UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 or 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934
For the month of December 2021
Commission file number:
(Address of Principal Executive Offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
Form 20-F ☒ Form 40-F ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐
Explanatory Note:
China Liberal Education Holdings Limited (the “Registrant”) is filing this report on Form 6-K to report its financial results for the six months ended June 30, 2021 and to discuss its recent corporate developments.
Attached as exhibits to this Report on Form 6-K are:
| (1) | the unaudited condensed interim consolidated financial statements and related notes as Exhibit 99.1; |
|
|
|
| (2) | Management’s Discussion and Analysis of Financial Condition and Results of Operations as Exhibit 99.2; |
|
|
|
| (3) | the press release dated December 3, 2021 titled “China Liberal Education Limited Reports Financial Results for the First Six Months of Fiscal Year 2021” as Exhibit 99.3; |
|
|
|
| (4) | Interactive Data File disclosure as Exhibit 101 in accordance with Rule 405 of Regulation S-T. |
2 |
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements in this current report with respect to the Company’s current plans, estimates, strategies and beliefs and other statements that are not historical facts are forward-looking statements about the future performance of the Company. Forward-looking statements include, but are not limited to, those statements using words such as “believe,” “expect,” “plans,” “strategy,” “prospects,” “forecast,” “estimate,” “project,” “anticipate,” “aim,” “intend,” “seek,” “may,” “might,” “could” or “should,” and words of similar meaning in connection with a discussion of future operations, financial performance, events or conditions. From time to time, oral or written forward-looking statements may also be included in other materials released to the public. These statements are based on management’s assumptions, judgments and beliefs in light of the information currently available to it. The Company cautions investors that a number of important risks and uncertainties could cause actual results to differ materially from those discussed in the forward-looking statements, including but not limited to, product and service demand and acceptance, changes in technology, economic conditions, the impact of competition and pricing, government regulation, and other risks contained in reports filed by the company with the Securities and Exchange Commission. Therefore, investors should not place undue reliance on such forward-looking statements. Actual results may differ significantly from those set forth in the forward-looking statements.
All such forward-looking statements, whether written or oral, and whether made by or on behalf of the company, are expressly qualified by the cautionary statements and any other cautionary statements which may accompany the forward-looking statements. In addition, the company disclaims any obligation to update any forward-looking statements to reflect events or circumstances after the date hereof.
3 |
Exhibit Index
| ||
| Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
| ||
101.INS |
| Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document). |
101.SCH |
| Inline XBRL Taxonomy Extension Schema Document. |
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB |
| Inline XBRL Taxonomy Extension Labels Linkbase Document. |
101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
104 |
| Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
4 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| China Liberal Education Holdings Limited |
| |
|
|
| |
Date: December 3, 2021 | By: | /s/ Ngai Ngai Lam |
|
| Name: | Ngai Ngai Lam |
|
| Title: | Chief Executive Officer |
|
5 |
EXHIBIT 99.1
CHINA LIBERL EDUCATION HOLDINGS LIMITED
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2021 AND 2020
1 |
China Liberal Education Holdings Limited
TABLE OF CONTENTS
|
| Page | |
Unaudited Condensed Consolidated Financial Statements |
|
|
|
|
|
|
|
Unaudited Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020 |
| 3 |
|
|
|
|
|
| 4 |
| |
|
|
|
|
| 5 |
| |
|
|
|
|
| 6 |
| |
|
|
|
|
Notes to Unaudited Condensed Consolidated Financial Statements |
| 7-29 |
|
2 |
Table of Contents |
China Liberal Education Holdings Limited
Condensed Consolidated Balance Sheets
(Unaudited)
|
| June 30, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
ASSETS |
|
|
|
|
|
| ||
CURRENT ASSETS |
|
|
|
|
|
| ||
Cash |
| $ |
|
| $ |
| ||
Accounts receivable, net |
|
|
|
|
|
| ||
Contract receivable, net, current |
|
|
|
|
|
| ||
Advance to suppliers, net |
|
|
|
|
|
| ||
Due from a related party |
|
|
|
|
|
| ||
Prepaid expenses and other current assets |
|
|
|
|
|
| ||
TOTAL CURRENT ASSETS |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
|
|
|
| ||
Operating lease right-of-use lease assets, net |
|
|
|
|
|
| ||
Contract receivable, net– non-current |
|
|
|
|
|
| ||
TOTAL NON-CURRENT ASSETS |
|
|
|
|
|
| ||
TOTAL ASSETS |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
Account payable |
| $ |
|
| $ |
| ||
Deferred revenue |
|
|
|
|
|
| ||
Taxes payable |
|
|
|
|
|
| ||
Due to a related party |
|
|
|
|
|
| ||
Operating lease liabilities, current |
|
|
|
|
|
| ||
Accrued expenses and other current liabilities |
|
|
|
|
|
| ||
TOTAL CURRENT LIABILITIES |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Operating lease liabilities, non-current |
|
|
|
|
|
| ||
TOTAL LIABILITIES |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Ordinary shares, $ |
|
|
|
|
|
| ||
Additional paid-in capital |
|
|
|
|
|
| ||
Statutory reserve |
|
|
|
|
|
| ||
Retained earnings |
|
|
|
|
|
| ||
Accumulated other comprehensive income |
|
|
|
|
|
| ||
Total stockholders’ equity |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
| $ |
|
| $ |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3 |
Table of Contents |
China Liberal Education Holdings Limited
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(Unaudited)
|
| For the six months ended |
| |||||
|
| 2021 |
|
| 2020 |
| ||
|
|
|
|
|
|
| ||
REVENUE, NET |
| $ |
|
| $ |
| ||
COST OF REVENUE |
|
| ( | ) |
|
| ( | ) |
GROSS PROFIT |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
Selling expenses |
|
| ( | ) |
|
| ( | ) |
General and administrative expenses |
|
| ( | ) |
|
| ( | ) |
Total operating expenses |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM OPERATIONS |
|
|
|
|
| ( | ) | |
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSES) |
|
|
|
|
|
|
|
|
Interest income |
|
|
|
|
|
| ||
Other expense, net |
|
| ( | ) |
|
| ( | ) |
Total other income, net |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES |
|
|
|
|
| ( | ) | |
|
|
|
|
|
|
|
|
|
INCOME TAX PROVISION |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
|
|
|
|
| ( | ) | |
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME (LOSS) |
|
|
|
|
|
|
|
|
Total foreign currency translation adjustment |
|
|
|
|
| ( | ) | |
TOTAL COMPREHENSIVE INCOME (LOSS) |
|
|
|
|
| ( | ) | |
|
|
|
|
|
|
|
|
|
Weighted average number of shares, basic and diluted |
|
|
|
|
|
| ||
Basic and diluted earnings (loss) per ordinary share |
| $ |
|
| $ | ( | ) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4 |
Table of Contents |
China Liberal Education Holdings Limited
Condensed Consolidated Statements of Changes in Stockholders’ Equity
For the Six Months Ended June 30, 2021 and 2020
(Unaudited)
|
|
|
|
|
| Additional |
|
|
|
|
|
|
|
| Accumulated other |
|
| Total |
| |||||||||
|
| Ordinary shares |
|
| paid-in |
|
| Statutory |
|
| Retained |
|
| comprehensive |
|
| Stockholders' |
| ||||||||||
|
| Shares |
|
| Amount |
|
| capital |
|
| reserve |
|
| earnings |
|
| (loss) gain |
|
| Equity |
| |||||||
Balance at December 31, 2019 |
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of ordinary shares in initial public offering, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Appropriation to statutory reserve |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| |||||
Net loss |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | ||||
Foreign currency translation loss |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2020 |
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2020 |
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of ordinary shares, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Appropriation to statutory reserve |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| |||||
Net income |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Foreign currency translation gain |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2021 |
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| $ |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5 |
Table of Contents |
China Liberal Education Holdings Limited
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
| For the Six Months Ended June 30, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Cash flows from operating activities |
|
|
|
|
|
| ||
Net income (loss) |
| $ |
|
| $ | ( | ) | |
Adjustments to reconcile net income (loss) to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
| ||
Loss from disposal of property and equipment |
|
|
|
|
|
| ||
Amortization of operating lease right-of-use lease assets |
|
|
|
|
|
| ||
Share-based compensation |
|
|
|
|
|
| ||
Changes in operating assets and liabilities: |
|
|
|
|
|
| - |
|
Accounts receivable, net |
|
| ( | ) |
|
|
| |
Contract receivable, net |
|
|
|
|
| ( | ) | |
Advances to suppliers |
|
| ( | ) |
|
|
| |
Prepaid expenses and other current assets |
|
|
|
|
|
| ||
Accounts payable |
|
| ( | ) |
|
|
| |
Deferred revenue |
|
| ( | ) |
|
| ( | ) |
Taxes payable |
|
|
|
|
|
| ||
Accrued expenses and other current liabilities |
|
| ( | ) |
|
|
| |
Net cash used in operating activities |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
| ( | ) |
|
| ( | ) |
Repayment from a related party |
|
|
|
|
|
| ||
Net cash provided by (used in) investing activities |
|
|
|
|
| ( | ) | |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Proceeds from borrowing from a related party |
|
|
|
|
|
| ||
Net proceeds from issuance of ordinary shares |
|
|
|
|
|
| ||
Net cash provided by financing activities |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
|
|
| ( | ) | |
|
|
|
|
|
|
|
|
|
Net increase in cash |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Cash, beginning of period |
|
|
|
|
|
| ||
Cash, end of period |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
| ||
Income taxes paid |
| $ |
|
| $ |
| ||
Interest paid |
| $ |
|
| $ |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6 |
Table of Contents |
CHINA LIBERAL EDUCATION HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — ORGANIZATION AND BUSINESS DESCRIPTION
China Liberal Education Holdings Limited (“China Liberal” or the “Company”) was incorporated under the laws of the Cayman Islands on February 25, 2019 as an exempted company with limited liability.
China Liberal owns
China Boya Education Group Co., Limited (“Boya Hong Kong”), formerly known as Haier International Investment Holding Limited, was incorporated in accordance with the laws and regulations of Hong Kong on May 11, 2011, and changed to its current name on July 19, 2016. Yi Xin BVI owns
China Liberal, Yi Xin BVI and Boya Hong Kong are currently not engaging in any active business operations and are merely acting as holding companies.
China Liberal (Beijing) Education Technology Co., Ltd. (“China Liberal Beijing”) was formed on August 8, 2011, as a Wholly Foreign-Owned Enterprise (“WOFE”) in the People’s Republic of China (the “PRC”), with a registered capital of RMB33.5 million (approximately $
The Company, through its wholly-owned subsidiaries, is primarily engaged in providing educational services in the PRC under the “China Liberal” brand. The Company offers a wide range of educational services and programs to customers, consisting primarily of (i) education programs offered by joint ventures of the PRC and foreign institutions, or Sino-foreign Jointly Managed Academic Programs, (ii) overseas study consulting services (“Overseas Study Consulting Services”), and (iii) technological consulting services, provided for targeted Chinese universities/colleges to help them improve their data management system and to optimize their teaching and operating environment. The Company also provides tailored job readiness training services to graduating students from the appropriate partner schools so that such students would be better equipped to serve employers at their respective job positions. In addition the Company sells textbooks and course materials to students enrolled in the Sino-Foreign Jointly Managed Academic Programs.
7 |
Table of Contents |
CHINA LIBERAL EDUCATION HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — ORGANIZATION AND BUSINESS DESCRIPTION (continued)
Details of the subsidiaries of the Company as of June 30, 2021 were set out below:
Name of Entity |
| Date of Formation |
| Jurisdiction of Formation |
| % of Ownership |
| Principal Activities |
|
|
|
|
|
|
|
|
|
|
|
| Parent |
| ||||
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the U.S. generally accepted accounting principles (“US GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2021 and 2020 are not necessarily indicative of the results that may be expected for the full year. The information included in this interim report should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes thereto included in the Company’s annual report on Form 20-F for the fiscal year ended December 31, 2020, filed with the SEC on April 30, 2021 and amended on November 15, 2021.
The accompanying unaudited condensed consolidated financial statements include the financial statements of China Liberal, Yi Xin BVI, Boya Hong Kong and China Liberal Beijing. All inter-company balances and transactions are eliminated upon consolidation.
Revision to Previously Reported Financial Information
In 2021, we identified an accounting error involving the presentation of changes in deferred offering costs in the cash flow statements for the six months ended June 30, 2020. These corrections decreased changes in prepaid expenses and other current activities presented in the operating activities by $
|
| June 30, |
| |||||||||
|
| 2020 |
| |||||||||
|
| As Previously Reported |
|
| Adjustment |
|
| As Corrected |
| |||
Cash flows from operation activities |
|
|
|
|
|
|
|
|
| |||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
| |||
Prepaid expenses and other current assets |
| $ |
|
| $ | ( | ) |
| $ |
| ||
Net cash used in operating activities |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
| ( | ) |
|
|
|
|
| ( | ) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from initial public offering - stock issuance |
|
|
|
|
|
|
|
|
| |||
Net cash provided by financing activities |
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of changes of foreign exchange rates on cash |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Net increase in cash |
|
|
|
|
|
|
|
|
| |||
Cash, beginning of year |
|
|
|
|
|
|
|
|
| |||
Cash, end of year |
| $ |
|
| $ |
|
| $ |
|
Uses of estimates
In preparing the unaudited condensed consolidated financial statements in conformity with US GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on information as of the date of the consolidated financial statements. Significant estimates required to be made by management include, but are not limited to, the valuation of accounts receivable and contracts receivable, advances to suppliers, valuation allowance for deferred tax assets, provision necessary for contingent liabilities and revenue recognition. Actual results could differ from those estimates.
8 |
Table of Contents |
CHINA LIBERAL EDUCATION HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Risks and Uncertainties
Risks and uncertainties related to doing business in China
The main operations of the Company are located in the PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by political, economic, and legal environments in the PRC, as well as by the general state of the PRC economy. The Company’s results may be adversely affected by changes in the political, regulatory and social conditions in the PRC. Additionally, the recent statements and regulatory actions by China’s government, such as those related to the use of variable interest entities, data security or anti-monopoly concerns, as well as the Public Company Accounting Oversight Board’s ability to inspect the Company’s auditors, may impact the Company’s ability to conduct its business, accept foreign investments, or continue being listed on a U.S. stock exchange. Although the Company has not experienced losses from these situations and believes that it is in compliance with existing laws and regulations including its organization and structure disclosed in Note 1, such experience may not be indicative of future results.
COVID-19
The Company’s operations may be further affected by the ongoing COVID-19 pandemic. For the six months ended June 30, 2021, the Company’s revenue from Sino-foreign Jointly Managed Academic Programs was not significantly impacted because (i) Chinese universities/colleges have resumed on-site instruction since May 2020, and (ii) the number of students enrolled in the Company’s Sino-foreign Jointly Managed Academic Programs with two colleges increased during the 2021 academic school year. The total number of students enrolled increased by 14% as compared to the same period of last year. The Company has been providing teaching services to students at normal level and no dropout has been reported to the Company during the six months ended June 30, 2021. However, due to the impact of COVID-19, the internal payment processes of the Company’s partnering schools were temporarily delayed. As a result, the Company and these partnering schools mutually agreed to extend the tuition payment term by three to six months. The Company does not believe such delay will result in any collectability risk and the entire tuition receivable balance is expected to be fully received but only slightly later than a typical operating year. Furthermore, this temporary delay in tuition payment does not represent a change in the Company’s cooperation model with these partnering schools and the Company does not expect to incur further tuition payment delays in the future.
The continued uncertainties associated with the COVID-19 has caused many Chinese universities/colleges to temporarily hold their “smart campus” project construction plans and accordingly the Company did not obtain large “smart campus” project contract during the six months ended June 30, 2021, which led to a decrease in the Company’s revenue from technological consulting and supporting services during that period. Additionally, the COVID-19 pandemic continues to have a negative impact over the Company’s study abroad consulting services. A portion of the Company’s revenue from overseas study consulting services were recognized when students received offers and obtained appropriate visas. However, due to the COVID-19 pandemic, certain countries closed their borders and imposed travel restrictions. For the six months ended June 30, 2021, none of the students receiving overseas consulting services received offers or visas, compared to 11 students who received school offers and obtained visas in the same period in 2020. Due to the uncertainties around international travels, it is expected that the COVID-19 pandemic may continue to result in students being restricted from pursuing their overseas education in the near terms and may have further negative impact over the oversea study consulting service revenue stream.
See Note 13 for Segment Reporting.
The continued uncertainties associated with COVID-19 may continue to negatively impact the Company’s revenue and cash flows, as students may be discouraged by the restrictions imposed by major overseas education destination countries, which may lead to significant decrease in the demand of the Company’s overseas study consulting services and even its Sino-foreign Jointly Managed Academic Programs. Further, any resurgence could negatively affect the execution of additional smart campus contracts with Chinese universities/colleges, the collection of the payments from previous smart campus projects, and the market development of the Company’s newly launched visualization solutions and technology consulting services to non-university businesses.
Concentration of customers
A significant portion of the Company’s revenue, accounts receivables and contracts receivables is concentrated on two large customers, and the Company’s operating results will be adversely and materially impacted if we lose these customers. Please refer to Note 10 Concentrations for details.
9 |
Table of Contents |
CHINA LIBERAL EDUCATION HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Liquidity
During the six months ended June 30, 2021, the Company had negative cash flow from operations. As of June 30, 2021, the Company had cash of approximately $
The Company intends to finance its future working capital requirements and capital expenditures from cash generated from operating activities. However, the Company may seek additional financings, to the extent required, and there can be no assurances that such financing will be available on favorable terms or at all.
Cash
Cash includes currency on hand and deposits held by banks that can be added or withdrawn without limitation. The Company maintains most of its bank accounts in the PRC and Hong Kong. Cash maintained in banks within the People’s Republic of China of less than RMB0.5 million (equivalent to $
Accounts and contracts receivable, net
Accounts and contracts receivable are recorded net of allowance for uncollectible accounts.
The Company determines the adequacy of reserves for doubtful accounts based on individual account analysis and historical collection trend. The allowance is based on management’s best estimate of specific losses on individual exposures, as well as a provision on historical trends of collections. Actual amounts received may differ from management’s estimate of credit worthiness and the economic environment. Delinquent account balances are written-off against the allowance for doubtful accounts after management has determined that the likelihood of collection is not probable. As of June 30, 2021 and December 31, 2020, there was no allowance recorded as the Company considers all of the accounts receivable fully collectible.
The Company’s contracts receivable represents balance derived from the Technological Consulting Services for Smart Campus Solutions provided to Chinese universities/colleges, when the projects under the contracts have been completed and accepted by Chinese universities/colleges, but the balances have not been past due based on the contracted payment schedules. The Company had not incurred any bad debts with Chinese universities/colleges in the past, and considers the contract receivable fully collectible. Thus, there was no allowance recorded on such outstanding contract receivable as of June 30, 2021 and December 31, 2020 (See Note 4).
10 |
Table of Contents |
CHINA LIBERAL EDUCATION HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Advances to suppliers
Advance to suppliers consists of balances paid to suppliers that the goods or services have not been provided or received. The Company makes advance payment to suppliers for purchase of equipment, devices and electronic component products in order to undertake the “smart campus” consulting projects for customers. Advance to suppliers are short-term in nature and are reviewed periodically to determine whether their carrying value has become impaired. As of June 30, 2021 and December 31, 2020, there was no allowance recorded as the Company considers all of the advances to be fully realizable.
Lease
The Company determines if an arrangement contains a lease at the inception of a contract. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of- use assets and lease liabilities are recognized at the commencement date based on the present value of the remaining future minimum lease payments. As the interest rate implicit in the Company’s leases is not readily determinable, the Company utilizes its borrowing rates set by the Central Bank of the People’s Republic of China, determined by class of underlying asset, to discount the lease payments.
The Company leases premises for offices under non-cancellable operating leases. Right-of-use assets are expensed over the term of lease. The Company leases do not include options to extend nor any restrictions or covenants. The Company has historically been able to renew its office leases. Under the terms of the lease agreements, the Company has no legal or contractual asset retirement obligations at the end of the lease.
Impairment of long-lived Assets
Long-lived assets with finite lives, primarily property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the estimated cash flows from the use of the asset and its eventual disposition below are the asset’s carrying value, then the asset is deemed to be impaired and written down to its fair value. There were no impairments of these assets as of June 30, 2021 and December 31, 2020.
Fair value of financial instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
11 |
Table of Contents |
CHINA LIBERAL EDUCATION HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
· | Level 1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
|
|
· | Level 2 — inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted market prices for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable and inputs derived from or corroborated by observable market data. |
|
|
· | Level 3 — inputs to the valuation methodology are unobservable. |
Unless otherwise disclosed, the fair value of the Company’s financial instruments as of June 30, 2021 and December 31, 2020 based upon the short-term nature of the assets and liabilities. The fair value of the contracts receivable also approximates their carrying amount because the receivables were derived from fixed-price contracts and will be settled by cash.
Property and equipment
Property and equipment are stated at cost less accumulated depreciation. The cost of an asset comprises of its purchase price and any directly attributable costs of bringing the asset to its present working condition and location for its intended use.
Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets. The estimated useful lives for significant property and equipment are as follows:
|
| Useful life |
|
Office equipment and furniture |
|
| |
Electronic equipment |
|
| |
Transportation vehicles |
|
| |
Leasehold improvement |
|
|
Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major renewals and betterments which substantially extend the useful life of assets are capitalized. The cost and related accumulated depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in the consolidated statements of operations and comprehensive income in other income or expenses.
Revenue recognition
The Company’s revenues are primarily derived from providing a wide range of educational services and programs to customers, as disclosed below. Revenues are reported net of all value added taxes.
To determine revenue recognition for contracts with customers, the Company performs the following five steps: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation.
12 |
Table of Contents |
CHINA LIBERAL EDUCATION HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The Company generates its revenue from the following sources:
- Sino-foreign Jointly-Managed Academic Programs
The Company recommends and coordinates accredited international universities/colleges to forge partnerships with Chinese host universities/colleges to establish international education programs at degree level. Chinese host universities/colleges then utilize their existing administrative ability, campus classrooms and facilities to recruit Chinese students into such programs. The Company also selects, recruits and appoints qualified foreign faculty to teach major courses at selected Chinese host universities/colleges and bears all faculty related costs, provides continuing support to foreign faculty, develops and delivers major course content and materials to ensure teaching quality meeting international standards, and to optimize students’ learning outcome and to prepare them for further education overseas and help them with course credit conversion in the event that any student decides to pursue further study overseas. The Company actively supports and interacts with enrolled students throughout their programs to ensure successful program completion. The Company’s contracts with host Chinese universities/colleges are fixed price contracts, pursuant to which, the Company is to receive a fixed portion of tuition for services rendered.
With respect to Sino-foreign Jointly Managed Academic Programs, the Company is not involved in recruiting students, collecting refunding tuition when students drop out, all of which are handled by the host universities/colleges. The host universities/colleges normally offer tuition refund if a student drops out from school within the first month of each academic school year. Collected tuition fees become non-refundable after the one-month refund policy window. Historically, for students enrolled under the Sino-foreign Jointly Managed Academic Programs, the average student dropout rate was below
- Sino-foreign Jointly-Managed Academic Programs (continued)
The Company’s contracts with Chinese host universities/colleges provide that foreign teachers assigned by the Company should be substituted, and teaching textbooks, course materials and curriculums should be adjusted in a timely manner in order to ensure a satisfactory teaching result. The Chinese host universities/colleges have the right to withhold the Company’s portion of the tuition if the Company does not take corrective action when the Company’s service deficiency is identified, if any. Any costs related to teacher substitution, textbooks, course materials and curriculums adjustment are borne by the Company. The Company maintains active communications with the host universities/colleges in order to obtain feedback on the quality of the services performed. Any service deficiency is being corrected and improved in a timely manner so as to achieve satisfactory long-term cooperation with the host universities/colleges. Historically, as a result of timely interaction with the host universities/colleges to address any service deficiency and to improve the teaching result, there were no estimable tuition withhold from the host universities/colleges that needs to be accrued. There were no complaints received from the host universities/colleges with respect to the Company’s services for the six months ended June 30, 2021 and 2020 which required material adjustment to the amount of fees received by the Company.
13 |
Table of Contents |
CHINA LIBERAL EDUCATION HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue recognition (continued)
The tuition fees received by the Company are initially recorded as deferred revenue and recognized ratably over applicable academic year as the Company’s performance obligations related to teaching, management and other supporting services are carried out over the whole academic year.
- Sales of textbooks and course materials
In order to ensure the quality of the course content to meet international standards, the Company has developed and edited more than 16 English textbooks and course materials with emphasis on language training, and sells these textbooks and course materials to students enrolled under the Sino-Foreign Jointly Managed Academic Programs.
Revenue from sales of textbooks and related course materials is recognized upon delivery of textbooks and course materials, which is when the risks and titles are transferred and the Company’s performance obligation is satisfied.
- Overseas Study Consulting Service
The Company’s Overseas Study Consulting Services target those students who wish to study in foreign countries to enrich their learning experiences and to expand their horizon and employment possibilities. The Company’s overseas study consulting services are typically performed under one-on-one private tutoring model with duration of four to six months. The Company provides school information to help students make informed decisions about which institution and major to choose from, help them prepare for school application and admission; provides study plans, language training and test preparation courses to help students improve their foreign language ability and help them achieve higher scores in international admission and assessment tests. The Company also helps students on visa application and paperwork, and offers overseas extended services such as finding accommodation and travel assistance. In connection with these services, the Company collects an up-front fee based on the scope of consulting services requested by students.
- Technological Consulting and Support Services
The Company’s technological consulting services utilize advanced information technology such as cloud computing, mobile internet and big data analytics to provide total solutions to targeted Chinese universities/colleges in order to integrate and improve their teaching, research, student data management, storage and processing, and campus life services, and to optimize their teaching and operating environment and improve operational efficiency. Since late 2020, the Company also started to provide technical support services to business entities in addition to universities/colleges to construct and establish multi-location video conference center and other technical solutions. The Company’s technological consulting and support service contracts are primarily on a fixed-price basis, which require the Company to perform services including project planning, project solution and design, data management application customization, installations of hardware equipment and components for digital classrooms and academic experiment centers or labs, integration of hardware and software application, and post-contract continuous maintenance support, based on the specific needs from each customer. Upon delivery of services, project completion inspection and customer acceptance are generally required. In the same contract, it may also include provisions that require the Company to provide post-contract maintenance support for a period ranging from several months to three years after customized solutions and services are delivered.
In addition, some of the Company’s technological consulting service contracts include a difference in timing of when control is, or is deemed to be, transferred and the collection of cash receipts, which are collected over the term of the service arrangement. The timing difference could result in a significant financing component for performance obligations. If a significant financing component is identified, the future cash flows included in the transaction price allocated to the performance obligations are discounted using a discount rate compared to a market-based borrowing rate specific to both the customer and terms of the contract. The resulting present value of the allocated future cash flows is recorded as revenue while the discount amount is considered to be the significant financing component. Future cash flows received from the customer related to the performance obligations are bifurcated between principal repayment of the receivable and the related imputed interest income related to customer financing. The interest income is recorded as financing income within the consolidated statements of operations and comprehensive income as providing financing to the customers is a core component under such contracts.
14 |
Table of Contents |
CHINA LIBERAL EDUCATION HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue recognition (continued)
- Technological Consulting and Support Services (continued)
The Company evaluates “smart campus” solution service contracts and determines whether these contracts contain multiple performance obligations. A performance obligation is a promise to transfer to the customer either (1) a good or service (or a bundle of goods or services) that is distinct; or (2) a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer. Performance obligations in the agreements are identified based on the goods and services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the services or goods is separately identifiable from other promises in the contract.
The Company determines “smart campus” solution and application customization service, installations of hardware and software components, and post-contract continuous maintenance support, as separate performance obligations in the same fixed-fee contract, because the Company’s promise to transfer each of these services is separately identifiable from other promises in the contract and the customer can benefit from each service or goods deliver either on its own or together with other resources that are readily available. The Company allocates contract revenue to the identified separate units based on their relative standalone selling price. The standalone selling price is the price at which an entity would sell a promised good or service separately to a customer. Revenue associated with post-contract continuous maintenance support performance obligation is recognized over the time. Revenue associated with the solution and application customization service and installations of hardware and software components are recognized at a point in time upon completion of the performance obligation is satisfied and accepted by the customers. In instances, where substantive completion inspection and customer acceptance provisions are specified in contracts, revenues are deferred until all inspection and acceptance criteria have been met.
- Tailored job readiness training services
The Company also provides tailored job readiness training services to graduating students from the appropriate partner schools so that such students would be better equipped to serve the employer at their respective job positions. Similar to Sino-foreign Jointly-Managed Academic Programs, the Company forges partnerships with selected Chinese vocational schools or colleges to provide tailored job readiness training services to students. The partner schools utilize their existing administrative ability, campus classrooms and facilities to recruit students into such training programs. The Company selects, recruits and appoints qualified faculty, trainers or professionals to provide trainings and bears related costs, develops and delivers major training content and materials to students to optimize their learning outcome, improve their social and technical skills, coordinate with employers to provide internship job opportunities to students and eventually help students to find appropriate jobs after completion of the trainings and graduation. The Company actively supports and interacts with enrolled students to ensure successful completion of the trainings, which normally takes several months up to three years. The Company’s contracts with partner schools are fixed price contracts, pursuant to which, the Company is to receive a fixed portion of training fees for services rendered. The training fees are collected first by partner schools from enrolled students before the training services get started, and then remitted to the Company. The Company initially records such training service fees as deferred revenue and ratably recognized it as revenue over the training service period as the Company’s performance obligations related to teaching, training, management and other supporting services are carried throughout the training period.
Contract Balances and Remaining Performance Obligations
Contract balances typically arise when a difference in timing between the transfer of control to the customer and receipt of consideration occurs.
As of June 30, 2021 and December 31, 2020, the Company does not have any contract assets.
15 |
Table of Contents |
CHINA LIBERAL EDUCATION HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue recognition (continued)
The Company’s contract liabilities, which are reflected in its consolidated balance sheets as deferred revenue of $
Disaggregation of revenue
Revenue disaggregated by service type was as follows for the six months ended June 30, 2021 and 2020:
|
| For the six months ended June 30, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
|
| (Unaudited) |
|
| (Unaudited) |
| ||
Revenue from Sino-foreign Jointly Managed Academic Programs |
| $ |
|
| $ |
| ||
Revenue from Technological Consulting Services for Smart Campus Solutions |
|
|
|
|
|
| ||
Revenue from Overseas Study Consulting Services |
|
|
|
|
|
| ||
Revenue from tailored job readiness training services |
|
|
|
|
|
| ||
Total revenue |
| $ |
|
| $ |
|
Costs on data management application system customization
With its “smart campus” solution services to Chinese universities/colleges, the Company provides technical support to Chinese universities/colleges for the customization of their campus data management application systems to record student information. The Company does not develop and own the data management application software. Costs incurred, which consist primarily of internal salaries and benefits of personnel involved in the provision of such services, were included in the cost of revenue in the consolidated statements of operations and comprehensive income.
16 |
Table of Contents |
CHINA LIBERAL EDUCATION HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income taxes
The Company accounts for current income taxes in accordance with the laws of the relevant tax authorities. Deferred income taxes are recognized when temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period including the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
An uncertain tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred. No significant penalties or interest relating to income taxes have been incurred during the six months ended June 30, 2021 and 2020. The Company does not believe there was any uncertain tax position as of June 30, 2021 and December 31, 2020.
The Company’s operating subsidiary in China is subject to the income tax laws of the PRC. No significant income was generated outside the PRC for the six months ended June 30, 2021 and 2020. As of June 30, 2021, all of the tax returns of the Company’s PRC Subsidiary remain open for statutory examination by PRC tax authorities.
Value added tax (“VAT”)
The PRC government implemented a value-added tax reform pilot program, which replaced the business tax with VAT on selected sectors including but not limited to education in Beijing effective September 1, 2012. In August 2013, the pilot program was expanded nationwide in certain industries. Since May 2016, the change from business tax to VAT are expanded to all other service sectors which used to be subject to business tax.
17 |
Table of Contents |
CHINA LIBERAL EDUCATION HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Share-based compensation
The Company measures compensation expense for stock-based awards to non-employee contractors and directors based on the awards’ initial grant-date fair value. The estimated grant-date fair value of the award is recognized as expense over the requisite service period using the straight-line method. The Company estimated grant-date fair value of restricted stocks based on the market price of the ordinary shares as of the grant date. For the six months ended June 30, 2021 and 2020, share-based compensation expense amounted to $
Earnings (loss) per Share
Basic earnings per share (“EPS”) is measured as net income (loss) divided by the weighted average ordinary shares outstanding for the period. Diluted presents the dilutive effect on a per share basis of potential ordinary 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 ordinary 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. For the six months ended June 30, 2021 and 2020, there were no dilutive shares.
Foreign currency translation
The functional currency for China Liberal, Yi Xin BVI and Boya Hong Kong is the U.S Dollar (“US$”). However, China Liberal, Yi Xin BVI and Boya Hong Kong currently only serve as the holding companies and did not have active operation as of June 30, 2021. The Company operates primarily through its subsidiary, China Liberal Beijing, in the PRC, and the functional currency for China Liberal Beijing is the Chinese Yuan (“RMB”). The Company’s consolidated financial statements have been translated into the reporting currency US$. Assets and liabilities of the Company are translated at the exchange rate at each reporting period end date. Equity is translated at historical rates. Income and expense accounts are translated at the average rate of exchange during the reporting period. The resulting translation adjustments are reported under other comprehensive income (loss). Gains and losses resulting from the translations of foreign currency transactions and balances are reflected in the results of operations.
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$ at the rates used in translation.
The following table outlines the currency exchange rates that were used in creating the consolidated financial statements in this report:
|
|
| June 30, |
|
|
| June 30, |
|
|
| December 31, |
|
Period-end spot rate |
|
| US$ |
|
|
| US$ |
|
|
| US$ |
|
Average rate |
|
| US$ |
|
|
| US$ |
|
|
| US$ |
|
Comprehensive income (loss)
Comprehensive income (loss) consists of two components, net income (loss) and other comprehensive income (loss). The foreign currency translation gain or loss resulting from translation of the financial statements expressed in RMB to US$ is reported in other comprehensive income (loss) in the consolidated statements of operations and comprehensive income (loss).
Statement of Cash Flows
In accordance with ASC 230, “Statement of Cash Flows”, cash flows from the Company’s operations are formulated based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statements of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets.
18 |
Table of Contents |
CHINA LIBERAL EDUCATION HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent accounting pronouncements
In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. ASU 2016-13 was subsequently amended by Accounting Standards Update 2018-19, Codification Improvements to Topic 326, Financial Instruments — Credit Losses, Accounting Standards Update 2019-04 Codification Improvements to Topic 326, Financial Instruments — Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, and Accounting Standards Update 2019-05, Targeted Transition Relief. In November 2019, the FASB issued ASU 2019-10, which extends the effective date for adoption of ASU 2016-13. Accordingly, for public entities that are not smaller reporting entities, ASU 2016-13 and its amendments is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. For all other entities, this guidance and its amendments will be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. As an emerging growth company, the Company plans to adopt this guidance effective January 1, 2023. The Company is currently evaluating the impact of the pending adoption of ASU 2016-13 on the Company’s consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes. ASU 2019-12 is intended to simplify accounting for income taxes. It removes certain exceptions to the general principles in Topic 740 and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years, with early adoption permitted. The Company adopted this ASU on January 1, 2021. The adoption of this guidance had no material impact on the Company’s unaudited condensed consolidated financial statements.
19 |
Table of Contents |
CHINA LIBERAL EDUCATION HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 — ACCOUNTS RECEIVABLE, NET
Accounts receivable consist of the following:
|
| June 30, 2021 (Unaudited) |
|
| December 31, 2020 |
| ||
Accounts receivable- Sino-foreign Jointly Managed Academic Programs |
| $ |
|
| $ |
| ||
Accounts receivable – Tailored job readiness training services |
|
|
|
|
|
| ||
Accounts receivable- Overseas Study Consulting Services |
|
|
|
|
|
| ||
Less: allowance for doubtful accounts |
|
|
|
|
|
| ||
Accounts receivable, net |
| $ |
|
| $ |
|
Under the Sino-foreign Jointly Managed Academic Programs, student tuition fees are collected by the Chinese host universities/colleges at the beginning of each academic school year and then remit the agreed portion to the Company within one to four months. Due the impact of COVID-19, the internal payment processes of the partnering schools were temporarily delayed. As a result, the Company and these partnering schools mutually agreed to extend the tuition payment term by three to six months. As of the date of this filing, $1,056,578 or
NOTE 4 — CONTRACTS RECEIVABLE, NET
Contracts receivable consists of the following:
|
| June 30, 2021 |
|
| December 31, 2020 |
| ||
|
| (Unaudited) |
|
|
| |||
Contract receivable- “Smart Campus” related technological consulting services with Fuzhou Melbourne Polytechnic (“FMP”) (1) |
| $ |
|
| $ |
| ||
Contract receivable- “Smart Campus” project maintenance and technical support fee with FMP |
|
|
|
|
|
| ||
Contract receivable – Other “Smart Campus” related technological consulting services (2) |
|
|
|
|
|
| ||
Financing component associated with FMP contract receivable (1) |
|
|
|
|
|
| ||
Less: allowance for doubtful accounts |
|
|
|
|
|
| ||
Total contracts receivable, net |
|
|
|
|
|
| ||
Less: current portion of contract receivable |
|
|
|
|
|
| ||
Contracts receivable, non-current |
| $ |
|
| $ |
|
(1) In 2017, the Company entered into a contract with FMP to help FMP with its smart campus project, including creating a big data center, digital classrooms and an experiment-based simulation teaching center for its business school. These projects had been fully completed by November 2018 with satisfactory inspection and acceptance by FMP in December 2018.
Total contract price under the 2017 FMP “smart campus” project was RMB 16.68 million (approximately $
Based on the initial contract payment schedule, RMB16.68 million earned project fee shall be paid in three equal installments of RMB5,561,180 (approximately $
20 |
Table of Contents |
CHINA LIBERAL EDUCATION HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 — CONTRACTS RECEIVABLE, NET (continued)
In addition to the 2017 FMP contract, in 2019, the Company entered into another “smart campus” related contract with FMP to help FMP create an information engineering laboratory training center and an experiment-based simulation center for its hotel management major with total contract price of RMB15.58 million (approximately $
The contract for the information engineering laboratory training center includes two phases. Phase I requires the Company to complete the hardware and software installation and decoration of the computer training rooms, Internet of Things training room and digital classrooms with contract price of approximately RMB 7.1 million (US$
As of June 30, 2021 total outstanding contract receivable from FMP 2019 contract amounted to $
2019 FMP Contract |
| Amount |
|
| Contracted payment due date | ||
Contract receivable |
| $ |
|
|
| ||
Maintenance fees |
|
|
|
|
| ||
Total |
|
|
|
|
| ||
Less current portion |
|
|
|
| By | ||
Non-current portion |
| $ |
|
| By |
As of June 30, 2021, contract receivable associated with FMP 2019 contract amounted to $
As of June 30, 2021 and December 31, 2020, no allowance for doubtful accounts was recorded as the Company considers all of the contract receivable on “smart campus” projects from FMP fully collectible because in addition to the “smart campus” project, the Company has worked with FMP on Sino-foreign Jointly Managed Academic Programs since 2011 and as of the date of this filing, there is no overdue balance from FMP. Accordingly, management believes that cash collection from FMP is reasonably assured.
21 |
Table of Contents |
CHINA LIBERAL EDUCATION HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 — CONTRACTS RECEIVABLE, NET (continued)
For the above mentioned 2017 and 2019 FMP contracts, revenue recognized for the six months ended June 30, 2021 and 2020, was as follows:
|
| For the six months end June 30, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
|
| (Unaudited) |
|
| (Unaudited) |
| ||
Revenue from 2019 FMP “smart campus” contract |
| $ |
|
| $ |
| ||
2017 FMP contract post-installation maintenance fee revenue |
|
|
|
|
|
| ||
2019 FMP contract post-installation maintenance fee revenue |
|
|
|
|
|
| ||
Total revenue from FMP “smart campus” contracts |
| $ |
|
| $ |
|
(2) The Company has entered into additional smart campus solution contracts with a number of Chinese universities/colleges, including Capital Normal University, Shougang Technician College, Beijing Institute of Technology, North China Electric Power University, University of Chinese Academy of Sciences, Beijing Advanced Technical School of Arts and Craft and China University of Mining & Technology (Beijing), etc., to provide “smart campus” solution related consulting services to them, such as internet network improvement, digital classroom solutions, and educational management system customization. Most of these new smart campus contracts had been executed, completed, and accepted by these universities/colleges, and the Company recognized revenue of $
NOTE 5 — ADVANCE TO SUPPLIERS
In connection with the technological consulting services provided to Chinese universities/colleges for the “smart campus” projects as disclosed in Note 4, the Company made advance payment to suppliers for purchase of electronic sensors, smartboards, projectors, LED display panels, high definition classroom audio and sound system and other lab-based equipment. The balances of advance to suppliers were $
NOTE 6 — PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following:
|
| June 30, 2021 |
|
| December 31, 2020 |
| ||
|
| (Unaudited) |
|
|
| |||
Other receivable (1) |
| $ |
|
| $ |
| ||
Prepaid expenses and others (2) |
|
|
|
|
|
| ||
Subtotal |
|
|
|
|
|
| ||
Allowance for doubtful accounts |
|
|
|
|
|
| ||
Prepaid expenses and other current assets, net |
| $ |
|
| $ |
|
(1) | Other receivable primarily includes short-term advances to employees for business operations, which are normally expensed within three months when invoices and other supporting documents been submitted for reimbursement, and security deposits for performance of the contracts. |
|
|
(2) | Prepaid expenses and others include IT equipment and tools which will be charged to cost of revenue upon sales, as well as prepaid NASDAQ annual fees and prepaid legal counsel fee, which are amortized over the service periods. |
22 |
Table of Contents |
CHINA LIBERAL EDUCATION HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 — PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consist of the following:
|
| June 30, 2021 |
|
| December 31, 2020 |
| ||
|
| (Unaudited) |
|
|
| |||
Transportation vehicles |
| $ |
|
| $ |
| ||
Electronic equipment |
|
|
|
|
|
| ||
Office equipment and furniture |
|
|
|
|
|
| ||
Subtotal |
|
|
|
|
|
| ||
Less: accumulated depreciation |
|
| ( | ) |
|
| ( | ) |
Property and equipment, net |
| $ |
|
| $ |
|
Depreciation expense was $
NOTE 8 — RELATED PARTY TRANSACTIONS
a. Due from a related party
As of December 31, 2020, balance due from a related party, Ms. Ngai Ngai Lam, chief executive officer (the “CEO”) and chairwoman of the board of directors (the “Chairwoman”) of the Company, amounted to $
b. Due to a related party
As of June 30, 2021, balance due to a related party, Ms. Ngai Ngai Lam, CEO and Chairwoman of the Company, amounted to $
c. Significant payments made by a related party
In December 2020, Ms. Ngai Ngai Lam, CEO and Chairwoman of the Company made a payment of RMB 6,895,860 (approximately $
NOTE 9 — TAXES
(a) Corporate Income Taxes (“CIT”)
Cayman Island
Under the current tax laws of the Cayman Islands, the Company is not subject to tax on its income or capital gains. In addition, no Cayman Islands withholding tax will be imposed upon the payment of dividends by the Company to its shareholders.
BVI
Yi Xin BVI is incorporated in the BVI as an offshore holding company and is not subject to tax on income or capital gain under the laws of BVI.
Hong Kong
Boya Hong Kong is incorporated in Hong Kong and is subject to profit taxes in Hong Kong at a rate of
23 |
Table of Contents |
CHINA LIBERAL EDUCATION HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 — TAXES (continued)
PRC
Under the Enterprise Income Tax (“EIT”) Law of the PRC, domestic enterprises and Foreign Investment Enterprises (the “FIE”) are usually subject to a unified 25% enterprise income tax rate while preferential tax rates, tax holidays and even tax exemption may be granted on case-by-case basis. EIT grants preferential tax treatment to High and New Technology Enterprises (“HNTEs”). Under this preferential tax treatment, HNTEs are entitled to an income tax rate of 15%, subject to a requirement that they re-apply for HNTE status every three years.
China Liberal Beijing, the Company’s main operating subsidiary in the PRC, was approved as an HNTE and is entitled to a reduced income tax rate of
The corporate income taxes for fiscal 2021 and 2020 were reported at a reduced rate of 15% as a result of China Liberal Beijing being approved as an HNTE. The impact of the tax holidays noted above decreased corporate income taxes by $
The components of the income tax provision are as follows:
|
| June 30, 2021 |
|
| June 30, 2020 |
| ||
|
| (Unaudited) |
|
| (Unaudited) |
| ||
Current tax provision |
| $ | - |
|
| $ | - |
|
Cayman |
|
|
|
|
|
| ||
BVI |
|
|
|
|
|
| ||
Hong Kong |
|
|
|
|
|
| ||
PRC |
|
|
|
|
|
| ||
|
| $ |
|
| $ |
| ||
Deferred tax provision |
|
|
|
|
|
|
|
|
Cayman |
| $ |
|
| $ |
| ||
BVI |
|
|
|
|
|
| ||
Hong Kong |
|
|
|
|
|
| ||
PRC |
|
|
|
|
|
| ||
|
| $ |
|
| $ |
| ||
Income tax provisions |
| $ |
|
| $ |
|
The following table reconciles the China statutory rates to the Company’s effective tax rate for the six months ended June 30, 2021 and 2020:
|
| For the six months ended June 30, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
China income tax statutory rate |
|
| % |
|
| % | ||
Permanent difference |
|
| % |
|
| % | ||
Changes in valuation allowance |
|
| % |
|
| ( | )% | |
Effect of PRC preferential tax rate |
|
| ( | )% |
|
| ( | )% |
Effective tax rate |
|
| % |
|
| ( | )% |
24 |
Table of Contents |
CHINA LIBERAL EDUCATION HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 — TAXES (continued)
The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. As of June 30, 2021, all of the Company’s tax returns for its PRC subsidiary remain open for statutory examination by PRC tax authorities.
(b) Taxes payable
Taxes payable consist of the following:
|
| June 30, 2021 |
|
| December 31, 2020 |
| ||
|
| (Unaudited) |
|
|
| |||
Income tax payable |
| $ |
|
| $ |
| ||
Value added tax payable |
|
|
|
|
|
| ||
Other taxes payable |
|
|
|
|
|
| ||
Total taxes payable |
| $ |
|
| $ |
|
NOTE 10 — CONCENTRATIONS
For the six months ended June 30, 2021, two customers accounted for approximately
As of June 30, 2021, two customers accounted for
For the six months ended June 30, 2021, no supplier accounted for more than 10% of the total cost associated with the Company’s revenue. For the six months ended June 30, 2020, two suppliers accounted for approximately
25 |
Table of Contents |
CHINA LIBERAL EDUCATION HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 — SHAREHOLDERS’ EQUITY
Ordinary Shares
The authorized share capital of the Company is
Issuance of ordinary shares
On May 12, 2020, the Company completed its initial public offering of
In March 2021, the Company filed a Registration Statement on
As of June 30, 2021 and December 31, 2020, the Company had a total of
Statutory reserve and restricted net assets
The Company’s PRC subsidiary is restricted in its ability to transfer a portion of its net assets to the Company. The payment of dividends by entities organized in China is subject to limitations, procedures and formalities. Regulations in the PRC currently permit payment of dividends only out of accumulated profits as determined in accordance with accounting standards and regulations in China.
The Company is required to make appropriations to certain reserve funds, comprising the statutory surplus reserve and the 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 entity’s registered capital. Appropriations to the discretionary surplus reserve are made at the discretion of the board of directors of the Company (the “Board of Directors”). The statutory reserve may be applied against prior year losses, if any, and may be used for general business expansion and production or increase in registered capital, but are not distributable as cash dividends.
Relevant PRC laws and regulations restrict the Company’s PRC subsidiary from transferring a portion of its net assets, equivalent to its statutory reserves and its share capital, to the Company in the form of loans, advances or cash dividends. Only PRC subsidiary’s accumulated profits may be distributed as dividends to the Company without the consent of a third party. As of June 30, 2021 and December 31, 2020, the restricted amounts as determined pursuant to PRC statutory laws totaled $
Share-based compensation
On May 14, 2021, the Board of Directors granted the Company’s independent directors a total of
26 |
Table of Contents |
CHINA LIBERAL EDUCATION HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 — LEASES
The Company’s main operating subsidiary, China Liberal Beijing, leases office spaces for its headquarter office and local branches under non-cancelable operating lease agreements with various
As of June 30, 2021 and December 31, 2020, the remaining lease term was one year and one-and-a-half years, respectively. The Company’s lease agreements do not provide a readily determinable implicit rate nor is it available to the Company from its lessors. Instead, the Company estimates its incremental borrowing rate based on the benchmark lending rate for three-year loans as published by China’s central bank in order to discount lease payments to present value. The discount rate of the Company’s operating leases was
Supplemental balance sheet information related to operating leases was as follows:
|
| As of June 30, 2021 |
| |
Right-of-use assets |
| $ |
| |
Right-of-use asset - accumulated amortization |
|
| ( | ) |
Right-of-use assets, Net |
|
|
| |
|
|
|
|
|
Operating lease liabilities, current |
|
|
| |
Operating lease liabilities, noncurrent |
|
|
| |
Total operating lease liabilities |
| $ |
|
As of June 30, 2021, maturities of operating lease liabilities were as follows:
Maturity of Operating Lease Liabilities |
|
|
| |
2022 |
| $ |
| |
Total future minimum lease payments |
|
|
| |
Less imputed interest |
|
| ( | ) |
Total |
| $ |
|
27 |
Table of Contents |
NOTE 13 — SEGMENT REPORTING
An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses, and is identified on the basis of the internal financial reports that are provided to and regularly reviewed by the Company’s chief operating decision maker in order to allocate resources and assess performance of the segment.
In accordance with ASC 280, Segment Reporting, operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”), or decision making group, in deciding how to allocate resources and in assessing performance. The Company uses the “management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. Management, including the chief operating decision maker, reviews operation results by the revenue of different services. Based on management’s assessment, the Company has determined that it has four operating segments as defined by ASC 280, including Sino-foreign Jointly Managed Academic Programs, Overseas Study Consulting Services, Tailored job readiness services and Technological Consulting Services for Smart Campus Solutions.
Substantially all of the Company’s revenues for the six months ended June 30, 2021 and 2020 were generated in the PRC. As of June 30, 2021 and December 31, 2020, a majority of the long-lived assets of the Company were located in the PRC, and therefore, no geographical segments are presented.
The following table presents summary information by segment for the six months ended June 30, 2021 and 2020, respectively:
|
| For the six months ended June 30, 2021 (Unaudited) |
| |||||||||||||||||
|
| Joint education programs |
|
| Technological consulting for “smart campus” solutions |
|
| Tailored readiness services |
|
| Overseas study consulting |
|
| Total |
| |||||
Revenue |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Cost of revenue |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Operating expenses |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Income (loss) from operation |
|
|
|
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Capital expenditure |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total liabilities |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
28 |
Table of Contents |
CHINA LIBERAL EDUCATION HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 — SEGMENT REPORTING (continued)
|
| For the six months ended June 30, 2020 (Unaudited) |
| |||||||||||||||||
|
| Joint education programs |
|
| Technological consulting for “smart campus” solutions |
|
| Tailored readiness services |
|
| Overseas study consulting |
|
| Total |
| |||||
Revenue |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Cost of revenue |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
| ||
Gross profit (loss) |
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
| ||||
Operating expenses |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
| ( | ) |
|
| ( | ) | |
Income (loss) from operations |
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
| ( | ) | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Capital expenditure |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total liabilities |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
NOTE 14 – CONTIGENCIES
From time to time, the Company is subject to various legal actions arising in the ordinary course of business. The Company accrues costs associated with these matters when they become probable and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. The Company’s management does not expect any liability from the disposition of such claims and litigation individually or in the aggregate to have a material adverse impact on the Company’s unaudited condensed consolidated financial position, results of operations and cash flows.
NOTE 15 – SUBSEQUENT EVENTS
On August 20, 2021, the Board of Directors approved China Liberal Education Holdings Limited 2021 Share Incentive Plan (the “Plan”), pursuant to which the Company may grant various types of equity awards to employees, directors and consultants. The maximum aggregate number of ordinary shares that may be issued under the Plan is
29 |
EXHIBIT 99.2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our company’s financial condition and results of operations should be read in conjunction with China Liberal Education Holdings Limited’s (the “Company”, “we”, “our”, or “us”) condensed consolidated financial statements and the related notes included elsewhere in this report. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements. All statements contained in this report other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the “Risk Factors” section included in our annual report on Form 20-F for the fiscal year ended December 31, 2020, as amended. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
1 |
Results of Operations for the Six Months Ended June 30, 2021 and 2020
The following table summarizes our results of operations for the six months ended June 30, 2021 and 2020:
|
| Six Months Ended June 30, |
|
| Variance |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| Amount |
|
| % |
| ||||
Revenue |
| $ | 1,850,551 |
|
| $ | 2,270,788 |
|
|
| (420,237 | ) |
|
| (18.5 | )% |
Cost of revenues |
|
| (476,727 | ) |
|
| (1,482,515 | ) |
|
| (1,005,788 | ) |
|
| (67.8 | )% |
Gross profit |
|
| 1,373,824 |
|
|
| 788,273 |
|
|
| 585,551 |
|
|
| 74.3 | % |
Selling expenses |
|
| (76,593 | ) |
|
| (130,465 | ) |
|
| (53,872 | ) |
|
| (41.3 | )% |
General and administrative expenses |
|
| (995,451 | ) |
|
| (770,618 | ) |
|
| 224,833 |
|
|
| 29.2 | % |
Income (loss) from operations |
|
| 301,780 |
|
|
| (112,810 | ) |
|
| 414,590 |
|
|
| 367.5 | % |
Interest income |
|
| 59,973 |
|
|
| 82,770 |
|
|
| (22,797 | ) |
|
| (27.5 | )% |
Other expenses, net |
|
| (7,249 | ) |
|
| (907 | ) |
|
| 6,342 |
|
|
| 699.2 | % |
Income (loss) before income taxes |
|
| 354,504 |
|
|
| (30,947 | ) |
|
| 385,451 |
|
|
| 1245.5 | % |
Income tax provision |
|
| (128,482 | ) |
|
| (48,675 | ) |
|
| 79,807 |
|
|
| 164.0 | % |
Net income (loss) |
| $ | 226,022 |
|
| $ | (79,622 | ) |
|
| 305,644 |
|
|
| 383,9 | % |
Revenue for the first six months of 2021 decreased by 18.5% to $1.9 million, from $2.3 million in the same period of the prior year, mainly driven by decreased revenue from our technological consulting services for smart campus solutions (“Technological Consulting Services for Smart Campus Solutions”), as we did not entered into large “smart campus” project contracts with Chinese universities/colleges during the six months ended June 30, 2021, because many Chinese universities/colleges put their “smart campus” project plans on hold due to continued uncertainties associated with the COVID-19 pandemic. The project associated with the experiment-based simulation center for Fuzhou Melbourne Polytechnic (“FMP”)’s hotel management major was completed in the first half of 2020, and no projects of similar size were completed in the six months ended June 30, 2021.
The Company’s revenue by service type is as follows:
Revenues
|
| For the six months ended June 30 |
| |||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| Changes |
| |||||||||||||||
|
| Amount |
|
| % |
|
| Amount |
|
| % |
|
| Amount |
|
| % |
| ||||||
Revenue from Sino-foreign Jointly Managed Academic Programs |
|
| 1,420,418 |
|
|
| 76.7 | % |
| $ | 1,264,823 |
|
|
| 55.7 | % |
|
| 155,595 |
|
|
| 12.3 | % |
Revenue from Technological Consulting Services for Smart Campus Solutions |
|
| 338,003 |
|
|
| 18.3 | % |
|
| 933,240 |
|
|
| 41.1 | % |
|
| (595,237 | ) |
|
| (63.8 | )% |
Revenue from Overseas Study Consulting Services |
|
| 26,033 |
|
|
| 1.4 | % |
|
| 72,725 |
|
|
| 3.2 | % |
|
| (46,692 | ) |
|
| (64.2 | )% |
Revenue from tailored job readiness training services |
|
| 66,097 |
|
|
| 3.6 | % |
|
| - |
|
|
| - |
|
|
| 66,097 |
|
|
| 100.0 | % |
|
|
| 1,850,551 |
|
|
| 100.0 | % |
| $ | 2,270,788 |
|
|
| 100.0 | % |
|
| (420,237 | ) |
|
| (18.5 | )% |
Revenue from Sino-foreign Jointly Managed Academic Programs
Revenues from our education programs offered by joint ventures of the PRC and foreign institutions, or Sino-foreign Jointly Managed Academic Programs, are primarily generated from tuition fees or service fees we charged to students. Revenue from Sino-foreign Jointly Managed Academic Programs increased by 12.3% to $1.4 million in six months ended June 30, 2021, from $1.3 million in the same period of the prior year. This increase is primarily attributable to an increase in the number of students by 173 or 6.5%, from 2,668 students in six months ended June 30, 2020 to 2,841 students in six months ended June 30, 2021. Furthermore, the increase is also attributable to a positive impact of 9.03% from foreign currency fluctuation when the average exchange rate used in converting RMB into USD increased from $1 to RMB 7.0416 in the six months ended June 30, 2020 to $1 to RMB 6.4587 in the six months ended June 30, 2021. The increase is partially offset by about 3.3% decrease in average tuition fees. The decrease in average tuition fees was mainly caused by a change in student mix enrolled in different academic programs with the universities/colleges.
2 |
Revenue from Technological Consulting Services for Smart Campus Solutions
Our revenue from providing smart campus related technological consulting service decreased by $595,237, or 63.8%, from $933,240 in six months ended June 30, 2020, to $338,003 in six months ended June 30, 2021, primarily because we did not obtain smart campus projects of large size during the six months ended June 30, 2021. Many Chinese universities/colleges also put on hold their “smart campus” project plans due to continued uncertainties associated with the COVID-19 pandemic. In contrast, for the six months ended June 30, 2020, we completed hardware and software installation and digital classrooms for FMP’s experiment-based simulation center for its hotel management major with contract price of RMB5 million ($0.7 million) during the six months ended June 30, 2020, with satisfactory inspection and acceptance by FMP. However, as we continually expand our technological consulting services and look for more opportunities to provide technological consulting services to universities/colleges and other type of institutions in the future, we expect revenue from Technological Consulting Services for Smart Campus Solutions to increase in the long run.
Revenue from Overseas Study Consulting Services
Our overseas study consulting services (“Overseas Study Consulting Services”) target those students who wish to study in foreign countries to enrich their learning experiences, expand their horizons, and gain exposure to a broader array of employment opportunities. Our revenue from Overseas Study Consulting Services decreased by $46,692, or 64.2% when comparing six months ended June 30, 2021 to the same period of 2020. The decrease was mainly due to the travel restrictions and border closures adopted by certain countries in response to the COVID-19 pandemic. As a result, the number of students interested in seeking overseas education reduced significantly. A portion of our revenue from overseas study consulting services were recognized when the students received offers and obtained appropriate visas. For the six months ended June 30, 2021, none of the students receiving overseas consulting services received offers or visas as they have not yet completed their trainings and studies, compared to 11 students who received school offers and obtained visas in the same period in 2020.
Revenue from tailored job readiness training services
In 2019, we started to provide tailored job readiness training services to students from partner schools, so that such students would be better equipped to serve their employers at their respective job positions. Because this line of business was newly added, the revenue generated from this line of business was immaterial through 2020. Approximately $4,000 revenue from tailored job readiness training services in fiscal year 2020 was grouped under our revenues from Sino-foreign Jointly Managed Academic Programs.
For the six months ended June 30, 2021, we provided tailored job readiness training services to more than 130 students and accordingly generated $66,097 revenue from such services. We expect revenue from tailored job readiness training services to increase in absolute amounts in the future as we provide our services to more students.
Revenue from textbooks and course material sales
In the six months ended June 30, 2021 and 2020, the Company did not generate any revenue from textbooks and course material sales. Starting from 2019, the universities and colleges cooperated with us started to make adjustments to their teaching course content and curriculum settings. Consequently, there was no sales of textbooks and course materials in the six months ended June 30, 2021 and 2020.
Our overall cost of revenue decreased by $1,005,788, or 67.8%, from $1,482,515 for the six months ended June 30, 2020 to $476,727 for the six months ended June 30, 2021, primarily due to decreased hardware costs of $1,016,921 associated with the smart campus projects, because we did not enter into large “smart campus” project contracts with Chinese universities/colleges during the six months ended June 30, 2021. Instead, we executed more projects related to software customization rather than hardware installation. As a result, costs associated with purchase of equipment, devices and electronic components and labor force used in the “smart campus” related projects decreased significantly for the six months ended June 30, 2021. Cost of revenue accounted for 25.8% and 65.3% of total revenue for the six months ended June 30, 2021 and 2020, respectively. We expect cost of revenue to increase in absolute amounts in the future as we generate more revenue and most cost of revenues would be incurred.
3 |
Gross profit
Overall gross profit increased by $585,551, or 74.3%, from $788,273 for the six months ended June 30, 2020 to $1,373,824 for the six months ended June 30, 2021, while gross profit margin increased by 39.5%, from 34.7% for the six months ended June 30, 2020 to 74.2% for the six months ended June 30, 2021. The increase in gross profit and gross margin was primarily due to decreased hardware costs associated with our technological consulting service projects as we did not enter into large “smart campus” project during six months ended June 30, 2021. In contrast, during the six months ended June 30, 2020, we incurred significant costs associated with hardware, software and related installation services in completing the construction of FMP’s experiment-based simulation center for its hotel management major. Additionally, the increase in gross profit and gross profit margin is also caused by reduced costs associated with Sino-foreign Jointly Managed Academic Programs by 13.6% when salary, welfare and insurance costs paid to foreign teachers decreased. Furthermore, tailored job readiness training services contributed gross profit of $25,040 for the six months ended June 30, 2021 as compared to $nil during the same period of 2020 which also led to increase in gross profit for the six months ended June 30, 2021.
Operating expenses
The following table sets forth the breakdown of our operating expenses for the six months ended June 30, 2021 and 2020:
|
| For the six months ended June 30 |
| |||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| Changes |
| |||||||||||||||
|
| Amount |
|
| % |
|
| Amount |
|
| % |
|
| Amount |
|
| % |
| ||||||
Selling expenses |
|
| 76,593 |
|
|
| 7.1 | % |
|
| 130,465 |
|
|
| 14.5 | % |
|
| (53,872 | ) |
|
| (41.3 | )% |
General and administrative expenses |
|
| 995,451 |
|
|
| 92.9 | % |
|
| 770,618 |
|
|
| 85.5 | % |
|
| 224,833 |
|
|
| 29.2 | % |
Total operating expenses |
|
| 1,072,044 |
|
|
| 100.0 | % |
| $ | 901,083 |
|
|
| 100.0 | % |
|
| 170,961 |
|
|
| 19.0 | % |
Selling expenses
Selling expenses decreased by $53,872 or 41.3% from $130,465 for the six months ended June 30, 2020 to $76,593 for the six months ended June 30, 2021. The decrease in selling expenses was primarily attributable to a decrease in rental and office expenses and depreciation expenses by $54,679 when we relocated to a smaller office space. Selling expenses accounted for 4.1% and 5.7% of total revenue for the six months ended June 30, 2021 and 2020, respectively. We expect selling expenses to increase in absolute amounts in the future as we expect to continually expand our operations and seeking for more sales opportunities.
General and administrative expenses
General and administrative expenses increased by $224,833, or 29.2% from $770,618 for the six months ended June 30, 2020 to $995,451 for the six months ended June 30, 2021, primarily due to an increase in salaries and welfares expenses of $74,630 resulting from increased number of administrative employees, an increase in professional services fees of $57,300, an increase in share-based compensation to independent directors of $53,250, and an increase in independent director compensation of $28,419. General and administrative expenses accounted for 53.8% and 33.9% of total revenue for the six months ended June 30, 2021 and 2020, respectively.
Interest income
Interest income decreased by $22,797 or 27.5%, to $59,973 for the six months ended June 30, 2021, from $82,770 for the same period last year. In connection with the Company’s technological consulting services for smart campus projects, we recognized financing component resulted from a timing difference between when control is transferred and when we collected cash consideration from the customer. For the six months ended June 30, 2021 and 2020, we recognized $56,511 and $79,907 interest income in connection with the aforementioned financing component, respectively.
Other expense
Other expense was $7,249 and $907 for the six months ended June 30, 2021 and 2020, respectively. The increase was due to increased bank charges.
4 |
Income tax provision
Income tax provision was $128,482 for the six months ended June 30, 2021, increased from $48,675 for the same period of last year due to higher taxable income. Effective income tax rate was 36.2% and -157.3% for the six months ended June 30, 2021 and 2020, respectively. The significant change in effective income tax rate comparing the two periods is mainly due to changes in valuation allowances, as we did not expect deferred tax assets generated in China Liberal and Boya Hong Kong associated with the operating losses to be more likely than not to be used, as these two entities are holding companies and are not expected to generate taxable income in the foreseeable future.
Net income (loss)
As a result of foregoing, net income was $226,022 for the six months ended June 30, 2021, compared to net loss of $79,622 for the same period last year. Basic and diluted earnings per share were $0.03 for the six months ended June 30, 2021, compared to basic and diluted loss per share of $0.02 for the same period last year.
Liquidity and Capital Resources
As reflected in our unaudited condensed consolidated financial statements, during the six months ended June 30, 2021, we had negative cash flow from operations of $1.9 million and reported a net income of $0.2 million.
In assessing our liquidity, management monitors and analyzes our cash on-hand, our ability to generate sufficient revenue sources in the future, and our operating and capital expenditure commitments. We believe that our current cash and cash flows provided by operating activities will be sufficient to meet our working capital needs in the foreseeable future. However, if we were to experience an adverse operating environment or incur unanticipated capital expenditures, or if we decided to accelerate our growth, then additional financing may be required. We cannot guarantee, however, that additional financing, if required, would be available at all or on favorable terms. Such financing may include the use of additional debt or the sale of additional equity securities. Any financing which involves the sale of equity securities or instruments that are convertible into equity securities could result in immediate and possibly significant dilution to our existing shareholders.
As of June 30, 2021, we had approximately $33.7 million in cash. We also had accounts receivable of approximately $1.5 million, primarily including tuition receivable from Chinese universities/colleges in connection with our services provided under the Sino-foreign Jointly Managed Academic Programs. As of the date of this filing, $1,068,537 or 69% of the accounts receivable balance has been subsequently collected and the remaining balance is expected to be collected before December 31, 2021.
As of June 30, 2021, we also had outstanding contract receivable of $2,521,136 derived from providing smart campus technological consulting services to Chinese universities/colleges:
|
| June 30, 2021 |
|
| December 31, 2020 |
| ||
|
| (Unaudited) |
|
|
| |||
Contract receivable- “Smart Campus” related technological consulting services with FMP (1) |
| $ | 2,066,951 |
|
| $ | 3,730,203 |
|
Contract receivable- “Smart Campus” project maintenance and technical support fee with FMP |
|
| 392,947 |
|
|
| 600,134 |
|
Financing component associated with FMP contract receivable (1) |
|
| 61,238 |
|
|
| 135,466 |
|
Contracts receivable – Other “Smart Campus” related technological consulting services (2) |
|
| - |
|
|
| 245,761 |
|
Less: allowance for doubtful accounts |
|
| - |
|
|
| - |
|
Total contracts receivable, net |
|
| 2,521,136 |
|
|
| 4,711,563 |
|
Less: current portion of contract receivable |
|
| 2,352,266 |
|
|
| 4,448,946 |
|
Contracts receivable, non-current |
| $ | 168,869 |
|
| $ | 262,617 |
|
As of the date of this filing, we have collected $390,118 from FMP. The remaining $1,962,148 of the current portion of the contract receivable is expected to be collected before December 31, 2021 on their respective original due dates. The non-current portion of the contract receivable of $168,869 is expected to be collected before December 31, 2022 upon the original due date. We believe the contract receivable related to smart campus projects is fully collectible based on the payment terms and based on our continuing cooperation with our partner Chinese universities. The collection of our accounts and contract receivable will make cash available for use in our operation as working capital, if necessary.
As of June 30, 2021, we had advance to suppliers of approximately $4 million, representing prepayment to suppliers for purchase of equipment, devices, electronic component and other hardware products in order to use in our future “smart campus” projects. Due to the impact of COVID-19 and general inflation, suppliers increased the amount required for prepayment in order to lock a favorite purchase price and ensure future purchase delivery. We consider all of the advances to be fully realizable.
5 |
Cash Flows
The following table provides detailed information about our net cash flows for the six months ended June 30, 2021 and 2020:
|
| For the six months ended June 30, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Net cash used in operating activities |
| $ | (1,892,096 | ) |
| $ | (937,924 | ) |
Net cash provided by (used in) investing activities |
|
| 1,450,353 |
|
|
| (12,831 | ) |
Net cash provided by financing activities |
|
| 29,059,474 |
|
|
| 5,500,255 |
|
Effect of exchange rate changes on cash |
|
| 73,491 |
|
|
| (28,696 | ) |
Net increase in cash |
|
| 28,691,222 |
|
|
| 4,520,804 |
|
Cash, beginning of period |
|
| 5,007,449 |
|
|
| 1,702,279 |
|
Cash, end of period |
| $ | 33,698,671 |
|
| $ | 6,223,083 |
|
Operating Activities
Net cash used in operating activities was $1,892,096 for the six months ended June 30, 2021, primarily including an increase in advances to suppliers of $3.9 million where we made advance payments to suppliers for purchase of materials and equipment to be used in future smart campus solution contracts, an increase in accounts receivable of $0.6 million arising from Sino-foreign Jointly Managed Academic Programs, offset by a decrease in contract receivable of $2.2 million as we received payments from FMP, net income of $226,022, a decrease in prepaid expenses, and other current assets of $64,982 as we paid less prepayment of expenses.
Net cash used in operating activities was $937,924 for the six months ended June 30, 2020, primarily including net loss of $79,622, an increase in contract receivable of approximately $1.8 million when we completed more smart campus related projects for Chinese universities/colleges, offset by a decrease in advance from suppliers of $571,128 because we received purchased hardware components from suppliers and used them in the smart campus related projects, a decrease in prepaid expenses and other current assets of $121,107 as we made less prepayments, and a decrease in deferred revenue of $390,331 because we recognized the same amount as revenue when our performance obligations were satisfied.
Investing Activities
For the six months ended June 30, 2021, net cash provided by investing activities amounted to $1.5 million, primarily due to repayment from a related party.
For the six months ended June 30, 2020, net cash used in investing activities amounted to $12,831 primarily cash used for the purchase of property and equipment.
Financing Activities
Net cash provided by financing activities amounted to $29.1 million for the six months ended June 30, 2021, primarily due to net proceeds received from the issuance of 6,000,000 ordinary shares at $5.0 per share with net proceeds of $29.0 million in April 2021.
Net cash provided by financing activities amounted to $5,500,255 for the six months ended June 30, 2020, primarily including net proceeds from issuance of ordinary shares of $5,405,451 in connection with the completion of our initial public offering and proceeds from borrowing from a related party of $94,804.
Indebtedness. We did not have any finance leases or purchase commitments, guarantees or other material contingent liabilities.
Off-Balance Sheet Arrangements. We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered into any derivative contracts that are indexed to our own shares and classified as shareholders’ equity, or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. Moreover, we do not have any variable interest in any unconsolidated entity that we provide financing, liquidity, market risk or credit support to or engages in hedging or research and development services with us.
6 |
EXHIBIT 99.3
China Liberal Education Holdings Limited Reports Financial Results for the First Six Months of Fiscal Year 2021
BEIJING, CHINA, December 3, 2021 -- China Liberal Education Holdings Limited (Nasdaq: CLEU) (“China Liberal”, or the “Company”, or “we”), a China-based company that provides smart campus solutions and other educational services, today announced its financial results for the first six months of fiscal year 2021.
First Six Months of Fiscal Year 2021 Financial Highlights
|
| For the Six Months Ended June 30, |
| |||||||||
($ millions, except per share data) |
| 2021 |
|
| 2020 |
|
| %Change |
| |||
Revenue |
|
| 1.85 |
|
|
| 2.27 |
|
|
| -18.5% | |
Gross profit |
|
| 1.37 |
|
|
| 0.79 |
|
|
| 74.3% | |
Gross margin |
|
| 74.2% |
|
| 34.7% |
|
| 39.5% | |||
Income (Loss) from operations |
|
| 0.30 |
|
|
| (0.11) |
| NM |
| ||
Operating profit(loss) margin |
|
| 16.3% |
|
| -5.0% |
| NM |
| |||
Net income (loss) |
|
| 0.23 |
|
|
| (0.08) |
| NM |
| ||
Basic and diluted earnings (loss) per share |
|
| 0.03 |
|
|
| (0.02) |
| NM |
|
1 |
| · | Revenue decreased by 18.5% year-over-year to $1.85 million for the six months ended June 30, 2021 from $2.27 million for the same period last year. |
|
|
|
| · | Gross profit increased by 74.3% to $1.37 million for the six months ended June 30, 2021 from $0.79 million for the same period last year. |
|
|
|
| · | Gross margins were 74.2% and 34.7% for the six months ended June 30, 2021 and 2020, respectively. |
|
|
|
| · | Income from operations was $0.30 million for the six months ended June 30, 2021, compared to loss from operations of $0.11 million for the same period last year. Operating profit margin was 16.3% for the six months ended June 30, 2021, compared to operating loss margin of 5.0% for the same period last year. |
|
|
|
| · | Net income was $0.23 million for the six months ended June 30, 2021, compared to net loss of $0.08 million for the same period last year. |
|
|
|
| · | Basic and diluted earnings per share were $0.03 for the six months ended June 30, 2021, compared to basic and diluted loss per share of $0.02 for the same period last year. |
First Six Months of Fiscal Year 2021 Financial Results
Revenue
Revenue decreased by 18.5% year-over-year to $1.85 million for the six months ended June 30, 2021 from $2.27 million for the same period last year. The decrease in revenue was mainly driven by decreased revenue from technological consulting services for smart campus solutions as the Company did not enter into new large “smart campus” project contract with Chinese universities/ colleges during the six months ended June 30, 2021 since continued uncertainties associated with the COVID-19 pandemic caused many Chinese universities/colleges to hold off on their “smart campus” project plans.
|
| For the Six Months Ended June 30, |
| |||||||||||||||||||||
($ millions) |
| 2021 |
|
| 2020 |
| ||||||||||||||||||
Revenue |
| Revenue |
|
| Cost of Revenue |
|
| Gross Margin |
|
| Revenue |
|
| Cost of Revenue |
|
| Gross Margin |
| ||||||
Sino-foreign Jointly Managed Academic Programs |
|
| 1.42 |
|
|
| 0.23 |
|
|
| 84.0% |
|
| 1.26 |
|
|
| 0.26 |
|
|
| 79.2% | ||
Technological Consulting Services for Smart Campus Solutions |
|
| 0.34 |
|
|
| 0.19 |
|
|
| 43.9% |
|
| 0.93 |
|
|
| 1.21 |
|
|
| -29.3% | ||
Overseas Study Consulting Services |
|
| 0.03 |
|
|
| 0.02 |
|
|
| 29.3% |
|
| 0.07 |
|
|
| 0.01 |
|
|
| 82.9% | ||
Tailored Job Readiness Training Services |
|
| 0.07 |
|
|
| 0.04 |
|
|
| 37.9% |
|
| - |
|
|
| - |
|
|
| - |
| |
Total |
|
| 1.85 |
|
|
| 0.48 |
|
|
| 74.2% |
|
| 2.27 |
|
|
| 1.48 |
|
|
| 34.7% |
2 |
For the six months ended June 30, 2021, revenue from sino-foreign jointly managed academic programs increased by $0.16 million, or 12.3%, to $1.42 million, from $1.26 million for the same period last year. This increase was primarily attributed to an increase in the number of students by 173 or 6.5%, to 2,841 students in six months ended June 30, 2021, from 2,668 students in six months ended June 30, 2020. Furthermore, the increase is also attributable to an approximately 9.03% positive impact from foreign currency fluctuation when the average exchange rate used in converting RMB into USD increased from $1 to RMB 7.0416 in the six months ended June 30, 2020 to $1 to RMB 6.4587 in the six months ended June 30, 2021. The increase is partially offset by a 3.3% decrease in average tuition fees. The decrease in average tuition fee was mainly caused by change in student mix enrolled in different academic programs with the universities/ colleges.
Revenue from technological consulting services for smart campus solutions decreased by $0.59 million, or 63.8%, to $0.34 million for the six months ended June 30, 2021, from $0.93 million for the same period last year. The decrease was primarily because the Company did not obtain smart campus projects of large size during the six months ended June 30, 2021. In addition, the continued uncertainties associated with COVID-19 caused many Chinese universities/colleges to hold their “smart campus” project plans.
Revenue from overseas study consulting services decreased by $0.04 million, or 64.2%, to $0.03 million for the six months ended June 30, 2021, from $0.07 million for the same period last year. The decrease was mainly due to the impact of the COVID-19 pandemic which caused certain countries closed its borders and imposed travel restrictions. As a result, the number of students interested in seeking overseas education reduced significantly. A portion of our revenue from overseas study consulting services was recognized when the students received offers and obtained appropriate visas. For the six months ended June 30, 2021, none of the students who participated in overseas consulting services received offers or visas as they have not yet completed their trainings and studies compared to 11 students who received school offers and obtained visas in the same period in 2020.
Revenue from tailored job readiness training services was $0.07 million for the six months ended June 30, 2021, compared with nil for the same period last year. The Company provided tailored job readiness training services to more than 130 students for the six months ended June 30, 2021.
Cost of Revenue
Cost of revenue decreased by $1.00 million, or 67.8%, to $0.48 million for the six months ended June 30, 2021, from $1.48 million for the same period last year, primarily due to the decreased hardware costs of $1.02 million associated with the smart campus projects.
3 |
Gross Profit
Gross profit increased by $0.58 million, or 74.3%, to $1.37 million for the six months ended June 30, 2021, from $0.79 million for the same period last year, while gross profit margin increased by 39.5%, to 74.2% for the six months ended June 30, 2020, from 34.7% for the same period last year. The increase in gross profit and gross margin was primarily due to decreased hardware costs associated with the Company’s technological consulting service projects.
Operating Expenses
Selling expenses decreased by $53,872, or 41.3%, to $76,593 for the six months ended June 30, 2021, from $130,465 for the same period last year. The decrease in selling expenses was primarily attributable to the decrease in the rental and office expenses and depreciation expenses by $54,679 when the Company relocated to a smaller office space.
General and administrative expenses increased by $224,833, or 29.2%, to $995,451 for the six months ended June 30, 2021, from $770,618 for the same period last year, primarily due to an increase in salaries and welfares expenses of $74,630 resulting from increased number of administrative employees, an increase in professional services fees of $57,300, an increase in share-based compensation to independent directors of $53,250 and an increase in independent director compensation of $28,419.
Interest Income
Interest income decreased by $22,797 or 27.5%, to $59,973 for the six months ended June 30, 2021, from $82,770 for the same period last year. In connection with the Company’s technological consulting services for smart campus projects, the Company recognized financing component resulted from a timing difference between when control is transferred and when the Company collected cash consideration from the customer. For the six months ended June 30, 2021 and 2020, the Company recognized $56,511 and $79,907 interest income in connection with the aforementioned financing component, respectively.
Other Expense
Other expense was $7,249 and $907 for the six months ended June 30, 2021 and 2020, respectively, the increase was due to increased bank charges.
4 |
Income Tax Provision
Income tax provision was $0.12 million for the six months ended June 30, 2021, increased from $0.05 million for the same period of last year due to higher taxable income.
Net Income (Loss)
Net income was $0.23 million for the six months ended June 30, 2021, compared to a net loss of $0.08 million for the same period last year. Basic and diluted earnings per share were $0.03 for the six months ended June 30, 2021, compared to basic and diluted loss per share of $0.02 for the same period last year.
Financial Condition
During the six months ended June 30, 2021, the Company had negative cash flow from operations. As of June 30, 2021, the Company had cash of approximately $33.7 million and had positive working capital of approximately $40.8 million. The Company’s liquidity is influenced by the level of its operations, the numerical volume and dollar value of its sales contracts, the progress of execution on its customer contracts, and the timing of accounts receivable collections. Management believes that the Company’s current cash as of June 30, 2021 will be sufficient to meet its working capital needs for at least the next 12 months from the date of the Company’s interim financial statements are issued.
As of June 30, 2021, the Company had cash of $33.70 million, compared to $5.01 million as of December 31, 2020.
Net cash used in operating activities was $1.89 million for the six months ended June 30, 2021, compared to $0.94 million for the same period last year.
Net cash provided by investing activities was $1.45 million for the six months ended June 30, 2021, compared net cash used in investing activities of $0.01 million for the same period last year.
Net cash provided by financing activities was $29.06 million for the six months ended June 30, 2021, compared to $5.50 million for the same period last year.
The Company intends to finance its future working capital requirements and capital expenditures from cash generated from operating activities. However, the Company may seek additional financings, to the extent required, and there can be no assurances that such financing will be available on favorable terms or at all.
5 |
COVID-19
The Company’s operations may be further affected by the ongoing COVID-19 pandemic. For the six months ended June 30, 2021, the Company’s revenue from sino-foreign jointly managed academic programs was not significantly impacted because Chinese universities/colleges have resumed on-site instruction since May 2020 and the number of students enrolled in the Company’s sino-foreign jointly managed education programs with two colleges increased during the 2021 academic school year. The total enrolled number of students increased by 14% as compared to the same period of last year. The teaching services that the Company has been providing to students have returned to normal, and no dropout has been reported to the Company during the six months ended June 30, 2021. However, due the impact of COVID-19, the internal payment processes of the partnering schools were temporarily delayed. As a result, the Company and these partnering schools mutually agreed to extend the tuition payment term by three to six months. The Company does not believe such delay will result in any collectability risk and the entire tuition receivable balance is expected to be fully received but only slightly later than a typical operating year. Furthermore, this temporary delay in tuition payment does not represent a change in the Company’s cooperation model with these partnering schools and the Company does not expect to incur further tuition payment delays in the future.
The continued uncertainties associated with the COVID-19 have caused many Chinese universities/ colleges to temporarily hold off on their “smart campus” project construction plans and accordingly the Company did not obtain new large “smart campus” project contract during the six months ended June 30, 2021, which led to a decrease in the Company’s revenue from technological consulting and supporting services during current period. Additionally, the COVID-19 pandemic continues to have a negative impact over the Company’s study abroad consulting services. A portion of the Company’s revenue from overseas study consulting services were recognized when students received offers and obtained appropriate visas. However, due to the COVID-19 pandemic, certain countries closed their borders and imposed travel restrictions. For the six months ended June 30, 2021, none of the students receiving overseas consulting services received offers or visas, compared to 11 students who received school offers and obtained visas in the same period in 2020. Due to the uncertainties around international travels, it is expected that the COVID-19 pandemic may continue to result in students being restricted from pursuing their overseas education in the near terms and may have further negative impact over the oversea study consulting service revenue stream.
6 |
About China Liberal Education Holdings Limited
China Liberal, headquartered in Beijing, is an educational services provider in China. It provides a wide range of services, including those under sino-foreign jointly managed academic programs; overseas study consulting services; technological consulting services for Chinese universities to improve their campus information and data management system and to optimize their teaching, operating and management environment, creating a “smart campus”; and tailored job readiness training to graduating students. For more information, please visit the company’s website at ir.chinaliberal.com.
Forward-Looking Statements
This document contains forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties and are based on the Company’s expectations and projections about future events, which the Company derives from the information currently available to the Company. Such forward-looking statements relate to future events or our future performance, including: our financial performance and projections; our growth in revenue and earnings; and our business prospects and opportunities. You can identify forward-looking statements by those that are not historical in nature, particularly those that use terminology such as “may,” “should,” “expects,” “anticipates,” “contemplates,” “estimates,” “believes,” “plans,” “projected,” “predicts,” “potential,” or “hopes” or the negative of these or similar terms. In evaluating these forward-looking statements, you should consider various factors, including: our ability to change the direction of the Company; our ability to keep pace with new technology and changing market needs; and the competitive environment of our business. These and other factors may cause our actual results to differ materially from any forward-looking statement. Forward-looking statements are only predictions. The forward-looking events discussed in this press release and other statements made from time to time by us or our representatives, may not occur, and actual events and results may differ materially and are subject to risks, uncertainties and assumptions about us. The Company undertakes no obligation to update forward-looking statements to reflect subsequent occurring events or circumstances, or changes in its expectations, except as may be required by law. Although the Company believes that the expectations expressed in these forward-looking statements are reasonable, it cannot assure you that such expectations will turn out to be correct, and the Company cautions investors that actual results may differ materially from the anticipated results and encourages investors to review risk factors that may affect its future results in the Company’s registration statement and in its other filings with the U.S. Securities and Exchange Commission.
Investor Relations Contact
China Liberal Education Holdings Limited
Email:ir@chinaliberal.com
Ms. Tina Xiao
Email:tina.xiao@ascent-ir.com
Tel: +1 917 609 0333
7 |
China Liberal Education Holdings Limited
Condensed Consolidated Balance Sheets
(Unaudited)
|
| June 30, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Assets |
|
|
|
|
|
| ||
Current Assets |
|
|
|
|
|
| ||
Cash |
| $ | 33,698,671 |
|
| $ | 5,007,449 |
|
Accounts receivable, net |
|
| 1,547,175 |
|
|
| 915,618 |
|
Contract receivable, net, current |
|
| 2,352,267 |
|
|
| 4,448,946 |
|
Advance to suppliers, net |
|
| 4,033,956 |
|
|
| 94,648 |
|
Due from a related party |
|
| - |
|
|
| 1,439,080 |
|
Prepaid expenses and other current assets |
|
| 358,576 |
|
|
| 419,713 |
|
Total current assets |
|
| 41,990,645 |
|
|
| 12,325,454 |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
| 41,750 |
|
|
| 49,148 |
|
Operating lease right-of-use lease assets, net |
|
| 92,980 |
|
|
| 136,695 |
|
Contract receivable, net– non-current |
|
| 168,869 |
|
|
| 262,617 |
|
Total non-current assets |
|
| 303,599 |
|
|
| 448,460 |
|
Total Assets |
| $ | 42,294,244 |
|
| $ | 12,773,914 |
|
|
|
|
|
|
|
|
|
|
Liabilities and STOCKHOLDERS’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
Account payable |
| $ | 83,524 |
|
| $ | 125,223 |
|
Deferred revenue |
|
| 111,772 |
|
|
| 154,927 |
|
Taxes payable |
|
| 766,835 |
|
|
| 633,651 |
|
Due to a related party |
|
| 12,390 |
|
|
| - |
|
Operating lease liabilities, current |
|
| 92,980 |
|
|
| 90,253 |
|
Accrued expenses and other current liabilities |
|
| 116,038 |
|
|
| 105,829 |
|
TOTAL CURRENT LIABILITIES |
|
| 1,183,539 |
|
|
| 1,109,883 |
|
|
|
|
|
|
|
|
|
|
Operating lease liabilities, non-current |
|
| - |
|
|
| 23,102 |
|
TOTAL LIABILITIES |
|
| 1,183,539 |
|
|
| 1,132,985 |
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Ordinary shares, $0.001 par value, 50,000,000 shares authorized, 12,348,333 and 6,333,333 shares issued and |
|
|
|
|
|
|
|
|
outstanding at June 30, 2021 and December 31, 2020, respectively |
|
| 12,348 |
|
|
| 6,333 |
|
Additional paid-in capital |
|
| 38,452,810 |
|
|
| 9,358,487 |
|
Statutory reserve |
|
| 623,476 |
|
|
| 551,146 |
|
Retained earnings |
|
| 1,719,509 |
|
|
| 1,565,817 |
|
Accumulated other comprehensive income |
|
| 302,562 |
|
|
| 159,146 |
|
Total stockholders’ equity |
|
| 41,110,705 |
|
|
| 11,640,929 |
|
|
|
|
|
|
|
|
|
|
Total Liabilities and STOCKHOLDERS’ Equity |
| $ | 42,294,244 |
|
| $ | 12,773,914 |
|
8 |
China Liberal Education Holdings Limited
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(Unaudited)
|
| For the six months ended |
| |||||
|
| 2021 |
|
| 2020 |
| ||
|
|
|
|
|
|
| ||
REVENUE, NET |
| $ | 1,850,551 |
|
| $ | 2,270,788 |
|
COST OF REVENUE |
|
| (476,727 | ) |
|
| (1,482,515 | ) |
GROSS PROFIT |
|
| 1,373,824 |
|
|
| 788,273 |
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
Selling expenses |
|
| (76,593 | ) |
|
| (130,465 | ) |
General and administrative expenses |
|
| (995,451 | ) |
|
| (770,618 | ) |
Total operating expenses |
|
| (1,072,044 | ) |
|
| (901,083 | ) |
|
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM OPERATIONS |
|
| 301,780 |
|
|
| (112,810 | ) |
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSES) |
|
|
|
|
|
|
|
|
Interest income |
|
| 59,973 |
|
|
| 82,770 |
|
Other expense, net |
|
| (7,249 | ) |
|
| (907 | ) |
Total other income, net |
|
| 52,724 |
|
|
| 81,863 |
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES |
|
| 354,504 |
|
|
| (30,947 | ) |
|
|
|
|
|
|
|
|
|
INCOME TAX PROVISION |
|
| (128,482 | ) |
|
| (48,675 | ) |
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
|
| 226,022 |
|
|
| (79,622 | ) |
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME (LOSS) |
|
|
|
|
|
|
|
|
Total foreign currency translation adjustment |
|
| 143,416 |
|
|
| (113,868 | ) |
TOTAL COMPREHENSIVE INCOME (LOSS) |
|
| 369,438 |
|
|
| (193,490 | ) |
|
|
|
|
|
|
|
|
|
Weighted average number of shares, basic and diluted |
|
| 8,756,372 |
|
|
| 5,366,300 |
|
Basic and diluted earnings (loss) per ordinary share |
| $ | 0.03 |
|
| $ | (0.02 | ) |
9 |
China Liberal Education Holdings Limited
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
| For the Six Months Ended |
| |||||
|
| June 30, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Cash flows from operating activities |
|
|
|
|
|
| ||
Net income (loss) |
| $ | 226,022 |
|
| $ | (79,622 | ) |
Adjustments to reconcile net income (loss) to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 10,810 |
|
|
| 12,234 |
|
Loss from disposal of property and equipment |
|
| 606 |
|
|
| 27,381 |
|
Amortization of operating lease right-of-use lease assets |
|
| 45,148 |
|
|
| 18,181 |
|
Share-based compensation |
|
| 53,250 |
|
|
| - |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
| - |
|
Accounts receivable, net |
|
| (621,655 | ) |
|
| 172,176 |
|
Contract receivable, net |
|
| 2,239,613 |
|
|
| (1,834,390 | ) |
Advances to suppliers |
|
| (3,937,025 | ) |
|
| 571,128 |
|
Prepaid expenses and other current assets |
|
| 64,982 |
|
|
| 121,107 |
|
Accounts payable |
|
| (43,011 | ) |
|
| 332,972 |
|
Deferred revenue |
|
| (38,853 | ) |
|
| (390,331 | ) |
Taxes payable |
|
| 126,429 |
|
|
| 77,397 |
|
Accrued expenses and other current liabilities |
|
| (18,412 | ) |
|
| 33,843 |
|
Net cash used in operating activities |
|
| (1,892,096 | ) |
|
| (937,924 | ) |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
| (3,500 | ) |
|
| (12,831 | ) |
Repayment from a related party |
|
| 1,453,853 |
|
|
| - |
|
Net cash provided by (used in) investing activities |
|
| 1,450,353 |
|
|
| (12,831 | ) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Proceeds from borrowing from a related party |
|
| 12,386 |
|
|
| 94,804 |
|
Net proceeds from issuance of ordinary shares |
|
| 29,047,088 |
|
|
| 5,405,451 |
|
Net cash provided by financing activities |
|
| 29,059,474 |
|
|
| 5,500,255 |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
| 73,491 |
|
|
| (28,696 | ) |
|
|
|
|
|
|
|
|
|
Net increase in cash |
|
| 28,691,222 |
|
|
| 4,520,804 |
|
|
|
|
|
|
|
|
|
|
Cash, beginning of period |
|
| 5,007,449 |
|
|
| 1,702,279 |
|
Cash, end of period |
| $ | 33,698,671 |
|
| $ | 6,223,083 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Income taxes paid |
| $ | 40,463 |
|
| $ | 20,321 |
|
Interest paid |
|
|
|
|
|
|
|
|
10 |