Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto appearing elsewhere in this Form 10-Q. The following discussion contains forward-looking statements. Our actual results may differ significantly from those projected in the forward-looking statements. Factors that may cause future results to differ materially from those projected in the forward-looking statements include, but are not limited to, those discussed in "Risk Factors" in our Report on Form 10-K filed with the SEC on April 9, 2008.
OVERVIEW
Through its wholly-owned subsidiary the Company operates the Blue Tassel School ("BTS"), an education center located in Suzhou and organized under the laws of China. BTS is accredited by the Jiangsu Educational committee as a boarding school comprising grades from kindergarten through senior school, including an international school. The five schools that comprise BTS are kindergarten, primary school, junior high school, senior high school, and an international school.
BTS's education program includes compulsory level education, ample elective courses, activity courses, student societies, clubs, and seminars presented by famous scholars and successful individuals. Large-scale social practices and educational activities compose a highly selective and personal curriculum, where children can fully develop their personalities and discover their potential. The comprehensive education system of BTS includes science, art, multi-language, information technology, international understanding, ethics and behavior, adolescence, and ideal seminars. Interaction between students and instructors, an efficient learning environment, and small class teaching are the core ideas for attentive learning and effective study.
BTS possesses facilities for teaching, learning, living, extracurricular activities and health care purposes. Such facilities are at the vanguard of educational platform, including a Chinese-English library, e-reading room, computer lab, multi-functional network system, varieties of labs for group study and experimental use, halls for music rehearsal and scholarly presentations. Other than academic facilities, BTS also has tennis courts, gyms, and other athletic facilities, as well as student apartments.
There are currently 2070 students enrolled at BTS.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
The following table presents the statement of operations for the three months ended March 31, 2008 as compared to the comparable period of the three months ended March 31, 2007. The discussion following the table is based on these results.
2008 2007
----------- -----------
Net Revenue $ 1,506,505 $ 1,386,619
Operating Expenses
Depreciation 331,691 110,296
General and administrative expenses 527,652 483,195
----------- -----------
Total operating expenses 859,343 593,491
----------- -----------
Income from operations 647,162 793,128
----------- -----------
Other (Income) Expense
Interest income -- (15,564)
Interest expense 251,654 236,933
----------- -----------
Total Other Income 251,654 221,369
----------- -----------
Income from continued operation $ 395,508 $ 571,759
Loss from operations of the entity
to be discontinued (4,987) --
----------- -----------
Net Income 390,521 571,759
|
Net Revenue
Net revenue for the three months ended March 31, 2008 totaled $1,506,505 compared to $1,386,619 for the three months ended March 31, 2007, an increase of $119,886, or approximately 8.6%. The increase was due to increased accumulated enrollment in the first quarter of 2008 as compared to the first quarter of 2007, and the increased spring recruiting number in kindergarten.
Operating Expense
Operating expenses for the three months ended March 31, 2008 totaled $859,343 or approximately 57% of net revenue, compared $593,491 or approximately 42.8% for the three months ended March 31, 2007. The increase in operating expense of $265,852 or approximately 45% was due to the increase in depreciation expense of $221,395 as a result of the change in the estimated useful lives of the long-lived assets of Blue Tassel School. The depreciation life of buildings, infrastructures, and leasehold improvement were changed from 40 years to 20 years. The change of accounting estimate is based on the new assessment on the remaining useful lives of these buildings, infrastructures and leasehold improvement.
General and administrative expenses increased by $44,457 as a result increase expenses related to marketing, rent, office supplies and salary increased as the result of increase enrollment and staff.
Income (Loss) from Operations
Income (loss) from operations for the three months ended March 31, 2008 was $647,162 or approximately 43% of net revenue as compared to $793,128 or approximately 57.1% of net revenue for the three months ended March 31, 2007, a decrease in income of $145,966 or approximately 18.4%. The decrease in our income was due increased depreciation expenses for the three months ended March 31, 2008.
Interest Expense
Interest expense for the three months ended March 31, 2008 totaled $251,654 compared to $236,933 for the three months ended March 31, 2007, an increase of $24,721 or approximately 10.4%. The increase was due to loan obtained for campus construction and further development.
Net Income (loss)
Our net income was $390,521 for the three months ended March 31, 2008 compared to $571,759 for the same period in 2007, a decrease in income of $181,238 or approximately 32%. The decrease in net income was primarily due to reason described above.
LIQUIDTY AND CAPITAL RESOURCES
Cash has historically been generated from operations. Operations and liquidity needs are funded primarily through cash flows from operations and short-term borrowings. Cash and cash equivalents were $137,293 at March 31, 2008 and current assets totaled $16,367,350 at March 31, 2008. The Company's total current liabilities were $12,215,294 at March 31, 2008. Working capital at March 31, 2008 was $4,152,056. Net cash provided by operations for the three months ended March 31, 2008 was $1,339,252as compared to $1,320,010 during the same period in 2007. The increase in net cash provided by operating activities was a result of the increase in deferred revenue.
Net cash used in investing activities totaled $(3,874) for the three months ended March 31, 2008, compared with $(1,706,303) for the same period in 2007. The net cash change was $(90,594) and $(2,159,234) for the three months ended March 31, 2008 and 2007, respectively.
Working Capital Requirements
Historically operations, short term financing and the sale of our company stock have been sufficient to meet our cash needs. We believe that we will be able to generate revenues from sales. However, our actual working capital needs for the long and short term will depend upon numerous factors, including operating results, competition, and the availability of credit facilities, none of which can be predicted with certainty. Future expansion will be limited by the availability of financing products and raising capital.
OFF-BALANCE SHEET ARRANGEMENTS
We have never entered into any off-balance sheet financing arrangements and have never established any special purpose entities. We have not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.
