VIIQ 10-Q Quarterly Report March 31, 2011 | Alphaminr
Capstone Technologies Group Inc.
ALPHAMINR

VIIQ 10-Q Quarter ended March 31, 2011

Balance Sheet
Cash Flow
Income Statement
10-Q 1 form10q.htm CHINA BILINGUAL TECHNOLOGY FORM 10Q form10q.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2011
or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ______________

Commission File Number: 333-162102

CHINA BILINGUAL TECHNOLOGY
& EDUCATION GROUP INC.

(Exact Name of small business issuer as specified in its charter)

Nevada
68-0678185
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
No. 2 Longbao Street, Xiaodian Zone, Taiyuan City, Shanxi Province, People’s Republic of China 030031
(Address of principal executive offices) (Zip Code)
Issuer’s telephone number: 86-351-7963988
Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o
Accelerated filer o
Non-accelerated filer o
Smaller reporting company x
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of May 16, 2011, the issuer had 30,000,005 outstanding shares of Common Stock.
1

TABLE OF CONTENTS

Page
PART I
Item 1.
Condensed Consolidated Financial Statements
F-1 - F-3
Condensed Consolidated Balance Sheet as of March 31, 2011 (Unaudited) and December 31, 2010
F-1
Unaudited Condensed Consolidated Statements of Operations and Other Comprehensive Income for the
Three Months Ended March 31, 2011 and March 31, 2010
F-2
Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2011 and March 31, 2010
F-3
Notes to the Unaudited Condensed Consolidated Financial Statements
F-4
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operation.
3
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
7
Item 4.
Controls and Procedures.
7
PART II
Item 1.
Legal Proceedings.
8
Item 1A.
Risk Factors.
8
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
8
Item 3.
Defaults Upon Senior Securities.
8
Item 4.
Removed and Reserved.
8
Item 5.
Other Information.
8
Item 6.
Exhibits.
8
SIGNATURES 9
2

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.
China Bilingual Technology & Education Group Inc. and Subsidiaries
Condensed Consolidated Balance Sheets

March 31, 2011
December 31, 2010
ASSETS
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents
$
7,421,638
$
8,377,527
Inventory
112,724
109,945
Other current assets
615,499
241,067
Total Current Assets
8,149,861
8,728,539
LONG-TERM ASSETS:
Property, plant and equipment, net
26,650,916
26,462,897
Land use rights, net
5,277,474
5,265,351
Deposit paid for long-term assets
9,608,238
8,782,894
Total Long-Term Assets
41,536,628
40,511,142
TOTAL ASSETS
$
49,686,489
$
49,239,681
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts Payable
$
239,336
$
135,994
Other Payables
371,583
337,353
Refundable deposits
1,030,351
1,107,533
Prepaid Tuition
11,562,210
14,563,979
Home purchase down payment
839,924
823,095
Accrued expenses and other current liabilities
800,480
559,228
Total Current Liabilities
14,843,884
17,527,182
TOTAL LIABILITIES
$
14,843,884
$
17,527,182
STOCKHOLDERS’ EQUITY:
Common Stock, $0.001par value; 75,000,000 shares authorized; 30,000,005 issued and outstanding as of March 31, 2011 and December 31, 2010
30,000
30,000
Additional paid in capital
20,000
20,000
Retained earnings
33,475,249
30,656,680
Accumulated other comprehensive income
1,317,356
1,005,819
TOTAL STOCKHOLDERS’ EQUITY
34,842,605
31,712,499
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
49,686,489
$
49,239,681
The accompanying notes to these consolidated financial statements are an integral part of these balance sheets.

F-1
China Bilingual Technology & Education Group Inc. and Subsidiaries
Condensed Consolidated Statements of Operations and Other Comprehensive Income
(Unaudited)
For The Three Months Ended March 31,
2011
2010
REVENUES
Tuition fee
$
4,282,522
$
4,114,345
Room and board
1,835,366
1,763,290
TOTAL REVENUES
6,117,888
5,877,635
COST OF REVENUES
Tuition costs
2,238,164
1,799,013
Room and board
959,213
771,005
TOTAL COST OF REVENUES
3,197,377
2,570,018
GROSS PROFIT
2,920,511
3,307,617
OPERATING EXPENSES
General and Administrative Expenses
108,336
9,299
TOTAL OPERATING EXPENSES
108,336
9,299
INCOME FROM OPERATIONS
2,812,175
3,298,318
OTHER INCOME (EXPENSE)
Interest Income
6,394
5,369
NET INCOME BEFORE INCOME TAXES
$
2,818,569
$
3,303,687
INCOME TAX EXPENSE
-
-
NET INCOME
$
2,818,569
$
3,303,687
Foreign currency translation, net of tax
311,537
27,402
COMPREHENSIVE INCOME
$
3,130,106
$
3,331,089
Earnings per Common Share:
Basic
$
0.09
$
0.13
Diluted
$
0.09
$
0.13
Weighted Average Common Shares Outstanding:
Basic
30,000,005
26,100,076
Diluted
30,000,005
26,100,076
The accompanying notes to consolidated financial statements are an integral part of these statements.

F-2
China Bilingual Technology & Education Group Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For The Three Months Ended March 31,
2011
2010
Cash flows from operating activities:
Net income
$
2,818,569
$
3,303,687
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation
260,307
226,874
Amortization
38,004
36,622
Stock-based compensation
24,750
-
Loss on disposal of fixed assets
6,537
-
Changes in operating assets and liabilities:
Payment and other current assets
(370,986
)
(62,087
)
Inventories
(1,725
(11,358
)
Accounts payable
101,729
(92,531
)
Other payables
30,916
17,861
Accrued expenses and other current liabilities
210,687
(201,820
)
Refundable deposits
(87,480
)
(259,421
)
Prepaid tuition
(3,131,073
)
(3,161,914
)
Home purchase down payment
8,948
8,298
Net cash provided by (used in) operating activities
(90,817)
(195,789)
Cash flows from investing activities:
Deposits - long term assets
(739,249)
23,455
Fixed asset additions
(202,538)
(68,242)
Advances to related parties receivable
-
-
Receipts - related parties receivables
24
544,934
Net cash used in investing activities
(941,787
)
500,147
Cash flows from financing activities:
(Repayments) or related party loans payable - (1,105,780)
Net cash provided by (used in) financing activities
-
-
Effect of exchange rate changes on cash
76,715
3,850
Net increase (decrease) in cash and cash equivalents
(955,889)
(797,572)
Cash and cash equivalents, beginning of year
8,377,527
5,098,651
Cash and cash equivalents, end of year
$
7,421,638
$
4,301,079
Supplemental disclosures of cash flow information:
Cash paid for interest
$
-
$
-
Cash paid for taxes
-
-

The accompanying notes to consolidated financial statements are an integral part of these statements.
F-3
CHINA BILINGUAL TECHNOLOGY & EDUCATION GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010 (UNAUDITED)
NOTE 1 - NATURE OF BUSINESS
Description of Business
China Bilingual Technology & Education Group Inc. (the "Company")  is an education company that owns and operates high-quality, K-12 private boarding schools in the People’s Republic of China (“PRC”). Founded in 1998, the Company currently operates two schools encompassing kindergarten, elementary, middle and high school levels with approximately 9,500 students and 1,500 faculty and staff. The Company’s schools are located in Shanxi and Sichuan Provinces and provide students with an innovative and high-quality education with a focus on fluency and cultural skills in both Chinese and English, as well as a strong core curriculum. The Company’s sector in education is not subject to corporate income tax, and the Company anticipates its growth will come from both organic growth through increased enrollment and expansion of its business model and teaching methods into new schools, which may be acquired by the Company.
Control by Principal Shareholders
The Company’s directors, executive officers and their affiliates or related parties, own beneficially and in the aggregate, the majority of the voting power of the outstanding shares of the common stock of the Company. Accordingly, the directors, executive officers and their affiliates, if they voted their shares uniformly, would have the ability to control the approval of most corporate actions, including increasing the authorized capital stock of the Company and the dissolution, merger or sale of the Company's assets or business.
Financial Statements Presented
The condensed consolidated financial statements of the Company have been prepared in accordance with the accounting principles generally accepted in the United States of America (“US GAAP”).
On June 30, 2010, the Company, incorporated in the State of Nevada, USA on March 31, 2009, entered into a Share Exchange Agreement (Agreement) with Kahibah Limited (“KL”), a British Virgin Islands (“BVI”) corporation and its shareholder. According to this Agreement, the Company acquired all the issued and outstanding common stock of KL. The Company issued 26,100,076 shares of its common stock, representing 87% of the Company’s issued and outstanding common stock after giving effect to the cancellation of 7,748,343 shares on June 30, 2010, to KL’s shareholders in exchange for 100% of the common stock of KL. After the closing of the transaction, the Company had a total of 30,000,005 shares of common stock issued and outstanding, with KL’s shareholder owning 87% of the total issued and outstanding shares of the Company’s common stock, and the balance held by those who held shares of the Company’s common stock prior to the closing of the exchange. This transaction resulted in KL’s shareholders obtaining a majority voting interest in the Company. All shares are shown effective of a 2.582781 forward stock split.
The acquisition of KL and the operations of its subsidiaries were accounted for as a reverse merger, whereby KL is the continuing entity for financial reporting purposes and is deemed, for accounting purposes, to be the acquirer of the Company.  In accordance with the applicable accounting guidance for accounting for the business combination as a reverse merger, KL is deemed to have undergone a recapitalization, whereby KL is deemed to have issued common stock to the Company’s common equity holders.  Accordingly, although the Company, as KL’s parent company, was deemed to have legally acquired KL, in accordance with the applicable accounting guidance for accounting for the transaction as a reverse merger and re-capitalization, KL is the surviving entity for accounting purposes and its assets and liabilities are recorded at their historical carrying amounts with no goodwill or other intangible assets recorded as a result of the accounting merger with the Company.
As part of the acquisition, the Company changed its name to China Bilingual Technology & Education Group Inc. (“China Bilingual”).  Share and per share amounts stated have been retroactively adjusted to reflect the acquisition. The accompanying financial statements present the historical financial condition, results of operations and cash flows of KL and its operating subsidiaries prior to the recapitalization.
Pre-exchange Transaction Shares
11,648,272*
Repurchase
(7,748,343)
Issuance for KL Shareholders
26,100,076
Total Post-Exchange Shares
30,000,005
*effecting a 2.582781 forward stock split as of July 14, 2010
The historical consolidated financial statements of the Company are those of KL, and of the consolidated entities.  The consolidated financial statements of the Company presented for the three months ended March 31, 2011 and 2010 included the financial statements of China Bilingual, KL, KL’s subsidiary Taiyuan Taiji, a wholly-foreign owned enterprise (“WOFE”) under the laws of the Peoples Republic of China (“PRC”), which owns 95% of the registered capital of Shanxi Taiji, an equity joint venture company organized under the laws of the PRC. Shanxi Taiji owns all of the registered capital of Shanxi Modern Bilingual School and Sichuan Guangan Experimental High School, both private non-enterprise entities incorporated under the laws of the PRC, collectively the “Subsidiaries.”
Since the ownership of KL and its Subsidiaries was substantially the same, the merger with each was accounted for as a transfer of equity interests between entities under common control, whereby the acquirer recognized the assets and liabilities of each Subsidiary transferred at their carrying amounts.  The reorganization was treated similar to the pooling of interest method with carry over basis.  Accordingly, the financial statements for KL and its Subsidiaries have been combined for all periods presented, similar to a pooling of interest.  The reorganization of entities under common control was retrospectively applied to the financial statements of all prior periods when the financial statements are issued for a period that includes the date the transaction occurred.  Intercompany transactions and balances are eliminated in consolidation.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of China Bilingual Technology & Education Group Inc. and the following wholly-owned subsidiaries:
Subsidiaries
State and Countries Registered In
% Ownership
Kahibah Limited
British Virgin Island
100 %
Taiyuan Taiji Industry Development Co., Ltd.
People’s Republic of China
100 %
Shanxi Taiji Industrial Development Co., Ltd.(i)
People’s Republic of China
95 %
Shanxi Modern Bilingual School (ii)
People’s Republic of China
100 %
Sichuan Guang’an Shiyan Secondary School (iii)
People’s Republic of China
100 %
F-4
CHINA BILINGUAL TECHNOLOGY & EDUCATION GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010 (UNAUDITED)
(i)
Shanxi Taiji Industrial Development Co., Ltd. was incorporated as a limited liability company on July 25, 1997 under PRC law. It is currently 95% owned by Taiyuan Taiji and 5% owned by Ms. Ren Baiv.  On November 25, 2009, Kahibah entered into a share exchange agreement to sell the remaining 5% ownership to Ms. Ren Baiv. Ms. Ren Baiv is the sister of Mr. Ren Zhiqing, the Company’s Chief Executive Officer.  At December 31, 2010 Ms. Ren Baiv paid 1 million Renminbi (“RMB”) as part of the capital contribution. The 5% ownership is held by Ms. Ren Baiv on behalf of the Taiyuan Taiji in accordance with local Chinese regulations, therefore no non-controlling interest is recognized.  Shanxi Taiji is an equity joint venture under the laws of the PRC. The Shanxi Modern Bilingual School and Sichuan Guang’an Experimental High School (the “Schools”) hold the requisite governmental licenses to provide private educational services within their province in China.  Each province sets its own licensing criteria and duration following the general guidelines established by the national government for education standards.
(ii)
Shanxi Modern Bilingual School (the “Shanxi School”) was established in 1998 by Shanxi Taiji.  It operates as a private K-12 boarding school on a 38 acre campus in Taiyuan City, Shanxi Province.  The Shanxi School holds a three year provincial license to be renewed May, 2013.
(iii)
Sichuan Guang’an Experimental High School (the “Sichuan School”) was established in 2002 by Shanxi Taiji.  It operates as a private K-12 boarding school on a 23 acre campus in Guang’an, Sichuan Province.  The Sichuan School holds a four year provincial license to be renewed September, 2011.
All significant intercompany accounts and transactions have been eliminated in consolidation.
Management’s Representation of Interim Financial Information

The accompanying unaudited condensed consolidated financial statements have been prepared by the Company without audit pursuant to the rules and regulations of the SEC.  Certain information and disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted as allowed by such rules and regulations, and management believes that the disclosures are adequate to make the information presented not misleading.  These condensed consolidated financial statements include all of the adjustments, which in the opinion of management are necessary to a fair presentation of financial position and results of operations.  All such adjustments are of a normal and recurring nature. Interim results are not necessarily indicative of results for a full year. These condensed consolidated financial statements should be read in conjunction with the audited financial statements at December 31, 2010 as filed in the Company Form 10-K filed with the SEC on March 31, 2011.
NOTE 2 - USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. Measurement, estimates and assumptions are used for, but not limited to, the selection of the useful lives of property and equipment, impairment of long-lived assets, fair values and revenue recognition. Management makes these estimates using the best information available at the time the estimates are made; however, actual results, when ultimately realized, could differ from those estimates. The current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s consolidated financial statements.  The consolidated financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity.  These accounting policies conform to US GAAP and have been consistently applied in the preparation of the consolidated financial statements.
In June 2009 the Financial Accounting Standards Board (“FASB”) established the Accounting Standards Codification (“ASC”) 105-10 (formerly Statement of Financial Accounting Standards (“SFAS”) No. 168, The FASB Accounting Standards Codification and Hierarchy of Generally Accepted Accounting Principles, a replacement of ASB ASC 105-10 establishes the FASB ASC as the source of authoritative accounting principles recognized by the FASB to be applied in preparation of financial statements in conformity with generally accepted accounting principles in the United States of America (“US GAAP”). The adoption of this standard had no impact on the Company’s consolidated financial statements.
The Company operates in two segments in accordance with accounting guidance FASB ASC Topic 280, Segment Reporting .  Our Chief Executive Officer has been identified as the chief operating decision maker as defined by FASB ASC Topic 280.
(a)
Fair Value of Financial Instruments
The Company applies the provisions of accounting guidance, FASB ASC Topic 820 that requires all entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practicable to estimate fair value, and defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties.  As of March 31, 2011 and 2010 the fair value of cash and cash equivalents, other current assets, accounts payable, refundable deposits, prepaid tuition and other payables approximated carrying value due to the short maturity of the instruments, quoted market prices or interest rates which fluctuate with market rates.
Fair Value Measurements
Effective April 1, 2009, the FASB ASC Topic 820, Financial Instruments, requires disclosures about fair value of financial instruments in quarterly reports as well as in annual reports.
The FASB ASC Topic 820, Fair Value Measurements and Disclosures, clarifies the definition of fair value for financial reporting, establishes a framework for measuring fair value and requires additional disclosures about the use of fair value measurements.
Various inputs are considered when determining the fair value of the Company’s financial instruments. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in these securities.  These inputs are summarized in the three broad levels listed below:
Level 1 – observable market inputs that are unadjusted quoted prices for identical assets or liabilities in active markets.
Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, credit risks, etc.)
F-5
CHINA BILINGUAL TECHNOLOGY & EDUCATION GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010 (UNAUDITED)
Level 3 – significant unobservable inputs (including the Company’s own assumptions in determining the fair market value of financial instruments.
The Company’s adoption of FASB ASC Topic 820 did not have a material impact on the Company’s consolidated financial statements.
The carrying value of financial assets and liabilities recorded at fair value is measured on a recurring or nonrecurring basis. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. The Company had no financial assets or liabilities carried and measured on a nonrecurring basis during the reporting periods. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. The Company had no financial assets and/or liabilities carried at fair value on a recurring basis at March 31, 2011 and 2010.
The availability of inputs observable in the market varies from instrument to instrument and depends on a variety of factors including the type of instrument, whether the instrument is actively traded, and other characteristics particular to the transaction. For many financial instruments, pricing inputs are readily observable in the market, the valuation methodology used is widely accepted by market participants, and the valuation does not require significant management discretion. For other financial instruments, pricing inputs are less observable in the market and may require management judgment.
(b)
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. There are no restrictions to cash at March 31, 2011. A substantial amount of the Company’s cash is held in bank accounts in the PRC and is not protected by the Federal Deposit Insurance Corporation (“FDIC”) insurance or any other similar insurance. Given the current economic environment and the financial conditions of the banking industry there is a risk that deposits may not be readily available. Cash held in the PRC amounted to $7,419,198 at March 31, 2011.  The PRC places limitations on expatriating cash out of the country, which may limit the Company’s ability to pay dividends. As of March 31, 2011, the Company  had depositis of $2,440 held in a US bank account, which was protected by FDIC insurance.
(c)
Impairment of Long-Lived Assets
The Company’s long-lived assets and other assets (consisting of property and equipment and purchased land use rights) are reviewed for impairment in accordance with the guidance of the FASB ASC Topic 360-10, Property, Plant, and Equipment , and FASB ASC Topic 205, Presentation of Financial Statements .  The Company tests for impairment losses on long-lived assets used in operations whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.  Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset.  If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value.  Impairment evaluations involve management’s estimates on asset useful lives and future cash flows.  Actual useful lives and cash flows could be different from those estimated by management which could have a material effect on our reporting results and financial positions.  Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. Through March 31, 2011, the Company had not experienced impairment losses on its long-lived assets.  However, there can be no assurances that demand for the Company’s services will continue, which could result in an impairment of long-lived assets in the future.
(d)
Income taxes
On March 16, 2007, the PRC National People’s Congress passed the PRC Enterprise Income Tax Law (“New EIT Law”) which became effective on January 1, 2008.  Pursuant to the New EIT Law, a unified enterprise income tax rate of 25% and unified tax deduction standards will be applied consistently to both domestic-invested enterprises and foreign-invested enterprises.
Shanxi Taiji and Taiyuan Taiji are taxed pursuant to the New EIT Law with a unified enterprise income tax rate of 25%. Shanxi Taiji and Taiyuan Taiji had no income taxes due during the three months ended March 31, 2010 due to net losses experienced in the past reporting periods. The two entities may apply the past periods’ net operating losses to futures years’ profits in order to reduce tax liability. Since Shanxi Taiji and Taiyuan Taiji have minimal business operations, the two entities are unlikely to have profits in future periods. As a result, all deferred tax assets and liabilities are deminimus, and management would have a 100% valuation allowance for all deferred tax assets.
The subsidiaries of Shanxi Taiji, the Shanxi School and Sichuan School, which were registered as private schools (the “school-subsidiaries”), are not subject to income taxes determined in accordance with the Law for Promoting Private Education (2003) and school-subsidiaries registered as private schools not requiring reasonable returns (similar to a not-for-profit entity) are treated as public schools and are generally not subject to enterprise income taxes. Therefore, the school-subsidiaries are tax exempt.
F-6
CHINA BILINGUAL TECHNOLOGY & EDUCATION GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010 (UNAUDITED)
Kahibah Limited is exempt from income tax on all sources of income pursuant to the tax law in the British Virgin Islands. However, pursuant and subsequent to the reverse merger, the parent company in U.S. may pay tax in future years.
USA
The Company and its subsidiaries are subject to income taxes on an entity basis on income arising in, or derived from, the tax jurisdiction in which they operate.  As the Company has no income generated in the United States, there was no tax expense or tax liability due to the Internal Revenue Service of the United States as of March 31, 2011.  However, the Company would have to pay corporate tax if any taxes were owed, due to the rules of certain states.
BVI
Kahibah Limited, an international business company, was formed on December 6, 2005 in the British Virgin Islands.  As a BVI company, Kahibah Limited does not have an income tax.
PRC
Pursuant to the PRC Income Tax Laws, the prevailing statutory rate of enterprise income is 25% for Taiyuan Taiji Industrial Development Co., Ltd and its subsidiaries.  There is no tax provision for the three months ended March 31, 2011 or March 31, 2010, respectively.
For Three Months Ended
For Three Months Ended
March 31, 2011
March 31, 2011
Income (loss) before income tax
United States
$ - $ -
PRC
2,818,569 3,303,687
Total
$ 2,818,569 $ 3,303,687
Provision for Income Taxes
Current income tax
$ - $ -
Deferred income tax
- -
Total
$ - $ -
Effective tax rate - worldwide
0 % 0 %
Reconciliation of Effective Income Tax Rate
Statutory U.S. tax rate
34 % 34 %
Tax rate difference
-9 % -9 %
PRC tax exemption
-25 % -25 %
Effective worldwide tax rate
0 % 0 %
The Company did not have any significant temporary differences relating to deferred tax liabilities as of year end.  (All of the NOL has 100% allowance.)  A valuation allowance for the deferred tax assets is recorded when it is more likely than not that some or all of the deferred tax assets will not be realized.
Pretax earnings of a foreign subsidiary are subject to U.S. taxation when effectively repatriated.  The Company provides income taxes on the undistributed earnings of non-U.S. subsidiaries except to the extent that such earnings are indefinitely invested outside of the U.S.  As of March 31, 2011, the above accumulated adjusted earnings of non-U.S. subsidiaries was indefinitely invested.  At the existing U.S. federal income tax rate, additional U.S. income taxes would have to be provided if such earnings were remitted currently.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis.  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 taxes of a change in tax rates is recognized in income in the period that includes the enactment date.  Deferred income tax expense represents the change during the period in the deferred tax assets and liabilities.  The components of the deferred tax assets and liabilities are individually classified as current or non-current based on their characteristics. Deferred tax assets and liabilities are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.  A provision has not been made at March 31, 2011 and 2010 for U.S. or additional foreign withholding taxes of undistributed earnings of foreign subsidiaries because it is the present intention of management to reinvest the undistributed earnings indefinitely in foreign operations.  Generally, such earnings become subject to U.S. tax upon the remittance of dividends and under certain other circumstances.  It is not practicable to estimate the amount of deferred tax liability on such undistributed earnings.
The Company recognizes that virtually all tax positions in the PRC are not free of some degree of uncertainty due to tax law and policy changes by the government.  However, the Company cannot reasonably quantify political risk factors and thus must depend on guidance issued by current government officials.
Based on all known facts and circumstances and current tax law, the Company believes that the total amount of unrecognized tax benefits as of March 31, 2011 and 2010 is not material to its results of operations, financial condition or cash flows.  The Company also believes that the total amount of unrecognized tax benefits as of March 31, 2011 and 2010, if recognized, would not have a material effect on its effective tax rate. The Company further believes that there are no tax positions for which it is reasonably possible, based on the current PRC tax law and policy, that the unrecognized tax benefits will significantly increase or decrease over the next twelve months producing, individually or in the aggregate, a material effect on the Company’s results of operations, financial condition or cash flows as of March 31, 2011 and 2010.
Effective January 1, 2007, the Company adopted ASC 740-10, Accounting for Uncertainty in Income Taxes (formerly “FIN 48”, an interpretation of FASB statement No. 109), Accounting for Income Taxes. The interpretation addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements.
Under ASC 740-10, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. ASC 740-10 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. As of March 31, 2011 and 2010, the Company does not have a liability for unrecognized tax benefits.
(e)
Revenue Recognition and Prepaid Tuition
In accordance with the Securities and Exchange Commission’s (“SEC”) Staff Accounting Bulletin (“SAB”) Topic 13, Revenue Recognition , the Company recognizes revenues when it is realized or realizable and earned.  The Company records revenues when the following four fundamental criteria under SAB 104 are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the price to the customer is fixed or determinable, and (iv) collection of the resulting receivable is reasonably assured.  Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as prepaid tuition.
Revenues consist primarily of tuition and fees derived from providing meals and housing for students living on campus. Revenues from tuition and fees are recognized pro-rata (on a straight-line basis) over the relevant period attended by the student of the applicable grade or program. The school year runs September 1 through August 31 and prepaid tuition is recognized over the twelve-month period. If a student withdraws from a course or program within three months after the school year starts, the paid but unearned portion of the student’s tuition is 67% refunded. If a student withdraws after the first three months in a school year, no tuition will be refunded. As a result, the Company has recorded prepaid tuition as a current liability on the consolidated balance sheet in the event a student withdraws from school and the Company has to return a portion of the prepaid tuition. In past years there were minimal students who withdrew from a course or program before the end of a school year.
The Company normally receives prepaid tuition and fees from students at their initial admission or before the start of the school year on September 1. Some students will benefit from a discount of fees if they prepay tuition for two to three years of school term. Prepaid tuition is the portion of payments received but not earned and is reflected as a current liability in the accompanying consolidated balance sheets as such amounts are expected to be earned, but may be refundable within the next year.
The 2010 - 2011 schools year annual tuition, room & board and other fees, (the “School Fees”), are allocated based on grade level to the following categories:

F-7
CHINA BILINGUAL TECHNOLOGY & EDUCATION GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010 (UNAUDITED)
Below is a schedule of the prepaid School Fees as of March 31, 2011 and 2010, Prepaid tuition expected to be recognized into revenue for the next years and thereafter is as following.
Period
March 31, 2011
December 31,2010
2011
$ 5,789,415 $ 13,754,026
2012
5,609,110 652,100
2013
163,685 157,853
Total
$ 11,562,210 $ 14,563,979
Room and Board and Other Revenues
Room and board revenues represent student room income and cafeteria income. Revenues are recognized as sales occur or rental services are rendered. Other revenues represent rental income earned from renting out apartments to faculty members and other miscellaneous revenues and fees, including tutoring, special lesson fees and registration fees.
The following table shows the breakdown of revenues by segment during three months ended March 31, 2011 and 2010:
For the Three months Ended March 31,
2011
2010
Revenue
%
Revenue
%
Tuition
$ 4,282,522 70 % 4,114,345 70 %
Room & Board and Other Rev.
1,835,366 30 % 1,763,290 30 %
Total
$ 6,117,888 100 % 5,877,635 100 %
(f)
Foreign Currency Translation
The Company’s principal country of operations is The People’s Republic of China.  The financial position and results of operations of the Company are determined using the local currency (“Renminbi or RMB”) as the functional currency.  The results of operations denominated in foreign currency are translated at the average rate of exchange during the reporting period.
Assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the exchange rates prevailing at the balance sheet date.  The results of operations are translated from Renminbi to US Dollar at the weighted average rate of exchange during the reporting period.  The registered equity capital denominated in the functional currency is translated at the historical rate of exchange at the time of capital contribution.   All translation adjustments resulting from the translation of the financial statements into the reporting currency (“US Dollars”) are dealt with as a component of accumulated other comprehensive income.
Translation adjustments net of tax totaled $331,537 and $27,402, for the three months ended March 31, 2011 and 2010, respectively.
As of December 31, 2010 and March 31, 2011, the exchange rate to the U.S. Dollar was RMB 6.6227 and RMB 6.5601, respectively. The average exchange rate for the three months ended March 31, 2011 and 2010 was RMB 6.5804 and RMB 6.8263, respectively
F-8
CHINA BILINGUAL TECHNOLOGY & EDUCATION GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010 (UNAUDITED)
(g)
Comprehensive Income
The Company reports comprehensive income in accordance with FASB ASC Topic 220 Comprehensive Income , which established standards for reporting and displaying comprehensive income and its components in a financial statement that is displayed with the same prominence as other financial statements.
Total comprehensive income is defined as all changes in stockholders' equity during a period, other than those resulting from investments by and distributions to stockholders (i.e., issuance of equity securities and dividends). Generally, for the Company, total comprehensive income equals net income plus or minus adjustments for currency translation.  The foreign currency translation, net of tax was $311,537 and $27,402, for the three months ended March 31, 2011 and 2010, respectively.  Total comprehensive income represents the activity for a period net of related tax and was $3,130,106 and $3,331,089, for the three months ended March 31, 2011 and 2010, respectively.
While total comprehensive income is the activity in a period and is largely driven by net earnings in that period, accumulated other comprehensive income or loss (“AOCI”) represents the cumulative balance of other comprehensive income as of the balance sheet date.  For the Company, AOCI is primarily the cumulative balance related to the currency adjustments and increased overall equity by $1,317,356, as of March 31, 2011.
(h)
Concentrations, Risks, and Uncertainties
All of the Company’s operations are located in the PRC.  There can be no assurance that the Company will be able to successfully continue to provide the services offered and failure to do so would have a material adverse effect on the Company’s financial position, results of operations and cash flows.  Also, the success of the Company’s operations is subject to numerous contingencies, some of which are beyond management’s control.  These contingencies include general economic conditions, teacher salaries, competition, governmental and political conditions, and changes in regulations.  Because the Company is dependent on trade in the PRC, the Company is subject to various additional political, economic and other uncertainties.  Among other risks, the Company’s operations will be subject to risk of restrictions on transfer of funds, domestic and international customs, changing taxation policies, foreign exchange restrictions, and political and governmental regulations.
(i)
Advertising
The Company expenses the cost of advertising as incurred or, as appropriate, the first time the advertising takes place.  Advertising costs for the three months ended March 31, 2011 and 2010 were not significant.
(j)
Research and Development

The Company expenses the cost of research and development as incurred.  Research and development costs for the three months ended March 31, 2011 and 2010 were not significant.
(k)
Basic and diluted earnings per share
Earnings per share is calculated in accordance with the ASC Topic 260, Earnings Per Share .  Basic earnings per share is calculated dividing net earnings available to common stockholders by the weighted average number of common shares outstanding during the period.  Diluted earnings per share is based on the assumption that all dilutive convertible shares, stock options, warrants and other equity awards were converted or exercised during the period. Dilution is computed by applying the treasury stock method. Under this method, warrants and options are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.  In periods where losses are reported, the weighted-average number of common stock outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.
Basic and diluted earnings per share were $0.09 and $0.09 per share and $0.13 and $0.13 per share, respectively for the three months ended March 31, 2011 and 2010.
(l)
Statement of Cash Flows
In accordance with ASC Topic 230, Statement of Cash Flows , cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rates. As a result, amounts related to assets and liabilities reported on the consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheets.
F-9
CHINA BILINGUAL TECHNOLOGY & EDUCATION GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010 (UNAUDITED)
(m)
Reclassification
Certain reclassifications have been made to the 2010 consolidated financial statements to conform to the 2011 consolidated financial statement presentation. These reclassifications had no effect on net loss or cash flows as previously reported.
(n)
Accounting Pronouncements
Accounting Standards Update (“ASU”) ASU No. 2010-09 (ASC Topic 855), which amends Subsequent Events Recognition and Disclosures, ASU No. 2009-16 (ASC Topic 860), which amends Accounting for Transfer of Financial Assets, ASU No. 2009-05 (ASC Topic 820), which amends Fair Value Measurements and Disclosures - Overall, ASU No. 2009-08, Earnings per Share, ASU No. 2009-12(ASC Topic 820), Investments in Certain Entities That Calculate Net Asset Value per Share, and various other ASU’s No. 2009-2 through ASU No. 2011-04 which contain technical corrections to existing guidance or affect guidance to specialized industries or entities were recently issued. These updates have no current applicability to the Company, or their effect on the financial statements would not have been significant.
In April 2010, the FASB issued Accounting Standard Update, 2010-17, Revenue Recognition-Milestone Method (Topic 605): “Milestone Method of Revenue Recognition-a consensus of the FASB Emerging Issues Task Force.” This is an update regarding the milestone method of revenue recognition. The scope of this update is limited to arrangements that include milestones relating to research or development deliverables. The update specifies criteria that must be met for a vendor to recognize consideration that is contingent upon achievement of a substantive milestone in its entirety in the period in which the milestone is achieved.  The criteria apply to milestones in arrangements within the scope of this update regardless of whether the arrangement is determined to have single or multiple deliverables or units of accounting.  The update will be effective for fiscal years, and interim periods within those years, beginning on or after September 15, 2010. Early application is permitted. Companies can apply this guidance prospectively to milestones achieved after adoption. However, retrospective application to all prior periods is also permitted. This update is not expected to have a material impact on the Company’s financial statements.
In March 2010, the FASB issued Accounting Standard Update, 2010-13, Compensation-Stock Compensation (Topic 718): “Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades-a consensus of the FASB Emerging Issues Task Force.” This is an update regarding the effect of denominating the exercise price of a share-based payment award in the currency of the market in which the underlying equity security trades and that currency is different from (1) entity’s functional currency, (2) functional currency of the foreign operation for which the employee provides services, and (3) payroll currency of the employee. The update clarifies that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades should be considered an equity award assuming all other criteria for equity classification are met. The update will be effective for interim and annual periods beginning on or after December 15, 2010, will be applied prospectively. Affected entities will be required to record a cumulative catch-up adjustment for all awards outstanding as of the beginning of the annual period in which the guidance is adopted. This update is not expected to have a material impact on the Company’s financial statements.
NOTE 4 - INVENTORY
Inventories are stated at the lower of cost, determined on a weighted average basis, or net realizable value.  Net realizable value is the estimated selling price in the ordinary course of business.  The Company’s inventories are typically school supplies used in the normal course of business. When inventories are consumed, their carrying amounts are expensed in the year used.  Write-downs for declines in net realizable value or for losses of inventories are recognized as an expense in the year of impairment or loss occurs.  Inventories consisted of the following:
March 31, 2011
December 31, 2010
Course materials
$
102,475
$
102,176
Low consumable tools
29,532
27,052
Total inventory
$
132,007
$
129,228
* Provision
(19,283
)
(19,283
)
Total
$
112,724
$
109,945
* The provision is an inventory allowance for aged inventory items.

F-10
CHINA BILINGUAL TECHNOLOGY & EDUCATION GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010 (UNAUDITED)
NOTE 5 - PREPAYMENT AND OTHER CURRENT ASSETS
Prepayment and other current assets consisted of the following:
March 31,
2011
December 31,
2010
Advances to suppliers
$
20,310
$
108,440
Other prepaid
84,138
1,427
Other advance
511,051
131,200
Total
$
615,499
$
241,067
Other prepaid is primarily staff advances, travel, and the other related expenses to be charged to expenses as incurred. Other receivable is primarily an advance to a third-party of 3,000,000 RMB (or approximately $457,310 USD).
NOTE 6 - LAND USE RIGHTS, NET
Land use rights, net consisted of the following:
March 31,
2011
December 31,
2010
Cost of land use rights
$
6,099,442
$
6,041,788
Less: Accumulated amortization
(821,968
)
(776,437
)
Land use rights, net
$
5,277,474
$
5,265,351
Amortization expense for three months ended on March 31, 2011 and 2010 were $38,004 and $36,622, respectively.
Amortization expense for the next five years and thereafter is as follows:
2011
$
152,016
2012
152,016
2013
152,016
2014
152,016
2015
152,016
Thereafter
4,517,394
Total
$
5,277,474
NOTE 7 - PROPERTY AND EQUIPMENT, NET
Property and equipment , net consisted of the following:
At Cost:
March 31,
2 011
December 31,
2010
Buildings
$
29,638,704
$
29,358,549
Transportation equipment
914,906
970,352
Furniture & education equipment
3,638,352
3,485,503
Kitchen equipment
494,683
488,684
Computer and software
237,588
228,418
Total cost
$
34,924,233
$
34,531,506
Less : Accumulated depreciation
(8,273,317
)
(8,068,609
)
Property and equipment, net
$
26,650,916
$
26,462,897

F-11
CHINA BILINGUAL TECHNOLOGY & EDUCATION GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010 (UNAUDITED)
For the three months ended March 31, 2011 and 2010, depreciation\expenses were $260,307 and $226,874, respectively. Depreciation is 100% allocated to cost of sales because buildings and equipment are directly tied to teaching expense, administration, room and board.
Property and equipment is located at the Company’s two school locations in Shanxi and Sichuan Provinces in the PRC and is recorded at cost less accumulated depreciation. Depreciation and amortization are calculated using the straight-line method over the expected useful life of the asset, after the asset is placed in service. Major repairs and betterments that significantly extend original useful lives or improve productivity are capitalized and depreciated over the period benefited.  Maintenance and repairs are generally expensed as incurred.  When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations.
The estimated useful lives for each major category of fixed assets are as follows:
Description
Useful Lives
Buildings
40 years
Transportation Equipment
10 years
Kitchen Equipment
5 years
Furniture, Education Equipment, Computers
3 years
NOTE 8 - DEPOSIT PAID FOR LONG-TERM ASSETS
The deposit balance paid for long term assets as of March 31, 2011 is a good-faith, refundable deposit of $9,608,238 paid to begin preliminary negations toward the potential acquisition of a school.  The deposit balance for the potential acquisition at December 31, 2010 was $8,782,894.
NOTE 9 - OTHER PAYABLE
Other payables included traveling and the related expenses incurred by employees on behalf of the company. These amounts are unsecured, non-interest bearing and generally are short term in nature.
NOTE 10 - HOME PURCHASE DOWN PAYMENT
According to the School’s Employee Welfare Policy, the School may sign a home purchase agreement with teachers which would allow teachers to purchase home property at a discounted market rate. Pursuant to the home purchase agreement between the School and teachers, teachers were given the right to purchase a home property upon their 8th year of service. There were two payment options:
(1) one-time full payment of the home purchase price based on the signed agreement; or (2) RMB 20,000 down payment with remaining balance to be paid in 8 equal annual installments until their 8th year of service. Those teachers who selected option (2) would be charged an interest rate of 7% if they do not make payment on time during the 8 year period. If teachers resign or leave the school for any reasons, they will be entitled to a refund based on the terms of the home purchase agreement. There were minimal refunds for three months ended March 31, 2011 and 2010. For accounting purposes, cash received from teachers through payment options (1) and (2) and late interest payments are recorded as deposit at the time the School receives. The School recognizes profit when the sale is consummated.
The School records the home purchase transactions in accordance to the deposit method pursuant to FASB ASC Topic 360-20, Real Estate Sales . Under the deposit method, the seller does not recognize any profit, does not record notes receivable, and continues to report in its financial statements the property which has been assumed by the buyer. Cash received from the buyer, including the initial investment and subsequent collections of principal and interest, is reported as a deposit. Interest collected that is subject to refund and is included in the deposit account before a sale is consummated is accounted for as part of buyer’s initial investment at the time the sale is consummated. There were no apartments sold for the three months ended March 31, 2011 and 2010, and as such the School recognized no income from selling apartments. As of March 31, 2011 and 2010, home deposits were $839,924 and $823,095, respectively.
F-12
CHINA BILINGUAL TECHNOLOGY & EDUCATION GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010 (UNAUDITED)
NOTE 11 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following:
March 31, 2011
December 31, 2010
Accrued payroll
$ 704,908 $ 528,095
Individual taxes withholding
5,567 13,133
Others
90,005 18,000
Total
$ 800,480 $ 559,228
NOTE 12 - REFUNDABLE DEPOSITS
Students living on campus are required to pay a deposit of approximately RMB 60,000 at their initial admissions or before the start of the school year in September. If a student has any damages to the school housing, the repair and maintenance expense will be deducted directly from his or her student deposit. Any remaining balance in student deposits is fully refunded upon graduation or if students leave the school for any reasons. For the three months ended March 31, 2011 and 2010, there were minimal damages to the school housing and no student deposit was deducted to pay for the repair and maintenance expense. As of March 31, 2011 and December 31, 2010, refundable deposits were $1,030,351 and $1,107,533, respectively.
NOTE 13 - STOCK BASED COMPENSATION
On September 15, 2011, the Company entered into a consulting agreement with its new Chief Financial Officer. The agreement is for a twelve month term. Under the terms of the agreement, the Chief Financial Officer is to be compensated $6,000 USD per month cash compensation and $6,000 USD per month stock compensation in restricted common shares to be awarded beginning January 1, 2011 on a quarterly basis.
Based on the fair market value at March 31, 2011 the stock award was for $18,000; the closing quoted stock price was $3.24 per share, therefore 5,556 shares will be awarded April 1, 2011 and $18,000 was booked as an accrued expense in the period ended March 31, 2011.  To date the Company has not issued the shares payable to the Chief Financial Officer.  The total shares to be issued are 10,356 common shares, which include 4,800 shares accrued through December 31, 2010 and 5,556 shares accrued through March 31, 2011.
In January 2011, the Company entered consulting agreements with its three independent directors.  The agreements are for a twelve month term.  Under the terms of the agreements, each director is to be compensated $9,000 USD annually in cash compensation and $9,000 USD annually in stock compensation in restricted common shares to be awarded semi-annually.
Based on the fair market value at March 31, 2011 the stock awards for each director was $2,250; closing quoted stock price was $3.24 per share, therefore 694 shares will be awarded April 1, 2011 and $2,250 was booked as an accrued expense in the period ended March 31, 2011.  To date the Company has not issued the shares payable to the three independent directors.  The total shares to be issued are 2,082 common shares accrued through March 31, 2011.

F-13
CHINA BILINGUAL TECHNOLOGY & EDUCATION GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010 (UNAUDITED)
NOTE 14 –SEGMENT INFORMATION
For The Three Months Ended
March 31, 2011
For The Three Months Ended
March 31, 2010
Tuition fee
Room & Board
Total
Tuition fee
Room & Board
Total
Gross profit
2,044,358 876,153 2,920,511 2,315,332 992,285 3,307,617
Operating expenses
75,835 32,501 108,336 6,509 2,790 9,299
Operating profit
$ 1,968,523 843,652 2,812,175 2,308,823 989,495 3,298,318
Segment assets
$ 24,843,245 $ 24,843,244 $ 49,686,489 $ 19,235,219 $ 19,235,219 $ 38,470,438
Segment liabilities
$ 7,421,942 $ 7,421,942 $ 14,843,884 $ 8,097,257 $ 8,097,257 $ 16,194,514
The Company operates in two business segment, educational and room and board services. According to experience, the tuition fee represented approximately 70%, and room and board and other fee represented approximately 30% of our total revenues in the three months ended March 31, 2011 and 2010, respectively.
NOTE 15 – EARNING PER SHARE
FASB ASC Topic 260, Earnings Per Share , requires a reconciliation of the numerator and denominator of the basic earnings per share (EPS) computations.
Basic earnings per share are computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. There were no potentially dilutive securities for three months ended March 31, 2011 and 2010.
The following table sets forth the computation of basic and diluted net income per share:
F-14
CHINA BILINGUAL TECHNOLOGY & EDUCATION GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010 (UNAUDITED)
For The three months Ended March 31,
2011
2010
Net income
$
2,818,569
$
3,303,687
Basic weighted average outstanding shares of common stock
30,000,005
26,100,076
Diluted weighted average common stock and stock equivalents
30,000,005
26,100,076
Earnings per share:
Basic
$
0.09
$
0.13
Diluted
$
0.09
$
0.13
NOTE 17 - EMPLOYEE RETIREMENT BENEFITS AND POST RETIREMENT BENEFITS
According to the Shanxi and Sichuan Provincial regulations on state pension program, both employees and employers have to contribute toward pensions. The pension contributions range from 2% to 8% that was contributed by individuals (employees) and the Company is required to make contributions to the state retirement plan based on 20% of the employees’ monthly basic salaries. Employees in the PRC are entitled to retirement benefits calculated with reference to their basic salaries on retirement and their length of service in accordance with a government managed benefits plan. The PRC government is responsible for the benefit liability to these retired employees. During the three months ended March 31, 2011 and 2010, the Company contributed $214,997 and $238,818 in pension contributions, respectively.
NOTE 18–SUBSEQUENT EVENT
Management has evaluated subsequent events through the filing date and has concluded no events need to be reported during this period.
F-15
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included elsewhere in this report.
This report contains forward-looking statements that involve risks and uncertainties. We generally use words such as “believe,” “may,” “could,” “will,” “intend,” “expect,” “anticipate,” “plan,” and similar expressions to identify forward-looking statements, including statements regarding our ability to continue to generate new business based on our sales and marketing efforts, referrals and existing relationships, our financing strategy and ability to access the capital markets and other risks discussed in our Risk Factor section included in our Form 10-K for the year ended December 31, 2010, as filed with the Securities and Exchange Commission on March 31, 2011 materially from those expressed in any forward-looking statements. We cannot assure you that the results or developments expected or anticipated by us will be realized or, even if substantially realized, that those results or developments will result in the expected consequences for us or affect us, our business or our operations in the way we expect. We caution readers not to place undue reliance on these forward-looking statements, which speak only as of their dates. We do not intend to update any of the forward-looking statements after the date of this document to conform these statements to actual results or to changes in our expectations, except as required by law.

Highlights and Executive Summary

China Bilingual Technology & Education Group Inc. (the "Company") is an education company that owns and operates high-quality, K-12 private boarding schools in the People’s Republic of China (“PRC”). Founded in 1998, the Company currently operates two schools encompassing kindergarten, elementary, middle and high school levels with approximately 9,500 students and 1,500 faculty and staff. The Company’s schools are located in Shanxi and Sichuan Provinces and provide students with an innovative and high-quality education with a focus on fluency and cultural skills in both Chinese and English, as well as a strong core curriculum.  The schools regularly rank among the top schools in their respective regions for national college entrance exam scores and college entrance rates. The Company’s schools have earned excellent teaching reputations and are recognized for the success of their students and strong faculty. As the PRC experiences rapid industrialization and economic growth, the government is focused on education as a means to increase worker productivity and raise the standard of living. Parents in the PRC’s new middle and upper classes are sending their children to receive private school education to give them an advantage in the PRC’s increasingly competitive workforce. The Company’s sector in education is not subject to corporate income tax, and the Company anticipates its growth will come from both organic growth through increased enrollment and expansion of its business model and teaching methods into new schools, which may be acquired by the Company.
The Company was incorporated under the laws of the State of Nevada on March 31, 2009 as Designer Export, Inc.  On June 30, 2010, the Company completed its plan of merger and changed its name to China Bilingual Technology & Education Group Inc.
Results of Operations
For the Three Months Ended March 31, 2011 Compared to the Three Months Ended March 31, 2010
Revenues
The following table shows the breakdown of revenues by segment during the three months ended March 31, 2011 and 2010:
For the Three months Ended March 31,
2011
2010
Revenue
%
Revenue
%
Tuition
$ 4,282,522 70 % $ 4,114,345 70 %
Room & Board
1,835,366 30 % 1,763,290 30 %
Total
$ 6,117,888 100 % $ 5,877,635 100 %
During the three months ended March 31, 2011, we had total revenues of $6,117,888, an increase of $168,177 or 4.1% from total revenues of $5,877,635 for the three months ended March 31, 2010.  Our average tuition however increased $226 or approximately 7% per student between the three month periods ended March 31, 2011 and March 31, 2010.  Total enrollment between the periods decreased 390 students to 9,364 students at March 31, 2011 from 9,754 students at March 31, 2010.  We phased-out 280 students that were part of an experimental program at our Sichuan school.  The experimental program was to take local high school seniors or drop-outs (not our previous students) who could not score well on the college entrance exam and enroll them into our school to try to tutor them through the national college entrance exam known as the “GaoKao” exam (equivalent of the US S.A.T. test for college entrance).  After experimenting with this program with some success for one year, our administration became concerned that this would pull down our average college entrance exam scores and college entrance rates, so the program was dropped.  Our administration remains focused on improving our college entrance exam scores and college entrance rates since this is a key selling point for our schools.  We have also raised our academic standards to advance to our high school from middle school.  Our minimum test scores have been raised and we dismissed 110 students during the period that could not advance to the high school level.  Because of our strict academic standards we remain the leaders in our respective regions for sending students on to prestigious colleges with an overall 99% college acceptance rate.
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During the three months ended March 31, 2011 and 2010 room and board increased $72,076 or 4.1% to $1,835,366 from $1,763,290, corresponding to the similar 7% price increase in tuition.
Cost of Revenue
During the three months ended March 31, 2011 and 2010 our cost of revenue increased $627,359 or 24% to $3,197,377 from $2,570,018, respectively.  The increase in cost of revenue was primarily the result of increased labor costs for teacher salaries and insurance, as labor rates continue to increase in the PRC.  We also upgraded certain programs during this period to include new books and equipment as well as expanded our administration in anticipation of acquiring a new school facility, which are expensed in the cost of revenue for the period.  All direct costs associated with education, room and board are included in cost of revenue.  As a percentage of total revenues, cost of revenues increased to 52.3% of revenues from 43.7% of revenues.
General and Administrative Expenses
General and administrative expenses, totaled $108,336 during the three months ended March 31, 2011 as compared to $9,299 for the three months ended March 31, 2010. The increase of 99,073, or 1,065% in general and administrative expense was primarily due to public company expenses incurred during the three months ended March 31, 2011, including legal and accounting fees and investor relations fees.  During the three months ended March 31, 2010 we were not a public company.
Interest expense
We have had no short term or long term debt outstanding and therefore have no interest expense during the three months ended March 31, 2011 and 2010.
Net Income
Net income for the three months ended March 31, 2011 decreased $485,118 or 15% to $2,818,569 from $3,303,687 for the three months ended March 31, 2010, due to the reasons set forth above.
Earnings per share during the three months ended March 31, 2011 decreased $0.04 per share or 31% to $0.09 per share from $0.13 per share during the three months ended March 31, 2010.  Basic and diluted earnings per share are the same since the Company has no outstanding dilutive instruments, including warrants, options or convertible debt.
Comprehensive Income
Our business operates primarily in Chinese Renminbi (“RMB”), but we report our results in U.S. Dollars. The conversion of our accounts from RMB to U.S. Dollars results in translation adjustments. As a result, we had a currency translation adjustment gain of $311,537 during the three months ended March 31, 2011, as compared to a gain of $27,402 during the three months ended March 31, 2010.  Our comprehensive income decreased $200,983 or 6% to $3,130,106 during the three months ended March 31, 2011, as compared with $3,331,089 during the three months ended March 31, 2010.
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Liquidity and Capital Resources
Presently, our cash and cash equivalents are $7,421,638.  Our principal source of liquidity comes from prepaid tuition, and room and board from students that attend our schools. The Company has no accounts receivable because tuition is prepaid up-front at the beginning of the school year.  Based on our current operating plan, we believe that our existing resources, including cash flow generated from operations as well as available bank loans, will be sufficient to meet our working capital requirement for our current operations. In order to fully implement our business plan and continue our growth, however, we will require additional capital either from our shareholders or from outside sources, although there is no assurance that we will be able to obtain additional capital at suitable terms if and when it is needed.
We have paid $9,608,238 for the acquisition of a school facility as a good-faith, refundable deposit to begin preliminary negations toward the potential acquisition of a school as of March 31, 2011.
Cash Flows from Operating Activities
Cash used in operating activities decreased $104,934 or 54% to ($90,887) for the three months ended March 31, 2011 compared to ($195,789) provided by operating activities for the three months ended March 31, 2010 primarily because of cash used in the payments toward prepayments, accounts payable, accrued expenses and refundable deposits.
Cash Flows from Investing Activities
Cash used in investing activities increased $1,441,910 or 288% to ($941,763) for the three months ended March 31, 2011 as compared to ($500,147) provided in the three months ended March 31, 2010. The increase in cash used by financing activities for the three months ended March 31, 2011 resulted primarily from the $739,249 additional payment as part of the good-faith, refundable deposit for negotiations toward the potential acquisition of a new school facility and $202,538 in fixed assets additions and improvements for the school facilities.  Cash provided by financing activities for the three months ended March 31, 2010 resulted primarily from the $544,934 advance from of a related party receivable.
Cash Flow from Financing Activities
Cash provided by investing increase 1,105,780 or 100% to $0 for the three months ended March 31, 2011 as compared to ($1,105,780) used in the three months ended March 31, 2010. The increase in cash provided by investing activities resulted from the repayments of related party loans payable $1,105,780 during the three  months ended March 31, 2010. As of the date of this filing, the Company has no related party loans payable.
We had no activity in cash used in or provided by financing activities for the three months ended March 31, 2011 and 2010.
The following is a summary of our cash flows provided by (used in) operating, investing, and financing activities during the periods indicated:
For the Three Months Ended March 31,
2011
2010
Cash at beginning of period
$
8,377,527
$
5,098,651
Net cash provided by (used in) operating activities
(90,817
)
(195,789
)
Net cash provided by (used in) investing activities
(941,787
)
(500,147
)
Net cash provided by (used in) financing activities
-
1,105,780
Effect of exchange rate changes on cash
76,715
3,850
Cash at end of period
$
7,421,638
$
4,301,079
Plan of Operations
As described herein, we anticipate the completion of an acquisition of an additional school facility by the beginning of the 2011 – 2012 school year.  We expect to continue to expand our enrollment base utilizing the excess capacity at our existing schools in addition to marketing and expanding enrollment at the proposed school facility to be acquired.  Our strategy is to leverage our strong academic reputation to develop additional business.  We are also actively seeking opportunities to expand our business that we consider accretive to earnings.  We intend to grow our business model through the acquisition of existing schools to increase our total enrollment.  To that end, the Company has paid $9,608,238 as a good-faith, refundable deposit to begin preliminary negations toward the potential acquisition of a school.  In order to fully implement our business plan and continue our growth, however, we will require additional capital either from our shareholders or from outside sources, although there is no assurance that we will be able to obtain additional capital at suitable terms if and when it is needed.
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Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, financings, or other relationships that are currently material or reasonably likely to be material to our financial position or results of operations.
Critical Accounting Policies and Estimates
The discussion and analysis of the Company’s results of operations and liquidity and capital resources are based on the Company’s consolidated financial statements, which have been prepared in accordance with GAAP. In connection with the preparation of consolidated financial statements, the Company is required to make assumptions and estimates about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses, and the related disclosures. The assumptions, estimates and judgments included within these estimates are based on historical experience, current trends and other factors the Company believes to be relevant at the time the consolidated financial statements were prepared. On a regular basis, the accounting policies, assumptions, estimates and judgments are reviewed to ensure that the consolidated financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from the assumptions and estimates, and such differences could be material.
The preparation of consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Significant estimates and assumptions are used for, but are not limited to: (1) asset impairments (2) revenue recognition. Future events and their effects cannot be predicted with certainty, and accordingly, accounting estimates require the exercise of judgment. The accounting estimates used in the preparation of the consolidated financial statements will change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes. The Company evaluates and updates these assumptions and estimates on an ongoing basis and may employ outside experts to assist with these evaluations. Actual results could differ from the estimates that have been used.
Significant accounting policies are discussed in Note 4, Summary of Significant Accounting Policies, to the accompanying consolidated financial statements. The Company believes the following accounting policies are the most critical to aid in fully understanding and evaluating the Company’s reported financial results, as they require management to make difficult, subjective or complex judgments, and to make estimates about the effect of matters that are inherently uncertain.
Impairment analysis for long-lived assets and intangible assets
The Company’s long-lived assets and other assets (consisting of property and equipment and purchased intangible assets) are reviewed for impairment in accordance with the guidance of the FASB Topic ASC 360, “ Property, Plant, and Equipment”, and FASB ASC Topic 205 “ Presentation of Financial Statements ”.  The Company tests for impairment losses on long-lived assets used in operations whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.  Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset.  If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value.  Impairment evaluations involve management’s estimates on asset useful lives and future cash flows.  Actual useful lives and cash flows could be different from those estimated by management which could have a material effect on our reporting results and financial positions.  Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. Through March 31, 2011, the Company had not experienced impairment losses on its long-lived assets.
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Revenue Recognition
In accordance with the Securities and Exchange Commission’s (“SEC”) Staff Accounting Bulletin (“SAB”) Topic 13, Revenue Recognition , the Company recognizes revenues when it is realized or realizable and earned.  The Company records revenues when the following four fundamental criteria under SAB 104 are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the price to the customer is fixed or determinable, and (iv) collection of the resulting receivable is reasonably assured.  Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as prepaid tuition.
Revenues consist primarily of tuition and fees derived from providing meals and housing for students living on campus. Revenues from tuition and fees are recognized pro-rata (on a straight-line basis) over the relevant period attended by the student of the applicable grade or program. The school year runs September 1 through August 31 and prepaid tuition is recognized over the twelve-month period. If a student withdraws from a course or program within three months after the school year starts, the paid but unearned portion of the student’s tuition is 67% refunded. If a student withdraws after the first three months in a school year, no tuition will be refunded. As a result, the Company has recorded prepaid tuition as a current liability on the consolidated balance sheet in the event a student withdraws from school and the Company has to return a portion of the prepaid tuition. In past years there were minimal students who withdrew from a course or program before the end of a school year.
The Company normally receives prepaid tuition and fees from students at their initial admission or before the start of the school year on September 1. Some students will benefit from a discount of fees if they prepay tuition for two to three years of school term. Prepaid tuition is the portion of payments received but not earned and is reflected as a current liability in the accompanying consolidated balance sheets as such amounts are expected to be earned, but may be refundable within the next year.
Management has discussed the development and selection of these critical accounting policies with the Board of Directors and the Board has reviewed the disclosures presented above relating to them.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not required for smaller reporting companies.
Item 4. Controls and Procedures.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We maintain "disclosure controls and procedures," as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act"), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

As of March 31, 2011, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer, Ren Zhiqing, and Chief Financial Officer, Michael Toups, of the effectiveness of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in our periodic reports is recorded, processed, summarized and reported, within the time periods specified for each report and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
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CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

No changes in the Company's internal control over financial reporting have come to management's attention during the Company's last fiscal quarter that have materially affected, or are likely to materially affect, the Company's internal control over financial reporting.
PART II —OTHER INFORMATION
Item 1. Legal Proceedings.

We are not a party to any pending legal proceeding, nor is our property the subject of a pending legal proceeding, that is not in the ordinary course of business or otherwise material to the financial condition of our business. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.
Item 1A. Risk Factors.
Not required for smaller reporting companies.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On September 15, 2011, the Company entered into a consulting agreement with its new Chief Financial Officer. The agreement is for a twelve month term. Under the terms of the agreement, the Chief Financial Officer is to be compensated $6,000 USD per month cash compensation and $6,000 USD per month stock compensation in restricted common shares to be awarded beginning January 1, 2011 on a quarterly basis.
Based on the fair market value at March 31, 2011 the stock award was for $18,000; the closing quoted stock price was $3.24 per share, therefore 5,556 shares will be awarded April 1, 2011 and $18,000 was booked as an accrued expense in the period ended March 31, 2011.  To date the Company has not issued the shares payable to the Chief Financial Officer.  The total shares to be issued are 10,356 common shares, which include 4,800 shares accrued through December 31, 2010 and 5,556 shares accrued through March 31, 2011.
In January 2011, the Company entered consulting agreements with its three independent directors.  The agreements are for a twelve month term.  Under the terms of the agreements, each director is to be compensated $9,000 USD annually in cash compensation and $9,000 USD annually in stock compensation in restricted common shares to be awarded semi-annually.
Based on the fair market value at March 31, 2011 the stock awards for each director was $2,250; closing quoted stock price was $3.24 per share, therefore 694 shares will be awarded April 1, 2011 and $2,250 was booked as an accrued expense in the period ended March 31, 2011.  To date the Company has not issued the shares payable to the three independent directors.  The total shares to be issued are 2,082 common shares accrued through March 31, 2011.

Item 3. Defaults Upon Senior Securities.
None.
Item 4. Removed and Reserved.
Item 5. Other Information.
None.
Item 6. Exhibits.

Exhibit
Number
Description of Exhibit
31.1
Section 302 Certification of Principal Executive Officer
31.2
Section 302 Certification of Principal Financial Officer
32.1
Section 906 Certification of Principal Executive Officer
32.2
Section 906 Certification of Principal Financial Officer

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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 BILINGUAL TECHNOLOGY & EDUCATION GROUP INC.
Date: May 16, 2011
By:
/s/ Ren Zhiqing
Ren Zhiqing
Chairman and Chief Executive Officer (Principal Executive Officer and Principal Financial Officer)
Date: May 16, 2011
By:
/s/ Michael Toups
Michael Toups
Chief Financial Officer (Principal Financial and Accounting Officer)
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