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Friday, August 19, 2005

China Education Alliance (CEDA) 10-K

Reverse merger on Sept 15, 2004.
Nov 17, changed name.
http://www.edu-chn.com/, which is the only website in China having copyrights of examination materials of Chinese primary schools and middle schools, so that ZHLD legally provides target users in the age group of 7 to 18 years with downloadable examination materials. ZHLD also provides other services such as text book downloading and SMS. When the visits to its web site increase, and its membership base expands, ZHLD plans to expand its products into the advanced education market and adult education market.
The company has developed some educational software with a database covering all levels of basic education.
Through cooperation with the local education committees and schools, ZHLD started its business in Heilongjiang and now has 270,000 users who visit its web site. ZHLD projects over 50 million users over the next five years, based on demographic trends and an increase product offering on its web site.
They're doing the right things to avoid price erosion in the future.
  1. Applying for copyrights for the examination materials and educational course data that the Company has collected.
  2. Entering into exclusive agreements with local educational authorities and schools. In return, the Company will agree to pay such authorities and schools approximately 30% of the earnings as a commission. It is planned that this will prevent potential competitors from contacting these school partners directly to solicit business. Currently, the Company has entered into these types of exclusive agreements with approximately 150 schools.
15 employees, will increase to 55 in 2005.
Additional dilution is likely.
Currently located in a shopping plaza in Harbin PRC. 11,373 sq ft. Property was contributed [by who?] "in connection with its Plan of Exchange." No rent. No strings attached. No need to expand anytime soon.
No legal proceedings.
Revenues for 2004: $51.7K (mostly debit cards)
Net loss for 2004: $110K
55.3 million shares
Assets: $2.5 million
Equity: $2.4 million
They're recording revenue when the debit card is sold (wrong accounting, based on what they say elsewhere, fixing this problem would require an overhaul of the business!), should be when the materials are delivered.
Company expects COGS to be 25% for 2005.
In addition, volume discounts will be available to them if the Company is successful in achieving sales growth in the future, which will further reduce their cost of sales as a percentage of sales.
Are they saying what I think they're saying: that volume discounts result in lower COGS relative to sales?
Selling, general and administrative expenses for the period ending December 31, 2004 were $11,346. The expenses were primarily attributable to the initial set up costs and website creation.
This stuff should almost certainly be capitalized over the expected lifetime of the website. Their auditors are in for a nightmare at some point in the future if they need to be US GAAP (maybe even Chinese GAAP).
Cash flows used in investing activities were $2,101 for the period ending December 31, 2004. Cash flows for the 2004 were for the purchase of property and equipment.
What? was that like one computer or something? Just how amateur is this operation?
If the Company is unable to receive additional cash from their related parties, the Company may need to rely on financing from outside sources through debt or equity transactions. The Company's related parties are under no legal obligation to provide them with capital infusions.I get the sense that these people don't have a solid understanding of business and accounting. Once they've sold shares, they need to treat the business as a business and not as a sole proprieter operation. I also get a sense that it could be a fraud.
What would need to be verified:
  1. Jimmy Cheung Company (who shows up again here) needs to affirm that they did indeed audit this company.
  2. Jimmy Cheung Company would need to be checked out.
  3. Would need verification of an actual distributor that is known to be real.
  4. Would need to buy one of the company's debit cards and do a transaction and verify the materials with someone with some knowledge of Chinese primary education.
I'm going to drop this one for now. Too suspicious.

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