In connection with the Company’s planned financing by way of a registered offering of common shares, the Company filed a prospectus with the Securities and Exchange Commission on July 15, 2010. Direct costs totalling $600,252 were incurred in connection with the preparation and filing of the prospectus. On September 20, 2010, as a result of market conditions at the time, the Company withdrew the prospectus. The Company planned to re-file the prospectus; however, as a result of the delay and the need to update the prospectus on re-filing, the Company expensed $200,000 of the deferred offering costs, leaving a balance of $400,252 as at August 31, 2010.
Due to further delays with the planned financing during the year ended August 31, 2011, the Company expensed $510,711 of the deferred offering costs, leaving a nil balance as at August 31, 2011. Deferred offering costs consisted of the following:
|
|
August 31,
2011
|
|
|
August 31,
2010
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
400,252
|
|
|
$
|
-
|
|
Additions during the year
|
|
|
110,459
|
|
|
|
600,252
|
|
Expensed during the year
|
|
|
(510,711
|
)
|
|
|
(200,000
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
-
|
|
|
$
|
400,252
|
|
CIBT EDUCATION GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2011
(Expressed in Canadian Dollars)
NOTE 11 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consisted of the following:
|
|
August 31,
2011
|
|
|
August 31,
2010
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
|
$
|
2,554,757
|
|
|
$
|
2,704,039
|
|
Payroll and related liabilities
|
|
|
1,509,262
|
|
|
|
1,579,398
|
|
Purchase price payable
|
|
|
-
|
|
|
|
436,333
|
|
Tuition fees and grants payable
|
|
|
215,518
|
|
|
|
74,017
|
|
Others
|
|
|
204,999
|
|
|
|
213,400
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,484,536
|
|
|
$
|
5,007,187
|
|
NOTE 12 – LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term Debt
The carrying value of debt in SSDC is as follows:
Demand term instalment loan, payable in monthly instalments of $50,000 plus interest at
the prime rate plus 2%
|
|
$
|
2,750,000
|
|
Promissory note payable at $460 per month including interest at 8.5% per annum,
unsecured, due October 2013
|
|
|
39,013
|
|
Promissory note payable at $505 per month including interest at 8% per annum, unsecured,
due June 2011
|
|
|
4,875
|
|
|
|
|
2,793,888
|
|
Less: current portion
|
|
|
(2,757,164
|
)
|
|
|
|
|
|
Balance at August 31, 2010
|
|
$
|
36,724
|
|
|
|
|
|
|
Demand term instalment loan, payable in monthly instalments of $50,000 plus interest at
the prime rate plus 2%
|
|
$
|
2,150,000
|
|
|
|
|
|
|
Promissory note payable at $460 per month including interest at 8.5% per annum,
unsecured, due October 2013
|
|
|
36,724
|
|
|
|
|
|
|
|
|
|
2,186,724
|
|
Less: current portion
|
|
|
(2,152,492
|
)
|
|
|
|
|
|
Balance at August 31, 2011
|
|
$
|
34,232
|
|
In addition, SSDC has a demand operating credit facility available in the amount of $1,500,000 with interest calculated at the prime rate plus 2%. As at August 31, 2011 and 2010, the demand operating facility was not utilized.
The demand operating credit facility and the demand term instalment loan is secured as follows:
●
|
first priority security interest in the assets of SSDC
|
●
|
assignment of fire and perils insurance on the property of SSDC
|
●
|
guarantee from KGIC on the bank indebtedness of SSDC
|
●
|
postponement of claims from the Company on advances to SSDC
|
The debt covenants, calculated using SSDC’s financial statements, of the demand term instalment loan are as follows:
●
|
the senior debt to earnings before interest, taxes, depreciation and amortization not to exceed 1.75 to 1.0 at any time
|
●
|
the adjusted current ratio is not less than 1.75 to 1.0 at any time
|
●
|
the adjusted fixed charge coverage ratio is not less than 1.2 to 1.0 at any time
|
The adjusted current ratio and the adjusted fixed charge coverage ratio are defined in accordance with the agreement between SSDC and the banking facility. As at August 31, 2011and 2010, none of the debt covenants have been violated, and the demand term instalment loan remains in good standing.
CIBT EDUCATION GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2011
(Expressed in Canadian Dollars)
NOTE 12 – LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (cont’d)
Although the demand term instalment loan may be called for payment on demand, principal repayments due over the next five years based on scheduled repayment amounts are as follows:
For the years ending August 31,
|
2012
|
|
$
|
552,492
|
|
|
2013
|
|
|
602,712
|
|
|
2014
|
|
|
631,520
|
|
|
2015
|
|
|
400,000
|
|
|
2016
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
$
|
2,186,724
|
|
Capital Leases
The following is a schedule of future minimum lease payments classified as capital lease at August 31, 2011 together with the balance of the obligation for assets under the capital lease as identified in Note 7:
For the years ending August 31,
|
2012
|
|
$
|
133,068
|
|
|
2013
|
|
|
107,227
|
|
|
2014
|
|
|
101,963
|
|
|
2015
|
|
|
27,836
|
|
|
2016
|
|
|
52,819
|
|
|
|
|
|
|
|
|
|
|
|
422,913
|
|
Less: amount representing interest
|
|
|
|
(72,016
|
)
|
|
|
|
|
|
|
|
|
|
|
350,897
|
|
Less: current portion
|
|
|
|
(101,765
|
)
|
|
|
|
|
|
|
|
|
|
$
|
249,132
|
|
Authorized share capital consists of 150,000,000 common shares without par value.
|
|
Number
|
|
|
Value
|
|
Issued and outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at August 31, 2009
|
|
|
64,109,297
|
|
|
$
|
44,350,606
|
|
|
|
|
|
|
|
|
|
|
- for private placement at $0.70 per share
|
|
|
4,726,714
|
|
|
|
3,308,700
|
|
- fees and commissions for private placement
|
|
|
-
|
|
|
|
(206,270
|
)
|
- fair value of agent’s warrants for private placement
|
|
|
-
|
|
|
|
(63,000
|
)
|
- for cash by exercise of options at $0.50 per share
|
|
|
390,000
|
|
|
|
195,000
|
|
- contributed surplus reallocated on exercise of stock options
|
|
|
-
|
|
|
|
124,800
|
|
|
|
|
|
|
|
|
|
|
Balance at August 31, 2010
|
|
|
69,226,011
|
|
|
|
47,709,836
|
|
|
|
|
|
|
|
|
|
|
- for private placement at $0.30 per share
|
|
|
2,723,333
|
|
|
|
817,000
|
|
- fees and commissions for private placement
|
|
|
-
|
|
|
|
(10,050
|
)
|
- fair value of warrants for private placement
|
|
|
-
|
|
|
|
(330,000
|
)
|
- fair value of agent’s warrants for private placement
|
|
|
-
|
|
|
|
(4,020
|
)
|
|
|
|
|
|
|
|
|
|
Balance at August 31, 2011
|
|
|
71,949,344
|
|
|
$
|
48,182,766
|
|
CIBT EDUCATION GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2011
(Expressed in Canadian Dollars)
NOTE 13 – SHARE CAPITAL (cont’d)
For the year ended August 31, 2011, the Company completed (in two tranches) a private placement of 2,723,333 units at $0.30 per unit for total proceeds of $817,000. Each unit consists of one common share and one share purchase warrant entitling the holder to purchase one additional common share of the Company at a price of $0.35 per share for a period of three years from the date of issuance. The first tranche of the private placement, consisting of 1,690,000 units, closed on June 29, 2011. On the first tranche, the Company incurred a finders’ fee consisting of a cash commission of $10,050 and finder’s warrants, exercisable for three years, entitling the holder to purchase 33,500 common shares at a price of $0.35 per share. The second tranche of the private placement, consisting of 1,033,333 units, closed on July 11, 2011. No finders’ fee was incurred for the second tranche.
On October 27, 2009, the Company negotiated a non-brokered private placement to raise $3,000,000 by the issuance of common shares of the Company at a price of $0.70 per share. The financing was undertaken with several purchasers, including institutional investors, in two tranches. Finders’ fees were payable in connection with a portion of the financing. On November 4, 2009, the Company closed the first tranche of the non-brokered private placement. Under the first tranche closing, the Company raised $2,100,000 by the issuance of 3,000,000 common shares at a price of $0.70 per share. The Company incurred a finders’ fee consisting of a cash commission of $105,000 and finder’s warrants, exercisable for one year, entitling the holder to purchase 210,000 common shares at a price of $0.70 per share under the first tranche closing. On November 24, 2009, the Company closed the second tranche of the non-brokered private placement. Under the second tranche closing, the Company raised $1,208,700 by the issuance of 1,726,714 common shares at a price of $0.70 per share. The Company incurred a finders’ fee consisting of a cash commission of $101,270 under the second tranche closing. Total proceeds of $3,308,700 were raised in the non-brokered private placement, an oversubscription of $308,700 from the original $3,000,000 announced on October 27, 2009.
Share purchase warrants
The Company has 1,723,500 share purchase warrants outstanding exercisable at a price of $0.35 per share exercisable to June 29, 2014, and 1,033,333 share purchase warrants outstanding exercisable at a price of $0.35 per share exercisable to July 11, 2014.
The Company’s share purchase warrant activity is summarized as follows:
|
Number of Warrants
|
Weighted Average
Exercise Price
($)
|
Weighted Average
Remaining Life
|
|
|
|
|
Balance, August 31, 2009
|
5,211,919
|
1.43
|
0.38 years
|
|
|
|
|
- warrants issued
|
210,000
|
0.70
|
|
- warrants expired
|
(5,211,919)
|
1.43
|
|
|
|
|
|
Balance, August 31, 2010
|
210,000
|
0.70
|
0.18 years
|
|
|
|
|
- warrants issued
|
2,756,833
|
0.35
|
|
- warrants expired
|
(210,000)
|
0.70
|
|
|
|
|
|
Balance, August 31, 2011
|
2,756,833
|
0.35
|
2.84 years
|
CIBT EDUCATION GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2011
(Expressed in Canadian Dollars)
NOTE 13 – SHARE CAPITAL (cont’d)
Details of warrants outstanding and exercisable as at August 31, 2011 are as follows:
Number of Warrants
|
Exercise Price
|
Expiry Date
|
Remaining
Contractual Life
|
|
|
|
|
1,723,500
|
$0.35
|
June 29, 2014
|
2.83 years
|
1,033,333
|
$0.35
|
July 11, 2014
|
2.86 years
|
|
|
|
|
2,756,833
|
|
|
|
The fair value of each warrants granted is estimated at the time of the grant using the Black-Scholes option pricing model with weighted average assumptions for grants as follows:
|
August 31, 2011
|
August 31, 2010
|
August 31, 2009
|
|
|
|
|
Exercise price
|
$0.35
|
$0.70
|
$1.43
|
Expected dividend yield
|
0.00%
|
0.00%
|
0.00%
|
Expected volatility
|
79.6%
|
82.9%
|
42.8%
|
Risk-free interest rate
|
1.86%
|
0.57%
|
3.64%
|
Expected life
|
3 years
|
1 year
|
2 years
|
Stock options
The Company has stock options outstanding to certain employees, officers and directors providing the right to purchase up to 2,865,000 shares at prices ranging from $0.42 per share to $1.53 per share exercisable for periods ending from January 21, 2012 to March 1, 2016.
The Company has in place a rolling stock option plan (the “Plan”) whereby a maximum of 10% of the issued and outstanding shares of the Company, from time to time, may be reserved for issuance pursuant to the exercise of options. The material terms of the Plan are as follows:
●
|
The term of any options granted under the Plan is fixed by the board of directors at the time the options are granted, to a maximum term of five years.
|
●
|
The exercise price of any options granted under the Plan is determined by the board of directors, but shall not be less than the last closing price on the TSX Exchange of the Company’s common shares preceding the grant of such options, less any permitted discount.
|
●
|
Unless otherwise imposed by the board of directors, no vesting requirement applies to options granted under the Plan but a four month hold period, commencing from the date of grant of an option, applies to all shares issued upon exercise of an option.
|
●
|
All options granted under the Plan are non-assignable and non-transferable.
|
●
|
If an option holder ceases to hold a position with the Company in which the option holder would be eligible to be granted an option (other than by reason of death), then the option granted shall expire on the 30
th
day following the date that the option holder ceases to hold any such position.
|
CIBT EDUCATION GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2011
(Expressed in Canadian Dollars)
NOTE 13 – SHARE CAPITAL (cont’d)
The Company’s stock option activity is summarized as follows:
|
Number of Options
|
Weighted Average
Exercise Price
($)
|
Weighted Average
Remaining Life
|
Balance, August 31,2008
|
4,535,000
|
1.18
|
2.57 years
|
- options granted during the year
|
210,000
|
0.51
|
|
- options expired during the year
|
(495,000)
|
1.00
|
|
|
|
|
|
Balance, August 31, 2009
|
4,250,000
|
1.17
|
1.87 years
|
|
|
|
|
- options granted during the year
|
130,000
|
0.72
|
|
- options expired during the year
|
(25,000)
|
0.50
|
|
- options exercised during the year
|
(390,000)
|
0.50
|
|
|
|
|
|
Balance, August 31, 2010
|
3,965,000
|
1.22
|
1.10 years
|
|
|
|
|
- options granted during the year
|
1,365,000
|
0.43
|
|
- options expired during the year
|
(2,465,000)
|
1.16
|
|
|
|
|
|
Balance, August 31, 2011
|
2,865,000
|
0.91
|
2.49 years
|
Details of options outstanding as at August 31, 2011 are as follows:
Number of Options
|
Exercise Price
|
Expiry Date
|
Remaining
Contractual Life
|
|
|
|
|
190,000
|
$0.51
|
January 21, 2012
|
0.39 years
|
1,200,000
|
$1.53
|
June 21, 2012
|
0.81 years
|
60,000
|
$0.80
|
May 2, 2013
|
1.67 years
|
50,000
|
$0.60
|
August 8, 2013
|
1.94 years
|
100,000
|
$0.54
|
October 13, 2013
|
2.12 years
|
1,265,000
|
$0.42
|
March 1, 2016
|
4.50 years
|
|
|
|
|
2,865,000
|
$0.91 Average Price
|
|
|
Stock-based compensation
|
Shares Granted
|
Per Share Price
|
Fair Value
|
Vesting Period
|
|
|
|
|
|
May 3, 2010
|
80,000
|
$0.80
|
$32,000
|
Vesting on grant date
|
|
|
|
|
|
August 9, 2011
|
50,000
|
$0.60
|
$15,000
|
Vesting on grant date
|
|
|
|
|
|
October 14, 2010
|
100,000
|
$0.54
|
$26,000
|
20% vesting on grant and 20% at end of 12, 24, 36 and 48 months
|
|
|
|
|
|
March 1, 2011
|
1,265,000
|
$0.42
|
$278,300
|
20% vesting on grant and 20% at end of 12, 24, 36 and 48 months
|
The fair value of these options is estimated at the time of the grant using the Black-Scholes option pricing model with weighted average assumptions for grants as follows:
Black-Scholes Weighted Average Assumptions
|
August 31, 2011
|
August 31, 2010
|
August 31, 2009
|
|
|
|
|
Expected life
|
4.85 years
|
3.00 years
|
3,00 years
|
Risk-free interest rate
|
2.52%
|
2.11%
|
1.385
|
Expected dividend yield
|
0.00%
|
0.00%
|
0.00%
|
Expected volatility
|
66.99%
|
75.33%
|
75.00%
|
CIBT EDUCATION GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2011
(Expressed in Canadian Dollars)
NOTE 14 – TREASURY SHARES
In accordance with TSX Exchange approval and the provisions of a normal course issuer bid, the Company from time to time acquires its own common shares into treasury. By agreement dated October 1, 2009, effective October 1, 2009 and December 31, 2009 respectively, the Company sold 592,104 and 197,368 treasury shares acquired through
the provisions of the Company’s normal course issuer bid to the CEO of the Company at $0.38 per share (October 1, 2009 market price) in consideration for the settlement of a total of $300,000 owing to the CEO. These treasury shares had an average cost to the Company of approximately $1.37 per share as acquire via various purchases through 2008 and 2009. The excess of the cost of these treasury shares over the proceeds received was $781,375 of which $501,267 was charged to contributed surplus on elimination of previously recorded treasury share transaction gains and the residual $280,108 was charged to deficit during the year ended August 31, 2010.
On February 1, 2011, the Company received approval from the TSX to a normal course issuer bid to purchase for re-sale up to 3,000,000 of the Company’s common shares to a maximum aggregate acquisition cost of $1,000,000. The Company may purchase up to 6,706 common shares per day from February 4, 2011 to February 3, 2012, being the expiry date of the normal course issuer bid. The Company may terminate the normal course issuer bid at any time prior to February 3, 2012 by providing a notice of termination to the TSX. As at August 31, 2011, 2,500,024 common shares with an accumulated cost of $3,304,055 have been recorded as treasury shares held.
Details of changes in the Company’s treasury shares balance are as follows:
|
|
Number
|
|
|
Value
|
|
|
|
|
|
|
|
|
Balance, August 31, 2009
|
|
|
3,146,496
|
|
|
$
|
4,325,491
|
|
|
|
|
|
|
|
|
|
|
Purchases of treasury shares
|
|
|
42,000
|
|
|
|
29,674
|
|
Carrying value of treasury shares sold during the year
|
|
|
(789,472
|
)
|
|
|
(1,081,375
|
)
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2010
|
|
|
2,399,024
|
|
|
|
3,273,790
|
|
|
|
|
|
|
|
|
|
|
Purchases of treasury shares
|
|
|
101,000
|
|
|
|
30,265
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2011
|
|
|
2,500,024
|
|
|
$
|
3,304,055
|
|
NOTE 15 – FINANCIAL INSTRUMENTS
The carrying value of cash and cash equivalents, accounts receivable, and accounts payable and accrued liabilities approximate their fair values due to the immediate or short-term nature of these instruments. The fair value of the Company’s marketable securities is based on quoted prices in an active market, a Level 1 valuation methodology. The fair value of long term debt approximates book value since the interest rate is based on a floating rate. It is impractical to determine the fair value of the amounts due to related parties with sufficient reliability due to the nature of the financial instruments, the absence of secondary markets and the significant cost of obtaining outside appraisals. Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
CIBT EDUCATION GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2011
(Expressed in Canadian Dollars)
NOTE 15 – FINANCIAL INSTRUMENTS (cont’d)
The following table sets forth the Company’s financial assets and liabilities measured at fair value by level within the fair value hierarchy. As required by the guidance, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
6,
456,568
|
|
|
$
|
6,
456,568
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Restricted cash
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
Fair Value at August 31, 2010
|
|
|
|
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
11,511,835
|
|
|
$
|
11,511,835
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Marketable securities
|
|
|
60,000
|
|
|
|
60,000
|
|
|
|
-
|
|
|
|
-
|
|
The Company’s cash is classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices. The Company’s marketable securities are valued using quoted market prices in active markets and as such are classified within Level 1 of the fair value hierarchy. The fair value of the marketable securities is calculated as the quoted market price multiplied by the quantity of shares held by the Company.
NOTE 16 – RESTRUCTURING AND INTEGRATION COSTS
The acquisition of the KGIC Assets and the KGIC Business required considerable management time to restructure KGIC’s existing operational structure in order to integrate the KGIC operations into the Company’s operating structure. Since the acquisition date on March 15, 2010, direct management time and costs from the Corporate business segment and from the SSDC business segment was incurred to facilitate the restructuring and the integration process. From March 16, 2010 to August 31, 2010, a total of $544,500 in costs were incurred and has been classified as restructuring and integration costs in these consolidated financial statements.
CIBT EDUCATION GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2011
(Expressed in Canadian Dollars)
NOTE 17 – INCOME TAXES
The Company’s operations are subject to income taxes primarily in Canada and China. The applicable statutory income tax rate in China is 25 % and the statutory rate applicable to the Company in Canada is 27.17% (2010: 29.00%; 2009: 30.17%). As part of a tax loss utilization strategy, the Company recorded the tax benefits of future tax loss carry-forwards available to the Company.
The following table is a reconciliation of income tax recovery, at the Canadian income tax rate and the amount of reported income tax expense in the Statements of Income (Loss).
|
|
Year Ended
August 31,
2011
|
|
|
Year Ended
August 31,
2010
|
|
|
Year Ended
August 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
Loss before taxes
|
|
$
|
(10,542,122
|
)
|
|
$
|
(1,412,802
|
)
|
|
$
|
778,351
|
|
Statutory Canadian income tax rate
|
|
|
27.17
|
%
|
|
|
29.00
|
%
|
|
|
30.17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax recovery at statutory rate
|
|
|
(2,863,943
|
)
|
|
|
(409,713
|
)
|
|
|
234,828
|
|
Effect of differences in foreign tax rates
|
|
|
23,908
|
|
|
|
-
|
|
|
|
(37,166
|
)
|
Expired non-capital loss carry-forwards
|
|
|
-
|
|
|
|
297,968
|
|
|
|
927,069
|
|
Write-off of long-lived assets
|
|
|
697,119
|
|
|
|
-
|
|
|
|
-
|
|
Non-deductible expenses, net
|
|
|
(33,200
|
)
|
|
|
(47,622
|
)
|
|
|
49,954
|
|
Differences between current year rate and rates used to measure
future income taxes
|
|
|
119,439
|
|
|
|
(164,393
|
)
|
|
|
9,644
|
|
Changes in corporate tax rates
|
|
|
-
|
|
|
|
-
|
|
|
|
170,313
|
|
Differences in prior period tax returns as filed
|
|
|
(12,407
|
)
|
|
|
169,563
|
|
|
|
(213,282
|
)
|
Other taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
19,263
|
|
Change in valuation allowance
|
|
|
1,338,628
|
|
|
|
(2,256,328
|
)
|
|
|
(871,472
|
)
|
Other
|
|
|
(164,167
|
)
|
|
|
45,470
|
|
|
|
(3,910
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax recovery
|
|
$
|
(894,623
|
)
|
|
$
|
(2,365,055
|
)
|
|
$
|
285,241
|
|
CIBT EDUCATION GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2011
(Expressed in Canadian Dollars)
NOTE 17 – INCOME TAXES (cont’d)
The following table shows future income taxes resulting from temporary differences between the carrying amounts of assets and liabilities for accounting purposes and the amount used for tax purposes, as well as tax loss carry-forwards.
|
|
Year Ended
August 31,
2011
|
|
|
Year Ended
August 31,
2010
|
|
|
|
|
|
|
|
|
Future income tax assets
|
|
|
|
|
|
|
Canada
|
|
|
|
|
|
|
Non-capital loss carry-forwards
|
|
$
|
3,542,938
|
|
|
$
|
2,638,203
|
|
Share issuance costs
|
|
|
117,181
|
|
|
|
107,329
|
|
Investments
|
|
|
398,479
|
|
|
|
390,979
|
|
Property and equipment
|
|
|
19,073
|
|
|
|
82,422
|
|
Intangible assets
|
|
|
4,867
|
|
|
|
14,207
|
|
Deferred revenues
|
|
|
-
|
|
|
|
227,746
|
|
Others
|
|
|
6,146
|
|
|
|
-
|
|
China
|
|
|
|
|
|
|
|
|
Non-capital loss carry-forwards
|
|
|
372,809
|
|
|
|
262,898
|
|
Property and equipment
|
|
|
43,111
|
|
|
|
23,205
|
|
|
|
|
|
|
|
|
|
|
Total future income tax assets before valuation allowance
|
|
|
4,504,606
|
|
|
|
3,746,989
|
|
Less: valuation allowance
|
|
|
(1,714,406
|
)
|
|
|
(375,777
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
2,790,200
|
|
|
|
3,371,212
|
|
|
|
|
|
|
|
|
|
|
Future income tax liabilities
|
|
|
|
|
|
|
|
|
Canada
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
(24,116
|
)
|
|
|
(238,873
|
)
|
Intangible assets
|
|
|
(1,107,488
|
)
|
|
|
(2,369,600
|
)
|
China
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
(5,249
|
)
|
|
|
(104,322
|
)
|
Intangible assets
|
|
|
(115,246
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,252,098
|
)
|
|
|
(2,712,795
|
)
|
|
|
|
|
|
|
|
|
|
Classified as:
|
|
|
|
|
|
|
|
|
Future income tax asset, net
|
|
|
2,200,199
|
|
|
|
658,417
|
|
Future income tax liabilities, net
|
|
|
(662,102
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,538,097
|
|
|
$
|
658,417
|
|
CIBT EDUCATION GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2011
(Expressed in Canadian Dollars)
NOTE 17 – INCOME TAXES (cont’d)
The following table details the movement in the valuation allowance.
|
|
Year Ended
August 31,
2011
|
|
|
Year Ended
August 31,
2010
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
375,777
|
|
|
$
|
2,632,105
|
|
|
|
|
|
|
|
|
|
|
Current period tax losses and temporary differences
|
|
|
1,014,646
|
|
|
|
498,812
|
|
Expired tax losses during the period
|
|
|
-
|
|
|
|
(297,968
|
)
|
Impact of change in statutory rates on opening balance
|
|
|
-
|
|
|
|
-
|
|
Differences in prior period tax returns as filed
|
|
|
(122,051
|
)
|
|
|
169,563
|
|
Tax benefit of non-capital losses (recognized) provided
|
|
|
446,033
|
|
|
|
(2,626,735
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
1,338,628
|
|
|
|
(2,256,328
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
1,714,405
|
|
|
$
|
375,777
|
|
The Company has non-capital losses available to offset future taxable income which are detailed in the following table together with the year of expiry.
Year of Expiry
|
|
China
|
|
|
Canada
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
$
|
179,009
|
|
|
$
|
1,396,407
|
|
|
$
|
1,575,416
|
|
2015
|
|
|
462,390
|
|
|
|
928,481
|
|
|
|
1,390,871
|
|
2016
|
|
|
849,838
|
|
|
|
-
|
|
|
|
849,838
|
|
2026
|
|
|
-
|
|
|
|
587,698
|
|
|
|
587,698
|
|
2027
|
|
|
-
|
|
|
|
860,134
|
|
|
|
860,134
|
|
2028
|
|
|
-
|
|
|
|
2,043,607
|
|
|
|
2,043,607
|
|
2029
|
|
|
-
|
|
|
|
2,211,918
|
|
|
|
2,211,918
|
|
2030
|
|
|
-
|
|
|
|
1,864,392
|
|
|
|
1,864,392
|
|
2031
|
|
|
-
|
|
|
|
4,244,463
|
|
|
|
4,244,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,491,237
|
|
|
$
|
14,137,101
|
|
|
$
|
15,628,338
|
|
CIBT entered into a lease agreement on behalf of the Company for the Company’s corporate office space in Vancouver, B.C., as renewed, for a 60 month term (from November 1, 2009 to October 31, 2014). Under the renewed lease agreement the minimum annual rate for the term of the lease is $88,150 for the first three years and $91,676 for the final two years plus taxes and operating costs. CIBT’s subsidiaries in China entered into various lease agreements. Both SSDC and KGIC are committed to payments consisting of office and campus premises rental and operating leases for equipment.
For the years ending August 31,
|
|
Corporate (Canada)
|
|
|
CIBT (China)
|
|
|
SSDC
|
|
|
KGIC
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
$
|
88,150
|
|
|
$
|
110,686
|
|
|
$
|
1,220,376
|
|
|
$
|
1,891,981
|
|
|
$
|
3,311,193
|
|
2013
|
|
|
91,088
|
|
|
|
114,021
|
|
|
|
667,271
|
|
|
|
1,971,133
|
|
|
|
2,843,513
|
|
2014
|
|
|
91,676
|
|
|
|
133,538
|
|
|
|
392,102
|
|
|
|
1,624,050
|
|
|
|
2,241,366
|
|
2015
|
|
|
15,279
|
|
|
|
-
|
|
|
|
192,351
|
|
|
|
1,542,548
|
|
|
|
1,750,178
|
|
2016
|
|
|
-
|
|
|
|
-
|
|
|
|
143,594
|
|
|
|
700,145
|
|
|
|
843,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
286,193
|
|
|
$
|
358,245
|
|
|
$
|
2,615,694
|
|
|
$
|
7,729,855
|
|
|
$
|
10,989,989
|
|
CIBT EDUCATION GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2011
(Expressed in Canadian Dollars)
NOTE 19 – RISK MANAGEMENT
The Company is engaged in operations in the People’s Republic of China (“PRC”) and accordingly is exposed to political and economic risks associated with investing in the PRC as well as related industry risks. The Company manages all risk issues directly. The Company is engaged primarily in service related industries and manages related industry risk issues directly. The Company generates revenues from multiple sources and from a broad customer/client base and accordingly is not exposed to significant credit concentration risk. The Company is not exposed to significant interest rate risk.
The Company conducts business in Canada, the United States, China and Hong Kong giving rise to significant exposure to market risks from changes in foreign currency rates. The financial risk is the risk to the Company's operations that arises from fluctuations in foreign exchange rates and the degree of volatility of these rates. Currently, the Company does not use derivative instruments or other measures to reduce its exposure to foreign currency risk. In addition, the Company is exposed to Chinese currency fluctuations and restrictions on Chinese currency exchange, which may affect the Company’s ability to repatriate profits from China.
Exchange rate risk
The Company operates in Canada and China, and through its subsidiaries in China the Company generates revenues in Chinese RMB and incurs operating costs which are payable in Chinese RMB, giving rise to exposure to market risks from changes in foreign currency rates. The Company also holds minor amount of cash in US dollars, the exchange rate fluctuation between Canadian dollar and US dollar will not have a material impact on net income.
Credit risk
The financial instruments that potentially subject the Company to significant concentration of credit risk consist principally of cash and cash equivalents and accounts receivable. Cash is on deposit at major financial institutions. Management is of the opinion that credit risk with respect to accounts receivable is limited due to the ongoing evaluations of its debts and the monitoring of their financial condition to ensure collections and to minimize losses. Accounts receivable as at August 31, 2011 is reported net of allowance for bad debts of $914,358 (August 31, 2010: $451,691). The carrying amount of the assets included on the balance sheet represents the maximum credit exposure.
Interest rate risk
The Company is exposed to interest rate risk on its cash and cash equivalents which earn interest at market rates, and is exposed to interest rate risk on its demand term instalment loan. A one point increase in the prime rate of interest would add approximately $30,000 of interest cost per annum to the demand term instalment loan.
Liquidity risk
The Company is exposed to liquidity risk in that the Company will not have sufficient cash resources to meet its financial obligations as they come due in the normal course of business. The Company manages its liquidity risk by monitoring its operating requirements and using its demand operating credit facility of $1,500,000 (refer to Note 12) to ensure financial resources are available. The Company could look to capital financing which has it successfully raised in the past. However, there is no assurance that such financing will be available on favourable terms. Management prepares budgets and cash forecasts to ensure that the Company has sufficient funds to fulfill its financial obligations.
The following table summarizes the obligations of the Company’s financial liabilities and operating commitments as at August 31, 2011:
|
|
Less than
1 year
|
|
|
1 – 3 years
|
|
|
4- 5 years
|
|
|
Greater than
5 years
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued
liabilities
|
|
$
|
4,484,536
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,484,536
|
|
Income taxes payable
|
|
|
499,905
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
499,905
|
|
Capital leases *
|
|
|
101,765
|
|
|
|
199,352
|
|
|
|
49,780
|
|
|
|
-
|
|
|
|
350,897
|
|
Long-term debt *
|
|
|
2,152,492
|
|
|
|
34,232
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,186,724
|
|
Operating leases
|
|
|
3,311,193
|
|
|
|
6,835,059
|
|
|
|
843,737
|
|
|
|
-
|
|
|
|
10,989,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,549,891
|
|
|
$
|
7,068,643
|
|
|
$
|
893,517
|
|
|
$
|
-
|
|
|
$
|
18,512,051
|
|
* Amounts include interest.
CIBT EDUCATION GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2011
(Expressed in Canadian Dollars)
NOTE 20 – CAPITAL DISCLOSURES
The Company’s objectives in managing capital are to safeguard the Company’s normal operating requirements on an ongoing basis and to ensure sufficient liquidity to conduct its strategy of organic growth in conjunction with strategic acquisitions, and to utilize capital to provide an appropriate return on investment to its shareholders. The Company’s overall capital strategy remains unchanged from the prior periods.
The capital structure of the Company consists of shareholders’ equity and long-term debt. The Company manages and adjusts its capital structure in light of economic conditions and the risk characteristics of the underlying assets. The Company monitors its capital using various financial ratios and non-financial performance indicators. The Company’s primary uses of capital are to finance working capital requirements, capital expenditures and acquisitions. The Company must comply, and is currently in compliance, with certain financial ratio requirements in connection with the long-term debt (refer to Note 12).
The Company reported a net loss of $10,091,064 and generated negative cash flow used in operating activities. The Company had a net working capital deficit of $4,601,899. These consolidated financial statements have been prepared assuming the Company will continue as a going concern. Although the Company has completed private placements, there can be no assurance that the Company will be able to continue to raise funds, in which case the Company may be unable to meet its obligations. However, the Company holds sufficient cash to support its operations in the next 12 months.
The Company’s ability to continue as a going concern is dependent upon the ability to raise capital, the generation of positive cash flow, and the performance of the various educational programs that they offer and the success of the development for new programs. There is no certainty that such events will occur and that sources of financing will be obtained on terms acceptable to management. Whether and when the Company can attain profitability and positive cash flows is also uncertain. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. Such adjustments could be material.
NOTE 21 – GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses are comprised of the following:
|
|
Year Ended
August 31,
2011
|
|
|
Year Ended
August 31,
2010
|
|
|
Year Ended
August 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
Advertising & agency fees
|
|
$
|
12,190,564
|
|
|
$
|
8,700,663
|
|
|
$
|
5,699,158
|
|
Bank charges and interest
|
|
|
395,050
|
|
|
|
347,265
|
|
|
|
198,838
|
|
Consulting and management fees
|
|
|
1,964,726
|
|
|
|
1,380,305
|
|
|
|
1,230,128
|
|
Directors insurance
|
|
|
45,439
|
|
|
|
79,889
|
|
|
|
79,074
|
|
Investor relations
|
|
|
99,062
|
|
|
|
95,187
|
|
|
|
49,892
|
|
Office and general
|
|
|
4,538,292
|
|
|
|
4,055,573
|
|
|
|
3,557,686
|
|
Professional fees
|
|
|
1,369,960
|
|
|
|
1,940,634
|
|
|
|
1,544,022
|
|
Regulatory fees
|
|
|
134,665
|
|
|
|
240,688
|
|
|
|
58,149
|
|
Rent
|
|
|
6,092,868
|
|
|
|
4,108,635
|
|
|
|
3,019,407
|
|
Salaries and benefits
|
|
|
12,031,267
|
|
|
|
10,645,586
|
|
|
|
9,631,436
|
|
Travel and promotion
|
|
|
375,120
|
|
|
|
305,381
|
|
|
|
445,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
39,237,013
|
|
|
$
|
31,899,806
|
|
|
$
|
25,513,613
|
|
The results of KGIC were consolidated from March 15, 2010, the acquisition date and therefore about five and a half month was included in the year ended August 31, 2010, expenses compared to 12 months in the year ended August 31, 2011.
CIBT EDUCATION GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2011
(Expressed in Canadian Dollars)
NOTE 22 – NET CHANGES IN NON-CASH WORKING CAPITAL ITEMS
Net changes in non-cash working capital items are comprised of the following:
|
|
Year Ended
August 31,
2011
|
|
|
Year Ended
August 31,
2010
|
|
|
Year Ended
August 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
2,733,063
|
|
|
$
|
(2,846,521
|
)
|
|
$
|
(4,162,671
|
)
|
Prepaid expenses and other assets
|
|
|
423,206
|
|
|
|
2,470,624
|
|
|
|
(150,779
|
)
|
Inventory
|
|
|
(63,371
|
)
|
|
|
58,131
|
|
|
|
119,894
|
|
Accounts payable and accrued liabilities
|
|
|
(407,931
|
)
|
|
|
(255,373
|
)
|
|
|
666,307
|
|
Income taxes payable
|
|
|
(19,172
|
)
|
|
|
65,186
|
|
|
|
30,669
|
|
Deferred educational revenues
|
|
|
(3,917,774
|
)
|
|
|
(583,878
|
)
|
|
|
2,875,843
|
|
Other asset
|
|
|
-
|
|
|
|
-
|
|
|
|
29,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1,251,979
|
)
|
|
$
|
(1,091,831
|
)
|
|
$
|
(591,716
|
)
|
NOTE 23 – RELATED PARTY TRANSACTIONS
Significant transactions between the Company and the following related parties:
|
|
Year Ended
August 31,
2011
|
|
|
Year Ended
August 31,
2010
|
|
|
Year Ended
August 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable - Weifang University (1)
|
|
$
|
2,592,660
|
|
|
$
|
1,547,344
|
|
|
$
|
2,008,503
|
|
Accounts payable - Weifang University (1)
|
|
$
|
1,103,538
|
|
|
$
|
135,814
|
|
|
$
|
790,564
|
|
Due to officers, employees and directors (2)
|
|
$
|
59,484
|
|
|
$
|
118,303
|
|
|
$
|
418,304
|
|
Due from officers, employees and directors (3)
|
|
$
|
100,000
|
|
|
$
|
143,721
|
|
|
$
|
143,741
|
|
Management fees, salaries and bonuses
|
|
$
|
1,091,249
|
|
|
$
|
1,772,472
|
|
|
$
|
1,538,411
|
|
1)
|
In 2004, CIBT established a business venture with Weifang University and received a 60% interest in Beihai College from Weifang in consideration for funding Beihai College in the amount of $714,286 (5,000,000 RMB). Beihai College is a PRC government approved college which has been in operation since 2002. In consideration for retaining a 40% interest in Beihai College, Weifang has transferred finite life intangible assets consisting of its existing programs and student enrolments to the newly named CIBT Beihai International Management School and has also agreed to provide exclusive use of the Beihai College facilities at no cost for a period of seven years (subsequently amended to 15 years). Effective July 1, 2007, the Chinese Government implemented a new cash management policy affecting Beihai College. The tuition fees of Beihai College are required to be directly remitted to the local Chinese Government when tuition fees are received, and the funds are held by the Chinese Government under the account of Weifang. Beihai College can receive funds for its operations from Weifang on an as-needed basis up to the amount of the tuition fees collected.
|
2)
|
As of August 31, 2011, the amount due to officers, employees and directors is comprised of $13,222 (August 31, 2010: $38,014) due to officers of the Company and $46,262 (August 31, 2010: $80,289) due to the President of IRIX. These amounts are non-interest bearing and have no fixed terms of repayment. Transactions with related party are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. Such amounts are included as part of the cash flows from operating activities in the Consolidated Statements of Cash Flow.
|
3)
|
As at August 31, 2011, a balance of $100,000 was due from a director of the Company. The amount is included as part of the cash flows from financing activities in the Consolidated Statements of Cash Flow. The August 31, 2010, amount of $143,721 was due from the President of SSDC, which was fully repaid during the three month period ended February 28, 2011.
|
CIBT EDUCATION GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2011
(Expressed in Canadian Dollars)
NOTE 24 – SEGMENTED INFORMATION
The Company’s primary industry and geographic segments are in China where CIBT operates technical and career training schools, and in Canada where SSDC and KGIC operates technical and career training schools and IRIX conducts web design and advertising services. The Company’s corporate operations are also in Canada. Transactions between CIBT, SSDC, KGIC, IRIX and the Company (Corporate) are reported as inter-segment transactions, and are eliminated on consolidation. Inter-segment transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the parties.
Industry and Geographic Segments
|
|
Year Ended August 31, 2011
|
|
|
|
CIBT
(China)
|
|
|
SSDC
(Canada)
|
|
|
KGIC
(Canada)
|
|
|
IRIX
(Canada)
|
|
|
Corporate
(Canada)
|
|
|
Consolidated
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Educational
|
|
$
|
4,206,757
|
|
|
$
|
30,619,935
|
|
|
$
|
21,838,554
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
56,665,246
|
|
Design and advertising
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,909,880
|
|
|
|
-
|
|
|
|
1,909,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,206,757
|
|
|
$
|
30,619,935
|
|
|
$
|
21,838,554
|
|
|
$
|
1,909,880
|
|
|
$
|
-
|
|
|
$
|
58,575,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, net of direct costs
|
|
$
|
2,036,548
|
|
|
$
|
19,929,317
|
|
|
$
|
14,265,049
|
|
|
$
|
913,421
|
|
|
$
|
-
|
|
|
$
|
37,144,335
|
|
Other expenses and items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
(2,428,574
|
)
|
|
|
(18,096,580
|
)
|
|
|
(13,930,101
|
)
|
|
|
(837,163
|
)
|
|
|
(3,944,595
|
)
|
|
|
(39,237,013
|
)
|
Amortization
|
|
|
(466,800
|
)
|
|
|
(800,404
|
)
|
|
|
(289,174
|
)
|
|
|
(29,106
|
)
|
|
|
(72,091
|
)
|
|
|
(1,657,575
|
)
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(91,122
|
)
|
|
|
(91,122
|
)
|
Business development costs
|
|
|
(230,362
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(230,362
|
)
|
Interest and other income
|
|
|
176,775
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,870
|
|
|
|
-
|
|
|
|
180,645
|
|
Foreign exchange gain (loss), net
|
|
|
21,648
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,968
|
)
|
|
|
(4,909
|
)
|
|
|
10,771
|
|
Gain (loss) on disposal of assets
|
|
|
21,344
|
|
|
|
(60,505
|
)
|
|
|
-
|
|
|
|
(495
|
)
|
|
|
-
|
|
|
|
(39,656
|
)
|
Interest on long-term debt
|
|
|
-
|
|
|
|
(153,656
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(153,656
|
)
|
Impairment of marketable securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(60,000
|
)
|
|
|
(60,000
|
)
|
Impairment of long-lived assets and goodwill
|
|
|
(5,897,778
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,897,778
|
)
|
Write-off of deferred finance fees
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(510,711
|
)
|
|
|
(510,711
|
)
|
Restructuring and integration costs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Income tax recovery (provision), net
|
|
|
698,430
|
|
|
|
483,361
|
|
|
|
48,872
|
|
|
|
28,532
|
|
|
|
(364,572
|
)
|
|
|
894,623
|
|
Non-controlling interests
|
|
|
(54,553
|
)
|
|
|
(389,012
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(443,565
|
)
|
Inter-segment transactions
|
|
|
-
|
|
|
|
(1,058,554
|
)
|
|
|
(543,173
|
)
|
|
|
(6,000
|
)
|
|
|
1,607,727
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(6,123,322
|
)
|
|
$
|
(146,033
|
)
|
|
$
|
(448,527
|
)
|
|
$
|
67,091
|
|
|
$
|
(3,440,273
|
)
|
|
$
|
(10,091,064
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
5,136,756
|
|
|
$
|
22,118,314
|
|
|
$
|
11,195,200
|
|
|
$
|
449,368
|
|
|
$
|
2,260,796
|
|
|
$
|
41,160,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
$
|
439,753
|
|
|
$
|
1,672,908
|
|
|
$
|
315,968
|
|
|
$
|
164,323
|
|
|
$
|
38,866
|
|
|
$
|
2,631,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
$
|
719,440
|
|
|
$
|
7,596,891
|
|
|
$
|
2,542,500
|
|
|
$
|
-
|
|
|
$
|
80,367
|
|
|
$
|
10,939,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
-
|
|
|
$
|
5,169,303
|
|
|
$
|
3,542,488
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
8,711,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interests
|
|
$
|
616,945
|
|
|
$
|
621,326
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,238,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
163,147
|
|
|
$
|
191,863
|
|
|
$
|
65,393
|
|
|
$
|
22,461
|
|
|
$
|
45,383
|
|
|
$
|
488,247
|
|
CIBT EDUCATION GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2011
(Expressed in Canadian Dollars)
NOTE 24 – SEGMENTED INFORMATION (cont’d)
Industry and Geographic Segments
|
|
Year Ended August 31, 2010
|
|
|
|
CIBT
(China)
|
|
|
SSDC
(Canada)
|
|
|
KGIC
(Canada) ***
|
|
|
IRIX
(Canada)
|
|
|
Corporate
(Canada)
|
|
|
Consolidated
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Educational
|
|
$
|
7,166,099
|
|
|
$
|
36,919,922
|
|
|
$
|
10,302,107
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
54,388,128
|
|
Design and advertising
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,566,724
|
|
|
|
-
|
|
|
|
1,566,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,166,099
|
|
|
$
|
36,919,922
|
|
|
$
|
10,302,107
|
|
|
$
|
1,566,724
|
|
|
$
|
-
|
|
|
$
|
55,954,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, net of direct costs
|
|
$
|
3,388,780
|
|
|
$
|
25,168,370
|
|
|
$
|
5,863,734
|
|
|
$
|
863,666
|
|
|
$
|
-
|
|
|
$
|
35,284,550
|
|
Other expenses and items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
(3,230,571
|
)
|
|
|
(18,325,086
|
)
|
|
|
(5,277,510
|
)
|
|
|
(802,856
|
)
|
|
|
(4,263,783
|
)
|
|
|
(31,899,806
|
)
|
Amortization
|
|
|
(491,813
|
)
|
|
|
(829,453
|
)
|
|
|
(127,923
|
)
|
|
|
(26,496
|
)
|
|
|
(61,592
|
)
|
|
|
(1,537,277
|
)
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(232,626
|
)
|
|
|
(232,626
|
)
|
Business development costs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Interest and other income
|
|
|
204,815
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,203
|
|
|
|
607
|
|
|
|
207,625
|
|
Foreign exchange gain (loss), net
|
|
|
(86,729
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,714
|
)
|
|
|
(7,234
|
)
|
|
|
(96,677
|
)
|
Gain (loss) on disposal of assets
|
|
|
(56,412
|
)
|
|
|
(118,104
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(174,516
|
)
|
Interest on long-term debt
|
|
|
-
|
|
|
|
(92,346
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(92,346
|
)
|
Impairment of marketable securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(127,229
|
)
|
|
|
(127,229
|
)
|
Impairment of long-lived assets and goodwill
|
|
|
(2,000,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,000,000
|
)
|
Write-off of deferred finance fees
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(200,000
|
)
|
|
|
(200,000
|
)
|
Restructuring and integration costs
|
|
|
-
|
|
|
|
(297,000
|
)
|
|
|
(100,000
|
)
|
|
|
-
|
|
|
|
(147,500
|
)
|
|
|
(544,500
|
)
|
Income tax recovery (provision), net
|
|
|
606,441
|
|
|
|
(844,002
|
)
|
|
|
(6,392
|
)
|
|
|
(13,396
|
)
|
|
|
2,622,404
|
|
|
|
2,365,055
|
|
Non-controlling interests
|
|
|
136,056
|
|
|
|
(505,939
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(369,883
|
)
|
Inter-segment transactions
|
|
|
-
|
|
|
|
(3,149,040
|
)
|
|
|
(267,361
|
)
|
|
|
22,531
|
|
|
|
3,393,870
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,529,433
|
)
|
|
$
|
1,007,400
|
|
|
$
|
84,548
|
|
|
$
|
42,938
|
|
|
$
|
976,917
|
|
|
$
|
582,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
13,360,396
|
|
|
$
|
28,981,989
|
|
|
$
|
10,043,093
|
|
|
$
|
298,819
|
|
|
$
|
2,285,041
|
|
|
$
|
54,969,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
$
|
816,903
|
|
|
$
|
2,185,124
|
|
|
$
|
329,749
|
|
|
$
|
81,767
|
|
|
$
|
5,310
|
|
|
$
|
3,418,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
$
|
4,243,306
|
|
|
$
|
7,688,680
|
|
|
$
|
2,752,500
|
|
|
$
|
-
|
|
|
$
|
140,631
|
|
|
$
|
14,825,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
2,287,905
|
|
|
$
|
5,169,303
|
|
|
$
|
3,542,488
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10,999,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interests
|
|
$
|
588,878
|
|
|
$
|
738,248
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,327,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
90,482
|
|
|
$
|
556,992
|
|
|
$
|
18,083
|
|
|
$
|
7,088
|
|
|
$
|
-
|
|
|
$
|
672,645
|
|
*** The results of KGIC were consolidated from March 15, 2010, the acquisition date and therefore about five and a half month of operating results were included in the year ended August 31, 2010.
CIBT EDUCATION GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2011
(Expressed in Canadian Dollars)
NOTE 24 – SEGMENTED INFORMATION (cont’d)
Industry and Geographic Segments
|
|
Year Ended August 31, 2009
|
|
|
|
CIBT
(China)
|
|
|
SSDC
(Canada)
|
|
|
IRIX
(Canada)
|
|
|
Corporate
(Canada)
|
|
|
Consolidated
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Educational
|
|
$
|
9,576,706
|
|
|
$
|
33,659,924
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
43,236,630
|
|
Design and advertising
|
|
|
-
|
|
|
|
-
|
|
|
|
1,314,328
|
|
|
|
-
|
|
|
|
1,314,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,576,706
|
|
|
$
|
33,659,924
|
|
|
$
|
1,314,328
|
|
|
$
|
-
|
|
|
$
|
44,550,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, net of direct costs
|
|
$
|
5,201,160
|
|
|
$
|
22,439,524
|
|
|
$
|
675,926
|
|
|
$
|
-
|
|
|
$
|
28,316,610
|
|
Other expenses and items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
(651,813
|
)
|
|
|
(893,541
|
)
|
|
|
(29,484
|
)
|
|
|
(61,923
|
)
|
|
|
(1,636,761
|
)
|
General and administrative
|
|
|
(4,156,649
|
)
|
|
|
(17,333,591
|
)
|
|
|
(790,260
|
)
|
|
|
(3,233,113
|
)
|
|
|
(25,513,613
|
)
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(581,098
|
)
|
|
|
(581,098
|
)
|
Interest on long-term debt
|
|
|
-
|
|
|
|
(41,579
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(41,579
|
)
|
Foreign exchange gain (loss)
|
|
|
119,462
|
|
|
|
-
|
|
|
|
19,608
|
|
|
|
23,467
|
|
|
|
162,537
|
|
Loss on disposal of assets
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Impairment of marketable securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Impairment of intangible assets
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Write-off of deferred finance fees
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Restructuring and integration costs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Non-controlling interests
|
|
|
(2,295
|
)
|
|
|
(474,808
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(477,103
|
)
|
Other income
|
|
|
45,831
|
|
|
|
-
|
|
|
|
9
|
|
|
|
26,415
|
|
|
|
72,255
|
|
Income tax recovery (provision), net
|
|
|
4,115
|
|
|
|
(289,356
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(285,241
|
)
|
Inter-segment transactions
|
|
|
-
|
|
|
|
(2,342,337
|
)
|
|
|
73,420
|
|
|
|
2,268,917
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
559,811
|
|
|
$
|
1,064,312
|
|
|
$
|
(50,781
|
)
|
|
$
|
(1,557,335
|
)
|
|
$
|
16,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
16,643,989
|
|
|
$
|
29,861,938
|
|
|
$
|
217,610
|
|
|
$
|
798,155
|
|
|
$
|
47,521,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
$
|
1,287,078
|
|
|
$
|
2,343,921
|
|
|
$
|
101,175
|
|
|
$
|
6,638
|
|
|
$
|
3,738,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
$
|
6,325,324
|
|
|
$
|
7,883,800
|
|
|
$
|
-
|
|
|
$
|
200,895
|
|
|
$
|
14,410,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
2,287,905
|
|
|
$
|
4,722,970
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7,010,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interests
|
|
$
|
748,863
|
|
|
$
|
449,743
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,198,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
304,347
|
|
|
$
|
443,953
|
|
|
$
|
4,797
|
|
|
$
|
-
|
|
|
$
|
753,097
|
|
CIBT EDUCATION GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2011
(Expressed in Canadian Dollars)
NOTE 25 – SUBSEQUENT EVENTS
On November 2, 2011, the Company received $30,000 in funds owing from a director the Company (refer to Note 23). The remaining balance of $70,000 is anticipated to be repaid by the director of the Company before December 31, 2011.
NOTE 26 – DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”), which differs in certain respects from United States generally accepted accounting principles (“US GAAP”).
(a)
|
The effect of the differences between Canadian GAAP and US GAAP on the significant captions on the Company’s consolidated balance sheets, statement of (loss) income and comprehensive (loss) income and cash flows is summarized as follows:
|
Consolidated Balance Sheets
|
|
August 31,
2011
|
|
|
August 31,
2010
|
|
|
|
|
|
|
|
|
Total assets under Canadian GAAP
|
|
$
|
41,160,434
|
|
|
$
|
54,969,338
|
|
(c) Acquisition costs
|
|
|
(279,062
|
)
|
|
|
(279,062
|
)
|
Total assets under US GAAP
|
|
$
|
40,881,372
|
|
|
$
|
54,690,276
|
|
|
|
|
|
|
|
|
|
|
Total liabilities under Canadian GAAP
|
|
$
|
22,124,793
|
|
|
$
|
26,619,254
|
|
(b) Income tax uncertainties – unrecognized tax benefits
|
|
|
(18,352
|
)
|
|
|
(10,960
|
)
|
(b) Income tax uncertainties – accrual for interest and penalties
|
|
|
168,766
|
|
|
|
40,669
|
|
Total liabilities under US GAAP
|
|
|
22,275,207
|
|
|
|
26,648,963
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interest under Canadian GAAP
|
|
|
1,238,271
|
|
|
|
1,327,126
|
|
(d) Non-controlling interest in subsidiaries
|
|
|
(1,238,271
|
)
|
|
|
(1,327,126
|
)
|
Non-controlling interest under US GAAP
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total shareholders' equity under Canadian GAAP
|
|
|
17,797,370
|
|
|
|
27,022,958
|
|
(b) Income tax uncertainties – unrecognized tax benefits
|
|
|
18,352
|
|
|
|
10,960
|
|
(b) Income tax uncertainties – accrual for interest and penalties
|
|
|
(168,766
|
)
|
|
|
(40,669
|
)
|
(c) Acquisition costs
|
|
|
(279,062
|
)
|
|
|
(279,062
|
)
|
(d) Non-controlling interest in subsidiaries
|
|
|
1,238,271
|
|
|
|
1,327,126
|
|
Total shareholder’s equity under US GAAP
|
|
|
18,606,165
|
|
|
|
28,041,313
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders' equity under US GAAP
|
|
$
|
40,881,372
|
|
|
$
|
54,690,276
|
|
CIBT EDUCATION GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2011
(Expressed in Canadian Dollars)
NOTE 26 – DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (cont’d)
(a) (cont’d)
Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income
|
|
Year Ended
August 31,
2011
|
|
|
Year Ended
August 31,
2010
|
|
|
Year Ended
August 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income under Canadian GAAP
|
|
$
|
(10,091,064
|
)
|
|
$
|
582,370
|
|
|
$
|
16,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b) Income tax uncertainties – unrecognized tax benefits
|
|
|
7,392
|
|
|
|
10,960
|
|
|
|
-
|
|
(b) Income tax uncertainties – accrual for interest and penalties
|
|
|
(128,097
|
)
|
|
|
(40,669
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) Acquisition costs
|
|
|
-
|
|
|
|
(279,062
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income under US GAAP
|
|
$
|
(10,211,769
|
)
|
|
$
|
273,599
|
|
|
$
|
16,007
|
|
Basic and diluted (loss) income per share under US GAAP
|
|
$
|
(0.15
|
)
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
Consolidated Statements of Cash Flows
|
|
Year Ended
August 31,
2011
|
|
|
Year Ended
August 31,
2010
|
|
|
Year Ended
August 31,
2009
|
|
Net cash provided by (used in) operating activities under Canadian and US GAAP
|
|
$
|
(3,581,135
|
)
|
|
$
|
2,027,949
|
|
|
$
|
2,329,895
|
|
Net cash used in investing activities under Canadian GAAP
|
|
|
(853,288
|
)
|
|
$
|
(5,752,247
|
)
|
|
$
|
(1,969,054
|
)
|
(d) Disposal of controlling interest in variable interest
entity, net of cash received
|
|
|
-
|
|
|
|
-
|
|
|
|
401,980
|
|
Net cash used in investing activities under US GAAP
|
|
$
|
(853,288
|
)
|
|
$
|
(5,752,247
|
)
|
|
$
|
(1,567,074
|
)
|
Net cash provided by (used in) financing activities under Canadian GAAP
|
|
$
|
(570,265
|
)
|
|
$
|
4,993,709
|
|
|
$
|
(943,879
|
)
|
(d) Disposal of controlling interest in variable interest
entity, net of cash received
|
|
|
-
|
|
|
|
-
|
|
|
|
(401,980
|
)
|
Net cash provided by (used in) financing activities under US GAAP
|
|
$
|
(570,265
|
)
|
|
$
|
4,993,709
|
|
|
$
|
(1,345,859
|
)
|
Effect of exchange rate changes under Canadian and US GAAP
|
|
$
|
(50,579
|
)
|
|
$
|
(94,704
|
)
|
|
$
|
(12,571
|
)
|
CIBT EDUCATION GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2011
(Expressed in Canadian Dollars)
NOTE 26 – DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (cont’d)
(a) (cont’d)
Presentation differences between Canadian to US GAAP are:
|
|
Year Ended
August 31,
2011
|
|
|
Year Ended
August 31,
2010
|
|
|
Year Ended
August 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
Direct costs – Canadian GAAP
|
|
$
|
21,430,791
|
|
|
$
|
20,670,302
|
|
|
$
|
16,234,348
|
|
Amortization for the year
|
|
|
1,657,575
|
|
|
|
1,537,277
|
|
|
|
1,636,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct costs – US GAAP
|
|
$
|
23,088,366
|
|
|
$
|
22,207,579
|
|
|
$
|
17,871,109
|
|
(b) Income Taxes
Under Canadian GAAP, the Company identified and accrued for certain tax filing positions in China that were reflected in income taxes payable in the consolidated financial statements. Under US GAAP, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. The following additional disclosures represent changes from the most recent annual financial statements and are required under US GAAP.
CIBT EDUCATION GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2011
(Expressed in Canadian Dollars)
NOTE 26 – DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (cont’d)
(b) Income Taxes (cont’d)
As required under US GAAP, disclosure of the beginning and ending amount of unrecognized tax benefit is as follows:
|
|
Year Ended
August 31,
2011
|
|
|
Year Ended
August 31,
2010
|
|
|
Year Ended
August 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
398,396
|
|
|
$
|
409,356
|
|
|
$
|
293,181
|
|
Additions based on tax positions related to the
current period
|
|
|
-
|
|
|
|
-
|
|
|
|
214,925
|
|
Additions for tax positions of prior periods
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Reductions for tax positions of prior periods
|
|
|
-
|
|
|
|
-
|
|
|
|
(98,463
|
)
|
Settlements
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Effect of foreign currency movements
|
|
|
(7,392
|
)
|
|
|
(10,960
|
)
|
|
|
(287
|
)
|
Balance, end of period
|
|
$
|
391,004
|
|
|
$
|
398,396
|
|
|
$
|
409,356
|
|
As at August 31, 2011, $251,727 of the $391,004 of unrecognized tax benefits will, if ultimately recognized, impact the Company’s effective tax rate.
Under Canadian GAAP, the Company accrued accumulatively $116,237 relating to interest and penalties.
Interest and penalties under US GAAP is as follows:
|
|
Year Ended
August 31,
2011
|
|
|
Year Ended
August 31,
2010
|
|
|
Year Ended
August 31,
2
009
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
156,906
|
|
|
$
|
116,237
|
|
|
$
|
52,214
|
|
Accrual for interest and penalties during the
period
|
|
|
130,025
|
|
|
|
79,674
|
|
|
|
67,279
|
|
Effect of foreign currency movements
|
|
|
(1,928
|
)
|
|
|
(39,005
|
)
|
|
|
(3,256
|
)
|
Balance, end of period
|
|
$
|
285,003
|
|
|
$
|
156,906
|
|
|
$
|
116,237
|
|
As of August 31, 2011, the Company’s tax years from 2004 to 2011 remain open to audit in various taxing jurisdictions.
CIBT EDUCATION GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2011
(Expressed in Canadian Dollars)
NOTE 26 – DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (cont’d)
(c) Acquisition
Under Canadian GAAP, the Company accounts for the acquisition-related costs as part of the total purchase price of the acquisition. Under US GAAP, upon the adoption of ASC 805 on September 1, 2009, the Company accounts for the acquisition-related costs as expenses in the periods in which the costs are incurred and the services are received.
The acquired curriculum and software have a weighted average amortization period of 10 and 3 years, respectively. The goodwill acquired in the acquisition consists of synergies expected to be achieved through vertical integration and cost reductions. As part of the acquisition the Company acquired accreditations and registrations that are deemed to have an indefinite life, as disclosed in Note 3. Certain accreditations acquired are assessed and renewed every 3-5 years.
Also upon the adoption of ASC 805, an asset or liability resulting from a contingent consideration arrangement will be recognized at its acquisition date fair value. The contingent consideration arrangement between the Company and KGIC is disclosed in Note 3. The estimated fair value of the contingent consideration was determined to be not significant and was determined based on the present value of estimated future payments. The estimate of future payments was determined based on management’s expectations for net revenue and EBITDA from KGIC over the contingent consideration period.
US GAAP requires the disclosure of certain pro forma information when one or more business combinations are completed. The following table presents unaudited pro forma results of operations for informational purposes, assuming that the Company had acquired KGIC at the beginning of the year ended August 31, 2010 and 2009.
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
August 31,
2010
(unaudited)
|
|
|
August 31,
2009
(unaudited)
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
61,090,584
|
|
|
$
|
59,429,104
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
(1,269,760
|
)
|
|
$
|
(1,155,238
|
)
|
|
|
|
|
|
|
|
|
|
Pro forma basic earnings per share
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
Pro forma diluted earnings per share
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
(d) Non-Controlling Interest
Effective September 1, 2010, the Company has adopted the amendments to FASB ASC 810, “Non-controlling Interest in a Subsidiary”. This topic requires that non-controlling interests be presented in the equity section, but separate from the Company’s equity. ASC 810 also requires that a reconciliation at the beginning and end of the period of the carrying amount of total equity, equity attributable to the parent, and equity attributable to non-controlling interest be presented. In addition, the Company also reclassified, in its Statement of Cash Flow, prior-period payments related to changes in its ownership interest in a consolidated subsidiary from investing to financing activities as required by ASC 810.
CIBT EDUCATION GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2011
(Expressed in Canadian Dollars)
NOTE 26 – DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (cont’d)
(d) Non-Controlling Interest (cont’d)
The Company has previously absorbed losses attributed to the non-controlling interest. The following table illustrates what the net income (loss) of the parent and earnings per share would have been had the losses been applied to the non-controlling interest.
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
August 31,
2011
|
|
|
August 31,
2010
|
|
|
August 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) under US GAAP attributed to the owners of the parent and non-controlling interest
|
|
$
|
(10,688,209
|
)
|
|
$
|
252,559
|
|
|
$
|
40,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted income (loss) per share under US GAAP attributed to the owners of the parent and non-controlling interest
|
|
$
|
(0.15
|
)
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
(e) Accounting for Share Purchase Warrants
Under Canadian GAAP, the Company accounts for unit private placement issuances containing both common shares and share purchase warrants using the residual method whereby the Company records the net proceeds received into common shares with no amount allocated to contributed surplus. The effect if any, of reconciling potential differences in accounting for unit private placement issuances between Canadian GAAP and US GAAP has not been included in this reconciliation as it would have no impact on reported total assets, total liabilities, net shareholders’ equity, net income (loss) or cash flows for any period presented. Under the FASB ASC 505, “Equity”, the Company would be required to apportion the unit private placement proceeds on a relative fair value basis between the common shares and warrants issued. Please refer to Note 13 for share purchase warrant activity and the details of the warrants outstanding and exercisable as at August 31, 2011.
(f) Earnings Per Common Share
The following is a reconciliation from basic earnings (loss) per common share to diluted earnings (loss) per common share:
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
August 31,
2011
|
|
|
August 31,
2010
|
|
|
August 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income under US GAAP
|
|
$
|
(10,211,769
|
)
|
|
$
|
273,599
|
|
|
$
|
16,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares basic
|
|
|
67,229,127
|
|
|
|
65,676,811
|
|
|
|
61,258,923
|
|
Effect of dilutive stock options and warrants
|
|
|
-
|
|
|
|
340,334
|
|
|
|
34,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares diluted
|
|
|
67,229,127
|
|
|
|
66,017,145
|
|
|
|
61,292,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted income (loss) per common share
|
|
$
|
(0.15
|
)
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
CIBT EDUCATION GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2011
(Expressed in Canadian Dollars)
NOTE 26 – DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (cont’d)
(f) Earnings Per Common Share (cont’d)
For the years ended August 31, 2011, 2010 and 2009, 2,865,000, 3,627,105, and 4,215,956 options, respectively, are not included in the determination of diluted EPS. These options have a weighted average exercise price of $0.91, $1.28 and $1.18, respectively; and a weighted average remaining life of 2.49, 1.16 and 1.89 years, respectively. These securities could potentially dilute basic EPS in the future; however .they were not included in the computation of diluted EPS because to do so would have been anti dilutive for the periods presented.
For the years ended August 31, 2011, 31, 2010, and 2009 2,756,833, 207,561, and 5,211,919 warrants respectively were not included in the determination of diluted EPS. These warrants have a weighted average exercise price of $0.35, $0.70, and $1.43 respectively; and a weighted average remaining life of 2.84, 0.18, and 0.38 respectively. These securities could potentially dilute basic EPS in the future; however, they were not included in the computation of diluted EPS because to do so would have been anti dilutive for the periods presented.
There are no transactions occurring after August 31, 2011 that would have changed the number of common shares or potential common shares outstanding if the transaction had occurred before the end of the period.
(g) Stock-Based Compensation
Additional disclosure requirements under US GAAP, ASC 718 - The Company estimated a nil forfeiture rate by considering the historical employee turnover rates and expectations about the future, and will subsequently adjust compensation cost for differences between expectations and actual experience.
There is no income tax benefit recognized in the income statement for share-based compensation arrangements as stock based compensation is not deductible for Canadian tax purposes.
CIBT EDUCATION GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2011
(Expressed in Canadian Dollars)
NOTE 26 – DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (cont’d)
(g) Stock-Based Compensation (cont’d)
The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model using the assumptions noted in Note 12 and as follows. Volatility is determined using the average weekly trading prices for periods prior to measurement approximating the estimated life of the option. Expected dividends are estimated to be zero based on historical experience and expectations of future dividends to be paid. The life of an option is estimated to equal the term of the option. Finally, the risk free rate used in the Black-Scholes option pricing model is based on the Bank of Canada bond yield rate as this most closely approximates the Company’s risk free rate of borrowing.
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
August 31,
2011
|
|
|
August 31,
2010
|
|
|
August 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
Stock option aggregate intrinsic value
|
|
$
|
-
|
|
|
$
|
8,400
|
|
|
$
|
67,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average grant-date fair value of options granted
|
|
$
|
304,300
|
|
|
$
|
47,000
|
|
|
$
|
52,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intrinsic value of options exercised
|
|
$
|
-
|
|
|
$
|
89,700
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash received from options
|
|
|
|
|
|
|
|
|
|
|
|
|
exercised
|
|
$
|
-
|
|
|
$
|
195,000
|
|
|
$
|
-
|
|
A summary of the status of the Company’s non-vested stock options is summarized as follows:
Nonvested Stock Options
|
|
Options
|
|
|
Weighted
Average
Grant Date
Fair Value
per Option
($)
|
|
|
|
|
|
|
|
|
Nonvested at August 31, 2008
|
|
|
1,877,500
|
|
|
|
0.64
|
|
Granted
|
|
|
210,000
|
|
|
|
0.25
|
|
Vested
|
|
|
(1,306,250
|
)
|
|
|
0.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at August 31, 2009
|
|
|
781,250
|
|
|
|
0.25
|
|
Granted
|
|
|
130,000
|
|
|
|
0.36
|
|
Vested
|
|
|
(911,250
|
)
|
|
|
0.49
|
|
|
|
|
|
|
|
|
|
|
Nonvested at August 31, 2010
|
|
|
-
|
|
|
|
-
|
|
Granted
|
|
|
1,365,000
|
|
|
|
0.22
|
|
Vested
|
|
|
(253,000
|
)
|
|
|
0.22
|
|
|
|
|
|
|
|
|
|
|
Nonvested and expected to vest at August 31, 2011
|
|
|
1,112,000
|
|
|
|
0.22
|
|
As of August 31, 2011, there was $182,378 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 3.03 years. The total fair value of shares vested during the years ended August 31, 2011, 2010 and 2009 was $98,670, $682,688 and $676,388, respectively.
CIBT EDUCATION GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2011
(Expressed in Canadian Dollars)
NOTE 26 – DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (cont’d)
(h) Intangible Assets
The weighted average amortization period for intangibles subject to amortization is as follows: Agreements and contracts – curriculum access 1.33 years; Internally developed curriculum 9.92; acquired curriculum 10.45 years; Foreign university cooperative agreements and others 5 years.
Amortization expenses that will be incurred over the next five years for intangible assets that are subject to amortization are as follows:
For the years ending August 31
|
2011
|
|
$
|
447,660
|
|
|
2012
|
|
|
355,175
|
|
|
2013
|
|
|
263,784
|
|
|
2014
|
|
|
263,784
|
|
|
2015
|
|
|
263,784
|
|
|
|
|
$
|
1,594,187
|
|
(i) Cash and cash equivalents
The Company’s subsidiary in China is subject to certain currency transfer restrictions imposed by the Chinese government. Under the existing Chinese foreign exchange regulations, payments of current account items, including profit distribution, interest payments and expenditures from trade-related transactions, can be made in foreign currencies without prior approval from the Chinese State Administration of Foreign Exchange, by complying with certain procedural requirements. However, approval from appropriate government authorities is required when Chinese RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of bank loans denominated in foreign currencies.
(j) Advertising expense
Costs incurred for advertising are expensed as incurred. Advertising expense for the years ended August 31, 2011, 2010 and 2009, was approximately $3,065,494, $3,161,796 and $3,050,835, respectively, and is included in general and administrative expenses in the accompanying consolidated statements of (loss) income.
(k) Adoption of New Accounting Pronouncements
In April 2008, the FASB issued ASC 350-30, “General Intangible Assets Other than Goodwill”. In determining the useful life of intangible assets, ASC 350-30 removes the requirement to consider whether an intangible asset can be renewed without substantial cost of material modifications to the existing terms and conditions and, instead, requires an entity to consider its own historical experience in renewing similar arrangements. ASC 350-30 also requires expanded disclosure related to the determination of intangible asset useful lives. ASC 350-30 was effective for financial statements issued for fiscal years beginning after December 15, 2008. The Company adopted ASC 350-30 on September 1, 2009 and the adoption did not have a material impact on the consolidated financial statements.
CIBT EDUCATION GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2011
(Expressed in Canadian Dollars)
NOTE 26 – DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (cont’d)
(l) Adoption of New Accounting Pronouncements (cont’d)
In May 2008, the FASB issued ASC 470-20, “Debt with Conversion and Other Options”. ASC 470-20 requires issuers of convertible debt instruments that may be settled in cash to separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in periods subsequent to adoption. Upon adoption of ASC 470-20, the Company will allocate a portion of the proceeds received from the issuance of convertible notes between a liability and equity component by determining the fair value of the liability component using the Company’s non-convertible debt borrowing rate. The difference between the proceeds of the notes and the fair value of the liability component will be recorded as a discount on the debt with a corresponding offset to paid-in-capital. The resulting discount will be accreted by recording additional non-cash interest expense over the expected life of the convertible notes using the effective interest rate method. The provisions of ASC 470-20 are to be applied retrospectively to all periods presented upon adoption and are effective for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years. The Company currently does not have any convertible debt instruments and, accordingly, the adoption of ASC 470-20 on September 1, 2009 did not have any impact on the Company’s consolidated financial statements.
In June 2009, the FASB issued accounting standards related to its accounting standards codification of the hierarchy of generally accepted accounting principles. The new standard is the sole source of authoritative generally accepted accounting principles of the United States (“U.S. GAAP”) to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The Codification superseded non-SEC accounting and reporting standards. All accounting literature that is not in the Codification, not issued by the SEC and not otherwise grandfathered is non-authoritative. The new standard became effective for the Company on September 1, 2009. Applying the guidance in the accounting standards codification did not have a material impact on the Company’s consolidated financial statements.
In January 2010, the FASB issued Accounting Standards Update (ASU) 2010-06, which amends the guidance on fair value to add new requirements for disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements. It also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. The new guidance is effective for the first reporting period beginning after December 15, 2009, except for the requirement to provide the Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which will be effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Applying the guidance did have a material impact on the Company’s consolidated financial statements.
In April 2010, the FASB issued ASU No. 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”. ASU No. 2010-13 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 not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The provision of ASU No. 2010-13 is effective on January 1, 2011. Early adoption is permitted. Adoption of the provisions of ASU No. 2010-13 is did not have a material effect on the Company’s consolidated financial statements.
In December 2010, the FASB issued ASU No. 2010-28 related to goodwill and intangible assets. Under current guidance, testing for goodwill impairment is a two-step test. When a goodwill impairment test is performed, an entity must assess whether the carrying amount of a reporting unit exceeds its fair value (Step 1). If it does, an entity must perform an additional test to determine whether goodwill has been impaired and to calculate the amount of that impairment (Step 2). The objective of ASU No 2010-28 is to address circumstances in which entities have reporting units with zero or negative carrying amounts. The amendments in this guidance modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts to require an entity to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists after considering certain qualitative characteristics, as described in this guidance. This guidance became effective for the Company in fiscal years, and interim periods within those years, beginning after December 15, 2010. The implementation of this accounting standard did not have a material impact on the Company’s consolidated financial statements.
CIBT EDUCATION GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2011
(Expressed in Canadian Dollars)
NOTE 26 – DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (cont’d)
(l) Adoption of New Accounting Pronouncements (cont’d)
Also, in December 2010, the FASB issued ASU No. 2010-29 related to financial statement disclosures for business combinations entered into after the beginning of the first annual reporting period beginning on or after December 15, 2010. The amendments in this guidance specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. These amendments also expand the supplemental pro forma disclosures under current guidance for business combinations to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments in this update are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. The Company has implemented this standard, as applicable, to the related business combination disclosures.
(m) Recently Issued Accounting Pronouncements
In May 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-04,
Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs
. ASU No. 2011-04 clarifies some existing concepts, eliminates wording differences between U.S. GAAP and International Financial Reporting Standards (“IFRS”), and in some limited cases, changes some principles to achieve convergence between U.S. GAAP and IFRS. ASU No. 2011-04 results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. GAAP and IFRS. ASU No. 2011-04 also expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. The provisions of ASU No. 2011-04 will become effective for us on January 1, 2012 and are to be applied prospectively. We do not expect the adoption of the provisions of ASU No. 2011-04 to have a material effect on our consolidated financial statements and we do not expect to materially modify or expand our financial statement footnote disclosures.
In June 2011, the FASB issued ASU No. 2011-05,
Comprehensive Income (Topic 220): Presentation of Comprehensive Income
. ASU No. 2011-05 requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income, or in two separate but consecutive statements. ASU No. 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of stockholders’ equity. The presentation requirements will become effective for us on January 1, 2012. As ASU No. 2011-05 applies to financial statement presentation matters, the adoption of ASU No. 2011-05 will not affect our consolidated financial statements and we believe our current presentation of comprehensive income complies with the new presentation requirements.
In September 2011, the FASB issued ASU 2011-08 which is intended to simplify how an entity tests goodwill for impairment. Under the revised guidance, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. However, if an entity concludes otherwise, then it is required to perform the first step of the two-step impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying amount of the reporting unit. If the carrying amount of a reporting unit exceeds its fair value, then the entity is required to perform the second step of the goodwill impairment test to measure the amount of the impairment loss, if any. Under the amendments in this update, an entity has the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the first step of the two-step goodwill impairment test. An entity may resume performing the qualitative assessment in any subsequent period. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued. The Company has elected to early adopt ASU 2011-08 for the purposes of performing its annual goodwill impairment test for its fiscal year ended January 1, 2012. The Company’s measurement date for the annual goodwill test is as of the first day of its fourth fiscal quarter. The implementation of this accounting standard will not have a material impact on the Company’s consolidated financial statements.
The Company will transition to IFRS on September 1, 2011 and will no longer be required to prepare a reconciliation to US AAP. Accordingly, the Company has not assessed the impact of adopting future US GAAP accounting pronouncements with an application date of September 1, 2011 or beyond in its financial statements and disclosures.