Kid Castle Educational (KDCE) research, news, and more from GeoInvesting

Company description

Fri, 19 Jun 2009 04:00:00 GMT

We are a leading provider in the PRC and Taiwan of English-language instruction and educational services to children for whom Chinese is the primary language. Our focus is on children between two and twelve years old.

We commenced operations in 1986 as an English-language school, and since then we have expanded our franchise operations to provide bilingual kindergarten instruction, computer training, and tutorial services. In September 1999, we began offering a variety of multimedia, including educational videos, textbooks, workbooks, and educational software, authored by us as fully functional, stand-alone products or as supplements to our classroom-based and Internet-based instruction.

Research

Thu, 25 Jun 2009 04:00:00 GMT

Kid Castle Education recently took steps to de-register its stock and now trades on the pink sheets. 2008 was not a particularly good year for the company as Fully Tax-Adjusted GEO Supplied Non-GAAP EPS fell 40% despite a rise in sales. Also, first quarter EPS and revenue growth were flat.

While not a fan of penny stocks, Kid Castle qualifies as a high risk special situation play if the company can jump start its growth rate. With $.03 in trailing EPS the stock is selling at a P/E of just 5 in a sector that is beginning to gain some momentum on wall street. At its current price the GeoTeam® is considering Kid Castle Education a call option with no expiration. The hope is that, if the company can at the very least remain profitable, it can experience a reduction in its risk premium by an expansion of its P/E ratio.

The GeoTeam located an excerpt in the company's SEC filing 10K (page 8) that indicates a greater focus on improving profitability in the coming year:

"From 2003 to 2008, we have substantially increased our sales and marketing efforts in order to more aggressively market our franchises in China. Such expansion resulted in growth in the sales of our English-learning materials. While we expect to continue expanding our market share in China, we intend to do so by more efficiently utilizing our management and capital resources to more effectively manage our cost of goods sold and other operating expenses. We will continue to devote our resources to increasing the number of our franchises and expanding our publishing operations. On the other hand, we will cut nonessential operations to reduce our operating costs and improve our profitability."

Significant concerns that temper our enthusiasm:

The company's current ratio is less than one
Cash flow from operations, as presented in the first quarter SEC filing, has decreased significantly
The company recently issued 5 million shares to pay for the costs of going private.
The company has not issued any press release for some time now, leading the team to question whether the company will keep investors informed on its business operations.
No United States investor information representation.

Liquidity Requirements

Thu, 25 Jun 2009 04:00:00 GMT

We have assertively expanded our business in the PRC. Our Shanghai operations turned profitable in 2006, and the Group turned profitable in the first quarter of 2007. We anticipate continued expansion of the demand for learning materials and an increase in the number of franchise schools. Furthermore, we foresee better utilization of capital and funds as we identify and implement alternatives for restructuring and refinancing. In order to increase its profit margin, the Group has operated direct-owned schools since 2007. Due to the rapid expansion in our Shanghai operations, the Group foresees additional need for funds in the near future to facilitate its expansion plans during 2009. As discussed in Note 11 to our Condensed Consolidated Financial Statements, the majority of the Group’s existing loans are guaranteed by two directors of the Group who have expressed their willingness to continue to support the Group until other sources of funds have been obtained. Moreover, management believes that, with the support of the directors and continuous PRC sales, the Company would have sufficient funds for its operations, but may need new a bank facility to fulfill its business plan to expand its operations in the future.

Source: SEC Form 10Q (For the quarterly period ended: March 31, 2009, page 22)

Financials

Thu, 25 Jun 2009 04:00:00 GMT

1st QUARTER 2009 vs. 2008 FINANCIAL SNAPSHOT ENDED MARCH

1st Quarter 2009 1st Quarter 2008 Period Change

GAAP Revenue $2.4 million $2.4 million 00.00%

GAAP EPS $0.03 $0.03 00.00%

GEO Supplied Non-GAAP EPS ^a $0.03 $0.03 00.00

Tax Rate 8.8% 4.7% 87.2%

Fully Tax-Adjusted GEO Supplied Non-GAAP EPS ^b $0.02 $0.02 00.00%

Fully Diluted Shares 25,000,000 25,000,000 00.00%

Source: See Filing for the period ended March 31, 2009

FULL YEAR 2009 vs. 2008 FINANCIAL SNAPSHOT ENDED DECEMBER

Full Year 2008 Full Year 2007 Period Change

GAAP Revenue $12.8 million $11.2 million 14.3%

GAAP EPS $0.03 $0.08 -62.5%

GEO Supplied Non-GAAP EPS ^a $0.03 $0.06 -50%

Non-GAAP Adjusted Tax Rate 10.4% 15.2% -46.2%

Fully Tax-Adjusted GAAP EPS $0.02 $0.06 -66.0%

Fully Tax-Adjusted GEO Supplied Non-GAAP EPS ^b $0.03 $0.05 -40.0%

Fully Diluted Shares 25,000,000 25,000,000 00.00%

Source: See Filing For the fiscal year ended: December 31, 2008

^aNon-GAAP EPS Figures exclude certain non-operating gains and losses as well as certain non-cash items. Non-GAAP information should not be viewed in isolation or as a substitute for reported, or GAAP information . For a more complete explanation of the company's definition of non-GAAP please refer to its financial press releases. The GeoTeam® non-GAAP figures may, from time to time, differ from company supplied figures.

^b For valuation purposes, The GeoTeam® prefers to adjust EPS to reflect a standard United States tax rate of 36%

	1st Quarter 2009	1st Quarter 2008	Period Change
GAAP Revenue	$2.4 million	$2.4 million	00.00%
GAAP EPS	$0.03	$0.03	00.00%
GEO Supplied Non-GAAP EPS ^a	$0.03	$0.03	00.00
Tax Rate	8.8%	4.7%	87.2%
Fully Tax-Adjusted GEO Supplied Non-GAAP EPS ^b	$0.02	$0.02	00.00%
Fully Diluted Shares	25,000,000	25,000,000	00.00%

	Full Year 2008	Full Year 2007	Period Change
GAAP Revenue	$12.8 million	$11.2 million	14.3%
GAAP EPS	$0.03	$0.08	-62.5%
GEO Supplied Non-GAAP EPS ^a	$0.03	$0.06	-50%
Non-GAAP Adjusted Tax Rate	10.4%	15.2%	-46.2%
Fully Tax-Adjusted GAAP EPS	$0.02	$0.06	-66.0%
Fully Tax-Adjusted GEO Supplied Non-GAAP EPS ^b	$0.03	$0.05	-40.0%
Fully Diluted Shares	25,000,000	25,000,000	00.00%