omniture

China Interactive Education Reports Financial Results for the Second Quarter 2010

2010-08-20 20:57 1405
    ZHONGSHAN CITY, China, Aug. 20 /PRNewswire-Asia/ -- China Interactive Education, Inc., (OTC Bulletin Board: CIVN) ("China Interactive Education" or the "Company"), a pioneer in interactive teaching and learning solutions in China, today announced the Company's unaudited financial results for the second quarter of 2010.

    Second Quarter 2010 Financial Highlights
    -- Revenues increased 221% quarter over quarter to $11.4 million 
    -- Gross profit increased 26% quarter over quarter to $3.2 million, 
       representing a 28% gross margin 
    -- Operating income increased 24% quarter over quarter to $2.5 million, 
       with a 22% operating profit margin 
    -- Net income increased 28% to $2.2 million, or $0.03 earnings per basic 
       and diluted share

    Six months 2010 Financial Highlights
    -- Revenues increased 123% period over period to $14.9 million 
    -- Gross profit decreased 3% period over period to $4.4 million, 
       representing a 29% gross margin 
    -- Operating income decreased 60% period over period to $1.5 million, with 
       a 10% operating profit margin 
    -- Net income decreased 63% to $1.1 million, or $0.02 earnings per basic 
       and diluted share


    "During the quarter, we were successful in introducing the Interactive Classroom Solutions products (ICSPs) to our target customers and have created a strong demand for our products. We believe that this result was derived from a competitive product strengthened by our investment in marketing commencing in the first quarter," commented Mr. Ruofei Chen, CEO of China Interactive Education. "We have recorded significant revenue growth comparable to the same quarter of last year due to the successful acceptance of our ICSPs. During the quarter, we have received multiple orders with revenues to be recognized in the second half of the year. During the second quarter, we were also successful in distributing our Education Learning products ("ELPs") to additional retail stores, which we expect will begin to contribute to our revenue in the 2010 third quarter. We continue to see a healthy pipeline of opportunities in both of the ICSPs and ELPs market segments, and we plan to continue aggressively expanding our market presence to other geographic regions."
    Mr. Chen further remarked, "With new orders received and in the process of being delivered in the second half of the year, we remain confident that we can achieve our 2010 guidance of $90-$106 million in revenue and net income range of $17-$20 million." 

    Second Quarter 2010 Financial Results
    Revenue. Our sales revenue increased to $11.36 million in the three months ended June 30, 2010, from $3.54 million for the same period in 2009, representing a 221% increase. During the 2010 period, we changed our principal business from the provision of licensing of patent and related technology development services, or PLFs, to the sale of ELPs and ICSPs under our own "Five Best Students" brand. The increase in revenue reflects acceptance of this change by our customers.
    Cost of Sales. Our cost of sales increased by $7.18 million, or 707%, to $8.2 million in the three months ended June 30, 2010, from $1.02 million for the same period in 2009. The cost of sales per sales ratio changed from 29% to 72% for the three months ended June 30, 2009 and 2010, respectively. The increment in cost of sales represents the difference in cost structure in providing licensing revenue and product revenue, in connection with our change from providing PLFs to providing ELPs and ICSPs during the 2010 period. 
    Gross Profit and Gross Margin. Our gross profit increased by $0.65 million, or 26%, to $3.17 million in the three months ended June 30, 2010, from $2.52 million for the same period in 2009. Gross profit as a percentage of net revenue was 28% and 71% for the three months ended June 30, 2010 and 2009, respectively. The decrease in gross profit percentage represents the different gross margin in providing licensing revenue in the 2009 period and product revenue in the 2010 period.
    Selling Expenses. In the three months ended June 30, 2010, our selling and promotion expenses increased by $0.27 million, to $0.29 million, from $0.02 million for the same period in 2009. During the 2010 period, we incurred expense on a marketing campaign regarding its change in business and in the build up of our own "Five Best Students" brand. The cost of advertisement and consultancy fee related to brand building in the second quarter of 2010 totaled approximately $0.29 million.
    General and Administrative Expenses. In the three months ended June 30, 2010, our general and administrative expenses increased by $0.21 million, to $0.3 million, from $0.09 million for the same period in 2009. The increase was because MenQ China's factory in Zhongshan commenced operations in May 2009.
    Research and Development Expenses. In the three months ended June 30, 2010, our research and development expenses decreased by $0.32 million, to $0.07 million, from $0.39 million for the same period in 2009. The decrease was because the Company devoted resources in 2009 to develop the education programs. Fewer resources were required in the 2010 period to further develop these programs. 
    Income Before Income Taxes. Our income before income taxes increased by $0.48 million, or 24%, to $2.5 million in the three months ended June 30, 2010, from $2.02 million for the same period in 2009, primarily due to the increase in sales and gross profit which was partially offset by the increase in marketing expenses during the 2010 period. 
    Net Income. In the three months ended June 30, 2010, we generated a net income of $2.17 million, an increase of $0.48 million, or 28%, from $1.69 million for the same period in 2009, as a result of the factors described above.

    Six Months 2010 Financial Results
    Revenue. During the six-month period ended June 30, 2010, we had revenue from sales of our ELPs and ICSPs of $14.94 million as compared to net sales of $6.7 million during the six-month period ended June 30, 2009, an increase of 123%. This increase is mainly attributable to a change of our principal business from provision of PLFs to providing ELPs and ICSPs under our own "Five Best Students" brand. The increase in revenue reflects acceptance of this change by our customers. 
    Cost of Sales. Cost of sales, consisting of raw materials, direct labor and manufacturing overhead, was $10.56 million for the six-month period ended June 30, 2010, as compared to $2.2 million for the same period of 2009, an increase of 379%. The increase in cost of sales is in line with the increase in sales and also represents the difference in cost structure in providing licensing revenue and product revenue, in connection with our change from providing PLFs to providing ELPs and ICSPs during the 2010 period. 
    Gross Profit and Gross Margin. Our gross profit decreased by $0.12 million, or 3%, to $4.38 million in the six months ended June 30, 2010, from $4.49 million for the same period in 2009. Gross profit as a percentage of net revenue was 29% and 67% for the six months ended June 30, 2010 and 2009, respectively. The decrease in gross profit represents the different gross margin in providing licensing revenue in the 2009 period and product revenue in the 2010 period.
    Selling Expenses. In the six months ended June 30, 2010, our selling and promotion expenses increased by $2.24 million, to $2.3 million, from $0.06 million for the same period in 2009. During the 2010 period, we incurred expense on a marketing campaign regarding our change in business and on a build up of our own "Five Best Students" brand. The cost of advertisement and the consultancy fee related to brand building in the second quarter of 2010 totaled approximately $1.5 million. This was offset by an allowance for doubtful accounts receivable of $0.7 million that was recorded in the period based on management review of collectability of accounts receivable.
    General and Administrative Expenses. In the six months ended June 30, 2010, our general and administrative expenses increased by $0.36 million to $0.54 million, from $0.18 million for the same period in 2009. The increase was because MenQ China's factory in Zhongshan commenced operations in May 2009. 
    Research and Development Expenses. In the six months ended June 30, 2010, our research and development expenses decreased by $0.53 million, to $0.07 million, from $0.6 million for the same period in 2009. The decrease was because the Company devoted resources in 2009 to develop the education programs. Fewer resources were required in the 2010 period to further develop these programs. 
    Income Before Income Taxes. Our income before income taxes decreased by $2.19 million, or 60%, to $1.46 million in the six months ended June 30, 2010, from $3.65 million for the same period in 2009, primarily due to the increase in selling expense. 
    Net Income. In the six months ended June 30, 2010, we generated a net income of $1.13 million, a decrease of $1.91 million, or 63%, from $3.04 million for the same period in 2009, as a result of the factors described above. 

    SEGMENT DATA
    The following table sets out the analysis of the Company's revenue by products and services.


                          Three months ended           Six months ended      
                               June 30,                    June 30,          
                             2010          2009           2010         2009  
                        (Unaudited)   (Unaudited)  (Unaudited)    (Unaudited) 
    Revenue from                                                             
     external                                                            
     customers:                                                           
    Interactive          
     classroom                                                          
     solutions
     products          $7,859,789   $        --     $7,859,789  $        --
    Electronic
     learning   
     products           3,505,195            --      7,078,184           --
    Licensing of
     patent and                        
     related 
     technology                                                   
     development                                                          
     services                  --     3,423,155             --    6,300,457
    Other electronic                                                         
     products                  --       111,909             --      397,011 
                                                                             
       Total          $11,364,984   $ 3,535,064  $  14,937,973  $ 6,697,468  

                                                              
    About China Interactive Education
    China Interactive Education, Inc., headquartered in Zhongshan, China, is a pioneer in providing interactive teaching and learning solutions to China's educational institutions, professional training schools, and individuals. The Company's proprietary educational materials, co-developed with one of China's leading universities and groups of educational professionals, are embedded in its self-developed interactive hardware and software solutions. China Interactive Education sells its interactive classroom solutions (ICS) directly to educational institutions, as well as through area distributors, and its electronic learning products (ELPs) are sold under its own "Five-Best Student" consumer brand as well as other licensed brands through retail points of sale throughout China. To learn more about the Company, please visit http://www.menq.com.cn .

    Safe Harbor Statement
    This press release may contain certain 'forward-looking statements' relating to the business of China Interactive Education, Inc., and its subsidiary companies. All statements, other than statements of historical fact included herein are forward-looking statements, including statements regarding: the ability of the Company to fulfill its obligations under its ICS and ELP contracts and realize revenues in the second half of the year and meet its fiscal year 2010 guidance; the general ability of the Company to achieve its commercial objectives, including the expansion of its market presence to other geographic regions; the business strategy, plans and objectives of the Company and its subsidiaries; and any other statements of non-historical information. These forward-looking statements are often identified by the use of 
forward-looking terminology such as 'believes,' 'expects' or similar expressions, involve known and unknown risks and uncertainties. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks and uncertainties, and these expectations may prove to be incorrect. Investors should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in the Company's reports that are filed with the Securities and Exchange Commission and available on its website (http://www.sec.gov). All 
forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these factors. Other than as required under the securities laws, the Company does not assume a duty to update these forward-looking statements.


                          --FINANCIAL TABLES FOLLOW--



                        CHINA INTERACTIVE EDUCATION, INC. 
                     CONDENSED CONSOLIDATED BALANCE SHEETS 
                       (AMOUNTS EXPRESSED IN US DOLLARS) 
 
                                    ASSETS                                   
                                                  June 30,     December 31,  
                                                    2010           2009    
                                                (Unaudited)                  
    Current assets                                                           
      Cash and cash equivalents                $    320,496   $    351,544   
      Accounts receivable, net of                                      
       allowance of $720,112 and $nil
       as of June 30, 2010 and December
       31, 2009 respectively                     14,200,857     11,006,809 
      Inventories                                 3,880,367      1,152,365   
      Deposits, prepayments and other                                  
       receivables                                  343,642        656,236 
    Total current assets                         18,745,362     13,166,954   
    Property, plant and equipment, net              427,633        402,897   
    Intangible assets, net                          477,769        581,604   
    Total assets                               $ 19,650,764   $ 14,151,455   
                                                                             
                     LIABILITIES AND SHAREHOLDERS' EQUITY                    
    Current liabilities                                                      
      Accounts and notes payable               $  6,017,316   $  4,687,232   
      Other payables and accrued expenses           395,280        160,449 
      Advances from customers                       672,768        255,852   
      Value added and other taxes                                            
       payable                                    4,059,947      1,737,623 
      Income tax payable                            959,418        742,937   
      Due to related parties                      1,162,939      1,357,954   
    Total current liabilities                    13,267,668      8,942,047   
    Total liabilities                            13,267,668      8,942,047   
                                                                             
    Commitments and Contingencies                                            
                                                                             
    Shareholders' Equity                                                     
      Preferred stock, $0.001 par value,                                    
       10,000,000 shares authorized, none
       issued and outstanding                            --             --   
      Common stock, $0.001 par value,                                       
       200,000,000 shares authorized,                                      
       65,000,000 shares issued and                                  
       outstanding                                   65,000         65,000 
    Additional paid-in capital                    1,128,000      1,128,000   
    Statutory reserves                               87,884         87,884   
    Retained earnings                             4,672,383      3,540,507   
    Accumulated other comprehensive income          429,829        388,017   
    Total shareholders' equity                    6,383,096      5,209,408   
    Total liabilities and shareholders' equity $ 19,650,764   $ 14,151,455   
                                                                         
                                                                         
                                                                         
                        CHINA INTERACTIVE EDUCATION, INC.
    CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME 
                                   (UNAUDITED)
                        (AMOUNTS EXPRESSED IN US DOLLARS)

                          Three months ended         Six months ended        
                                June 30,                  June 30,            
                           2010         2009         2010           2009  
                                                                  
    Revenue           $11,364,984   $3,535,064  $14,937,973     $6,697,468  
                                                                 
    Cost of sales      (8,197,087)  (1,016,281) (10,562,739)    (2,204,541) 
                                                                 
    Gross profit        3,167,897    2,518,783    4,375,234      4,492,927  
    Operating                                                            
     expenses:                                                             
      Selling                                                         
       expenses          (289,459)     (17,232)  (2,297,360)       (56,131) 
      General and
       administrative
       expenses          (304,189)     (89,902)    (544,566)      (181,512) 
      Research and
       development                                                          
       expenses           (73,451)    (394,275)     (73,451)      (602,848) 
                                                                            
                         (667,099)    (501,409)  (2,915,377)      (840,491) 
                                                                            
    Income from                                                  
     operation          2,500,798    2,017,374    1,459,857      3,652,436  
    Bank interest                                                        
     income                    30           10           88            196  
                                                                            
    Income before                                                        
     provision                                                           
     for income tax     2,500,828    2,017,384    1,459,945      3,652,632  
    Provision for                                                        
     income taxes        (328,069)    (323,730)    (328,069)      (611,460) 
                                                                 
    Net income          2,172,759    1,693,654    1,131,876      3,041,172  
    Other compre-
     hensive                                                                   
     income:                                                                
      Foreign                                                           
       currency                                                            
       translation                                                          
       adjustment        (101,298)    (382,432)      41,812       (216,193) 
                                                                            
    Total compre-
     hensive                                                            
     income            $2,071,461   $1,311,222   $1,173,688     $2,824,979  
                                                                            
    Weighted average                                                             
     number of shares:                                                               
      - Basic                                                   
        and diluted    65,000,000   60,400,000   65,000,000     60,400,000  
    Earnings per                                                         
     common share                                                                   
      - Basic                                                           
        and diluted         $0.03        $0.03        $0.02          $0.05  


                                                                            
                         CHINA INTERACTIVE EDUCATION, INC.
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                       (AMOUNTS EXPRESSED IN US DOLLARS) 

                                                 Six months ended June 30,  
                                                    2010          2009   
    Cash flows from operating activities:                                
    Net income                                   $1,131,876    $3,041,172   
    Adjustments to reconcile net income to                                  
     cash provided by operating activities:
      Depreciation of property, plant and                                
       equipment                                     48,994           611   
      Amortization of intangible assets             110,165       109,840   
      Allowance for doubtful debts                  718,145            --   
    (Increase) decrease in assets:                                         
      Accounts receivable                        (3,817,185)      129,198   
      Inventories                                (2,713,928)     (217,933)  
      Deposits, prepayments and other                                       
       receivables                                  315,312      (302,675)  
    Increase (decrease) in liabilities:                                    
      Accounts and notes payable                  1,300,188       212,971   
      Other payables and accrued expenses           233,670        97,388   
      Advance from customers                        415,447       282,944   
      Value added and other taxes payable         2,305,870         2,550   
      Income tax payable                            211,525       (20,433)  
    Net cash provided by operating                                          
     activities                                     260,079     3,335,633   
                                                                         
    Cash flows from investing activities:                               
    Purchase of property, plant and                                      
     equipment                                      (71,411)     (176,240)  
    Purchase of intangible assets                    (3,232)           --   
    Advance to related company                           --      (163,809)  
    Net cash used in investing activities           (74,643)     (340,049)  
                                                                            
    Cash flows from financing activities:                                   
    Advance from related parties                    842,824            --   
    Repayment to related parties                 (1,044,477)   (3,005,749)  
    Net cash used in financing activities          (201,653)   (3,005,749)  
                                                                            
    Effect of foreign currency translation          (14,831)         (226)  
    Net decrease in cash and cash equivalents       (31,048)      (10,391)  
    Cash and cash equivalents, beginning of                                 
     period                                         351,544       440,000   
    Cash and cash equivalents, end of period       $320,496      $429,609   
    Supplemental disclosure information                                     
      Income taxes paid                            $116,546           $-- 


    For more information, please contact:

    Company Contact: 
     Mr. Michael Lin
     Vice President, Investor Relations
     China Interactive Education, Inc. 
     Phone: +1-949-743-0868
     Email: ir@menq.com.cn
Source: China Interactive Education, Inc.
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