large audiences, are presented by experts or well-known speakers in each relevant field. In 2010, we organized four such lectures in Shanghai. We believe that our network of speaking professionals is a leading platform for inspiring audiences to new levels of motivation and commitment.
 
We sell our training programs through our own sales team consisting of 235 employees. We also promote our services through the internet. Our websites are www.magicyourlife101.com and www.myl101.com
 
Our principal executive offices are located at c/o Hangzhou MYL Business Administration Consulting Co. Ltd., Room 307, Hualong Business Building, 110 Moganshan Road, Hangzhou 310005, People’s Republic of China and our telephone number is (86) 0571-8880-8109.
 
Restatement of Previously Issued Financial Statements

The Company has restated certain  items in its interim condensed financial statements for the six months ended June 30, 2010, as previously disclosed in  Form 10-K for 2010 filed on April 15, 2011.

Second Quarter Financial Performance Highlights

The following summarizes certain key financial information for the second quarter of 2011:

·  
Revenues: Revenues were $3.8 million for the three months ended June 30, 2011, a decrease of $1,204,370, or 24.0%, for the same period last year.
 
·  
Gross Profit and Margin: Our gross profit decreased $1,376,535, or 41%, to approximately $2,008,868 for the three months ended June 30, 2011, as compared to $3,385,403 for the three months ended June 30, 2010.
 
·  
Net Income: Net income was $621,505 for the three months ended June 30, 2011, as compared to net income of $1,370,876 for the same period of 2010.  The decrease in net income of $749,371 was primarily due to decreased student recruiting and course attendance during the quarter.
 
·  
Fully diluted net income per share: Fully diluted net income per share for the six months ended June 30, 2011 was $0.03, as compared to $0.06 for the same period last year.

Results of Operations

Comparison of Three Months Ended June 30, 2011 and June 30, 2010

The following table sets forth key components of our results of operations for the periods indicated.
 
   
For the three months ended June 30,
           
   
2011
   
2010
    Variance  
%
         
(Restated)
           
Revenue
  $
3,809,951
    $
5,014,321
    $
(1,204,370)
 
(24
%)
Cost of revenue
   
1,801,083
     
1,628,918
     
172,165
 
11
%
Gross profit
   
2,008,868
     
3,385,403
     
(1,376,535)
 
(41
%)
                             
Operating expenses
                           
  Selling expenses
   
606,880
     
654,730
     
(47,850)
 
(7
%)
  General and administrative expenses
   
782,073
     
863,494
     
(81,421)
 
(9
%)
Total operating expenses
   
1,388,953
     
1,518,224
     
(129,271)
 
(9
%)
Income from operations
   
619,915
     
1,867,179
     
(1,247,264
 
(67
%)
                             
Other income (expenses)                            
  Interest income      23,236       4,738       18,498   390 %
  Other income      184,851        95,228       89,623    94 %
Total other income (expenses)
   
208,087
     
99,966
     
108,121
 
108
%
                             
Income before income taxes
   
828,002
     
1,967,145
     
(1,139,143)
 
(58
%)
Income taxes
   
206,497
     
596,269
     
(389,772)
 
(65
%)
Net income
  $
621,505
    $
1,370,876
    $
(749,371)
 
(55
%)
 
 
24
 
 

 

Revenue:

We provide two kinds of training programs to students: (1) proprietary training courses and (2) comprehensive training courses.  Proprietary training courses, which normally take several days to complete, mainly consist of featured lectures. These courses are provided on a roll-over basis over the year. The comprehensive training course package includes sixteen courses to be conveyed to the students by both Chinese lecturers and invited foreign lecturers. It normally takes several months to complete.  The following table provides a breakdown of revenues for the three months ended June 30, 2011 and 2010, respectively:
                         
     
Three months ended June 30, 2011
      %      
Three months ended
 June 30, 2010 
      %       Change        % of change  
Revenue from Proprietary Training Courses
  $ 1,400,292       36.8%     $ 3,390,530       67.6%     $ (1,990,238 )     -58.7%  
Revenue from comprehensive training packages
    2,409,659       63.20       1,623,791       32.4%       785,868       -48.4%  
Total Revenue
  $ 3,809,951       100.0%     $ 5,014,321       100.0%     $ (1,204,370 )     -24.0%  
 
For the three months ended June 30, 2011, revenue was $3.8 million, representing a decrease of $1,204,370, or 24.0% as compared to the prior comparative period. The decrease in revenue was attributable to a number of factors.

First, our revenue was affected by the number of students attending the training courses and also by the average tuition price.  For the three months ended June 30, 2011, a total of 964 students attended the training courses or featured lectures (including 805 students for proprietary courses and 159 students for comprehensive courses). For the same period of 2010, total of 1,700 students attended the training courses (including 1,643 students for proprietary courses and 57 students for comprehensive courses).  The number of students participating in the 16 course comprehensive training programs increased from 57 students in 2010 to 159 students in 2011, or 178.9%, caused by two invited foreign lecturers Mr. John Grey and Mr. John Maxwell who performed planned lectures in China. The lecture contents provided by these invited foreign lecturers attracted more students, revenue from comprehensive course training during current period increased compared to the same period of 2010. However, revenue from preliminary course trainings decreased significantly because only 805 students attended the training course during the quarter ended June 30, 2011, while 1,643 students participated in the training in the same period of 2010.  The number of student attendance in preliminary course training decreased 838 or 51%. The decrease in students participating in the preliminary course training during the quarter ended June 30, 2011 was because we reduced the promotional sales campaigns which resulted in decreased student recruiting. Normally we hold 6-8 promotional sales activities each month, but only held 7 promotional sales activities during the quarter.  In terms of total student recruiting, we actually recruited about 1,200 students during the quarter, among which about 300 students have registered for the courses for the third quarter during the summer time when many young students can find time to participate in the trainings together with their parents or family members because schools are closed during the summer time.  These 300 students did not count for our sales revenue for the quarter ended June 30, 2011 because our courses have not been delivered to them,  As a result, fewer students attended the training courses, sales revenue decreased accordingly.

Second, in terms of average tuition price for preliminary courses, the average price decreased from $2,064 per course in 2010 to $1,739 per course for the three months ended June 30, 2011, representing a 15.9% decrease.  This was because the Company focused on promotional sales seminars during the quarter aiming to recruit more students to participate in the training courses during the upcoming summer. As a result, the tuition collected from such promotional seminars was lower than ordinary course offerings. Only RMB 1,000 per course was collected for each student attending such promotional seminar with primary focus on the advertising and sales promotion in order to attract more students to attend some higher value and higher price courses in the future. Among the 805 students who attended the preliminary courses, around 50% of the students attended the low-priced promotional seminars rather than the higher value course training courses; average tuition price was thus driven down during the quarter ended June 30, 2011 compared to the same period of 2010.  As tuition price went down, sales revenue went down accordingly. Generally, revenue from preliminary courses during the quarter decreased from $3.39 million in 2010 to only $1.4 million in 2011 affected by the decrease of student attendance and average tuition price charged as discussed above.
 

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Third, revenue from comprehensive training programs increased from $1.62 million for the quarter ended June 30, 2010 to $2.41 million for the quarter ended June 30, 2011, an increase of $785,868, or  48.4%. The increase was mainly due to the increase of student registration for comprehensive training programs during the quarter ended June 30, 2011, as well as an increase of  average tuition price for comprehensive course programs from period to period.  For the quarter ended June 30, 2011, total 159 students attended such training courses while there were only 57 students who attended such courses in the same period of 2010. Additionally, the comprehensive training programs included 16 courses, among which 10 courses are taught by Chinese lecturers, and the remaining 6 courses are to be taught by invited foreign lecturers. The 10 courses normally are completed within 3 months; and the 6 courses can normally be completed within 6-9 month periods, because the invitation and arrangement schedule needs to be made in advance.  For those students who have completed their 10 course taught by Chinese lecturers, they must wait for the foreign lecturers’ arrival in order to move forward.  This may affect the student course attendance from period to period. For the three months ended June 30, 2011, two invited foreign lecturers, Mr. John Grey and Mr. John Maxwell, provided lectures to students. As a result, more students attended the comprehensive course training programs.  For the same period of 2010, no invited foreign lecturers appeared in China to perform the lectures; as a result, only 57 students attended the courses. Also, the average tuition price for comprehensive course program increased from $4,511 in 2010 to $4,888 in 2011, representing an 8.4% increase. Generally, revenue from comprehensive course training programs increased due to the increase of student attendance and tuition price.
 
Cost of Revenue:

For the three months ended June 30, 2011, cost of revenues increased by approximately $172,165, or 10.6%, as compared to the three months ended June 30, 2010.

The following table summarizes the cost of revenues for the three months ended June 30, 2011 and 2010:
 
   
Three months ended June 30, 2011
   
Three months ended June 30, 2010
   
Change
   
% of change
 
Cost of lecturer's compensation
    506,364       28.1 %     147,281       9.0 %     359,082       243.8 %
Hotel and conference-room
    627,219       34.8 %     600,002       36.8 %     27,217       4.5 %
Educational facility costs
    130,125       7.2 %     68,243       4.2 %     61,882       90.7 %
Consulting fee
    124,675       6.9 %     279,540       17.2 %     (154,865 )     -55.4 %
Administrative support
    119,014       6.6 %     100,999       6.2 %     18,015       17.8 %
Sales taxes
    293,686       16.3 %     432,853       26.6 %     (139,167 )     -32.2 %
Total cost of sales
    1,801,083       100.0 %     1,628,918       100.0 %     172,165       10.6 %
 
Our costs of revenues mainly include expenditures incurred in connection with providing educational services to the students, such as renting conference rooms, booking hotels, compensation for lecturers, renting training equipment and materials as well as other direct labor costs incurred.

The increase in costs of revenues was attributable to the following reasons:

First,  cost of lecturer’s compensation amounted to $506,364, or 28.1%, of the total cost of revenue for the three months ended June 30, 2011, representing a $359,083 increase as compared to the corresponding period of 2010.  The increase in lecturers’ compensation was mainly due to increased compensation paid to invited foreign lecturers John Grey and John Maxwell, who gave lectures to Chinese students during the quarter ended June 30, 2011. We  paid a total of $480,000 to these two invited foreign lecturers for performing the lectures.

Second, the cost of hotel and conference rooms for the three months ended June 30, 2011 increased $27,217, or 4.5%, as compared to the prior comparative  period.  The increase in hotel expense  to host invited foreign lecturers  was relatively higher than the hotel expense to host Chinese lecturers. During the quarter ended June 30, 2011, two invited foreign lecturers performed their planned lectures to Chinese students, leading to the increase in hotel and conference room expense.
 
 
 
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Third, consulting fees for the three months ended June 30, 2011 decreased $154,865, or 55.4% as compared to the prior comparative period. Consulting fees  relate to expenses incurred to plan and organize trainings or hold large promotional seminars, and such fees are paid to outside service providers for providing planning and organizing services.  For the quarter ended June 30, 2011, only 964 students attended the training courses, while 1,700 students did so in the same period of 2010.  Consulting fees incurred during the quarter ended June 30, 2011 was primarily related to service fees paid to outside parties for planning and organizing the lectures performed by two invited foreign lecturers.  Overall, when comparing the same period of 2011 and 2010, due to the decreased services obtained from outside service providers for planning and organizing the training courses, consulting fees decreased consequently.

Fourth, educational facility rent cost for the three months ended June 30, 2011 increased $61,882, or 90.7% as compared to the prior comparative period. The increase was mainly due to hosting the invited foreign lecturers which required advanced audio, video and other facilities to be prepared.

As revenue decreased as discussed above, we paid less sales tax for the three months ended June 30, 2011 than in the same period of 2010.  As a result, sales tax decreased $139,167, or 32.2% when comparing the three months ended June 30, 2011 to prior comparative period.
 
Gross profit:

Our gross profit decreased $1,376,535, or 41%, to approximately $2,008,868 for the three months ended June 30, 2011, as compared to $3,385,403 for the three months ended June 30, 2010. The decrease in gross profit was mainly due to a decrease in sales revenue and increase in cost of revenue as discussed above.

Selling expense:

Our selling expenses mainly include advertising expense, sales commission paid to outside agents for student recruiting and salaries paid to out-source marketing and sales forces. Selling expense were $606,880 for three months ended June 30, 2011, representing a 7%, or $47,850, decrease as compared to three months ended June 30, 2010. The decrease in selling expense was in line with decreased sales activities which led to decreased student recruiting for the quarter ended June 30, 2011. During the quarter ended June 30, 2010, we leased sales and marketing representatives from an outside service agent Zhejiang Foreign Service Corp and paid RMB 3.98 million (approximate to $583,000) as a labor lease fee to this third party. For the same period of 2011, we stopped leasing outside representatives, and instead used our own sales forces to market and sell the services resulting in total salary and wages of $343,442. As a result, our selling expense decreased for the three months ended June 30, 2011 compared to the same period of 2010. We expect our selling and marketing expense to increase in the near future as we increase our sales efforts, launch more comprehensive training courses and target new markets to expand our operations.

General and administrative expense:

Our general and administrative expenses principally include: staff salaries and benefits, traveling and entertainment expenses; professional fees, such as consulting, audit and legal fees; office rent; and other associated fees.

Our general and administrative expense was $782,073 for three months ended June 30, 2011, representing a 9%, or $81,421 decrease as compared to three months ended June 30, 2010. The decrease in our general and administrative expense for the three months ended June 30, 2011 was mainly due to decreased professional fees. Our Company went public in February 2010. For the three months ended June 30, 2010, in connection with our going public in the United States, we incurred significant consulting and professional fees. Such professional fees amounted to RMB 2 million (approximate to $294,763) for the three months ended June 30, 2010.  For the same period of 2011, such professional fees only amounted to RMB 1 million, or approximately $153,478.  In addition, we paid more rent expense in the three months ended June 30, 2010 than in the three months ended June 30, 2011 because we rented more apartments in order to host invited lecturers during that period. Due to these two factors, general administrative expense for the three months ended June 30, 2010 was higher than in the three months ended June 30, 2011. The decrease in general administrative expense for the three months ended June 30, 2011, was offset by an increase in salary expense from only $148,921 in 2010 to $190,472 in 2011. Salary expense increased due to increased hiring in order to support the increased business activities for the three months ended June 30, 2011.  The net change in our general and administrative expenses reflected the above factors.
 

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We expect that our general and administrative expenses will increase as we expand our business and operations. In addition, because the Company’s shares of common stock are quoted on the Over-the-Counter Bulletin Board, we need to enhance our management’s skills to adapt to a more complex business environment, because we are subject to the rules and regulations of United States securities laws, including those pertaining to corporate governance and internal controls. We believe that we will need to hire more personnel as our business continues to grow, and that we will incur additional general and administrative costs in the near future to support our business.

Other income:

Other income mainly consists of interest income and water fund refund from the local government. Interest income increased $18,498, or 390.4%, for the three months ended June 30, 2011 as compared to the prior comparative period. The increase in interest income was due to increased cash and bank deposits for the period indicated which generated a higher amount of interest income. Other income increased $89,623, or 94.1%, for three months ended June 30, 2011 as compared to the prior period. During the three months ended June 30, 2011, we received RMB 1.2 million (approximately $184,851), representing a water fund refund from the local tax authority which we recorded as non-operating income. For the same period of 2010, such water tax refund amounted to $95,228.

As a result, other income increased $108,121 for the three months ended June 30, 2011 as compared to the prior period.

Income tax expense:

Our Company is mainly governed by the Income Tax Law of the People’s Republic of China concerning private-run enterprises, which are generally subject to tax at a statutory rate of 25% on income reported in the statutory financial statements after appropriate tax adjustments. For the three months ended June 30, 2011 and 2010, we incurred income taxes of $206,497 and $596,269, respectively. Income tax expense decreased $389,772, or 65.4%, due to decreased taxable income for the period indicated.

Net income:

As a result of the above, we reported net income of $621,505 for the three months ended June 30, 2011, as compared to net income of $1,370,876 for the same period of 2010. Net income decreased $749,371, or54.7%, for three months ended June 30, 2011 as compared with the three months ended June 30, 2010. The decrease in net income was mainly attributable to our decreased revenue and increased cost of revenue as discussed above.

Comparison of Six Months Ended June 30, 2011 and June 30, 2010
 
   
For the six months ended June 30,
             
   
2011
   
2010
    Variance    
%
 
         
(Restated)
             
                         
 Revenues
  $ 9,587,805     $ 9,355,786     $ 232,019       2.5 %
 Cost of revenue
    5,007,383       2,964,693       2,042,690       68.9 %
 Gross profit
    4,580,422       6,391,093       (1,810,671 )     -28.3 %
                                 
 Operating expenses
                               
   Selling expenses     1,101,857       1,259,008       (157,151 )     -12.5 %
   General and administrative expenses     1,539,604       1,920,251       (380,647 )     -19.8 %
 Total operating expenses
    2,641,461       3,179,259       (537,798 )     -16.9 %
                                 
 Income from operations
    1,938,961       3,211,834       (1,272,873 )     -39.6 %
                                 
 Other income
                               
   Interest income     58,786       4,952       53,834       1087.1 %
   Other income     194,860       95,228       99,632       104.6 %
 Total Other income
    253,646       100,180       153,466       153.2 %
                                 
 Income before income taxes
    2,192,607       3,312,014       (1,119,407 )     -33.8 %
                                 
 Provision for income taxes
    639,451       892,437       (252,986 )     -28.3 %
                                 
 Net income
  $ 1,553,156     $ 2,419,577     $ (866,421 )     -35.8 %
 
 
 
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Revenue:

We provide two kinds of training programs to students: (1) proprietary training courses and (2) comprehensive training courses.  Proprietary training courses, which normally take several days to complete, mainly consist of featured lectures. These courses are provided on a roll-over basis over the year. The comprehensive training course package includes sixteen courses to be conveyed to the students by both Chinese lecturers and invited foreign lecturers. It normally takes several months to complete.  When comparing the operating results for the six months ended June 30, 2011 and 2010, our revenue generated from proprietary training courses and from comprehensive training courses was different. For the first quarter ended March 31, 2011, most of our revenue was generated from proprietary training courses and revenue from comprehensive course trainings only accounted for a very small percentage of our total revenue due to limited student course attendance. However, for the second quarter ended June 30, 2011, revenue from comprehensive course trainings increased significantly due to two invited foreign lecturers performing their planned lecturers, which led to increased student attendance, while revenue from preliminary course trainings decreased due to decreased student registration and course attendance. Our operating results for the six months ended June 30, 2011 reflected the combined results as discussed above. The following table provides a breakdown of our revenues for the six months ended June 30, 2011 and 2010, respectively:
 
   
Six months ended June 30, 2011
   
%
   
Six months ended June 30, 2010
   
%
   
Change
   
% of change
 
                                     
Revenue from Proprietary Training Courses
    6,561,999       68.4 %     6,557,275       70.1 %     4,724       0.1 %
Revenue from comprehensive training packages
    3,025,806       31.6 %     2,798,511       29.9 %     227,295       8.1 %
                                                 
Total
  $ 9,587,805       100.0 %     9,355,785       100.0 %     232,019       2.5 %
 
For the six months ended June 30, 2011, revenue was $9.58 million, representing an increase of $232,019 or 2.5% as compared to the prior comparative period. The increase in revenue was attributable to a number of factors, as set forth below:
 
First, revenue from proprietary training courses was $6,561,999 for the six months ended June 30, 2011, representing 68.4% of the total revenue.  When compared to the same period of 2010, revenue from proprietary training courses slightly increased $4,724, or 0.1%, primarily due to exchange rate effect.  Revenue from proprietary course trainings actually dropped significantly during the quarter ended June 30, 2011 due to decreased student attendance to only 805 students as discussed above. In addition,  the average tuition fee for a  proprietary course normally ranges from RMB 1,500 (or $220)  per course to RMB 40,000 (or $5,880) per course, depending on the different course offerings.  However, during the quarter ended June 30, 2011,  among the 805 students who attended the proprietary trainings, nearly 50% of them actually participated in a promotional seminar and only paid RMB 1,000 each as tuition fees. As a result, the weighted average tuition price for  proprietary courses was affected. Overall, the weighted average tuition price for the six months presented an increase from $2,084 in 2010 to $2,458 in 2011, representing a 17.9% increase. The increase in weighted average tuition price became a major driver to  ensure the revenue from courses maintain the same level as compared to the same period of 2010, taking into consideration the decrease in total student attendance from 3,125 students participating in the course trainings in 2010 to 2,864 students participating in the same period of 2011.
 
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Second, revenue from comprehensive training programs was $3,025,806, representing 31.6% of the total revenue for the six months ended June 30, 2011. When comparing to the same period of 2010, revenue from comprehensive training courses increased $227,295 or 8%. The increase was mainly due to increased student attendance for comprehensive training programs during the six months period ended June 30, 2011.  For the six months ended June 30, 2011, total 188 students attended such trainings, while only 139 students attended such programs in the same period of 2010.  Our comprehensive training programs included 16 courses, among which 10 courses are taught by Chinese lecturers, and the remaining 6 courses are to be taught by invited foreign lecturers. The 10 courses normally are completed within 3 months; and the 6 courses can normally be completed within 6-9 months periods, because invitation and arrangement schedules need to be made in advance.  Thus, students who have completed their 10 courses taught by Chinese lecturers must wait for the foreign lecturers’ arrival in order to move forward.  This affects the student course attendance from period to period. For the six months ended June 30, 2011, two invited foreign lecturers provided the lectures to students, as a result, more students attended the comprehensive course training programs.  For the same period of 2010, the invited foreign lecturer John Maxwell appeared in Shanghai in quarter one and Mr. Colin Powell performed the lecture in May 2010. However, total student attendance was only 139 students. Thus, revenue recognized for the six months ended June 30, 2011 was relatively higher than the six months ended June 30, 2010.
 
As of June 30, 2011, there were about 300 students who have signed off the preliminary course trainings, and 20 students who have signed up for the comprehensive course trainings for the upcoming third quarter. The Company expects to recruit a total of 1,300 students to participate in the preliminary trainings which will generate about RMB 26 million (or $4 million) revenue from preliminary training courses during third quarter because during the summer time some students will take their family members to attend the courses. Revenue from comprehensive course trainings is expected to decrease due to  a lack of invited foreign lecturers during the third quarter. However, revenue from comprehensive training courses will be expected to increase in the fourth quarter because a lot of students will participate the training courses in November 2011 when invited foreign lecturer Nick Vujicic will come to China to perform the lectures.  The Company expects to have about 10,000 students to attend the lecture performed by Mr. Nick Vujicic generating RMB 20 million from the featured lecture.

Cost of Revenue:

For the six months ended June 30, 2011, cost of revenues increased by approximately $2.04 million, or 68.9%, as compared to the six months ended June 30, 2010.

The following table summarizes the cost of revenue for the six months ended June 30, 2011 and 2010:

     
Six months ended June 30, 2011
      %      
Six months ended June 30, 2010
      %      
Change
     
% of change
 
Cost of lecturer's compensation
  $ 1,826,885       36.5%     $ 583,017       19.7%     $ 1,243,868       213.4%  
Hotel and conference-room
    1,141,599       22.8%       806,282       27.2%       335,317       41.6%  
Educational facility costs
    166,084       3.3%       110,399       3.7%       55,685       50.4%  
Consulting fee
    949,353       19.0%       448,662       15.1%       (500,691 )     52.7%  
Administrative support
    193,514       3.9%       154,728       5.2%       38,786       25.1%  
Sales taxes
    729,949       14.6%       861,604       29.1%       (131,655 )     (15.3% )
Total cost of sales
  $ 5,007,383       100.0%     $ 2,964,693       100.0%     $ 2,042,690       68.9%  
 
Our costs of revenues mainly include expenditures incurred in connection with providing educational services to the students, such as renting conference rooms, booking hotels, compensation for lecturers, renting training equipment and materials as well as other direct labor costs incurred.

The increase in cost of revenue was mainly due to the following reasons:

First, cost of lecturer’s compensation for the six months ended June 30, 2011 amounted to $1.82 million, or 36.5%, of the total cost of revenue, representing 213.4% increase, when compared to the same period in 2010.  The increase in lecturers’ compensation was due to the following reasons: (i) during the six months ended June 30, 2011, we paid cash compensation of RMB 4,312,000 (equivalent to $655,440) to chief executive officer Mr. Liang Kaien. Such compensation was treated as lecturer’s fees and recorded in the cost of sales. Mr. Liang is one of the major lecturers who provides educational training services to students; (ii) during the six months ended June 30, 2011, we paid cash bonuses to all Chinese lecturers before the Chinese Spring Festival. The total cash bonuses paid was RMB 2.12 million (or $0.33 million); (iii) the compensation paid to invited foreign lecturers John Grey and John Maxwell who performed the lectures to Chinese students during the quarter ended June 30, 2011 totaled $480,000 during the period.
 
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Second, hotel and conference room expense for the six months ended June 30, 2011 increased $335,317, or 41.6%, comparing to prior comparative period.  It was because:( i) market price of hotel and conference rooms increased slightly; and ( ii) the hotel expenses incurred to host invited foreign lecturers were relatively higher than the hotel expenses to host Chinese lecturers. During the quarter ended June 30, 2011, two invited foreign lecturers performed their planned lectures to Chinese students which also led to the increase in hotel and conference room expenses.

Third, consulting fees for the six months ended June 30, 2011 increased $500,691, or 111.6%, when compared to the prior comparative period. Consulting fees related to expenses incurred to plan and organize trainings or large promotional seminars, and such fees are paid to outside service providers for providing such planning and organizing services. For the six months ended June 30, 2011,  due to host the lectures performed by two invited foreign lecturers, we paid significant amount of consulting fees to outside service providers to contact, plan and organize the trainings by these invited foreign lecturers. Due to the increase of services obtained from outside service providers, consulting fees increased consequently.

Due to the above factors, cost of revenue for the six months ended June 30, 2011 increased as compared to the same period of 2010.

Gross profit:

Our gross profit decreased by $1,810,671 or 28%, to approximately $4,580,422 for the six months ended June 30, 2011, as compared to $6,391,093 for the six months ended June 30, 2010. The decrease in our gross profit was mainly due to increased cost of revenue as discussed above.

Selling expense:

Our selling expense includes sales commission paid to outside agents for student recruiting and salaries paid to out-source marketing and sales forces. Selling and marketing expenses decreased by $157,151, or 12%, for the six months end June 30, 2011 as compared to the same period of 2010. The decrease in selling expenses was due to the following reasons: (i) for the six months ended June 30, 2010, we leased sales and marketing personnel from an outside service agent Zhejiang Foreign Service Corp and paid RMB 1.6 million (approximate to $235,525) as a labor lease fees to this third-party. For the six months ended June 30, 2011, we stopped leasing outside representatives, but began using our own sales force to market and sell the services; As a result, there was no labor lease expense for the six months ended June 30, 2011; (ii) for the six months ended June 30, 2010, we paid $1,137,250 in consulting fees to several outside agents in order to help recruit students and organize sales and marketing campaigns. However, for the six months ended June 30, 2011, we only paid $328,300 consulting fees for the same purposes. As a result, related selling expense was higher in 2010 than in 2011;  And (iii) For the six months ended June 30, 2011, advertising expense was $172,212 but for the same period of 2010, the Company only reported advertising expense of RMB 7,400 (or $1,088), the increase in advertising expense offset the decrease in labor lease fee and consulting fee for the period indicated. Due to the above factors, our selling expenses decreased for the six months ended June 30, 2011as compared to the prior comparative period. We expect our selling and marketing expense to increase in the near future as we increase our sales efforts, launch more comprehensive training courses and target new markets to expand our operations.

General and administrative expense:

Our general and administrative expenses principally include: Staff salaries and benefits, Traveling and entertainment expenses; professional fees, such as consulting, audit and legal fees; Office rent; and other associated fees.

Our general administrative expense decreased by $380,647, or 20%, for the six months ended June 30, 2011 as compared to the prior comparative period. The decrease was mainly due to decreased professional fees paid in connection with maintaining our public status in the United States.  We went public in February 2010 and incurred a significant amount of professional fees. Total professional fees amounted to RMB 5.4 million (approximate to $0.79 million) for the six months ended June 30, 2010.  For the six months ended June 30, 2011, such professional fees only amounted to RMB 1.5 million (equivalent to $234,189).  In addition, the decrease in professional fees for the six months ended June 30, 2011, was offset by an increase in salary expense from only RMB 2.07 million in 2010 (or $0.35 million) to RMB 2.38 million (or $0.36 million) in 2011, salary expense increased due to increased hiring in order to support the increased business activities for the six months ended June 30, 2011. Also, depreciation expense increased from $21,607 in 2010 to $112,687 in 2011.  The net change in GA expenses reflected the above factors.
 

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We expect that our general and administrative expenses will increase as we expand our business and operations. In addition, as a result of the Company’s shares of common stock being quoted on the Over-the-Counter Bulletin Board, we need to enhance our management’s skills to adapt to a more complex business environment, because we are subject to the rules and regulations of United States securities laws, including those pertaining to corporate governance and internal controls. We believe that we will need to hire more personnel as our business continues to grow, and that we will incur additional general and administrative costs in the near future to support our business.

Other income

Other income mainly consists of interest income and a water fund refund from the local government. Interest income increased $53,834, or 1,087%, for the six months ended June 30, 2011 as compared to the prior comparative period. The increase in interest income was due to higher amount of  cash  for the period indicated which generated a higher amount of interest income. Other income increased $99,632, or 104.6%, for the six months ended June 30, 2011 as compared to the prior period. For the six months ended June 30, 2011, we received a water fund refund from the local tax authority of $194,860 which we recorded as non-operating income. For the same period of 2010, we received a water tax refund of $95,228.

As a result, total other income increased $153,466 for the six months ended June 30, 2011 as compared to the prior period.

Income tax expense:

Our Company is mainly governed by the Income Tax Law of the People’s Republic of China concerning the private-run enterprises, which are generally subject to tax at a statutory rate of 25% on income reported in the statutory financial statements after appropriate tax adjustments.  For the six months ended June 30, 2011 and 2010, we incurred income taxes of $639,451 and $892,437, respectively. Income tax expense decreased $252,986, or 28.3%, mainly due to the increased cost of revenue and decrease in taxable income for the six months ended June 30, 2011

Net income:

As a result of the above, we reported net income of $1,553,156 for the six months ended June 30, 2011, as compared to net income of $2,419,577 for the same period of 2010. Net income decreased by $866,421, or 35.8%, when compared with the six months ended June 30, 2010. The decrease in net income was mainly attributable to our increased cost of revenue as discussed above.

Other comprehensive income

We operate mainly in the PRC and the functional currency of our operating subsidiary is the Chinese Renminbi (“RMB”).  The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into US Dollars at the rates used in translation.

The financial information is first prepared in RMB and then is translated into U.S. dollars at period-end exchange rates as to assets and liabilities and average exchange rates as to revenue and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred. The effects of foreign currency translation adjustments are included as a component of accumulated other comprehensive income in shareholders’ equity.

For the six months ended June 30, 2011, other comprehensive income resulting from the currency translation gain amounted to $93,472.  For the six months ended June 30, 2010, other comprehensive income resulting from the currency translation loss amounted to $46,703.

LIQUIDITY AND CAPITAL RESOURCES

To date, we have financed our operations mainly through cash flows from operations.

Total current assets decreased by $849,695 from $11.3 million as of December 31, 2010 to $10.4 million as of June 30, 2011.  The primary changes to our current assets as of June 30, 2011 were from changes in cash and cash equivalents. Cash and cash equivalents as of June 30, 2011 decreased $1.03 million, or 9.8%, when compared to December 31, 2010.  The decrease in cash was mainly due to the following reasons:
 

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First, during the six months ended June 30, 2011, we paid cash bonus to employees and lecturers before the Chinese Spring Festival (in February). Total cash bonus paid was RMB 2.42 million (approximately $0.37 million).

Second, during the six months ended June 30, 2011, we invited two famous foreign lecturers Mr. John Grey and Mr. John Maxwell to China to give the planned lectures to Chinese students. We paid $480,000 to these invited foreign lecturers for services provided. We also prepaid RMB 1 million (or $152,704) to Shanghai East Asia Athletic and Cultural Company to reserve conference rooms for lectures to be performed by invited foreign lecturers during the summer months of 2011. Such advance deposit was also recorded as advance to vendors, causing the corresponding increase of ending balance of advance to vendor.

Third, during the six months period ended June 30, 2011, we paid RMB 4,312,000 (equivalent to $655,440) to our chief executive officer, Mr. Liang Kaien, for compensation.

Fourth, during the six months period ended June 30, 2011, we paid income tax to local tax authority, totaling RMB 10.7 million (equivalent to $1.63 million).

Fifth, during the six months ended June 30, 2011, we entered into a new office lease agreement with a third party and approximately RMB 2.5 million (or $ 0.4 million) was paid to third parties for the office decoration. Such payment will be capitalized as leasehold improvement when the planned decoration is done.

Total current liabilities as of June 30, 2011 amounted to $4.80 million as compared to $6.79 million at December 31, 2010. The decrease in current liabilities was mainly due to decrease in our customer deposits, accrued expenses and tax payable: (i) customer deposit as of June 30, 2011 decreased $964,305 or 19.7% compared to December 31, 2010. Customer deposits are those amounts received in advance from students for tuition paid to attend our professional training courses and featured lectures. Customer deposits are refundable if the training doesn’t occur within the specified time, thus we recognize these funds as a current liability until the revenue can be realized. The decrease of customer deposits was mainly because more revenue has been recognized based on the progress and actual completion of the trainings, especially when invited foreign lecturers John Grey and John Maxwell performed the planned lectures to students, which led to revenue from comprehensive course training programs increased accordingly. In addition, the decrease in customer deposit was also affected by the fact that fewer students have registered for the course during the quarter ended June 30, 2011 because of reduced sales promotional activities during the quarter, accordingly, customer deposits decreased as well.  (ii)accrued expense as of June 30, 2011 decreased $244,175, or 37%, comparing to December 31, 2010. It was because all the outstanding accrued expense balance as of December 31, 2010 was paid during the six months period ended June 30, 2011. In addition, we accrued newly incurred expense of $409,086 for the six months ended June 30, 2011; (iii) tax payable as of June 30, 2011 decreased $706,571, or 60%, compared to December 31, 2010. It was because the accrued income tax and other taxes as of December 31, 2010 have been paid during the six months period ended June 30, 2011. We paid RMB 10.7 million (equivalent to $1.63 million) to the local tax authority for the income tax during the six months ended June 30, 2011, which was in line with the decrease of cash and cash equivalents mentioned above .

Based on our current operating plan, we believe that existing cash and cash equivalents balances, as well as cash forecast by management to be generated by operations, will be sufficient to meet our working capital and capital requirements for the next twelve months of operations.
 
DISCUSSION OF CASH FLOWS

Comparison of cash flows for the six months ended June 30, 2011 and 2010, is summarized as follows:

   
2011
 
2010 (Restated)
Cash flows from operating activities
 
$
(469,491)
 
$
1,170,143
Cash flows from investing activities
   
(676,363)
   
(470,232)
Cash flows from financing activities
   
-
   
(65,610)
Effect of exchange rate changes on cash
   
142,030
   
(31,631)
Net (decrease) increase in cash and cash equivalents
   
(1,003,823)
   
602,670
Cash and cash equivalents, beginning of period
   
10,272,391
   
6,089,919
Cash and cash equivalents, end of period
  $
9,268,568
   
$ 6,692,589
 

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Operating Activities

Net cash used in operating activities during the six months ended June 30, 2011 was $469,491 which mainly consisted of our net income of $1,553,156, offset by net changes in operating assets and liabilities due to our expanded operating activities, including a decrease in advances to management of $332,010 because we have fully collected these amounts before June 30, 2011. Advances to management are short-term advances made to one manager who is responsible for negotiating hotels, converting currency from Chinese RMB into US Dollar, and ensuring student-recruiting is performed in a timely manner.  In addition,  our advance to vendors increased by $469,378, which mainly represents our payments made to invited foreign lecturers in order to provide educational training service to Chinese students, decrease of tax payable of $723,548 because we made the payment to local tax authority to settle our outstanding tax liability during the period, as well as a decrease of customer deposits in the amount of $1,056,994, representing amounts received in advance from students for tuition paid to attend our professional training courses and featured lectures.

Net cash provided by operating activities was $1,170,143 for the six months ended June 30, 2010, which mainly consisted of our net income of $2,419,577,  noncash stock compensation of $105,000, offset by net changes in operating assets and liabilities due to our expanded operating activities, including decrease in other receivables of $185,428, increase in advance to vendors of $297,388, which represents cash advance made to several well-known foreign lecturers in order to arrange for them to come to China to provide educational services to students in 2010. In addition, our advances to management increased by $837,716 which were short-term advances made to certain managers for marketing, hotel negotiation and to ensure student-recruiting is performed in a timely manner, as well as a decrease of customer deposits of $332,909 which were cash advances made to us by our students to attend our training courses or featured lectures.

Net cash used in operating activities decreased by $1.64 million or 140.1% for the six months ended June 30, 2011 as compared to the prior comparative period, as a result of the above.

Investing Activities

Net cash used in investing activities for the six months ended June 30, 2011 was $676,363 representing the acquisition of property and equipment of $126,334, as well as a long-term deposit of $152,945 made to a local hotel in order to obtain a favorable hotel-room booking rate for educational training purposes. In addition, in April 2011 we signed a new office lease contract with third party in order to lease a large office space in Shanghai. We prepaid $0.4 million to several vendors who are responsible for decorating this new office space. Such advance payment was recorded as construction in progress and will be capitalized when the planned decoration project is completed in August 2011. Accordingly, we reported cash out of $397,084 under cash flow from investing activities.

Net cash used in investing activities amounted to $470,232 for the six months ended June 30, 2010, representing acquisition of property and equipment of $101,417, as well as a long-term deposit of $368,815, made to a local hotel in order to obtain a favorable hotel-room booking rate for educational training purposes.

Financing Activities

There were no financing activities for the six months ended June 30, 2011.

Net cash used in financing activities for the six months ended June 30, 2010 was $65,610, including a repayment of shareholder loan of $705, a dividend payment of $1,285,305 and proceeds from issuance of common shares under a private placement of $1,220,400.  On January 30, 2010, our Board of Directors adopted a resolution, which was subsequently amended on August 13, 2010, to declare dividends in the total amount of RMB 21,325,000 (equivalent to $2,878,504) out of the retained earnings balance of Hangzhou MYL for the fiscal year ended December 31, 2009 to its sole shareholder, Surmounting Limited Marketing Adviser Limited (“SLM”).  On the same date, SLM also made a resolution to distribute the net tax amount of such dividend that SLM received to Magic Dream Enterprises Ltd., a company incorporated under the laws of the British Virgin Islands.  Pursuant to the above mentioned Board Resolutions, on June 17, 2010, we paid dividends of RMB 8,787,500 (approximately $1,285,305) in cash to Magic Dream Enterprises Ltd. after 5% of dividend tax being paid to relevant Chinese tax authority.
 
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As a result of the above factors, as of June 30, 2011, we have $9.19 million available cash on hand. We expect to use such funds to continue to emphasize on expanding and enhancing marketing and sales in the fiscal year 2011 and beyond.  Part of this strategy involves increasing and improving marketing and sales activities to enhance the market position of our key course offerings,, solidifying our market coverage, and increasing marketing and promotional activities. Management also plans to selectively pursue strategic acquisition opportunities to further consolidate our resources and expand our market coverage. As of the date of this report, we are in negotiations for a potential acquisition of an educational company in the Northeast part of China, which is expected to have a clear outcome by the end of this year.

Off-Balance Sheet Arrangements

As of the date of this filing, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have: (i) any obligation arising under a guarantee contract, derivative instrument or variable interest; or (ii) a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.

Critical Accounting Policies

See “Note 2. Summary of Significant Accounting Policies” in “Item 1. Financial Statements” herein for a discussion of the critical accounting pronouncements adopted in this Quarterly Report on Form 10-Q.

ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not Applicable.

ITEM 4.
CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC 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.

As required by Rule 13a-15(e), our management has carried out an evaluation, with the participation and under the supervision of our Chief Executive Officer, Mr. Kaien Liang, and Chief Financial Officer, Mr. Zhiwei Huang, of the effectiveness of the design and operation of our disclosure controls and procedures, as of June 30, 2011. Based upon, and as of the date of this evaluation, Messieurs. Liang and Huang determined that, because of the material weaknesses described in Item 9A “Controls and Procedures” of our Annual Report on Form 10-K for the year ended December 31, 2010, which we are still in the process of remediating as of June 30, 2011, our disclosure controls and procedures were not effective. Investors are directed to Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2010 for the description of these weaknesses.

Changes in Internal Control over Financial Reporting

We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.

During its evaluation of the effectiveness of internal control over financial reporting as of December 31, 2010, our management concluded that we still need to hire qualified accounting personnel and enhance the supervision, monitoring and review of the financial statements preparation processes. Although our accounting staff is professional and experienced in accounting requirements and procedures generally accepted in the PRC, management has determined that they require additional training and assistance in U.S. GAAP. We are actively searching for additional personnel with relevant accounting experience, skills and knowledge in the preparation of financial statements in accordance with of U.S. GAAP and financial reporting disclosure requirements under SEC rules.
 
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Other than the foregoing changes, there were no changes in our internal controls over financial reporting during the first quarter of fiscal 2011 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

PART II
OTHER INFORMATION

ITEM 1.
LEGAL PROCEEDINGS.

From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these, or other matters, may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse affect on our business, financial condition or operating results.

ITEM 1A.
RISK FACTORS.

Not Applicable.

ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3.
DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4.
(REMOVED AND RESERVED).

ITEM 5.
OTHER INFORMATION.

We have no information to disclose that was required to be in a report on Form 8-K during the period covered by this report, but was not reported. There have been no material changes to the procedures by which security holders may recommend nominees to our board of directors.

ITEM 6.
EXHIBITS.

The following exhibits are filed as part of this report or incorporated by reference:

Exhibit No.
 
Description
31.1
 
Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
 
Certifications of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
 
Certifications of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
 
Certifications of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.1  
The following materials from China Executive Education Corp. Quarterly Report on Form 10-Q for the period ended June 30, 2011, formatted in Extensible Business Reporting Language: (i) condensed consolidated balance sheets, (ii) condensed consolidated statements of income and comprehensive income, (iii) condensed consolidated statements of cash flows, and (iv) notes to condensed consolidated financial statements. As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934 (to be filed by amendment).

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SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


Date: August 15, 2011
CHINA EXECUTIVE EDUCATION CORP.
     
     
 
By: 
/s/ Kaien Liang
 
Kaien Liang, Chief Executive Officer
 
(Principal Executive Officer)
 
 
By: 
/s/ Zhiwei Huang
 
Zhiwei Huang, Chief Financial Officer
 
(Principal Financial Officer and Principal
Accounting Officer)



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