Operational and Financial Results

  • Q1 FY11 vs. Q1 FY10 Revenues Up 27.9% to $16.6M
  • Q1 FY11 vs. Q1 FY10 Net Income Up 53.5% to $5.5M
  • Semester 1 FY11 vs. Semester 1 FY 10 Student enrollment up 16% to 37,408


HQ Global Education Inc. ("HQ" or the "Company") (OTCBB:HQGE), which operates 10 vocational schools in China under the "HQ" brand and is one of China's leading providers of customized vocational education, today announced its financial results for the first quarter of fiscal year 2011 ended November 30, 2010. Financial data is summarized below:

First Quarter Fiscal Year 2011 Financial and Operating Highlights

  • Revenues generated in the first quarter of fiscal year 2011 increased by 27.9% to $16.6 million, up from $13.0 million in the first quarter of fiscal year 2009 -- Tuition and other fees generated $12.2 million or 73.3% of revenues -- Services generated $4.4 million or 26.7% of revenues
  • Gross margin for the first quarter of fiscal year 2011 was 39.0% based on gross profit of $6.5 million, compared with a 39.6% margin in the first quarter of fiscal year 2010
  • Net income for the first quarter of fiscal year 2011 increased 53.5% to $5.5 million, compared with $3.6 million in the first quarter of fiscal year 2010
  • Earnings per diluted share were $0.17 for the quarter, compared with diluted EPS of $0.17 achieved in the same period a year ago

Mr. Guangwen He, Chairman and CEO of the Company, stated, "Our first quarter fiscal 2011 performance was highlighted by solid revenue and net income growth, as well as improved margins. These strong results demonstrate our ability to successfully manage costs as we expand our operations. We grew our student enrollment at HQ-operated schools to a record 37,408 students in the first semester of fiscal year 2011. There is an urgent need for skilled workers in China's rapidly developing economy, and we anticipate that enrollment in vocational training programs such as ours will continue to increase."

Mr. He continued, "During the remainder of fiscal 2011, we plan to seek strategic partnerships with other schools, expand our existing facilities and program offerings, and promote the HQ brand name to increase our market presence and attract new students to our schools. By leveraging our strong reputation and successful operating history, we expect the positive growth pattern of recent years to continue into 2011."

First Quarter Fiscal Year 2011 Results of Operations

Revenues

Revenues for the first quarter fiscal year 2011 ended November 30, 2010 were $16.6 million as compared to $13.0 million for the first quarter of fiscal year 2010 ended November 30, 2009. The increase of $3.6 million, or 27.9%, was primarily due to an increase in student enrollment at Company-operated schools as well as the expansion of the Company's operations. Tuition and other fees generated $12.2 million or 73.3% of revenues, and services generated $4.4 million or 26.7% of revenues.

Gross Profit

Gross profit for the first quarter of fiscal year 2011 ended November 30, 2010 was $6.5 million as compared to $5.2 million for the period ended November 30, 2009. The increase of $1.3 million, or 26.1%, was primarily due to an increase in student enrollment as well as an increase in fee standards for vocational education programs and order-oriented services, while the related fixed costs remained unchanged. Cost of sales for the first quarter fiscal 2011 was $10.1 million as compared to $7.9 million for the same period in fiscal 2010. The Company's gross margin was 39.0% and 39.6%, for the first quarter of fiscal year 2011 and 2010 ended November 30, 2010 and 2009, respectively.

Net Income

Net income for the quarter ended November 30, 2010 was $5.5 million as compared to $3.6 million for the quarter ended November 30, 2009. Diluted earnings per share were $0.17 for the quarter in fiscal 2011, compared with diluted EPS of $0.17 for the same period in 2009. The zero increase was primarily due to an increase in weighted average shares outstanding, from 20.5 million shares in the first quarter of fiscal 2010 to 33 million shares in the first quarter of fiscal 2011.

Change in Liquidity and Capital Resources

As of November 30, 2010, the Company's current assets were $24.0 million and current liabilities were $10.3 million. Cash and cash equivalents totaled $9.8 million as of November 30, 2010. The Company's shareholders' equity at November 30, 2010 was $47.0 million. The Company generated $8.4 million in cash from operating activities for the quarter ended November 30, 2010, compared to $7.4 million for the same period of the prior year. The Company used $3.9 million in net cash for investing activities for the quarter ended November 30, 2010, compared to $6.4 million for the same period of the prior year. The decrease was mainly due to the existing construction projects other than Shaoshan Vocational Secondary School were mostly paid for and new construction projects have not started as of November 30, 2010. The Company used $28,089 from financing activities for the quarter ended November 30, 2010, compared to $0.8 million generated in financing activities for the same period of the prior year.

About HQ Global Education Inc. ("HQ")

HQ provides "customized training" services to a wide array of students by operating its own private schools or cooperating with selected public vocational schools in China. By providing full educational and job placement services, the Company realizes recurring revenues, such as tuition, school logistics services fees, off-campus internship management fees, and job placement fees. As of November 30, 2010, there were more than 374,000 students from 25 provinces throughout China enrolled in HQ-operated schools. In line with its "customized education" approach, HQ has established contractual relationships with approximately 128 corporate clients and provides training and internship arrangements to students who upon graduation are hired by these corporate employers. The HQ brand has become increasingly synonymous throughout China with superior vocational training to meet employer needs and with career fulfillment for those who aspire to become technical and skilled workers. By November 30, 2010, we have kept the record 100% job placement rate for our graduates.

For more information please visit: http://www.hq-education.com/english/index.asp.

The HQ Global Education Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=8602

Information Regarding Forward-Looking Statements

Except for historical information contained herein, the statements in this press release are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties, which may cause our actual results in future periods to differ materially from forecasted results. These risks and uncertainties include, among other things, product demand, market competition, and risks inherent in our operations. These and other risks are described in our filings with the U.S. Securities and Exchange Commission.

HQ GLOBAL EDUCATION INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
  November 30, August 31, 
  2010 2010
     
ASSETS 
     
CURRENT ASSETS     
Cash and cash equivalents   $ 9,798,855  $ 5,225,764
Accounts receivable  10,524,328  9,023,824
Other receivables   1,339,009  40,972
Inventory  460,959  674,200
Advances to vendors  1,874,313  552,344
Total current assets   23,997,464  15,517,104
     
PROPERTY AND EQUIPMENT, NET  31,618,255  29,009,794
     
INTANGIBLE ASSETS, NET  2,059,593  2,029,519
     
 TOTAL ASSETS   $ 57,675,312  $ 46,556,417
     
     
LIABILITIES AND SHAREHOLDERS' EQUITY 
 
CURRENT LIABILITIES     
Short-term loans  $ 1,342,427  $ 1,314,744
Long-term loans - current portion  652,465  235,038
Accounts payable  2,057,023  2,278,346
Payroll tax payable  14,277  3,232
Payroll payable  571,056  341,098
Unearned revenues  4,718,248  -- 
Due to shareholder - current portion  46,666  -- 
Other payables and accrued liabilities  855,961  850,905
Total current liabilities   10,258,123  5,023,363
     
Long-term loans, less current portion  --   477,421
     
Due to shareholder, net of current portion  310,000  310,000
     
Other long-term payables  98,310  96,757
     
TOTAL LIABILITIES   10,666,433  5,907,541
     
COMMITMENTS AND CONTINGENCIES     
     
SHAREHOLDERS' EQUITY     
Preferred stock, $0.001 par value, 40,000,000 shares authorized, none issued and outstanding  --   -- 
Common Stock, $0.0001 par value 100,000,000 shares authorized, 33,000,000 shares issued and outstanding at November 30, 2010 and August 31, 2010  3,300  3,300
Additional paid-in capital  1,226,674  1,226,674
Accumulated other comprehensive income   2,661,151  1,785,928
Statutory reserve   11,720,727  10,339,551
Retained earnings   31,397,027  27,293,423
Total shareholders' equity   47,008,879  40,648,876
     
 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY  $ 57,675,312  $ 46,556,417
     
HQ GLOBAL EDUCATION INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
     
   For the three months ended
  November 30,
  2010 2009
     
Revenues    
-Fee based  $ 12,198,708  $ 8,798,076
-Service based  4,443,050  4,211,002
   16,641,758  13,009,078
Cost of revenues    
-Fee based  (6,177,728)  (4,293,119)
-Service based  (3,970,014)  (3,565,373)
   (10,147,742)  (7,858,492)
     
Gross profit   6,494,016  5,150,586
     
Selling expenses   (169,225)  (136,094)
General and administrative expenses   (780,402)  (451,564)
     
Income from operations   5,544,389  4,562,928
     
Other expenses    
Interest expenses  (30,574)  (19,361)
Other expenses   (29,035)  (969,397)
Total other expenses  (59,609)  (988,758)
     
Income before income taxes   5,484,780  3,574,170
     
Provision for income taxes  --   -- 
     
Net income   5,484,780  3,574,170
     
Other comprehensive income     
Foreign currency translation income  875,223  13,865
     
Comprehensive Income   $ 6,360,003  $ 3,588,035
     
Basic and diluted income per common share  $ 0.17  $ 0.17
     
Basic and diluted weighted average common shares outstanding  33,000,000  20,500,000
     
HQ GLOBAL EDUCATION INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
     
   For the three months ended
  November 30,
  2010 2009
     
CASH FLOWS FROM OPERATING ACTIVITIES:     
 Net income   $ 5,484,780  $ 3,574,170
 Adjustments to reconcile net income to net cash provided by operating activities:     
Depreciation and amortization   576,556  391,099
Loss on retirement of property & equipment  --   969,397
 Changes in assets and liabilities     
 (Increase) decrease in --    
Accounts receivable   (1,306,289)  (2,503,233)
Other receivables  (1,288,187)  (53,285)
Inventory  226,707  1,452,210
     
 Increase (decrease) in --    
Accounts payable  (268,430)  (129,549)
Payroll Payable  222,059  192,497
Taxes payable   10,942  8,777
Unearned revenues  4,703,089  3,349,022
Other payables and accrued liabilities  (13,302)  113,781
     
 Net cash provided by operating activities   8,347,925  7,364,886
     
CASH FLOWS FROM INVESTING ACTIVITIES:     
Acquisition of intangible assets   --  (30,758)
Acquisition of property & equipment   (2,555,154)  (6,395,032)
Advances to vendors - construction in progress  (1,306,128)  --
     
 Net cash used in investing activities   (3,861,282)  (6,425,790)
     
CASH FLOWS FROM FINANCING ACTIVITIES:     
Repayments on long term loan  (74,755)  (58,586)
Proceeds from loans to related party  --  878,789
Due to shareholder  46,666  --
     
 Net cash provided by (used in) financing activities   (28,089)  820,203
     
EFFECT OF EXCHANGE RATE CHANGE ON CASH & CASH EQUIVALENTS  114,537  2,060
     
NET INCREASE IN CASH & CASH EQUIVALENTS  4,573,091  1,761,359
     
CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD  5,225,764  3,848,040
     
CASH & CASH EQUIVALENTS, END OF PERIOD  $ 9,798,855  $ 5,609,399
     
Supplemental disclosures of cash flow information:    
Interest paid   $ 30,665  $ 27,155 
CONTACT: HQ Global Education Inc.
         Mr. Guangwen He, Chairman and Chief Executive Officer
         (86 731) 88873727
         Fax: (86 731) 88873727
         http://www.hq-education.com
         
         Mr. Ren Hu, Vice President
         (201) 887 0415
         ren.hu@hq-education.com
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