UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C.  20549






FORM
20-F






oREGISTRATION STATEMENT
PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF
1934




OR




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




For
the fiscal year ended _




OR




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






For the transition period from July
1,
2007toAugust
31, 2007




Commission file number: 001-34021






CIBT
Education Group Inc.


(Exact name of
Registrant as specified in its charter)






British
Columbia,Canada


(Jurisdiction of
incorporation or organization)




Suite
1200, 777 West Broadway


Vancouver,British
Columbia,CanadaV5Z
4J7


(Address of
principal executive offices)






Securities
registered or to be registered pursuant to Section 12(b) of the Act: Not
Applicable




Common
      Shares
            American
      Stock ExchangeTitle
      of each Class
            Name
      of each exchange on which
registered




Securities
registered or to be registered pursuant to Section 12(g) of the
Act:


None


(Title of
Class)




Securities
for which there is a reporting obligation pursuant to Section 15(d) of the
Act:




None


(Title of
Class)







Indicate the number of outstanding
shares of each of the Registrant’s classes of capital of common stock as ofSeptember
18, 2008:64,109,297Common
Shares






Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes   o  No x




If
this report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.


Yes o   No
x




Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or
15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes x    No
o




Indicate by check
mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of “accelerated filer and large
accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):




Large accelerated
filer  o              Accelerated
filer  o             Non-accelerated
filer  x






Indicate by check
mark which financial statement item the registrant has elected to
follow.




Item 17  x   Item 18
o


If this is an annual report,
indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes o   No
x






(APPLICABLE ONLY TO
ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE
YEARS)






Indicate by check mark whether the
registrant has filed all documents and reports required to be filed by Sections
12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court. Yes  o   No 
o


















CIBT
Education Group Inc.


Form
20-F Transition Report




TABLE
OF CONTENTS








PART I
            3ITEM 5 Operating and Financial Review and Prospects
            3ITEM 8. Financial Information
            22PART II
            23ITEM 13 Defaults, Dividend Arrearages and
      Delinquencies
            23ITEM 14 Material Modifications to the Rights of Security
      Holders and use of Proceeds
            23PART III
            23ITEM 17 Financial Statements
            24ITEM 18 Financial Statements
            24ITEM 19 Exhibits
            26



















Forward
Looking Statements






This transition
report, any supplement to this transition report and the documents incorporated
by reference include “forward-looking statements”. To the extent that the
information presented in this transition report discusses financial projections,
information or expectations about our business plans, results of operations,
products or markets, or otherwise makes statements about future events, such
statements are forward-looking. Such forward-looking statements can be
identified by the use of words such as “intends”, “anticipates”, “believes”,
“estimates”, “projects”, “forecasts”, “expects”, “plans” and “proposes”.
Although we believe that the expectations reflected in these forward-looking
statements are based on reasonable assumptions, there are a number of risks and
uncertainties that could cause actual results to differ materially from such
forward-looking statements. These include, among others, the cautionary
statements in the “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” sections of this transition report.




These cautionary
statements identify important factors that could cause actual results to differ
materially from those described in the forward-looking statements. When
considering forward-looking statements in this transition report, you should
keep in mind the cautionary statements in the “Risk Factors” on the annual
report filed on January 8, 2008 and “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” sections, and other sections of
the transition report.




All forward-looking
statements included in this document are based on information available to us on
the date hereof. It is important to note that our actual results could differ
materially from those included in such forward-looking
statements.


1


Notice to
Readers




As
used in this transition report, unless the context otherwise requires, “we”,
“us”, “our” and “CIBT Education Group” refers to CIBT Education Group Inc. and
its subsidiaries or any one of them as the context requires and their respective
interests in joint ventures. All dollar amounts refer to US dollars unless
otherwise indicated.






On
June 26, 2008, we decided to change our fiscal year end from June 30 to August
31 to coincide with the year end of Sprott-Shaw Degree College Corp., our major
subsidiary that operates under the name Sprott-Shaw Community College, and to
coincide with the fiscal year end date commonly used in the educational services
industry.




We
are filing this transition report on Form 20-F to reflect our operating and
financial conditions covering a transition period from July 1, 2007 to August
31, 2007. Our unaudited financial statements for the transition period from
July 1, 2007 to August 31, 2007 have been prepared in accordance with Canadian
Generally Accepted Accounting Principals (GAAP), which differs in certain
respects from those applicable in the United States and from practices
prescribed by the SEC (“US GAAP”). We included an explanation of significant
differences in Note 15 of our unaudited financial statements for the transition
period from July 1, 2007 to August 31, 2007. An explanation of all significant
differences between Canadian GAAP and US GAAP for the fiscal year ended June 30,
2007 is included in Note 19 to our audited consolidated
financial statements for the fiscal year ended June 30, 2007 on our Form 20-F
filed on January 8, 2008.




As
of September 18, 2008, our issued and outstanding common shares consist of
64,109,297 shares. As of September 18, 2008, there are outstanding options and
warrants to purchase a total of 9,955,385 of our common
shares.




2


PART
I




ITEM 5. Operating and Financial Review and Prospects




You should read the
following discussion in conjunction with our unaudited consolidated financial
statements for the transition period from July 1, 2007 to August 31, 2007 and
the notes thereto included in this transition report under Item 17.




The following
discussion contains a number of forward-looking statements. Our actual results
and our actual plan of operations may differ materially from what is stated
above. Factors which may cause our actual results or our actual plan of
operations to vary include, among other things, a decision of the Board of
Directors not to pursue a specific course of action based on a re-assessment of
the facts or new facts, or changes in general economic conditions or risk
factors. We disclaim any obligation to update information contained in any
forward-looking statements.




Overview




Our current
business operations include education and training, and graphic design and
advertising agency services through our three principal subsidiaries, CIBT
School of Business & Technology Corp. (“CIBT”), Sprott-Shaw Degree College
Corp, and IRIX Design Group Inc. (“IRIX”). On November 14, 2007, we changed our
name from Capital Alliance Group Inc. to CIBT Education Group Inc. Our common
stock is currently listed on the American Stock Exchange and the TSX Venture
Exchange, both under the symbol “MBA”.






Through CIBT we
provide education and training programs in China. Our strategy is to continue
our current programs, develop new programs and lease new campuses. Through IRIX,
we provide graphic design and advertising agency services. However, our
long-term objective is to focus primarily on our educational services
business.




As
of August 31, 2007, we had total assets of $22,450,208, total liabilities of
$8,167,112, and an accumulated deficit of $14,958,658. For the transition period
from July 1, 2007 to August 31, 2007, we incurred net loss of $442,386 and
comprehensive loss of $560,477. Our continued growth will depend on our ability
to manage our current operations and carry out our expansion plan.




Since our
inception, we have engaged in two acquisition transactions and a reverse merger
transaction. We expect our business strategy will include the identification of
acquisition opportunities in order to build new campuses or schools and expand
our educational services business in China or other countries. We plan to
integrate future acquisitions into our existing operations. On December 17,
2007, we completed the acquisition of a Canadian college, Sprott-Shaw Community
College, which has 17 campuses in Western Canada and business operations in
Vietnam, the Philippines, Jordan and China.






3


A.
Operating Results




Results
of operations for the two months ended August 31, 2007, compared to the two
months ended August 31, 2006




Total
Revenues




Our total revenues
increased $543,724 or 73% to $1,292,040 for the two months ended August 31, 2007
from $748,316 for the same period in 2006, mainly due to our marketing strategy
for our design and advertising business and further expansion and development of
the educational services business sector.




Revenues generated
from our educational services operations during the two months ended August 31,
2007 were $778,951 compared to $515,277 for the two months ended August 31,
2006, an increase of 51%. The increase of revenues generated by our educational
services business resulted from an increase in student enrollment and expansion
of our operations in China. The increase in student enrollment resulted from the
opening of new institutes and increases in new programs of study offered by the
institutes. Revenues from our educational services business during the two
months ended August 31, 2007 represented approximately 60% of our total revenues
compared to 69% of total revenues for the two months ended August 31,
2006.






Revenues from our
design and advertising business via IRIX during the two months ended August 31,
2007 were $359,706 compared to $148,905 for the same period ended August 31,
2006, an increase of 142%. The increase was primarily a result of increased
business from real estate marketing projects and bank promotional campaigns.
Revenues from our design and advertising business accounted for 28% of our total
revenues for the two months ended August 31, 2007 compared to 20% of our total
revenues for the two months ended August 31, 2006.






Our revenues from
consulting services increased $69,249 or 82% to $153,383 during the two months
ended August 31, 2007 from $84,134 for the two months ended August 31, 2006. Our
consulting services consisted primarily of a 24-month management advisory
services agreement with SE Global Equities Corp. (“SEG”), our former subsidiary,
and a 12-month management advisory services agreement with NextMart Inc.
(previously Sun New Media Inc., and formerly SEG).




We
received a one-time payment of 250,000 post consolidation common shares of
NextMart Inc. (OTCBB: NXMR) with a fair value of $962,500 pursuant to the
management advisory services agreement with NXMR. Pursuant to the management
advisory services agreement with SEG, we received a one-time payment of 500,000
post consolidation common shares of NXMR with a fair value of $355,000. To
August 31, 2007, we have recognized $1,193,597 of consulting income in
connection with the two management advisory services agreements leaving $123,903
of unearned consulting fees.




Revenues from our
consulting business accounted for 12% of our total revenues for the two months
ended August 31, 2007 compared to 11% for the two months ended August 31,
2006.




4


Direct
Costs and Net Revenues




For the two months
ended August 31, 2007, our total direct costs were $548,958 resulting in net
revenues of $743,082 or 58%. Our total direct costs were $336,457 for the two
months ended August 31, 2006 resulting in net revenues of $411,859 or 55%. The
increase of $331,223 in direct costs for the two months ended August 31, 2007
compared to the same period in 2006 was mainly due to an increase in student
enrollment discussed above, causing an increase in student related costs such as
textbooks and teaching costs, and an increase in marketing promotion campaigns.
Direct costs of our educational services business mainly consist of payments to
teachers and instructors, and to education service providers for curriculum
usage. Direct costs of our design and advertising business consist of production
materials, printing costs, media costs, and subcontract labor.




Net revenues from
our educational services business averaged a 56% margin during the two months
ended August 31, 2007, whereas for the same period ended August 31, 2006 the
margin was 49%. Net revenues from our educational services business accounted
for 59% of our total net revenues for the two months ended August 31, 2007
compared to 61% for the two months ended August 31, 2006.






Net revenues from
our design and advertising business via IRIX averaged a 42% margin during the
two months ended August 31, 2007, whereas for the two months ended August 31,
2006 the margin was 51%. Net revenues from our design and advertising business
accounted for 20% of our total net revenues for the two months ended August 31,
2007 compared to 18% for the two months ended August 31, 2006.






Net revenues from
other businesses averaged a same margin of 100% during the two months ended
August 31, 2007 and for the two months ended August 31, 2006.  Net
revenues from other businesses accounted for 21% of our total net revenues for
the two months ended August 31, 2007 compared to 20% for the two months ended
August 31, 2006.




The increase of
$331,223 or 80% in net revenues for the two months ended August 31, 2007
compared to the same period in 2006 was due primarily to our increased
educational services business development and expansion in China and our
marketing strategy in our design and advertising business. The increased
educational services business was mainly due to our marketing strategy and
establishment of new institutes. We are planning a more aggressive strategy in
marketing our programs and institutes and further expansion of our school
network in China and other countries. The increased design and advertising
business was primarily a result of increased businesses from real estate
marketing projects and bank promotional campaigns.


5


Expenses




Total
Expenses.   Our total expenses were $1,195,934 for the two
months ended August 31, 2007 compared to $692,080 for the two months ended
August 31, 2006. The increase of $503,854 or 73% in total expenses for the two
months ended August 31, 2007 compared to the same period in 2006 was mainly due
to an increase in our day to day operating costs corresponding to increased
business activities.




The ratio of total
expenses to total revenues was 93% for the two months ended August 31, 2007
compared to 92% for the two months ended August 31, 2006. The increase of 1% in
the ratio of expenses to revenues between these two periods was the result of
our expansion of our educational services business in China and thus increased
expenses.




Total expenses for
CIBT accounted for 59% of our total expenses for the two months ended August 31,
2007 compared to 42% for the two months ended August 31, 2006. Total expenses
for IRIX accounted for 10% of our total expenses for the two months ended August
31, 2007 compared to 16% for the two months ended August 31, 2006. Our corporate
and other operations are in Canada. Total expenses for our corporate operations
by CIBT Education Group accounted for 31% of our total expenses for the two
months ended August 31, 2007 compared to 42% for the two months ended August 31,
2006.




Amortization.   Our
amortization expenses were $45,831 for the two months ended August 31, 2007
compared to $36,402 for the two months ended August 31, 2006, which accounted
for 4% and 5% of our total expenses respectively for the two months ended August
31, 2007 and for the two months ended August 31, 2006. The increase in
amortization expenses for the two months ended August 31, 2007 was $9,429 or
26%, because of an increase in purchase of assets to be amortized. Our
amortization consisted of amortization of our computers, software, furniture and
leasehold improvements.




Amortization
expenses for CIBT accounted for 89% of our total amortization expenses for the
two months ended August 31, 2007 compared to 82% for the two months ended August
31, 2006. Amortization expenses for IRIX accounted for 10% of our total
amortization expenses for the two months ended August 31, 2007 compared to 17%
for the two months ended August 31, 2006. Amortization expenses for CIBT
Education Group accounted for 1% of our total amortization expenses for the two
months ended August 31, 2007 and for the two months ended August 31,
2006.




Stock-based
compensation.   Stock-based compensation was $187,178 for
the two months ended August 31, 2007 compared to $27,123 for the two months
ended August 31, 2006. The increase in stock-based compensation for the two
months ended August 31, 2007 compared to the same period in 2006 was $160,055,
mainly due to an increase in the amount of stock-based payments in the form of
options to our management and fewer consultants hired during 2007. Stock-based
compensation represents the estimated fair value of stock options granted to our
directors, employees and consultants and has no negative cash impact on us. CIBT
and IRIX did not incur any stock-based compensation. All stock-based
compensation costs were incurred by CIBT Education Group.




6


General
and Administrative Expenses.   Our total general and
administrative expenses were $806,872 for the two months ended August 31, 2007
compared to $628,555 for the two months ended August 31, 2006, which accounted
for 67% of our total expenses for the two months ended August 31, 2007 and for
91% of our total expenses for the two months ended August 31, 2006. The increase
in total general and administrative expenses for the two months ended August 31,
2007 compared to the same period in 2006 was $178,317 or 28%, mostly because of
increases in our day to day operating costs and marketing and promotion
activities.




Total general and
administrative expenses for CIBT accounted for 63% and 42% of our total general
and administrative expenses, respectively for the two months ended August 31,
2007 and for the two months ended August 31, 2006. Total general and
administrative expenses for IRIX accounted for 15% and 16% of our total general
and administrative expenses, respectively for the two months ended August 31,
2007 and for the two months ended August 31, 2006. Total general and
administrative expenses for CIBT Education Group accounted for 23% and 42% of
our total general and administrative expenses, respectively for the two months
ended August 31, 2007 and for the two months ended August 31, 2006.




The following is a
discussion of certain major expense categories in our general and administrative
expenses:




Professional
Fees.   Our professional fees consisted primarily of legal
and auditing fees. Professional fees for the current period were $14,391
compared to $107,591 for the same period in 2006, which accounted for 1% of our
total expenses for the two months ended August 31, 2007 and for 16% of our total
expenses for the two months ended August 31, 2006. During the two months ended
August 31, 2007 our professional fees significantly decreased by $93,200,
because we extensively engaged professionals, in particular lawyers and
accountants, for our business expansion activities for the two months ended
August 31, 2006.




Consulting
and Management Fees.   Our consulting and management fees
accounted for 7% and 18% of our total expenses respectively for the two months
ended August 31, 2007 and for the two months ended August 31, 2006. Our
consulting and management fees decreased $41,044 to $83,725 for the two months
ended August 31, 2007 from $124,769 for the same period in 2006. The decrease in
consulting and management fees was mostly due to our use of fewer external
consultants during the two months ended August 31, 2007.




Advertising
Costs.   Our advertising consisted mainly of print
advertising and radio advertising in China for CIBT’s courses and programs.
Advertising costs for the two months ended August 31, 2007 amounted to $177,182
compared to $58,587 for the two months ended August 31, 2006. The increase of
$118,595 in advertising was mainly due to increased marketing activities for
CIBT’s programs and courses. Our advertising costs accounted for 15% of our
total expenses for the two months ended August 31, 2007 and for 8% of our total
expenses for the two months ended August 31, 2006.




7


Travel
Costs.   Our travel costs were $41,595 for the two months
ended August 31, 2007 and $41,059 for the two months ended August 31, 2006,
which accounted for 3% and 6% of our total expenses for those
periods.




Investor
Relations Expenses.Our
investor relations costs of $30,673 were incurred during the two months ended
August 31, 2007 compared to $14,528 for the same period in 2006, which accounted
for 3% and 2% of our total expenses respectively for the two months ended August
31, 2007 and for the two months ended August 31, 2006. Our expenses from
investor relations consisted mainly of staff salaries, production of literature
and other marketing materials for us and our subsidiaries, news release
dissemination services, and email dissemination services. Costs increased by
$16,145 as a result of increased corporate communication activities as we
generated more investor awareness during the two months ended August 31,
2007.




Salaries
and Benefits.   Our salaries and benefits amounted to
$269,208 for the two months ended August 31, 2007 compared to $205,286 for the
two months ended August 31, 2006, which accounted for 23% and 30% of our total
expenses respectively for the two months ended August 31, 2007 and for the two
months ended August 31, 2006. The increase of $63,922 in personnel costs was
mainly due to a need to hire more employees in our CIBT operations to support
the growth of our educational services business in China and increased staff in
IRIX to provide specialized technical skill support.




Other
Administrative Expenses.   Our other administrative
expenses were $190,098 for the two months ended August 31, 2007 and $71,735 for
the two months ended August 31, 2006, which accounted for 16% and 10% of our
total expenses for those periods. The increase of $118,363 in other
administrative expenses was mainly a result of CIBT entering into two lease
agreements during 2007 for premises in China and an increase in our day to day
administrative costs corresponding to increased business activities in our
education sector, especially for our Beijing operations. Our other
administrative expenses consist of office rent, office maintenance,
communication expenses (cellular, internet, fax and telephone), office supplies,
courier and postage costs, and bank charges and interest.




Gain
from Sale of Marketable Securities




Besides revenues
generated from our operations, we realized gains from the sale of our marketable
securities. During the two months ended August 31, 2007, we incurred investment
losses of $39,596 on share transactions involving shares in NextMart Inc., which
trade under the symbol of “NXMR”, in the public equity markets compared to gains
of $820,431 for the two months ended August 31, 2006. The NXMR shares were
trading at relatively lower market prices during the two months ended August 31,
2007, and as such we chose to remain relatively inactive with our shareholdings
and wait for higher market price levels before realizing further gains on our
portfolio of NXMR shares.




8


Net
Income




We
incurred net loss of $442,386 for the two months ended August 31, 2007, which
was primarily comprised of $313,557 in non-cash expenses. We generated net
income of $665,257 for the two months ended August 31, 2006, mainly due to a
gain from sale of marketable securities and gain on CIBT’s share issuances and
purchases. Due to lower market prices for the NXMR shares during the two months
ended August 31, 2007, we chose to remain relatively inactive with our holdings
of NXMR shares, which affected our overall net loss position by not realizing
significant gains from selling the NXMR shares. For the two months ended August
31, 2007, we incurred losses of $39,596 on the sale of the NXMR marketable
securities compared to realized gains of $820,431 on marketable securities for
the two months ended August 31, 2006.




Our net loss per
share was $0.01 for the two months ended August 31, 2007 and our net income per
share was $0.02 for the two months ended August 31, 2006.




CIBT incurred net
loss of $270,439 for the two months ended August 31, 2007 compared to net loss
of $70,202 for the two months ended August 31, 2006. Included in the
determination of net loss of $270,439 for the period ended August 31, 2007 were
$80,548 in finance fee amortization (non-cash expense) and $75,505 in loan
interest expenses, both of which relate to the $5 million debenture and warrant
financing that was completed in April 2007. IRIX realized net income of $26,977
for the two months ended August 31, 2007 compared to a net loss of $33,426 for
the two months ended August 31, 2006.




Investments




At
August 31, 2007, we held marketable securities of 5,907,824 common shares
representing 7% of NextMart Inc. (previously Sun New Media Inc., and formerly
our subsidiary SEG).  Accordingly, the investment in NextMart Inc.
subsequent to September 18, 2005 has been reported as marketable securities at
the lower of cost and fair value. The quoted market value of these shares at
August 31, 2007 was $1,772,347. For the period ended August 31, 2007, we
recorded realized trading losses of $24,459, realized holding losses in
connection with shares held for trading of $15,137 and unrealized losses in
connection with shares available for sale of $174,535.




On
July 21, 2005 we sold our subsidiary SEG to Sun Media Investments Holding Ltd.
(“SMIH”) under a reverse merger agreement, pursuant to which we became a
minority shareholder of SEG. SEG changed its name to NextMart Inc. on May
8, 2007.








9


Segmented
information




Industry
      and geographic segments
            In
      thousands of dollarsCIBT
              (China)
            IRIX
              (Canada)
            Corporate
      and other
              (Canada)
            Consolidated2007
              (1)
            2006
              (2)
            2007
              (1)
            2006
              (2)
            2007
              (1)
            2006
              (2)
            2007
              (1)
            2006
              (2)Total
      revenues
            779
            515
            360
            149
            153
            84
            1,292
            748Gain from
      sale of marketable securities
            -
            -
            -
            -
            (40)
            820
            (40)
            820Net
      Revenues
            438
            252
            151
            75
            113
            905
            703
            1,232Total
      Expenses
            702
            291
            125
            109
            370
            293
            1,196
            692Net income
      (loss)
            (270)
            (70)
            27
            (33)
            (199)
            769
            (442)
            665Total
      assets
            12,971
            4,367
            447
            286
            9,032
            3,613
            22,450
            8,266Capital
      expenditures
            90
            133
            -
            -
            -
            -
            90
            133




(1) For the two
months ended August 31, 2007


(2) For the two
months ended August 31, 2006


10


Critical
Accounting Policies




Our financial
statements are impacted by the accounting policies used and the estimates and
assumptions made by management during their preparation. A complete summary of
these policies is included in Note 2 of the notes to our annual consolidated
financial statements. We have identified below the accounting policies that are
of particular importance in the presentation of our financial position, results
of operations and cash flows and which require the application of significant
judgment by management.




Revenue
recognition




We
recognize revenue when persuasive evidence of an arrangement exists, the risks
and rewards of ownership pass to the purchaser, the selling price is fixed and
determinable, and collectability is reasonably assured. IRIX recognizes revenue
for service provided on a completed job basis. CIBT recognizes tuition fee
revenue, net of discounts, on a straight line-basis over the period of
instruction. Fees paid in advance of course offerings, net of related discounts
and direct costs incurred, are recorded as deferred revenue and recognized in
revenue as described above. CIBT has entered into numerous educational service
agreements with various educational service providers whereby a portion of the
tuition fees, net of discounts, are paid to these educational service providers
for the provision of facilities and/or teaching staff. For the majority of these
revenue sharing arrangements CIBT is considered the primary obligor and
accordingly records the tuition fee revenues on a gross basis and the portion
paid to the educational service providers is included in direct educational
costs. We also recognize revenues from our management advisory service
agreements on a straight-line basis over the service period.




Stock-based
compensation




We
grant stock options to certain directors, employees and consultants to acquire
shares in our common stock in accordance with the terms of our stock option
plan. We have adopted the recommendations of the CICA Handbook, Section 3870,
“Stock-based
compensation and other stock-based payments”, whereby we expense the
estimated fair value of all stock-based compensation awards made or altered on
or after January 1, 2003 over the lesser of the vesting period and the requisite
service period. The standard requires that all new or altered stock-based awards
provided to employees and non-employees are measured and recognized using a fair
value based method. Fair values have been determined using the Black-Scholes
option pricing model.




11


Foreign
currency translation




Our functional
currency is Canadian dollars and our reporting currency is US
dollars.  CIBT and its subsidiaries in China maintain their accounting
records in Chinese RMB.  Previously, we determined that all of our
subsidiaries operating in foreign denominated currencies were integrated foreign
operations. Effective January 1, 2006, we determined that two of CIBT’s
subsidiaries, a 100% interest in CIBT-BJUT School of Business and a 60% interest
in CIBT Beihai International College, are no longer integrated foreign
operations, and have been reclassified as self-sustaining operations. This
determination was made based on an analysis of the operations of two
subsidiaries and their ability to carry on operations without management
services and funding from the parent company. The following factors influenced
our determination of self-sustaining operations for the two CIBT subsidiaries:
(i) the tuition fees are determined by local competition and local government
regulations in China, and are not influenced by changes in exchange rates; (ii)
CIBT’s education market is localized in China; (iii) CIBT’s labour force and
related costs are localized and paid in local currencies; (iv) the day-to-day
activities of the two CIBT subsidiaries are financed from its own operations;
and (v) there is little interrelationship between the day-to-day activities of
the two CIBT subsidiaries and the parent company.  The result of this
change in determination and corresponding change in translation methodology has
been applied prospectively commencing January 1, 2006.




Our integrated
foreign operations are translated using the temporal method. Under this method,
foreign denominated monetary assets and liabilities are translated into their
Canadian dollar equivalents using foreign exchange rates that prevailed at the
balance sheet date; non-monetary items are translated at historical exchange
rates, except for items carried at market value, which are translated at the
rate of exchange in effect at the balance sheet date; revenues and expenses are
translated at average rates of exchange during the period; and exchange gains or
losses arising on foreign currency translation are included in the determination
of operating results for the period.




Our self-sustaining
foreign operations are translated using the current rate
method.  Under this method, foreign denominated assets and liabilities
are translated into their Canadian dollar equivalents using foreign exchange
rates that prevailed at the balance sheet date; revenues and expense items are
translated at the rates which approximate those in effect on the date of the
transactions; and the resulting gains and losses from translation are
accumulated in other comprehensive income (loss). An appropriate portion of the
exchange gains and losses accumulated in other comprehensive income (loss) will
be included in the determination of operating results for the period when there
is a reduction in the net investment in the self sustaining
operation.




We
use the current rate method to translate all amounts presented from Canadian to
United States dollars. Under the current rate method, all assets and liabilities
are translated from Canadian dollar functional currency to United States dollars
using exchange rates in effect at the end of the reporting period; revenue,
expenses and cash flows are translated at the average rate during the reporting
period; and any associated gains and losses are recorded as other comprehensive
income (loss)  All comparative figures presented have been translated
using the same method.








12


Marketable
securities




Marketable
securities consist of common shares of NextMart Inc. The common shares are
traded in the public equity markets, and are held by us on an available-for-sale
basis for the period up to and including June 30, 2007. From July 1, 2007, these
common shares were classified on a held-for-trading basis upon adoption of CICA
handbook Section 3855. The common shares held by us represent 7% of NextMart
Inc., which does not represent a position of significant influence. The
investment in NextMart for the period from to September 18, 2005 to June 30,
2007 has been recorded as marketable securities at the lower of cost and market
value with realized gains and losses being included in the determination of net
income (loss) for the period. To June 30, 2007, the market value of the NextMart
shares owned by us has exceeded their carrying value and accordingly no
impairment provisions have been recorded.




Effective July 1,
2007, we adopted the provisions of Handbook Section 3855 whereby our accounting
for our investment in NextMart has changed as described below.




Section 3855 sets
out criteria for the recognition and measurement of financial instruments for
fiscal years beginning on or after October 1, 2006, which for us, is the fiscal
period commencing July 1, 2007.  This standard requires that all
financial instruments within its scope, including derivatives, be included on
the balance sheet and measured either at fair value or, in certain circumstances
when fair value may not be considered most relevant, at cost or amortized
cost.  Changes in fair value are to be recognized in either the
statements of operations or the statement of comprehensive
income.  All financial assets and liabilities are recognized when we
become a party to the contract creating the item.  As such, any of our
outstanding financial assets and liabilities at the effective date of adoption
are recognized and measured in accordance with the new requirements as if these
requirements had always been in effect.  Any changes to the fair
values of assets and liabilities prior to July 1, 2007 would be recognized by
adjusting opening accumulated other comprehensive income.  All
financial instruments are classified into one of the following five categories:
held-for-trading, held to maturity, loans and receivables, available-for-sale
financial assets, or other financial liabilities.  Initial and
subsequent measurement and recognition of changes in the value of financial
instruments, which is dependent on their initial classification, is summarized
as follows:




•
Held-to-maturity investments, loans and receivables, and other financial
liabilities are initially measured at fair value and subsequently measured at
amortized cost.  All premiums or discounts and transaction costs are
amortized into operations using the effective interest method.


•
Available-for-sale financial assets are measured at fair value, with unrealized
holding gains and losses recorded in other comprehensive income until the asset
is realized, at which time realized gains and losses will be recorded in
operations.


•
Held-for-trading financial instruments are measured at fair
value.  All realized and unrealized gains and losses resulting from
changes in their fair value are included in operations in the period in which
they arise.




All derivative
financial instruments are classified as held-for-trading financial instruments
and are measured at fair value, even when they are part of a hedging
relationship.  All gains and losses resulting from changes in their
fair value are included in operations in the period in which they
arise.




Except as
described below, the adoption of this new standard did not have a significant
effect on our consolidated financial statements as of July 1,
2007.


13








Effective July 1,
2007, we adopted the provisions of CICA handbook Section 3855 whereby we began
recording our investment in NextMart at market value.  On adoption of
Section 3855, we classified our investment in NextMart as available for sale,
whereby realized gains and losses are included in the determination of net
income (loss) for the period and unrealized holding gains and losses are charged
to other comprehensive income (loss) and included in the determination of
comprehensive income (loss) for the period.  We recorded an unrealized
holding gain into other comprehensive income of $397,179 resulting from the
adoption of Section 3855 effective July 1, 2008.




During the period,
we also acquired a further 240,000 shares in NextMart of which 150,000 were also
resold during the period.  These shares bought and sold during the
period have been classified as held for trading whereby realized gains and
losses and unrealized holding gains and losses are included in the determination
of net income (loss) for the period.




For the period
ended August 31, 2007, we recorded realized trading losses of $24,459, realized
holding losses in connection with shares held for trading of $15,137 and
unrealized losses in connection with shares available for sale of
$174,535.




The Components of
our investment in NextMart and the market price of the NextMart shares are as
follows:




August
      31, 2007Number
      of Shares
            Carrying
      ValueTrading
      securities
            90,000
            $  27,000Available-for-sale
      securities
            5,817,824
            $  1,745,3475,907,824
            $  1,772,347Market price
      at August 31, 2007
            
            $0.30 per
      share






Deferred
finance fees




CIBT, our
subsidiary, capitalizes direct fees incurred in connection with proposed private
debt and equity financings.  Finance fees are offset against the
proceeds of the financing and amortized using the effective interest
method.  Previously capitalized amounts are charged to operations if
the financing is not completed.








14


Intangible
assets




Intangible assets
with definite lives, consisting of programs, student enrolments and facilities
acquired in connection with CIBT Beihai International College, are carried at
cost less accumulated amortization in accordance with the requirements of the
Canadian Institute of Chartered Accountants (“CICA”) Handbook, Section 3064,
“Goodwill
and other intangible assets”. These intangible assets are amortized on a
straight-line basis over their estimated useful life which was initially a
period of 7 years and was increased to 15 years on a prospective basis effective
January 1, 2005 in accordance with the amended terms of the Weifang
agreement.




In
accordance with the CICA Handbook, section 3063, “Impairment
of long-lived assets”, effective January 1, 2004, recoverable value is
determined by management based on estimates of undiscounted future net cash
flows expected to be recovered from specific assets or groups of assets through
use or future disposition. Impairment charges, when indicated, are charged to
operations in the reporting period in which determination of impairment is made
by management. The impairment charge is calculated by the excess of the carrying
value over its fair value, with fair value being determined using a discounted
cash flow analysis.




By
an agreement dated August 11, 2004, CIBT acquired a 60% interest in CIBT Beihai
International College from Weifang University in consideration for a funding
commitment to CIBT Beihai International College of $714,286. In consideration
for retaining a 40% interest in CIBT Beihai International College, Weifang
University transferred definite life intangible assets consisting of its
existing programs and student enrolments to the newly named CIBT Beihai
International Management School and also agreed to provide exclusive use of the
CIBT Beihai International College facilities at no cost for a period of 7 years
(subsequently amended to 15 years). As a result of this business combination, we
recorded definite life intangible assets subject to amortization on a
straight-line basis over 7 years (15 years commencing in 2006).




Our management
evaluates the recoverability of these definite life intangible assets on an
ongoing basis. Recoverable value is determined based on estimates of
undiscounted future net cash flows expected to be recovered from specific assets
or groups of assets through use or future disposition. If management determines
that there is an impairment in value to the definite life intangible assets then
an impairment charge will be charged to operations in the period that the
determination is made. To date, management estimates that the full value of the
definite life intangible assets is fully recoverable, and that there is no
impairment in value. The estimate of recoverable value is however, highly
subjective, and actual future cash flows could differ significantly from those
estimated. Accordingly, future estimates as to recoverability could differ
significantly giving rise to impairments of these intangible assets. Such an
impairment provision would be limited to the extent of the carrying value of the
intangible assets, being $347,611 as at August 31, 2007.




15


Goodwill




Goodwill is the
residual amount that results when the purchase price of an acquired business
exceeds the sum of the amounts allocated to the identifiable assets acquired,
less liabilities assumed, based on their fair values. Goodwill is allocated as
of the date of the business combination to the Company’s reporting units that
are expected to benefit from the synergies of the business combination. When the
net of the amounts assigned to identifiable net assets exceeds the cost of the
purchase (“negative goodwill”), the excess is eliminated, to the extent
possible, by a pro-rata allocation to certain non-current assets, with the
balance presented as extraordinary gain. Goodwill is not amortized and is tested
for impairment annually or more frequently if events or changes in circumstances
indicate that the asset might be impaired. Impairment is assessed through a
comparison of the carrying amount of the reporting unit with its fair value.
When the fair value of a reporting unit is less than its carrying amount,
goodwill of the reporting unit is considered to be impaired. Any impairment of
goodwill is expensed in the period of impairment. As at August 31, 2007 we
recorded goodwill in the amount of $4,143,787.




Impact
of Foreign Currency Fluctuations




We
conduct business in Canada, the US, 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 our operations that arises from fluctuations in
foreign exchange rates and the degree of volatility of these
rates.  Currently, we do not use derivative instruments or other
measures to reduce our exposure to foreign currency risk. In addition, we are
exposed to Chinese currency fluctuations and restrictions on Chinese currency
exchange, which may affect our ability to repatriate profits from
China.




Our integrated
foreign operations are translated using the temporal method. Under this method,
foreign denominated monetary assets and liabilities are translated into their
Canadian dollar equivalents using foreign exchange rates that prevailed at the
balance sheet date; non-monetary items are translated at historical exchange
rates, except for items carried at market value, which are translated at the
rate of exchange in effect at the balance sheet date; revenues and expenses are
translated at average rates of exchange during the period; and exchange gains or
losses arising on foreign currency translation are included in the determination
of operating results for the period.




Our self-sustaining
foreign operations are translated using the current rate
method.  Under this method, foreign denominated assets and liabilities
are translated into their Canadian dollar equivalents using foreign exchange
rates that prevailed at the balance sheet date; revenues and expense items are
translated at the rates which approximate those in effect on the date of the
transactions; and the resulting gains and losses from translation are
accumulated in other comprehensive income (loss). An appropriate portion of the
exchange gains and losses accumulated in other comprehensive income (loss) will
be included in the determination of operating results for the period when there
is a reduction in the net investment in the self sustaining
operation.




Included in the
operating results for the period are exchange gains and losses arising on
foreign currency translation of integrated operations as follows:




Foreign
      exchange gains (losses)
            Two
      Months Ended
            Two
      Months Ended
            Year
      Ended
            Six
      Months Ended
            Year
      EndedAugust
      31, 2007
            August
      31, 2006
            June
      30, 2007
            June
      30, 2006
            December
      31, 2005$(9,360)
            $24,686
            $(303,999)
            $(51,563)
            $47,999




We
have included in accumulated other comprehensive income (loss) the cumulative
effect of foreign currency translation of self-sustaining operations and
translation from functional currency to reporting currency as
follows:




Unrealized
      foreign exchange gains (losses)
            August
      31, 2007
            August
      31, 2006
            June
      30, 2007
            June
      30, 2006
            December
      31, 2005$581,616
            $(177,683)
            $525,172
            $(180,570)
            $(162,730)




Uncertainties
of Government Regulatory Requirements, Political or Monetary
Policies




Our business in
general is subject to extensive regulations in China and uncertainties with
respect to the Chinese legal system and economic and political policies.
Currently we are not aware of any contingent liabilities which involve us or any
of our properties or subsidiaries.




China, however, has
not developed a fully integrated legal system and recently-enacted laws and
regulations may not sufficiently cover all aspects of economic activities in
China. China’s system of laws and the enforcement of existing laws may not be as
certain in implementation and interpretation as the US The Chinese judiciary is
relatively inexperienced in enforcing corporate and commercial law, leading to a
higher than usual degree of uncertainty as to the outcome of any litigation. If
new laws and regulations governing the educational services business in China
restrict foreign investment in the education system, we may not obtain or renew
our governmental approvals in the future, which may cause us to cease our
educational services business in China. You may lose your entire
investment.




16


A
judgment of a US court predicated solely upon civil liabilities may not be
enforceable in China by a Chinese court. China does not have treaties with the
US providing for the reciprocal recognition and enforcement of judgments of
courts. You may not be able to enforce foreign judgments based on the US laws
against us or our assets. It may be difficult for you to bring an action against
us or our assets, even if you believe that your rights have been infringed under
US securities law.




The Chinese
government imposes controls on the conversion of RMB to foreign currencies and
the remittance of currencies out of China. Shortages in the availability of
foreign currency may restrict the ability of our Chinese subsidiaries to remit
sufficient foreign currency to make payments to us or satisfy their foreign
currency denominated obligations. The foreign exchange control system may
prevent us from obtaining sufficient foreign currency to pay dividends or
satisfy our development demands.




B.
Liquidity and Capital Resources




Working
capital




As
of August 31, 2007, our total current assets were $16,266,163, which was
comprised of $13,152,744 in cash or cash equivalents, $551,219 in accounts
receivable, $1,772,347 in marketable securities, and $789,853 in prepaid
expenses and other current assets. Our total current liabilities were $4,074,280
as of August 31, 2007. Our accumulated deficit was $14,958,658 as at August 31,
2007. We expect to generate net profits from our operations over the next
year.




We
had a working capital surplus of $12,191,883 with cash and cash equivalents of
$13,152,744 as at August 31, 2007, compared to a working capital surplus of
$11,561,270 with cash and cash equivalents of $11,734,512 as at June 30, 2007.
The increase of working capital was mainly due to the sale of our equity
securities for cash for the two months ended August 31, 2007.




Cash
flow for the two months ended August 31, 2007 compared to the two months ended
August 31, 2007




We
received net cash of approximately $446,000 per month from operating activities
for the two months ended August 31, 2007 compared to approximately $332,000 per
month from operating activities for the two months ended August 31, 2006. We
used net cash of approximately $81,000 per month in investing activities for the
two months ended August 31, 2007, while we received net cash of approximately
$312,000 per month from investing activities for the two months ended August 31,
2006. We received net cash of approximately $339,000 per month from financing
activities for the two months ended August 31, 2007 compared to approximately
$104,000 per month from financing activities for the two months ended August 31,
2006.




Net cash increased
by $1,418,232 during the two months ended August 31, 2007, resulting in a
consolidated cash balance of $13,152,744 as at August 31, 2007.


17


Debt




As
at August 31, 2007, the carrying value of the long-term debt, in the form of a
debenture, was $3,033,078. Also, we had a capital lease obligation of $61,617.
On December 10, 2007, we paid off the debenture along with all accrued interest
of $280,096.




Debenture




On
April 25, 2007, we entered into a securities purchase agreement with Shane
Corporation S.à.r.l., a private limited liability company under the laws of the
Grand-Duchy of Luxembourg, whereby Shane loaned $5 million to us and CIBT, our
subsidiary, issued a debenture and warrants to Shane. The debenture of $5
million will be due on April 24, 2010 or become due within six months of CIBT
completing a minimum public offering of $25 million. We may, at our option,
extend the maturity date to April 24, 2011 upon 30 days’ prior written notice
subject to certain terms. The interest rate is 8% per annum, but following the
occurrence of a default event and during the continuance of the default event we
have to pay an interest rate of 20% per annum subject to certain terms or we
have to pay an interest rate of 15% upon CIBT failing to attain certain earnings
thresholds as defined in the agreement. We agreed to pay interest of
approximately $110,000 every three months.




We
paid a commission of warrants and cash totaling $500,000 to BMO Capital Market
Corp. to purchase up to 268,083 common shares of CIBT. The warrants carry the
same terms and conditions as the financing warrants described
below.




In
consideration of Shane’s investment in the debenture, we issued Shane warrants
to purchase up to 5,361,667 common shares of CIBT at an exercise price of
approximately $0.93 per share. The warrants will expire at the earliest date of:
(a) April 24, 2012; (b) the sale, conveyance or disposal of all or substantially
all of our property or business or our merger with or into or consolidation with
any other corporation (other than our wholly-owned subsidiary) or any other
transactions in which more than fifty percent of our voting power is disposed
of; or (c) six months following the closing of an initial public offering of
CIBT’s common shares pursuant to an effective registration statement or similar
document under the Securities Act. In addition, commencing upon CIBT’s
completion of an initial public offering, the warrants can be
exercised on a cashless basis.




In
accordance with the securities purchase agreement, Shane has the right to
designate two members of our Board of Directors. Also, we are required to
register the shares of common stock which are issuable upon the exercise of
warrants held by Shane upon the earlier of: (a) five years from the date of the
closing of the securities purchase agreement; or (b) six months after the
closing of an initial public offering of our common shares registered under the
Securities Act.




Effective December
10, 2007, Shane exercised their 5,361,667 share purchase warrants resulting in
proceeds payable to CIBT of $5,000,000. CIBT and Shane agreed that the amounts
owing to Shane would be forgiven as consideration for the exercise of the
warrants. Also, CIBT paid all interest owing to Shane totalling
$280,096.




18




Liquidity
requirements and sources






The following
summarizes our financial condition and liquidity at the dates
indicated:




Two
      Months Ended
            Year
      Ended
            Six
      Months Ended
            Year
      EndedAugust
      31, 2007
            June
      30, 2007
            June
      30, 2006
            December
      31, 2005Current
      Ratio
            4.0
            5.4
            2.0
            1.4Working
      Capital
            $12,191,883
            $11,561,270
            $2,326,998
            $1,187,478Cash and Cash
      Equivalent
            $13,152,744
            $11,734,512
            $2,744,630
            $2,420,505




Currently we are in
good short-term financial standing. If current trends continue, we anticipate
our liquidity will continue to improve on a short-term and a long-term basis. We
anticipate that we will continue to operate profitably and that we will generate
a net profit over the next year, which will fund our operating costs for the
year.




In
our opinion, we have sufficient working capital on hand and available to fund
our present capital requirements, including planned capital and educational
services business expansion.




Internal
sources of liquidity




Historically we
financed our operations primarily with cash flows generated from our operations,
sales of our equity securities and sales of our marketable securities. We
anticipate that our estimated direct and administrative operating expenses of
approximately $30,738,000 for the next twelve months (beginning September 1,
2007) will be funded by expected cash from operating activities. We anticipate
we can generate revenues of approximately $9,107,000 and $31,217,000
respectively over the next 6 months and 12 months beginning September 1, 2007.
Additional internal sources of funds include cash reserves on hand and funds
generated from the sale of marketable securities. However, our actual results of
operations may differ materially from our estimates.




Our estimated
operational expenses for the next six and twelve months (beginning September 1,
2007) are summarized as follows:




Description
            Estimated
      Expenses for 6 months
              ($)
            Estimated
      Expenses for 12 months
              ($)Direct
      costs
            3,691,571
            12,825,257Premises
      lease obligations
            485,000
            1,875,417Salaries and
      benefits
            1,866,667
            6,591,169Professional
      fees (legal, accounting and auditing fees)
            200,000
            400,000Consulting
      and management fees
            300,000
            600,000Marketing and
      promotion expenses
            785,714
            2,897,463Depreciation
            270,071
            802,185Other
      administrative expenses
            1,685,596
            4,418,454Interests
            178,309
            328,309Total
      operational expenses
            9,462,928
            30,738,254Net
      estimated operating excess
            (355,786)
            478,454




External
sources of liquidity




We
plan to set up new schools and CIBT centers, develop new programs and expand our
existing campuses over the next 6 and 12 months (beginning September 2007). We
have established a foothold in three of China’s largest cities, Beijing,
Guangzhou and Tianjin. Our next step is to continue our expansion targeting
other smaller cities with populations ranging from 1 to 10 million
people. Our national expansion plan is to own a network of 50 CIBT centers
in China by 2010.




We
estimate we will need financing of approximately $15,200,000 for our proposed
expansion plan as follows:




Description
            Estimated
      Amount for 6 months
              ($)
            Estimated
      Amount for 12 months
              ($)New CIBT
      Centers
              (15 proposed
      new centers at an estimated cost of $106,000 per center, allocated as
      follows:
              ·Teleconferencing
      system  $22,000
              ·classroom
      renovation $34,000
              ·marketing
      and setup costs $50,000)
            742,000
            1,590,000Acquisition
      and Development of a Canadian college (1)
            7,430,000
            11,780,000Acquisition
      and Development of Tourism Training Institute (2)
            0
            230,000Other
      expansions
            0
            1,600,000Total
            8,172,000
            15,200,000




(1) On December 17,
2007 we acquired 100% ownership of Sprott-Shaw Community College, an educational
institution in Canada. As consideration we have paid an initial amount to the
vendors of $7,428,954 with a further $1,000,000 being held in escrow, which will
be released 12 months after December 17, 2007, subject to certain conditions. In
addition, we agreed to pay a total of $2,159,000 of further consideration which
will be paid upon the achievement of certain milestones.




19


The existing
management of Sprott-Shaw Community College has been retained to manage day to
day operations and conduct the college’s expansion in other parts of Canada and
Asia, in cooperation with our CIBT schools in China. The curriculum of
Sprott-Shaw Community College is focused on adult education and training in the
areas of healthcare, tourism, hospitality, business, administrative and
international studies.  The college trains over 4,500 students
annually. Each of its locations, including 17 campuses in Western Canada,
features small class sizes and qualified instructors.  In addition,
Sprott-Shaw Community College has locations in Vietnam, the Philippines, Jordan
and China.




(2) On April 30,
2008, we acquired certain business assets of Tourism Training Institute, an
accredited education institution headquartered in Vancouver, Canada, with branch
offices in Beijing, China. Tourism Training Institute is an established educator
and has been in operation for 19 years in Canada and for 4 years in China. We
acquired selective assets, including approvals and licenses, but no liabilities
of Tourism Training Institute. We will integrate Tourism Training Institute’s
Canadian operations with the Canadian operations of Sprott-Shaw Community
College, and Tourism Training Institute’s operations in China with the
operations of CIBT in China.




The estimated costs
of $15,200,000 to fund our proposed expansion plan over the next will be fully
funded by our cash and cash equivalents of $13,152,744 on hand and the equity
financings we recently completed.




On
November 27 2007, we completed a brokered and a non-brokered private placement
with Canaccord Capital Corporation for gross proceeds of approximately
$5,288,707. We issued 2,743,447 common shares at a purchase price of
approximately $1.93 per share, together with share purchase warrants for the
purchase of 1,371,724 common shares for a period of two years at an exercise
price of approximately $2.28 per share. We paid Canaccord Capital Corporation a
cash commission of approximately $213,068 and a broker’s warrant to purchase
236,842 common shares at approximately $1.93 in the first year and approximately
$2.28 in the second year. Therefore, we believe that we have sufficient
financing to meet our anticipated cash requirements relating to our expansion
plan over the next 12 months.




On
January 7, 2008, we completed a private placement of 1,265,042 units at
approximately $1.90 per unit for total proceeds of approximately $2,403,580.
Each unit consists of one common share and one share purchase warrant entitling
the holder to purchase an additional half share of our common stock at a price
of approximately $2.25 per share for a period of two years from the date of
issuance. We paid approximately $19,950 in fees and commissions, and 22,500
agent’s warrants. Each agent’s warrant entitles the agent to purchase one share
of our common stock at a price of approximately $1.90 per share in the first
year and at a price of approximately $2.25 per share in the second
year.




In
April 2008, we issued 1,277,273 common shares on the exercise of share purchase
warrants at approximately $0.58 per share and 25,000 common shares on the
exercise of stock options at approximately $0.50 per share for total proceeds of
approximately $753,318.




However, we may require additional
financing if, for example, we underestimate our expenses to expand our
educational services business in China or other countries. Should that be the
case, we plan to raise additional funds from external sources by way of private
placements or loans, as the need arises. At this time there is no assurance that
we will be able to obtain the necessary additional financing on reasonable
terms.




20




C.
Research and development, Patents and Licenses, etc.




We
have not implemented any research and development policies over the last three
years, nor did we spend any amounts on research and development
activities.




D.
Trend Information




Acquisition of
Campuses or Schools




We
intend to enter into acquisitions, joint ventures and other strategic
transactions, through CIBT Education Group or our subsidiary CIBT as a vehicle,
to build new campuses or schools, to expand our educational services business in
China or other countries and to increase our competitiveness. On December 17,
2007, we acquired 100% ownership of Sprott-Shaw Community College, an
educational institution in Canada. We acquired both the primary assets and
liabilities used in the operation of the Sprott-Shaw Community
College.




There are a number
of risks which stem from our expansion strategy. Acquisitions, especially
involving sizeable enterprises, may present financial, managerial and
operational challenges, including diversion of management attention from
existing business and difficulties in integrating operations and personnel. Even
though the acquisition of Sprott-Shaw Community College was completed
successfully, we may not be able to achieve the operating benefits we
anticipated from the acquisition.




Acquisitions or
other strategic alliances also pose the risk that we may be exposed to successor
liability relating to prior actions involving a predecessor company, or
contingent liabilities incurred before a strategic transaction. Due diligence
conducted in connection with an acquisition, and any contractual guarantees or
indemnities that we receive from sellers of acquired companies, may not be
sufficient to protect us from, or compensate us for, actual liabilities.
Liabilities associated with an acquisition or a strategic transaction could
adversely affect our business and financial performance and reduce the benefits
of the acquisition or strategic transaction. Any failure to integrate new
businesses or manage any new alliances successfully could adversely affect our
reputation and financial performance.




E.
Off-balance Sheet Arrangements




We
have no significant off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that are material to our
stockholders.






21


F. Tabular Disclosure of Contractual
Obligations




As
at August 31, 2007, we had the following contractual obligations and commercial
commitments:






Contractual
      Obligations
            Payments
      Due by PeriodTotal
            Less Than One
      Year
            1-3
      Years
            4-5
      Years
            After 5
      YearsShort-Term
      Debt Obligations
            $45,058
            $45,058
            -
            -
            -Long-Term
      Debt Obligations
            $3,033,078
            -
            $3,033,078
            -
            -Capital Lease
      Obligations
            $79,536
            $17,919
            $61,617
            -
            -Operating
      Lease Obligations
            $545,738
            $194,563
            $306,106
            $45,069
            -TOTAL
            $3,703,410
            $257,540
            $3,400,801
            $45,069
            -




As
of August 31, 2007, the outstanding principal relating to our short term debt
and capital lease obligations was approximately $62,977 in
aggregate.




Our lease
obligations are as follows:




Leased
      Property
            Size(square
      feet)
            Duration
            Annual
      RentPrincipal
      Corporate Office (Vancouver, Canada)
            3,526
            From
      September 2005 to October 2009
            Approximately
      $70,520Executive Training Center
      (Beijing, China)
            1,470
            From May 2005
      to May 2010
            Approximately
      $47,000CIBT Wyotech
      Automotive Institute (Weifang, China)
            43,000
            From July
      2005 to July 2011
            Approximately
      $49,000






We
anticipate that we will be able to meet our contractual obligations over the
next 12 months from operating cash flow and recently raised capital. In the
event that our operating cash flow is insufficient to meet our contractual
obligations, we will be required to raise additional financing to cover the
shortfall through the issue of debt or equity. There is no assurance such
additional financing will be available or accessible on reasonable
terms.




ITEM 8. Financial Information
  A.
     Consolidated Statements and Other Financial
Information
  Attached hereto, in
Item 17 “Financial Statements”, are our unaudited consolidated financial
statements that cover the transition period from July 1, 2007 to August 31, 2007
together with related notes. See Item 17 Financial Statements.
  Legal
Proceedings
  Our management is
not aware of any legal proceedings contemplated by any governmental authority or
any other party against us. None of our directors, officers or affiliates have
(i) commenced legal proceedings against us, or (ii) have an adverse interest to
us in any legal proceedings. Management is not aware of any other legal
proceedings that have been threatened against us.


22






PART
II




ITEM 13. Defaults, Dividend Arrearages and
Delinquencies




None.




ITEM 14. Material Modifications to the Rights of Security Holders and
Use of Proceeds




A.
     Modification of Instruments Defining Rights of
Security Holders




None.




B.
     Modification or Issuance of Other Class of
Securities




None.




C.
     Withdrawal
or Substitution of Securities




None.




D.
     Change of Trustee or Paying Agent




None.




E.
     Use of Proceeds




Not
Applicable.




23


PART
III




ITEM 17. Financial Statements




We
are furnishing the following consolidated financial statements and
notes:




CIBT
Education Group Inc. August 31, 2007 Consolidated Financial
Statements




Unaudited
      consolidated balance sheets as of August 31, 2007 and June 30,
      2007
            F-1Unaudited consolidated
      statements of income (loss) and comprehensive income (loss) for the two
      months ended August 31, 2007 and for the two months ended August 31,
      2006
            F-2Unaudited
      consolidated statement of Deficit and consolidated statement of
      accumulated other comprehensive income (loss)for
      the two months ended August 31, 2007 and for the two months ended August
      31, 2006
            F-3Unaudited consolidated
      statements of cash flows for the two months ended August 31, 2007 and for
      the two months ended August 31, 2006
            F-4Notes to
      consolidated financial statements
            F-5




Our unaudited
financial statements herein, unless otherwise stated, have been prepared in
accordance with Canadian GAAP.  We included an explanation of material
differences in Note 15 of our unaudited financial statements. An explanation of
all material differences between Canadian GAAP and US GAAP for the year ended
June 30, 2007 was included in Note 19 of the notes to our
audited consolidated financial statements for the fiscal year ended June 30,
2007 on our Form 20-F filed on January 8, 2008.






On
July 1, 2006 we changed our reporting currency from Canadian dollars to US
dollars but have retained Canadian dollars as our functional currency. All of
our financial statements are stated in US Dollars.




ITEM 18.  Financial Statements




Not
Applicable








24





















CIBT
EDUCATION GROUP INC.


(Previously
Capital Alliance Group Inc.)






INTERIM CONSOLIDATED FINANCIAL STATEMENTS






AUGUST
31, 2007






UNAUDITED










These unaudited
interim consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in Canada (“Canadian GAAP”), and
reconciled to generally accepted accounting principles in the United States of
America (“US GAAP”), and pursuant to the rules and regulations of the United
States Securities and Exchange Commission (“SEC”) for the presentation of
interim financial information.  Accordingly, certain information and
note disclosures normally included in annual financial statements prepared in
accordance with Canadian GAAP and reconciled to US GAAP have been omitted
pursuant to such rules and regulations of the SEC.  These unaudited
interim consolidated financial statements do not include all disclosures
required for annual financial statements and should be read in conjunction with
the Company’s audited consolidated financial statements and notes thereto for
the year ended June 30, 2007 included in the Company’s Annual Report filed with
the SEC.






25


CIBT
EDUCATION GROUP INC.


(Previously
Capital Alliance Group Inc.)


CONSOLIDATED
BALANCE SHEETS


UNAUDITED








August
      31, 2007
            June
      30, 2007ASSETSCURRENTCash and cash
      equivalents
            $ 13,152,744
            $ 11,734,512Accounts
      receivable
            551,219
            651,300Marketable securities (Note
      4)
            1,772,347
            1,522,703Prepaid expenses and other
      current assets
            789,853
            268,74116,266,163
            14,177,256DUE
      FROM RELATED PARTIES(Note 8)
            346,875
            -PROPERTYAND
      EQUIPMENT
            1,116,227
            1,069,182INTANGIBLE
      ASSETS(Note 3(a))
            347,611
            349,659GOODWILL(Note 3(a))
            4,143,787
            4,150,046DEFERRED
      COSTS AND OTHER ASSETS
            229,545
            163,554$
      22,450,208
            $
      19,909,697LIABILITIESCURRENTAccounts payable and accrued
      liabilities
            $
      1,870,497
            $
      11,503,364Income taxes
      payable
            284,897
            230,043Deferred educational
      revenue
            1,685,888
            423,248Unearned consulting fees (Note
      4)
            123,903
            276,923Lease
      obligation
            17,919
            17,946Long-term debt – current
      portion (Note 5)
            45,058
            80,375Due to related parties (Note
      8)
            46,118
            84,0874,074,280
            2,615,986CAPITAL LEASE
      OBLIGATION
            61,617
            64,677LONG-TERM DEBT (Note
      5)
            3,033,078
            2,952,530NON-CONTROLLING
      INTERESTS(Note 3(a))
            998,137
            617,372SHAREHOLDERS’
      EQUITYSHARE
      CAPITAL(Note 6)
            26,861,878
            26,851,807CONTRIBUTED
      SURPLUS(Note 7)
            2,658,264
            2,180,249TREASURY
      SHARES HELD(Note 6)
            (1,082,648)
            (1,381,824)ACCUMULATED
      OTHER COMPREHENSIVE INCOME
            804,260
            525,172DEFICIT
            (14,958,658)
            (14,516,272)14,283,096
            13,659,132$
      22,450,208
            $
      19,909,697






The accompanying
notes are an integral part of these consolidated financial
statements


F-1


CIBT
EDUCATION GROUP INC.


(Previously
Capital Alliance Group Inc.)


CONSOLIDATED
STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)


UNAUDITED




Two
      Months EndedAugust
      31, 2007
            Two
      Months Ended August
      31, 2006Amounts
      in US$
            Amounts
      in US$REVENUESEducational
            $ 778,951
            $ 515,277Design and
      advertising
            359,706
            148,905Consulting
            153,383
            84,1341,292,040
            748,316DIRECT
      COSTSEducational
            340,456
            262,780Design and
      advertising
            208,502
            73,677548,958
            336,457NET
      REVENUES
            743,082
            411,859GAIN
      (LOSS) ON MARKETABLE SECURITIES (Note 4)
            (39,596)
            820,431TOTAL
      NET REVENUES
            703,486
            1,232,290EXPENSESGeneral and administrative
      (Note 12)
            806,872
            628,555Amortization
            45,831
            36,402Stock-based
      compensation
            187,178
            27,123Interest on long-term
      debt
            75,505
            -Finance fees –
      amortization
            80,548
            -1,195,934
            692,080INCOME
      (LOSS) BEFORE THE FOLLOWING ITEMS:
            (492,448)
            540,210OTHER
      INCOME
            57,345
            12,022GAIN
      ON SUBSIDIARY SHARE ISSUANCES AND PURCHASES
            -
            151,569NON-CONTROLLING
      INTERESTS
            47,883
            (4,559)INCOME
      (LOSS) BEFORE INCOME TAX PROVISION
            (337,220)
            699,242INCOME
      TAX PROVISION
            (55,166)
            (33,985)NET
      INCOME (LOSS)
            $ (442,386)
            $
      665,257BASIC
      AND DILUTED EARNINGS (LOSS) PER SHARE
            $ (0.01)
            $0.02COMPREHENSIVE
      INCOME (LOSS)Net income
      (loss)
            $ (442,386)
            $ 665,257Unrealized translation
      adjustments
            56,444
            2,887Decrease in fair value of
      marketable securities
            (174,535)
            -Comprehensive income
      (loss)
            $ (560,477)
            $
      668,144WEIGHTED
      AVERAGE SHARES OUTSTANDINGBasic
            46,398,046
            35,053,517Diluted
            46,398,046
            36,757,255






The accompanying
notes are an integral part of these consolidated financial
statements






F-2






CIBT
EDUCATION GROUP INC.


(Previously
Capital Alliance Group Inc.)


CONSOLIDATED
STATEMENTS OF DEFICIT


CONSOLIDATED
STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)


UNAUDITED




Two
      Months EndedAugust
      31, 2007
            Two
      Months EndedAugust
      31, 2006Amounts
      in US$
            Amounts
      in US$DEFICIT,
      BEGINNING OF PERIOD
            $
      (14,516,272)
            $ (14,712,432)NET
      INCOME (LOSS)
            (442,386)
            665,257DEFICIT,
      END OF PERIOD
            $
      (14,958,658)
            $
      (14,047,175)ACCUMULATED
      OTHER COMPREHENSIVE INCOME (LOSS)Balance, beginning of
      period
            $
      525,172
            $
      (180,570)Cumulative adjustment from
      adoption of CICA Handbook Section 3855 (Note 4)
            397,179
            -Adjusted balance, beginning of
      period
            922,351
            (180,570)Unrealized translation
      adjustments
            56,444
            2,887Decrease in fair value of
      marketable securities
            (174,535)
            -Balance, end of
      period
            $ 804,260
            $
      (177,683)Ending
      balance of accumulated other comprehensive income (loss) comprised
      of:Unrealized translation
      adjustments
            $ 581,616
            $
      (177,683)Unrealized gain on marketable
      securities
            222,644
            -Balance, end of
      period
            $ 804,260
            $
      (177,683)










The accompanying
notes are an integral part of these consolidated financial
statements




F-3




CIBT
EDUCATION GROUP INC.


(Previously
Capital Alliance Group Inc.)


CONSOLIDATED
STATEMENTS OF CASH FLOWS


UNAUDITED










Two
      Months EndedAugust
      31, 2007
            Two
      Months EndedAugust
      31, 2006Amounts
      in US$
            Amounts
      in US$CASH
      FLOWS FROM (USED IN) OPERATING ACTIVITIESNet income
      (loss)
            (442,386)
            665,257Adjusted for items not
      involving cash:- marketable
      securities
            39,596
            (820,431)- amortization of deferred
      consulting revenue
            (153,383)
            (84,134)- amortization of property,
      equipment and intangible assets
            45,831
            36,402- accrued and unearned
      interest
            (35,317)
            (1,477)- stock-based
      compensation
            187,178
            27,123- amortization of finance
      fees
            80,549
            -- unrealized foreign exchange
      gain (loss)
            4,828
            3,081- amortization of deferred
      curriculum costs
            14,375
            5,767- gain on subsidiary share
      issuances and purchases
            -
            (151,569)- non-controlling
      interests
            (47,883)
            4,559(306,612)
            (315,422)Net changes in non-cash
      working capital items (Note 13)
            1,198,653
            980,226NET
      CASH FROM OPERATING ACTIVITIES
            892,041
            664,804CASH
      FLOWS FROM (USED IN) INVESTING ACTIVITIESPurchases of property and
      equipment
            (89,510
            (133,123)Net cash from (used in)
      marketable securities transactions
            (66,596
            779,997Deferred development
      costs
            (5,023)
            (22,974)NET
      CASH FROM (USED IN) INVESTING ACTIVITIES
            (161,129)
            623,900CASH
      FLOWS FROM (USED IN) FINANCING ACTIVITIESProceeds from issuance of
      shares
            10,071
            9,289Proceeds from shares issued to
      non-controlling interests in AIMI
            423,630
            -Treasury share transactions
      (Note 6)
            634,675
            205,362Net advances (to) from related
      parties
            (386,685)
            10,286Lease obligation
      repayments
            (2,978)
            (3,414)Deferred finance
      fees
            -
            (14,366)NET
      CASH FROM FINANCING ACTIVITIES
            678,713
            207,157EFFECTS
      OF EXCHANGE RATE CHANGES ON CASH
            8,607
            12,047NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
            1,418,232
            1,507,908CASH
      AND CASH EQUIVALENTS, BEGINNING OF PERIOD
            11,734,512
            2,744,630CASH
      AND CASH EQUIVALENTS, END OF PERIOD
            13,152,744
            4,252,538SUPPLEMENTAL
      CASH FLOW INFORMATION:Interest
      paid
            110,821
            -Income
      taxes paid
            -
            -






The accompanying
notes are an integral part of these consolidated financial
statements




F-4


CIBT
EDUCATION GROUP INC.


(Previously
Capital Alliance Group Inc.)


NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS


AUGUST
31, 2007 AND 2006
 UNAUDITED
 (Amounts
in US Dollars)




NOTE
1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION (see Note 16 for additional
information)




CIBT Education
Group Inc. (the “Company”) is an educational, investment, and marketing
organization headquartered in Vancouver, B.C., Canada.  The Company’s
current business operations include education and media
communications.  The Company currently has two principal business
units, being CIBT School of Business & Technology Corp. (“CIBT”) and IRIX
Design Group Inc. (“IRIX”) (Note 3).  The Company’s education business
is conducted through CIBT and its subsidiaries in China.  CIBT’s
educational operations are based in China.  The Company operates its
media communications business through IRIX and its subsidiaries.  IRIX
is based in Canada with representatives in Hong Kong and the US.  On
November 14, 2007, the Company changed its name from Capital Alliance Group Inc.
to CIBT Education Group Inc.




During 2006, the
Company changed its fiscal year end from December 31st to June 30th to coincide
with the change in year end by the Company's major subsidiary, CIBT which
operates education businesses that have an academic year that primarily runs
from September to June.  CIBT decided to change its year end to June
30th to coincide with the business cycle of its Chinese school
operations.




Effective July 1,
2006, the Company changed its reporting currency from Canadian dollars to United
States dollars but has retained the Canadian dollars as its functional
currency.  Many of the Company’s transactions with investors,
creditors, and financial markets are denominated in United States dollars, and
it is anticipated that a significant portion of the Company’s future financial
transactions, including investments in the Company, will be denominated in
United States dollars.  All dollar amounts are expressed in United
States dollars unless otherwise stated.




The Company uses
the current rate method to translate all amounts presented to United States
dollars.  Under the current rate method, all assets and liabilities
are translated from Canadian dollar functional currency to United States dollars
using exchange rates in effect at the end of the reporting period; revenue,
expenses and cash flows are translated at the average rate during the reporting
period; and any associated gains and losses are recorded as accumulated other
comprehensive income.  All comparative figures presented have been
translated using the same method.




These unaudited
interim consolidated financial statements have been prepared on the basis
consistent with the Company’s annual audited consolidated financial statements
as at June 30, 2007, with the exception of adopting new standards as disclosed
in Note 2, and on a going concern basis, which presumes that the Company will be
able to realize its assets and discharge its liabilities in the normal course of
business for the foreseeable future.




NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES




Basis
of preparation


These financial
statements are expressed in United States dollars and have been prepared in
accordance with accounting principles generally accepted in Canada.




Comparative
figures




Certain of the
comparative figures have been reclassified to conform to the current period’s
presentation.




Use of
estimates




The preparation of
financial statements in conformity with Canadian generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period.  Significant areas
requiring the use of management estimates relate to the determination of
impairment of property and equipment and intangible assets, useful lives for
amortization of assets and liabilities including deferred costs and revenues,
determination of fair value for stock-based transactions, and accounting for
business combinations.  Financial results as determined by actual
events could differ from those estimates.


F-5
 
 CIBT
EDUCATION GROUP INC.
 (Previously
Capital Alliance Group Inc.)
 NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 AUGUST
31, 2007 AND 2006
 UNAUDITED
 (Amounts
in US Dollars)


NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES (cont’d)




Principles
of consolidation




The consolidated
financial statements include the financial statements of the Company, all its
majority-owned subsidiaries and the variable interest entities in which the
Company is deemed to be the primary beneficiary.In
addition, the results of the Company include the proportionate share of the
assets, liabilities, revenues and expenses of International Education Enrollment
Center, a joint venture based in An Yang, China and owned 51% by CIBT School of
Business (see Note 3).  All significant intercompany transactions and
balances have been eliminated on consolidation.




Foreign currency
translation




Previously, the
Company determined that all of its subsidiaries operating in foreign denominated
currencies were integrated foreign operations.  Effective January 1,
2006 the Company determined that two of CIBT’s subsidiaries, a 100% interest in
CIBT School of Business and a 60% interest in CIBT Beihai International
Management School, are no longer integrated foreign operations, and have been
reclassified as self-sustaining operations.  This determination was
made based on an analysis of the operations of the two subsidiaries and their
ability to carry on operations without management services and funding from the
parent company.  The following factors influenced the Company’s
determination of self-sustaining operations for the two CIBT subsidiaries: (i)
the tuition fees are determined by local competition and local government
regulations in China, and are not influenced by changes in exchange rates, (ii)
CIBT’s education market is localized in China, (iii) CIBT’s labour force and
related costs are localized and paid in local currencies, (iv) the day-to-day
activities of the two CIBT subsidiaries are financed from its own operations,
and (v) there is little interrelationship between the day-to-day activities of
the two CIBT subsidiaries and the parent company.  The result of this
change in determination and corresponding change in translation methodology have
been applied prospectively commencing January 1, 2006.




The CIBT
subsidiaries in China maintain their accounting records in their functional
currency, Chinese RMB.  The functional currency of the parent company
and other entities in Canada is Canadian dollars and the Company’s reporting
currency is United States dollars.  The Company’s integrated foreign
operations are translated using the temporal method.  Under this
method, foreign denominated monetary assets and liabilities are translated into
their Canadian dollar equivalents using foreign exchange rates that prevailed at
the balance sheet date; non-monetary items are translated at historical exchange
rates, except for items carried at market value, which are translated at the
rate of exchange on effect at the balance sheet date; revenues and expenses are
translated at average rates of exchange during the period; and exchange gains or
losses arising on foreign currency translation are included in the determination
of operating results for the period.  The Company’s self-sustaining
foreign operations are translated using the current rate
method.  Under this method, foreign denominated assets and liabilities
are translated into their Canadian dollar equivalents using foreign exchange
rates that prevailed at the balance sheet date; revenues and expense items are
translated at the rates which approximate those in effect on the date of the
transactions; and the resulting gains and losses from translation are
accumulated in other comprehensive income (loss).  An appropriate
portion of the exchange gains and losses accumulated in other comprehensive
income (loss) will be included in the determination of operating results for the
period when there is a reduction in the net investment in the self sustaining
operation.




Under CICA Handbook
Section 1651 – Foreign Currency Translation, the Company uses the current rate
method to translate all amounts presented to United States
dollars.  Under the current rate method, all assets and liabilities
are translated from Canadian dollar functional currency to United States dollars
using exchange rates in effect at the end of the reporting period; revenue,
expenses and cash flows are translated at the average rate during the reporting
period; and any associated gains and losses are recorded as other comprehensive
income (loss).  All comparative figures presented have been translated
using the same method.




Cash
equivalents


The Company
considers only those investments that are highly liquid, readily convertible to
cash with original maturities of three months or less at date of purchase as
cash equivalents.




F-6
 
 CIBT
EDUCATION GROUP INC.
 (Previously
Capital Alliance Group Inc.)
 NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 AUGUST
31, 2007 AND 2006
 UNAUDITED
 (Amounts
in US Dollars)


NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES (cont’d)




Marketable
securities




Marketable
securities consist of common shares of NextMart Inc. (previously Sun New Media
Inc.) (“NextMart”), whose common shares are traded in the public equity
markets.  For all periods presented, the Company’s interest in
NextMart does not represent a position of control or significant influence. To
June 30, 2007, the investment in NextMart was accounted for at the lower of cost
and market value.  To June 30, 2007, the market value of the NextMart
shares owned by the Company has exceeded their carrying value and accordingly no
impairment provisions have been recorded.  Effective July 1, 2007, the
Company adopted the provisions of Handbook Section 3855 whereby the Company’s
accounting for its investment in NextMart has changed as described in more
detail in Changes in Accounting Policies (b) and Note 4 below.




Property
and equipment


Property and
equipment are recorded at cost.  Amortization is provided over the
estimated useful lives of assets as follows: Leasehold improvements -
straight-line over the lesser of 5 years and remaining lease term; Furniture and
equipment - 20% declining balance; Computer equipment - 20% declining balance;
Computer software - straight-line over 2 years.  The carrying value of
property and equipment is reviewed for impairment whenever changes in events or
circumstances indicate the recoverable value may be less than the carrying
amount.  Determination of whether impairment of property and equipment
has occurred is based on undiscounted future net cash flows expected to be
recovered from specific assets or groups of assets through use or future
disposition.  Impairment charges, when indicated, are charged to
operations in the reporting period in which determination of impairment is made
by management.  The impairment charge is calculated by the excess of
the carrying value over its fair value, with fair value being determined using a
discounted cash flow analysis.




Curriculum
development costs


CIBT capitalizes
direct costs incurred in developing programs and curriculums for new
courses.  These costs are amortized to direct educational cost on a
straight-line basis over the expected life of the course upon commencement of
the new courses.  Costs relating to the ongoing development and
maintenance of existing courses are expensed as incurred.




Deferred
finance fees


CIBT capitalizes
direct fees incurred in connection with proposed private debt and equity
financings.  Finance fees are offset against the proceeds of the
financing and amortized using the effective interest
method.  Previously capitalized amounts are charged to operations if
the financing is not completed.




Intangible
assets


Intangible assets
with definite lives, consisting of programs, student enrolments and facilities
acquired in connection with Beihai College (refer to Note 3(a)), are carried at
cost less accumulated amortization in accordance with the requirements of the
Canadian Institute of Chartered Accountants (“CICA”) Handbook, Section 3062,
“Goodwill
and other intangible assets”.  These intangible assets are
amortized on a straight-line basis over their estimated useful life which was
initially a period of 7 years and was increased to 15 years on a prospective
basis effective January 1, 2005 in accordance with the amended terms of the
Weifang Agreement (Note 3 (a)).  In accordance with the CICA Handbook,
section 3063, “Impairment
of long-lived assets”, effective January 1, 2004, recoverable value is
determined by management based on estimates of undiscounted future net cash
flows expected to be recovered from specific assets or groups of assets through
use or future disposition.  Impairment charges, when indicated, are
charged to operations in the reporting period in which determination of
impairment is made by management.  The impairment charge is calculated
by the excess of the carrying value over its fair value, with fair value being
determined using a discounted cash flow analysis.




Goodwill


Goodwill is the
residual amount that results when the purchase price of an acquired business
exceeds the sum of the amounts allocated to the identifiable assets acquired,
less liabilities assumed, based on their fair values.  Goodwill is
allocated as of the date of the business combination to the Company’s reporting
units that are expected to benefit from the synergies of the business
combination.  When the net of the amounts assigned to identifiable net
assets exceeds the cost of the purchase (“negative goodwill”), the excess is
eliminated, to the extent possible, by a pro-rata allocation to certain
non-current assets, with the balance presented as extraordinary
gain.  Goodwill is not amortized and is tested for impairment annually
or more frequently if events or changes in circumstances indicate that the asset
might be impaired.  Impairment is assessed through a comparison of the
carrying amount of the reporting unit with its fair value.  When the
fair value of a reporting unit is less than its carrying amount, goodwill of the
reporting unit is considered to be impaired.  Any impairment of
goodwill is expensed in the period of impairment.


F-7
 
 CIBT
EDUCATION GROUP INC.
 (Previously
Capital Alliance Group Inc.)
 NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 AUGUST
31, 2007 AND 2006
 UNAUDITED
 (Amounts
in US Dollars)


NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES (cont’d)




Revenue
recognition




The Company
recognizes revenue when persuasive evidence of an arrangement exists, the risks
and rewards of ownership pass to the purchaser, the selling price is fixed and
determinable, and collectibility is reasonably assured.  Irix
recognizes revenue for service provided on a completed contract
basis.  Under the completed contract method, contract revenues billed
and contract expenses incurred are deferred until the contract is substantially
completed, delivery to the customer occurs and there is reasonable assurance of
collection.  If losses are expected on contracts before substantial
completion, full provision is made for such losses.  CIBT recognizes
tuition fee revenue, net of discounts, on a straight line-basis over the period
of instruction.  Tuition fees paid in advance of course offerings, net
of related discounts and direct costs incurred, are recorded as deferred revenue
and recognized in revenue when earned.  CIBT has entered into numerous
educational delivery agreements with various educational service providers
whereby a portion of the tuition fees, net of discounts, are paid to these
educational service providers for the provision of facilities and/or teaching
staff.  For the majority of these revenue sharing arrangements CIBT is
considered the primary obligor and accordingly records the tuition fee revenues
on a gross basis and the portion paid to the educational service providers is
included in direct educational costs.  The Company recognizes revenues
from its management advisory services agreements on a straight-line basis over
the service period.




Stock-based
compensation


The Company grants
stock options to certain directors, employees and consultants to acquire shares
in the common stock of the Company in accordance with the terms of the Company’s
stock option plan.  The Company has adopted the recommendations of the
CICA Handbook, Section 3870, “Stock-based
compensation and other stock-based payments”, whereby it expenses the
estimated fair value of all stock-based compensation awards issued or modified
on or after January 1, 2003 over the requisite service period.  Fair
values have been determined using the Black-Scholes option pricing
model.




Income
taxes


The Company follows
the liability method of tax allocation.  Under this method, future tax
assets and liabilities are determined based on differences between the financial
reporting and tax basis of assets and liabilities, and measured using the
substantially enacted tax rates and laws in effect when the differences are
expected to reverse.  In the case of unused tax losses, income tax
reductions, and certain items that have a tax basis but cannot be identified
with an asset or liability on the balance sheet, the recognition of future
income tax assets is determined by reference to the likely realization of future
income tax reductions.  The Company has not recognized potential
future benefit amounts as the criteria for recognition have not been
met.




Earnings
(loss) per share


The Company follows
the treasury stock method for determining earnings (loss) per
share.  This method assumes that proceeds received from in-the-money
stock options and share purchase warrants are used to repurchase common shares
at the average prevailing market rate during the reporting
period.  Basic earnings (loss) per share figures have been calculated
using the weighted monthly average number of shares outstanding during the
respective periods.




Changes
in accounting policies


Effective July 1,
2007, the Company adopted five new Canadian Institute of Chartered Accountants
(“CICA”) accounting standards: (a) Handbook Section 1530, “Comprehensive
Income”; (b) Handbook Section 3855, “Financial
Instruments – Recognition and Measurement”; (c) Handbook Section 3861,
“Financial
Instruments – Disclosure and
Presentation”; (d) Handbook Section 3865, “Hedges”;
and (e) Handbook Section 1506, “Accounting
Changes”.  The main requirements of these new standards and the
resulting financial statement impact are described below.  Consistent
with the requirements of the new accounting standards, the Company has not
restated any prior period amounts as a result of adopting the accounting
changes, except for presentation of unrealized foreign currency translation
adjustments arising from self-sustaining foreign operations and translation of
the functional currency to the reporting currency which are presented as part of
other comprehensive income (loss) retroactively.  The effect of the
adoption of these standards is summarized below.














F-8
 
 CIBT
EDUCATION GROUP INC.
 (Previously
Capital Alliance Group Inc.)
 NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 AUGUST
31, 2007 AND 2006
 UNAUDITED
 (Amounts
in US Dollars)


NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES (cont’d)




Changes
in accounting policies (cont’d)


(a)
Comprehensive Income, Section 1530


This standard
requires the presentation of a statement of comprehensive income and its
components.  Comprehensive income includes both net earnings and other
comprehensive income.  Other comprehensive income includes holding
gains and losses on available-for-sale investments, gains and losses on certain
derivative financial instruments and foreign currency gains and losses relating
to translation of self-sustaining foreign operations and translation from
functional currency to reporting currency, all of which are not included in the
calculation of net earnings until realized.  As a result of adopting
this standard, effective July 1, 2007 the Company (i) recorded an increase in
accumulated other comprehensive income and marketable securities of $397,179
representing the excess of the fair value of the marketable securities over the
carrying value, and (ii) reclassified to accumulated other comprehensive income
amounts previously reported as cumulative translation
adjustments.  Information pertaining to comprehensive income items is
presented in the Company’s Statement of Comprehensive Income
(Loss).




(b)
Financial Instruments – Recognition and Measurement, Section 3855


This standard sets
out criteria for the recognition and measurement of financial instruments for
fiscal years beginning on or after October 1, 2006, which for the Company, is
the fiscal period commencing July 1, 2007.  This standard requires all
financial instruments within its scope, including derivatives, to be included on
the balance sheet and measured either at fair value or, in certain circumstances
when fair value may not be considered most relevant, at cost or amortized
cost.  Changes in fair value are to be recognized in either the
statements of operations or the statement of comprehensive
income.  All financial assets and liabilities are recognized when the
Company becomes a party to the contract creating the item.  As such,
any of the Company’s outstanding financial assets and liabilities at the
effective date of adoption are recognized and measured in accordance with the
new requirements as if these requirements had always been in
effect.  Any changes to the fair values of assets and liabilities
prior to July 1, 2007 would be recognized by adjusting opening accumulated other
comprehensive income and/or retained earnings.  All financial
instruments are classified into one of the following five categories:
held-for-trading, held to maturity, loans and receivables, available-for-sale
financial assets, or other financial liabilities.  Initial and
subsequent measurement and recognition of changes in the value of financial
instruments, which is dependent on their initial classification, is summarized
as follows:


•
              Held-to-maturity
      investments, loans and receivables, and other financial liabilities are
      initially measured at fair value and subsequently measured at amortized
      cost.  All premiums or discounts are amortized into operations
      using the effective interest method.•
              Available-for-sale
      financial assets are measured at fair value, with unrealized holding gains
      and losses recorded in other comprehensive income until the asset is
      realized, at which time realized gains and losses will be recorded in
      operations.•
              Held-for-trading
      financial instruments are measured at fair value.  All realized
      and unrealized gains and losses resulting from changes in their fair value
      are included in operations in the period in which they
      arise.





The Company
accounts for transaction costs directly attributable to the acquisition or issue
of a financial asset or financial liability as follows:




•
            For financial assets or
      liabilities classified as held for trading, all transaction costs are
      immediately charge to operations.


•
            For all other
      financial assets or liabilities, all transactions costs are added to the
      carrying amount on initial classification. Subsequently, as per the
      carrying value of the related financial asset or liability, amounts are
      subject to either effective interest amortization or fair market value
      adjustments.




All derivative
financial instruments are classified as held-for-trading financial instruments
and are measured at fair value, even when they are part of a hedging
relationship.  All gains and losses resulting from changes in their
fair value are included in operations in the period in which they
arise.  Except as described in Note 4, the adoption of this new
standard did not have a significant effect on the consolidated financial
statements of the Company as of July 1, 2007.  Refer to Note 9 for
further information on the classification and measurement of the Company’s
financial assets and financial liabilities.




F-9
 
 CIBT
EDUCATION GROUP INC.
 (Previously
Capital Alliance Group Inc.)
 NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 AUGUST
31, 2007 AND 2006
 UNAUDITED
 (Amounts
in US Dollars)


NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES (cont’d)




Changes
in accounting policies (cont’d)


(c)
Financial Instruments – Disclosure and Presentation, Section 3861


This standard sets
out standards which address the presentation of financial instruments and
non-financial derivatives, and identifies the related information that should be
disclosed.  These standards also revise the requirements for entities
to provide accounting policy disclosures, including disclosure of the criteria
for designating as held-for-trading those financial assets or liabilities that
are not required to be classified as held-for-trading; whether categories of
normal purchases and sales of financial assets are accounted for at trade date
or settlement date; the accounting policy for transaction costs on financial
assets and financial liabilities classified as other than held-for-trading; and
provides several new requirements for disclosure about fair
value.  Refer to Note 9 for expanded disclosure resulting from the
adoption of Section 3861.




(d)
Hedging, Section 3865


This standard
specifies the circumstances under which hedge accounting is permissible and how
hedge accounting may be performed.  The Company currently does not
hold any financial instruments designated for hedge accounting.




(e)
Accounting Changes, Section 1506


Effective July 1,
2007, the Company adopted revised CICA Handbook Section 1506 “Accounting
Changes”, which requires that: (a) a voluntary change in accounting principles
can be made if, and only if, the changes result in more reliable and relevant
information, (b) changes in accounting policies are accompanied with disclosures
of prior period amounts and justification for the change, and (c) for changes in
estimates, the nature and amount of the change should be disclosed. There has
been no impact resulting from the adoption of this standard as the Comapny has
not made any voluntary changes in accounting principles since the adoption of
the revised standard.




Future
accounting standards


(a)
Recent Accounting Pronouncements – Canadian GAAP


In December 2006,
the CICA issued Section 1535, “Capital Disclosures”, which establishes standards
for disclosing information, both qualitative and quantitative, to enable users
of financial statements to evaluate an entity’s objectives, policies and
processes for management of capital.  This new standard is applicable
for the Company’s first interim and annual fiscal periods commencing on or after
October 1, 2007, being the period commencing September 1, 2008.  The
Company is currently evaluating the impact of adopting this standard on the
Company’s financial statement disclosures.  In December 2006, the CICA
issued Section 3862, “Financial Instruments – Disclosures” and Section 3863
“Financial Instruments - Presentation”.  The new disclosure
requirement of Section 3862 are to enable users to evaluate the significance of
financial instruments on financial position and performance, as well as the
nature and extent of risks the Company is exposed to from financial instruments
and how those risks are being managed.  Section 3863 carries forward,
unchanged, the presentation req2uirements of existing Section
3861.  These new standards are applicable for the Company’s first
interim and annual fiscal periods commencing on or after October 1, 2007, being
the period commencing September 1, 2008.  The Company is currently
evaluating the impact of adopting these standards on the Company’s financial
statement disclosures and presentation.  In February 2008, the CICA
issued Section 3064 “Goodwill and Intangible Assets” which replace CICA Section
3062 “Goodwill and Other Intangible Assets” and CICA Section 3450 “Research and
Development Costs”.  The new Section establishes standards on the
recognition, measurement, presentation and disclosure for goodwill and
intangible assets subsequent to their initial recognition.  This new
standard is applicable to fiscal years beginning on or after January 1,
2009.  The Company is in the process of evaluating the impact Section
3064 will have on the Company’s financial position and results of operations
upon adoption.




(b)
International Financial Reporting Standards (“IFRS”)


In 2006, the
Canadian Accounting Standards Board (“AcSB”) published a new strategic plan that
will significantly affect financial reporting requirements for Canadian
companies. The AcSB strategic plan outlines the convergence of Canadian
generally accepted accounting principles with IFRS over an expected five year
transitional period. In February 2008, the AcSB announced that 2011 is the
changeover date for publicly-listed companies to use IFRS, replacing Canada’s
own generally accepted accounting principles. The date is for interim and annual
financial statements relating to fiscal years beginning on or after January 1,
2011. The transition date of January 1, 2011 will require the restatement for
comparative purposes of amounts reported by the Company for the year ended
December 31, 2010. While the Company has begun assessing the adoption of IFRS
for 2011, the financial reporting impact of the transition to IFRS cannot be
reasonably estimated at this time.




F-10
 
 CIBT
EDUCATION GROUP INC.
 (Previously
Capital Alliance Group Inc.)
 NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 AUGUST
31, 2007 AND 2006
 UNAUDITED
 (Amounts
in US Dollars)


NOTE
3 – SUBSIDIARIES




a)    CIBT
School of Business & Technology Corp.




CIBT was
incorporated on February 9, 1994 and is in the business of developing and
operating academic, technical and career training schools in
China.  The results of CIBT include the accounts of CIBT and its
wholly-owned subsidiaries, CIBT School of Business, a company incorporated in
Beijing, China, CIBT (HK) Limited, a company incorporated in Hong Kong on
October 1, 1997, formed solely for the purpose of conducting the Company’s
financial transactions in China, and its 60% interest in Weifang University
Beihai College (“Beihai College”) as described below.  The results of
the Company also include the proportionate share of the assets, liabilities,
revenues and expenses of International Education Enrollment Center, a joint
venture based in An Yang, China and owned 51% by CIBT School of
Business.




During the fiscal
year ended 2007, the Company completed a restructuring of the ownership of CIBT
in accordance with the terms of the CIBT $5 million debenture and warrant
financing as described in Note 5.  The result was an increase in the
Company’s ownership in CIBT from 76.1% to 99.8% which was accomplished through
the following series of transactions:




(a)
            the
      settlement of advances from the Company to CIBT totalling $1,555,786 in
      exchange for 1,668,321 common shares of CIBT at approximately $0.93 per
      share;


(b)
            the
      acquisition of 1,548,678 common shares from treasury of CIBT at
      approximately $0.93 per share for total cash consideration of
      $1,444,214;


(c)
            the purchase
      of 3,813,935 previously issued common shares of CIBT from non-controlling
      shareholders of CIBT in exchange for the issuance of 4,853,113 common
      shares of the Company at a price of C$1.00 per
  share.




The increase of the
Company’s ownership in CIBT from 76.1% to 99.8% (an increase of 23.7%) has been
accounted for using the purchase method.  The proportionate fair value
of the assets acquired and liabilities assumed as a result of the Company’s
23.7% increase in the ownership of CIBT are as follows:




Proportionate
      Share AcquiredCash
      and cash equivalents
            $ 917,237Accounts
      receivable
            267,869Prepaids
      and other current assets
            205,419Property
      and equipment
            224,921Deferred
      costs and other
            80,579Intangible
      assets
            83,482Goodwill
            3,995,405Accounts
      payable
            (325,169)Deferred
      revenue
            (451,969)Due
      to related parties
            (428,679)Non-controlling
      interest
            (152,204)Net assets
      acquired equal to purchase price
            $ 4,416,891




Purchase
      price made up as follows:4,853,113
      shares issued at C$1.00 per share
            $ 4,410,678Non-controlling
      interest share of the Company equity contributions in (a) and (b)
      above
            6,213Total
      purchase price
            $ 4,416,891




The purchase price
allocation for this acquisition is preliminary and may be adjusted further as a
result of obtaining additional information regarding preliminary estimates of
fair values made at the date of purchase.




F-11
 
 CIBT
EDUCATION GROUP INC.
 (Previously
Capital Alliance Group Inc.)
 NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 AUGUST
31, 2007 AND 2006
 UNAUDITED
 (Amounts
in US Dollars)


NOTE
3 – SUBSIDIARIES (cont’d)




a)    CIBT
School of Business & Technology Corp. (cont’d)




Establishment
of Beihai College




By agreement dated
August 11, 2004 (the “Weifang Agreement”), CIBT established a business venture
and received a 60% interest in Beihai College from Weifang University
(“Weifang”) in consideration for a funding commitment to Beihai College of
$714,286 (5,000,000 RMB) of which $357,143 (2,500,000 RMB) was paid on closing
and the balance of $357,143 (2,500,000 RMB) was paid during
2005.  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 definite 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).  The Company has recorded
definite life intangibles assets subject to amortization on a straight-line
basis over seven years (15 years commencing in 2006).






Establishment
of International Education Enrollment Center




During the fiscal
year ended June 30, 2007, CIBT established a 51% joint venture interest in
International Education Enrollment Center, an English training center for
teachers based in An Yang, China.  As a result of this transaction,
the Company has recorded definite life intangibles assets subject to
amortization on a straight-line basis over five years.




b)    IRIX
Design Group Inc.




Effective October
31 2000, the Company completed the acquisition of 51% of IRIX, a private British
Columbia, Canada corporation engaged in full service multi-media and advertising
agency services in Canada, USA and Hong Kong.  The operations of IRIX
include the accounts of its wholly-owned subsidiaries, IRIX Design Group Inc., a
California corporation, and IRIX Design (Hong Kong) Company Limited, a Hong Kong
company.




c)    Asia
Interactive Media Inc.




On February 9,
2007, the Company loaned to Asia Interactive Media Inc. (“AIMI”), a US reporting
company, $150,000 in exchange for an 8% convertible promissory note due February
9, 2009.  The loan is to be used by AIMI for general and
administrative purposes.  At any time before February 9, 2009, the
Company has the right to convert all or a portion of the loan principal amount
of the promissory note into common shares of AIMI at a conversion price of $0.01
per share.  As at February 9, 2007, AIMI had 5,000,000 common shares
outstanding and the Company’s loan can be converted into 15,000,000 common
shares of AIMI, representing a then 75% interest.  During the period
from February 9, 2007 to August 31, 2007, AIMI received subscriptions of
$541,232 towards the issuance of a total of 1,381,815 common shares at prices
ranging from $0.22 per share to $0.50 per share (subsequently
issued).  These shares have diluted the Company’s potential ownership
interest in AIMI to 70%.  In addition, concurrent with the loan being
advanced, certain members of the Company’s management team and Board of
Directors became members of AIMI’s Board of Directors.




The Company has
identified AIMI as a variable interest entity (“VIE”) as AIMI does not have
sufficient equity at risk to finance its activities without subordinated
financial support.  The Company has determined that it is the primary
beneficiary of AIMI as the Company is exposed to a majority of the expected
losses from AIMI’s activities or is entitled to receive a majority of the AIMI’s
residual returns or both.  Accordingly, for all periods presented
subsequent to February 9, 2007, the Company’s financial position and results of
operations includes that of AIMI offset by a non-controlling interest
representing the actual 100% interest in the outstanding common shares of
AIMI.
















F-12
 
 CIBT
EDUCATION GROUP INC.
 (Previously
Capital Alliance Group Inc.)
 NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 AUGUST
31, 2007 AND 2006
 UNAUDITED
 (Amounts
in US Dollars)


NOTE
4 – MARKETABLE SECURITIES




By agreement dated
July 21, 2005, and closed effective September 18, 2005, SE Global Equities Corp.
(“SEG”) issued 50,000,000 post consolidation common shares on acquisition of
100% of the issued and outstanding common shares of Sun Media Investments
Holding Ltd., a private BVI company (“SMIH”).  In connection with this
transaction, SEG issued 5,000,000 common shares as a finder’s fee and in a
related transaction, the Company sold 500,000 pre consolidation (250,000 post
consolidation) shares of SEG for proceeds of $450,000.  Concurrent
with this transaction, SEG consolidated its outstanding shares on a 1 for 2
basis.  As a result of this series of transactions, the Company’s
ownership in SEG was reduced from 78.5% to approximately 11% resulting in an
effective disposal of the Company’s control position in
SEG.  Accordingly, the investment in SNMI for the period subsequent to
September 18, 2005 and prior to the adoption of Section 3855 on July 1, 2007,
has been reported as marketable securities at the lower of cost and market
value.  The Company’s carrying value of the assets and liabilities
disposed of as at September 18, 2005 was $47,980 resulting in a gain on sale of
discontinued operations of $402,341.  The results of operations and
cash flows of SEG for the period from January 1, 2005 to September 18, 2005 have
been reported on a discontinued operations basis.  In connection with
this transaction, the Company entered into a 24-month management advisory
services agreement with SEG.  As consideration, the Company received a
one-time payment of 250,000 post consolidation common shares of SEG with a fair
value of $962,500.




On November 15,
2006, the Company entered into a 12-month management advisory services agreement
with SMIH.  As consideration, the Company received a one-time payment
of 500,000 post consolidation common shares of SEG with a fair value of
$355,000.  To August 31, 2007, the Company has recognized $1,193,597
of consulting income in connection with the management advisory services
agreements leaving $123,903 of unearned consulting fees.




At August 31, 2007,
the marketable securities consist of 5,907,824 common shares representing 7% of
NextMart Inc. (previously Sun New Media Inc., and formerly SEG)
(“NextMart”).  The investment in NextMart for the period from to
September 18, 2005 to June 30, 2007 has been recorded as marketable securities
at the lower of cost and market value with realized gains and losses being
included in the determination of net income (loss) for the period.




Effective July 1,
2007, the Company adopted the provisions of CICA handbook Section 3855 whereby
the Company’s investment in NextMart will commence being recorded at market
value.  On adoption of Section 3855, the Company classified its
investment in NextMart as available for sale, whereby realized gains and losses
are included in the determination of net income (loss) for the period and
unrealized holding gains and losses are charged to other comprehensive income
(loss) and included in the determination of comprehensive income (loss) for the
period.  The the Company recorded a unrealized holding gain into other
comprehensive income of $397,179 resulting from the adoption of Section 3855
effective July 1, 2008.




During the period,
the Company also acquired a further 240,000 NextMart shares of which 150,000
were also resold during the period.  These shares bought and sold
during the period have been classified as held for trading whereby realized
gains and losses and unrealized holding gains and losses are included in the
determination of net income (loss) for the period.  For the period
ended August 31, 2007, the Company recorded realized trading losses of $24,459,
realized holding losses in connection with shares held for trading of $15,137
and unrealized losses in connection with shares available for sale of
$174,535.




The Components of
the Company’s investment in NextMart and the market price of the NextMart shares
are as follows:




August
      31, 2007Number
      of Shares
            Carrying
      ValueTrading
      securities
            90,000
            $
      27,000Available-for-sale
      securities
            5,817,824
            1,745,3475,907,824
            $1,772,347Market price
      at August 31, 2007
            
            $0.30 per
      share




F-13
 
 CIBT
EDUCATION GROUP INC.
 (Previously
Capital Alliance Group Inc.)
 NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 AUGUST
31, 2007 AND 2006
 UNAUDITED
 (Amounts
in US Dollars)


NOTE
5 – LONG-TERM DEBT




On April 25, 2007,
CIBT completed a $5 million debenture and warrant financing with Shane
Corporation SARL (“Shane”), an affiliate of Camden Partners Holdings LLC, a US
based private equity firm with expertise in the for-profit education
sector.  Shane advanced to CIBT $5 million in exchange for a debenture
issued by CIBT and common share purchase warrants to purchase 5,361,667 common
shares of CIBT at a price of approximately $0.93 per share.  The
debenture is due three years from issuance and bears interest at a rate of 8%
per annum payable quarterly.  Further, the debenture becomes due and
payable within six months of CIBT completing a minimum $25 million public
offering (the “IPO”).  The rate of interest is subject to escalation
to a rate of (i) 20% upon a default on certain payment terms defined in the
agreement and (ii) 15% upon CIBT failing to attain certain earnings thresholds
as defined in the agreement.  The warrants are exercisable for the
period ending the earlier of (i) five years from issuance and (ii) six months
following the completion of the IPO by CIBT.  In addition, commencing
upon CIBT completing the IPO, the warrants can be exercised on a cashless
basis.  CIBT paid fees in connection with the placement of this
financing totalling $500,000 plus 268,083 common share purchase warrants with
similar terms and conditions to the financing warrants.  CIBT paid
additional costs in connection with this financing totalling
$545,600.




The Company has
classified the above debenture and related warrants into its component parts
being a financial liability and equity instrument respectively.  The
total proceeds and financing costs were allocated to their component parts on a
relative fair value basis.  The fair value of the debt without the
detachable warrants was estimated based on an estimated interest rate of 15%
debt with comparable terms and risk profile.  The fair value of the
financing warrants and the placement agent warrants was estimated using the
black-scholes option pricing model using the following
assumptions:  expected life of 2 years; risk free interest rate of
4.12%; expected dividend yield of 0% and an expected volatility of
50%.  Based on the above fair value determinations and the estimate of
the fair value of the placement agent warrants, the amount of the proceeds and
costs allocated to the debt component and equity component (contributed surplus)
at the issuance are as follows:




Amount
      allocated to:
            Contributed
      Surplus
            Debt
            TotalProceeds
      received
            $
      1,300,146
            $ 3,699,854
            $ 5,000,000Finance fees
      paid (including agent warrants)
            (1216,342)
            (829,258)
            (1,045,600)Carrying
      value at issuance
            $ 1,083,804
            $ 
      2,870,596
            $ 3,954,400




Over the period
from issuance to maturity of the debt, the carrying value of the debt, net of
finance costs will be accreted to the face amount of $5,000,000 using the
effective interest method.  Under the effective interest method, the
effective rate of interest is 31%.  The carrying value of the debt
component as at August 31, 2007 is made up as follows:




Carrying
      value at issuance
            $ 2,870,596Accretion of
      fair value interest and accrued finance costs
            207,5403,078,136Less:  current
      portion interest payable at 8%
            (45,058)$ 3,033,078


























F-14
 
 CIBT
EDUCATION GROUP INC.
 (Previously
Capital Alliance Group Inc.)
 NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 AUGUST
31, 2007 AND 2006
 UNAUDITED
 (Amounts
in US Dollars)


NOTE
6 – SHARE CAPITAL




Authorized share
capital consists of 100,000,000 common shares without par value.




Number
            ValueIssued
      and outstandingBalance at
      June 30, 2006
            35,552,630
            $   17,977,570- for cash by exercise of
      options at C$0.30 per share
            50,000
            13,633- for cash by exercise of
      options at C$0.35 per share
            100,000
            31,217- for cash by exercise of
      options at C$0.50 per share
            175,000
            78,371- for cash by exercise of
      options at C$0.80 per share
            50,000
            36,353- for cash by exercise of
      warrants at C$0.58 per share
            1,036,000
            513,056- for cash by exercise of
      warrants at C$0.80 per share
            20,000
            14,541- for private placement at
      C$0.75 per share
            6,003,330
            3,841,395- fees and commissions for
      private placement
            -
            (151,160)- for acquisition of
      subsidiary common shares at C$1.00 per share
            4,853,113
            4,410,678- contributed surplus
      reallocated on exercise of stock options
            -
            86,153Balance at
      June 30, 2007
            47,840,073
            26,851,807- for cash by exercise of
      warrants at C$0.58 per share
            18,182
            10,071Balance at
      August 31, 2007
            47,858,255
            $   26,861,878






Treasury
shares held


In accordance with
TSX Venture Exchange approval and the provisions of a normal course issuer bid,
the Company from time to time acquires its own common shares into
treasury.  As at August 31, 2007, 962,496 common shares with an
accumulated cost of $1,082,648 have been recorded as treasury shares
held.  On July 12, 2007, the Company sold 800,000 treasury shares
acquired through the provisions of the Company’s normal course issuer bid to
certain directors of the Company at C$1.61 per share (market price) for total
proceeds of C$1,288,000.  The average cost to the Company of the
treasury shares was C$1.21 per share.  On May 25, 2007, the Company
renewed its TSX normal course issuer bid allowing for the repurchase of a total
of one million common shares of the Company.  The TSX normal course
issuer bid will expire on May 25, 2008.




Share
purchase warrants


As at August 31,
2007, the Company has 4,774,323 share purchase warrants outstanding exercisable
at prices ranging from C$0.58 per share to C$0.80 per share exercisable for
periods ending from April 5, 2008 to February 13, 2009.




Stock
options


As at August 31,
2007, the Company has stock options outstanding to certain employees, officers
and directors providing the right to purchase up to 4,190,000 shares at prices
ranging from C$0.30 per share to C$1.53 per share exercisable for periods ending
from June 24, 2008 to June 21, 2012.




Stock-based
compensation


During 2006,
1,500,000 stock options were granted to employees, officers, directors and
consultants of the Company at a price of C$0.58 per share, exercisable for a
term of five years subject to vesting at a rate of 25% 12 months after grant,
25% 24 months after grant, 25% 36 months after grant, and the final 25% 48
months after grant.  The fair value of these options at the date of
grant totalling $487,141 was estimated using the Black-Scholes option pricing
model with the following weighted average assumptions: expected life of five
years; risk-free interest rate of 4%; expected dividend yield of 0% and an
expected volatility of 76%.  The estimated fair value of the options
will be recorded as compensation expensed on a straight-line basis over the
vesting period of the underlying options.




F-15
 
 CIBT
EDUCATION GROUP INC.
 (Previously
Capital Alliance Group Inc.)
 NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 AUGUST
31, 2007 AND 2006
 UNAUDITED
 (Amounts
in US Dollars)


NOTE
6 – SHARE CAPITAL (cont’d)




Stock-based
compensation (cont’d)


On June 22, 2007,
1,500,000 stock options were granted to employees, officers, directors and
consultants of the Company at a price of C$1.53 per share, exercisable for a
term of five years subject to vesting at a rate of 30% after 6 months of grant,
40% after 12 months of grant and the final 30% after 18 months of
grant.  The fair value of these options at the date of grant totalling
$1,218,005 was estimated using the Black-Scholes option pricing model with the
following weighted average assumptions: expected life of five years; risk-free
interest rate of 4.65%; expected dividend yield of 0% and an expected volatility
of 67.5%.  The estimated fair value of the options will be recorded as
compensation expensed on a straight-line basis over the vesting period of the
underlying options.




The stock-based
compensation expenses are summarized as follows:




Two
      Months EndedAugust
      31, 2007
            Two
      Months EndedAugust
      31, 20062006 stock
      option grant
            $
      36,932
            $
      27,1232007 stock
      option grant
            150,246
            -$
      187,178
            $ 27,123




Escrow
shares


As at August 31,
2007, the Company has no shares held in escrow.






NOTE
7 – CONTRIBUTED SURPLUS




Details of changes
in the Company’s contributed surplus balance are as follows:




Balance, June
      30, 2006
            $ 844,292Stock compensation on vesting of stock options
            187,990Surplus from sale of treasury shares
            150,316Fair value of warrants from debenture and warrant financing
      (Note 5)
            1,083,804Allocated to share capital on exercise of
    options
            (86,153)Balance, June
      30, 2007
            $     2,180,249Stock
      compensation on vesting of stock options
            187,178Surplus
      from sale of treasury shares
            290,837Balance,
      August 31, 2007
            $     2,658,264






NOTE
8 – RELATED PARTY TRANSACTIONS




As at August 31,
2007, a balance of $46,118 was owing to certain officers, employees, directors,
relatives of directors, and private companies controlled by officers and
directors of the Company.  Amounts due to related parties are
non-interest bearing and have no fixed terms of repayment.  The fair
value of the amounts due to related parties is not determinable as they have no
repayment terms.  These 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 related parties.




During the two
month period ended August 31, 2007 the Company and its subsidiaries incurred
$90,956 (2006 – $105,620) for management fees and salaries paid to certain
directors and officers employed by the Company, CIBT and IRIX.




F-16
 
 CIBT
EDUCATION GROUP INC.
 (Previously
Capital Alliance Group Inc.)
 NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 AUGUST
31, 2007 AND 2006
 UNAUDITED
 (Amounts
in US Dollars)


NOTE
8 – RELATED PARTY TRANSACTIONS (cont’d)




Effective February
3, 2006, the Company sold 125,000 common shares of CIBT owned by the Company to
a Director of CIBT at a price of $1.00 per share.  As consideration
the Company received a promissory note bearing interest at a rate of 3% per
annum compounded annually with the principal and accrued interest due February
3, 2016.  Effective July 1, 2006, the Company sold 125,000 common
shares of CIBT owned by the Company to the Director of CIBT at a price of $1.00
per share.  As consideration the Company received a promissory note
bearing interest at a rate of 3% per annum compounded annually with the
principal and accrued interest due July 1, 2016.  Effective September
22, 2006, the Company sold 50,000 common shares of CIBT owned by the Company to
the Director of CIBT at a price of $0.85 per share.  As consideration
the Company received a promissory note bearing interest at a rate of 3% per
annum compounded annually with the principal and accrued interest due September
22, 2016.  In all three transactions, the underlying CIBT shares were
placed in custody as security for the amount owing.  As at June 30,
2007, the full amount of the promissory note, including accrued interest, was
paid by the Director.  On May 18, 2007, the Director exchanged the
300,000 CIBT shares for 441,000 shares of the Company.




From July 2007 to
August 2007, funds totalling $369,511 were advanced to the CEO and private
companies controlled by the CEO of the Company.  As security for the
advances, the Company shares owned by the CEO and private companies controlled
by the CEO are being held by the Company as collateral until the funds are
repaid.  As at August 31, 2007, $346,875 was owing to the Company by
the CEO and private companies controlled by the CEO of the
Company.  As at November 5, 2007, the full balance of the amount owing
to the Company was repaid by the CEO.






NOTE
9 – FINANCIAL INSTRUMENTS




In
accordance with current accounting standards, the Company initially measures all
of its financial assets and financial liabilities at fair value and classifies
them into categories with ongoing measurement as follows:






-
            Held-to-maturity
      investments measured at amortized cost using effective interest
      method;


-
            Available-for-sale
      assets measured at fair value;


-
            Assets and
      liabilities held-for-trading measured at fair
  value;


-
            Loans and
      receivables measured at amortized cost using effective interest method;
      and


-
            Other
      financial liabilities measured at amortized cost using effective interest
      method.




The carrying values
and classifications of the Company’s financial assets and liabilities as at
August 31, 2007 are as follows:




Held-for-Trading
            Available-for-Sale
            Loans
      and Receivables
            Other
      Financial Liabilities
            TotalFinancial
      AssetsCash and cash
      equivalents
            $
      13,152,744
            $
      -
            $
      -
            $
      -
            $
      13,152,744Accounts
      receivable
            -
            -
            551,219
            -
            551,219Marketable
      securities
            27,000
            1,745,347
            -
            -
            1,772,347Due from
      related parties
            -
            -
            346,875
            -
            346,875$
      13,179,744
            $
      1,745,347
            $
      898,094
            $ -
            $
      15,823,185Financial
      LiabilitiesAccounts
      payable andaccrued
      liabilities
            $
      -
            $ -
            $ -
            $ 1,713,080
            $
      1,713,080Long-term
      debt
            -
            -
            -
            3,078,136
            3,078,136Due to
      related parties
            -
            -
            -
            46,118
            46,118$
      -
            $ -
            $ -
            $ 4,837,334
            $ 4,837,334






F-17
 
 CIBT
EDUCATION GROUP INC.
 (Previously
Capital Alliance Group Inc.)
 NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 AUGUST
31, 2007 AND 2006
 UNAUDITED
 (Amounts
in US Dollars)


NOTE
9 – FINANCIAL INSTRUMENTS (cont’d)






Except for certain
marketable securities transactions during the period (refer to Note 4), there
were no changes in the classification of the Company’s financial assets and
liabilities for the period from adoption (July 1, 2007) to August 31,
2008.




The fair value of
financial instruments represents the amounts that would have been received from
or paid to counterparties to settle these instruments.  The fair value
of the Company’s financial instruments included in current assets and
liabilities were estimated to approximate their carrying values due to the
immediate or short-term maturity and normal trade terms of these
instruments.  The fair value of the Company’s marketable securities is
based on quoted prices in an active market.  The fair value of other
financial instruments disclosed in the financial statements are based on the
Company’s best estimate using present value, quoted market prices, discounted
cash flow analysis and other valuation techniques that are significantly
affected by the assumptions used concerning the amounts and timing of estimated
cash flows and discount rates which reflect varying degrees of
risk.




Exchange
rate risk


The Company
operates in Canada and China and incurs substantial operating costs which are
payable in U.S. dollars and Chinese RMB, giving rise to significant exposure to
market risks from changes in foreign currency rates.  Currently, the
Company does not use derivative instruments to reduce its exposure to foreign
currency risk.




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.




Interest
rate risk


The Company is
exposed to interest rate risk on its cash and cash equivalents which earn
interest at market rates.  The Company currently has no variable rate
debt subject to interest rate risk.  The Company does not currently
use derivative instruments to reduce its exposure to interest rate
risk.


NOTE
10 – COMMITMENTS




CIBT entered into a
lease agreement dated July 24, 2000 on behalf of the Company for the Company’s
corporate office space in Vancouver, B.C. with minimum annual rates of C$70,520
for the first year, C$74,046 for the next two years and C$77,572 for the final
two years plus taxes and operating costs.   On August 16, 2005,
the lease was renewed for a 50 month term (from September 1, 2005 to October 31,
2009).  Under the renewed lease agreement the minimum annual rate for
the term of the lease is C$70,520 plus taxes and operating costs.  On
February 1, 2007, the lease agreement was assigned to and assumed by the
Company.  The Company has estimated future minimum lease payments
under this operating lease as follows:




2008
            $
      62,2422009
            62,2422010
            20,748$ 145,232




During 2007, CIBT’s
subsidiaries in China entered into various lease agreements in Beijing and
Weifang.  CIBT has estimated future minimum lease payments under this
operating lease as follows:




2008
            $
      132,3212009
            132,3212010
            90,7952011
            43,2662012
            1,803$
      400,506


NOTE
11 – RISK MANAGEMENT




The Company is
engaged primarily 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.






NOTE
12 – GENERAL AND ADMINISTRATIVE EXPENSES




General and
administrative expenses are comprised of the following:




Two
      Months Ended August 31, 2007
            Two
      Months Ended August 31, 2006Advertising
            $
      177,182
            $ 58,587Bank charges
      and interest
            2,246
            1,661Consulting
      and management fees
            83,725
            124,769Investor
      relations
            30,673
            14,528Office and
      general
            135,534
            44,290Professional
      fees
            14,391
            107,591Rent
            52,318
            25,784Salaries and
      benefits
            269,208
            205,286Travel and
      promotion
            41,595
            41,059$ 806,872
            $ 628,555




NOTE
13 – NET CHANGES IN NON-CASH WORKING CAPITAL ITEMS




Net changes in
non-cash working capital items are comprised of the following:




Two
      Months Ended August 31, 2007
            Two
      Months Ended August 31, 2006Accounts
      receivable
            $
      99,368
            $
      552,380Prepaid
      expenses
            (525,085)
            (88,884)Accounts
      payable and accrued liabilities
            216,229
            (242,411)Income taxes
      payable
            212,271
            33,985Deferred
      revenues and fees
            1,271,663
            670,045Other
      assets
            (75,793)
            55,111$
      1,198,653
            $
      980,226


F-18
 
 CIBT
EDUCATION GROUP INC.
 (Previously
Capital Alliance Group Inc.)
 NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 AUGUST
31, 2007 AND 2006
 UNAUDITED
 (Amounts
in US Dollars)




NOTE
14 – SEGMENTED INFORMATION




The Company’s
primary industry and geographic segments are in China where CIBT operates
technical and career training schools and Canada where Irix conducts web design
and advertising services.  The Company’s corporate operations are also
in Canada.




Industry
and Geographic Segments


Two
      months ended August 31, 2007
            Two
      months ended August 31, 2006Amounts
      in US$
            CIBT
              (China)
            IRIX
              (Canada)
            Corporate and
      other (Canada)
            Consolidated
            CIBT
              (China)
            IRIX
              (Canada)
            Corporate and
      other (Canada)
            ConsolidatedRevenuesEducational
            $
      778,951
            $
      -
            $ -
            $
      778,951
            $
      515,277
            $
      -
            $
      -
            $  515,277Design and
      advertising
            -
            359,706
            -
            359,706
            -
            148,905
            -
            148,905Consulting
      income
            -
            -
            153,383
            153,383
            -
            -
            84,134
            84,134Gain (loss) on marketable
      securities
            -
            -
            (39,596)
            (39,596)
            -
            -
            820,431
            820,431$ 778,951
            $
      359,706
            $
      113,787
            $
      1,252,444
            $
      515,277
            $
      148,905
            $
      904,565
            $ 1,568,747Net
      revenues
            $
      438,495
            $
      151,204
            $
      113,787
            $
      703,486
            $
      252,498
            $
      75,227
            $ 904,565
            $ 1,232,290Amortization
            (40,878)
            (4,611)
            (342)
            (45,831)
            (29,692)
            (6,308)
            (402)
            (36,402)General
      and administrative
            (504,869)
            (119,981)
            (182,022)
            (806,872)
            (260,948)
            (102,511)
            (265,096)
            (628,555)Stock-based
      compensation
            -
            -
            (187,178)
            (187,178)
            -
            -
            (27,123)
            (27,123)Interest
      on long-term debt
            (75,505)
            -
            -
            (75,505)
            -
            -
            -
            -Finance
      fees – amortization
            (80,548)
            -
            -
            (80,548)
            -
            -
            -
            -Gain
      on subsidiary share issuances and purchases
            -
            -
            -
            -
            -
            -
            151,569
            151,569Non-controlling
      interests
            (3,090)
            -
            50,973
            47,883
            209
            -
            (4,768)
            (4,559)Other
      income
            51,122
            365
            5,858
            57,345
            1,716
            166
            10,140
            12,022Income
      tax provision
            (55,166)
            -
            -
            (55,166)
            (33,985)
            -
            -
            (33,985)Net income
      (loss)
            $
      (270,439)
            $
      26,977
            $
      (198,924)
            $
      (442,386)
            $
      (70,202)
            $
      (33,426)
            $ 768,885
            $
      665,257Total
      assets
            $
      12,971,323
            $
      447,089
            $
      9,031,796
            $
      22,450,208
            $
      4,366,888
            $
      286,488
            $3,612,518
            $
      8,265,894Capital
      expenditures
            $
      89,510
            $
      -
            $ -
            $
      89,510
            $
      133,123
            $
      -
            $ -
            $
      133,123




F-19
 
 CIBT
EDUCATION GROUP INC.
 (Previously
Capital Alliance Group Inc.)
 NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 AUGUST
31, 2007 AND 2006
 UNAUDITED
 (Amounts
in US Dollars)




NOTE
15 – DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES




These 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”).  The significant differences between Canadian GAAP and US GAAP
affecting the Company’s financial statements are summarized as
follows:




Consolidated
      Balance Sheets
            August
      31, 2007
            June
      30, 2007Total assets
      under Canadian GAAP
            $
      22,450,208
            $ 19,909,697(a) Carrying
      value of marketable securities
            -
            397,179Total assets
      under US GAAP
            $
      22,450,208
            $
      20,306,876




Total
      liabilities under Canadian GAAP
            $
      7,168,975
            $ 5,633,193(i) Income
      tax uncertainties – accrual on adoption
            225,150
            -(i) Income
      tax uncertainties – accrual for the period
            4,600
            -Total
      liabilities under US GAAP
            $
      7,398,725
            $ 5,633,193




Total
      shareholders’ equity under Canadian GAAP
            $
      14,283,096
            $
      13,659,132(a)
      Marketable securities – realized and unrealized gains and
      losses
            -
            397,179(i) Income
      tax uncertainties – accrual on adoption
            (225,150)
            -(i) Income
      tax uncertainties – accrual for the period
            (4,600)
            -Total
      shareholders’ equity under US GAAP
            $
      14,053,346
            $ 14,056,311




Two Months Ended August
    31,Consolidated
      Statements of Operations and Deficit
            2007
            2006Net income
      (loss) under Canadian GAAP
            $
      (442,386)
            $ 665,257(a)
      Marketable securities – realized gains and losses
            -
            (67,274)(c) Changes
      in ownership of subsidiary company
            -
            (151,569)(i) Income
      tax uncertainties – accrual for the period
            (4,600)
            -Net income
      (loss) under US GAAP
            $
      (446,986)
            $  446,414Basic and
      diluted earnings (loss) per share under US GAAP
            $
      (0.01)
            $ 0.02




Two
      Months Ended August 31,Consolidated
      Statements of Cash Flows
            2007
            2006Net cash
      provided by operating activities under Canadian and US
GAAP
            $
      892,041
            $ 664,804Net cash
      provided by (used in) investing activities underCanadian and
      US GAAP
            $
      (161,129)
            $
      623,900Net cash
      provided by financing activities under  Canadian and US
      GAAP
            $ 678,713
            $ 207,157Effect of
      exchange rate changes under Canadian and US GAAP
            $
      8,607
            $
      12,047




F-20
 
 CIBT
EDUCATION GROUP INC.
 (Previously
Capital Alliance Group Inc.)
 NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 AUGUST
31, 2007 AND 2006
 UNAUDITED
 (Amounts
in US Dollars)


NOTE
15 – DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (cont’d)




Two
      Months Ended August 31,Comprehensive
      Income (Loss) Under US GAAP
            2007
            2006Net income
      (loss) under US GAAP
            $ (446,986)
            $ 446,414(a)
      Marketable securities – unrealized holding gains and
losses
            (174,535)
            (3,966,788)(d) Foreign
      currency translation adjustments under Canadian GAAP
            56,444
            2,887Comprehensive
      income (loss) under US GAAP
            $
      (565,077)
            $
      (3,517,487)




(a)  Marketable
Securities


For all periods
presented to June 30, 2007, under Canadian GAAP, in accordance with the
provisions of the CICA Handbook, Section 3050, “Investments”,
the Company accounts for investments in equity securities over which it does not
exercise control or significant influence at the lower of cost and
market.  Gains and losses realized on sales are included in the
determination of net income (loss) for the period with the cost of securities
sold being determined on an average cost basis.




Effective July 1,
2007, under Canadian GAAP, the Company has adopted the provisions of CICA
Handbook, Section 3855, “Financial Instruments
– Recognition and Measurement”.  In accordance with Section
3855, the Company initially designated its investments in equity securities over
which it does not exercise control or significant influence (the “NextMart”
shares) as available-for-sale financial assets which are measured at fair value,
with unrealized gains and losses recorded in other comprehensive income until
the asset is realized, at which time they will be recorded in
earnings.  During the period, the Company acquired additional NextMart
shares, some of which were also sold during the period.  The shares
resulting from these transactions were classified as trading securities with all
trading gains and losses and unrealized holding gains and losses included in the
determination of net income (loss) for the period.




Under US GAAP, the
Company accounts for its investments in equity securities over which it does not
exercise control or significant influence in accordance with the provisions of
the Financial Accounting Standards Board (“FASB”) Statement of Financial
Accounting Standard (“SFAS”) No. 115 “Accounting
for Certain Investments in Debt or Equity Securities”.The
applicable guidance of SFAS No. 115 is summarized as follows:




·
            Equity
      securities are subject to an initial classification between securities
      that are held to maturity (no intention to be sold prior to maturity),
      securities held for trading (bought with the intent to sell in the near
      future with the intent of realizing trading gains), and available-for-sale
      securities (those securities not classified as either held to maturity or
      held for trading).


·
            Notwithstanding
      the above classification, securities that are subject to restrictions
      (regulatory or contractual) that are not expected to be removed within one
      year, are not subject to the accounting provisions of SFAS No.
      115.  These securities are carried at cost (subject to
      write-down for other than temporary impairments in value) until released
      from the restrictions and thus subject to SFAS No.
  115.


·
            Trading
      securities are carried at fair market value with all trading gains and
      losses and unrealized holding gains and losses included in the
      determination of net income for the
period.


·
            Available-for-sale
      securities are carried at fair market value with all realized gains and
      losses included in the determination of net income (loss) for the
      period.  Unrealized holding gains and losses are included in
      accumulated other comprehensive income, a separate component of
      shareholders’ equity, and are included in the determination of
      comprehensive income (loss) for the
period.


·
            Securities
      reclassified from restricted to available-for-sale give rise to unrealized
      holding gains or losses on reclassification and securities reclassified
      from available-for-sale to trading give rise to realized holding gains or
      losses on reclassification.


F-21
 
 CIBT
EDUCATION GROUP INC.
 (Previously
Capital Alliance Group Inc.)
 NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 AUGUST
31, 2007 AND 2006
 UNAUDITED
 (Amounts
in US Dollars)




NOTE
15 – DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (cont’d)




As described in
Note 4, the Company owns shares of NextMart Inc. (formerly Sun New Media Inc.
(“SNMI”)), a US public company whose shares are listed on the OTC Bulletin Board
which have been classified under US GAAP as follows:




August
      31, 2007
            June
      30, 2007Number
      of Shares
            Carrying
      Value
            Number
      of Shares
            Carrying
      ValueTrading
      securities
            90,000
            $
      27,000
            -
            $ -Available-for-sale
      securities
            5,817,824
            1,745,347
            5,817,824
            1,919,882Restricted
      securities
            -
            -
            -
            -5,907,824
            $
      1,772,347
            5,817,824
            $
      1,919,882




The trading prices
of the SNMI shares were as follows:




August 31,
      2007
            June 30,
      2007$0.30 per
      share
            $0.33 per
      share






(b)  Current
Liabilities


US GAAP requires
separate disclosure of all current liabilities in excess of 5% of total current
liabilities. As this disclosure is not required under Canadian GAAP, the
following table has been provided:




August
      31, 2007
            June
      30, 2007Trade
      accounts payable
            $ 771,967
            $ 943,010Income taxes
      payable
            284,897
            230,043Accrued
      educational costs
            841,342
            331,680Deferred
      educational revenue
            1,685,888
            423,248Unearned
      consulting fees
            123,903
            276,923Current
      portion of capital lease obligation
            17,919
            17,946Current
      portion of long-term debt
            45,058
            80,375Payroll and
      related liabilities
            50,715
            150,369Due to
      related parties
            46,118
            84,087Other current
      liabilities
            206,473
            78,305Total current
      liabilities
            $ 4,074,280
            $ 2,615,986




(c)  Changes
of Ownership of Subsidiaries


In accordance with
the provisions of the CICA Handbook, section 1600, “Consolidated
Financial Statements”,gains
and losses resulting from the dilutive effects of subsidiary share transactions
and issuances are included in the determination of net income for the period
under Canadian GAAP.  Under US GAAP and in accordance with the
provisions of SEC Staff Accounting Bulletin Topic 5:H “Accounting
for Sales of Stock by a Subsidiary”, such gains and losses should be
recorded as capital transactions when they are considered part of broader
corporate reorganization and when the likelihood of realization is
uncertain.  Accordingly, the Company has recorded the subsidiary share
transactions, where realization is uncertain, as capital transactions under US
GAAP.




F-22
 
 CIBT
EDUCATION GROUP INC.
 (Previously
Capital Alliance Group Inc.)
 NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 AUGUST
31, 2007 AND 2006
 UNAUDITED
 (Amounts
in US Dollars)




NOTE
15 – DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (cont’d)




(d)  Foreign
Currency Translation


Under Canadian
GAAP, the Company’s integrated foreign operations are translated using the
temporal method with the resulting exchange gains or losses arising on foreign
currency translation being included in the determination of operating results
for the period.  Under Canadian GAAP, the Company’s self-sustaining
foreign operations are translated using the current rate method with the
resulting gains and losses arising on foreign currency translation being
accumulated in a separate component of shareholders’ equity.  As the
Company’s Canadian GAAP foreign currency translation methodology comprehensively
includes the effects of currency price level changes, the effect, if any, of
reconciling potential differences in foreign currency translation between
Canadian GAAP and US GAAP has not been included in this
reconciliation.




(e)  Comprehensive
Income (Loss)


Under US GAAP, the
FASB has issued SFAS No. 130, “Reporting
Comprehensive Income”, which requires that an enterprise report, by
significant components and as a single total, the change in its net assets
during the period from non-owner sources.  Under US GAAP, the
significant components of the Company’s comprehensive income (loss) for the
periods are (i) net income (loss) for the period as determined under US GAAP,
(ii) unrealized holding gains and losses on its available-for-sale securities
(net of estimated future income tax effect), and (iii) foreign currency
translation adjustments resulting from the translation of self-sustaining
foreign operations using the current rate method in accordance with Canadian
GAAP.  Commencing July 1, 2007, the Company has adopted CICA 1530 –
“Comprehensive
income” which requires the presentation of a statement of comprehensive
income and its components. Comprehensive income includes both net earnings and
other comprehensive income. Other comprehensive income includes holding gains
and losses on available-for-sale investments, gains and losses on certain
derivative financial instruments and foreign currency gains and losses relating
to self-sustaining foreign operations, all of which are not included in the
calculation of net earnings until realized




(f)  Accounting
for Joint Ventures


As described in
more detail in Note 3(a), during 2007 CIBT established a 51% joint venture
interest in International Education Enrollment Center in An Yang,
China.  As the entity is jointly controlled by both parties, the
Company accounted for this joint venture using the proportionate consolidation
method under Canadian GAAP.  Under US GAAP, the Company would be
required to account for its interest in this joint venture using the equity
method.  However, the effect if any, of reconciling potential
differences in accounting for this joint venture between Canadian GAAP and US
GAAP has not been included in this reconciliation as permitted in accordance
with the rules to Form 20-F Item 17. This departure from US GAAP is acceptable
for foreign private issuers under the practices prescribed by the United States
Securities and Exchange Commission.




(g)  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 value 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.




(h)  Accounting
for Stock-Based Compensation


In December 2004,
the FASB issued SFAS No. 123(R), "Accounting
for Stock-Based Compensation". SFAS 123(R) establishes standards for the
accounting for transactions in which an entity exchanges its equity instruments
for goods or services. This Statement focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based payment
transactions. SFAS 123(R) requires that the fair value of such equity
instruments be recognized as expense in the historical financial statements as
services are performed. Prior to SFAS 123(R), only certain pro-forma disclosures
of fair value were required. SFAS 123(R) was adopted by the Company using the
modified prospective transition method beginning January 1 2006. The Company
estimated a nominal 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.






F-23
 
 CIBT
EDUCATION GROUP INC.
 (Previously
Capital Alliance Group Inc.)
 NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 AUGUST
31, 2007 AND 2006
 UNAUDITED
 (Amounts
in US Dollars)




NOTE
15 – DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (cont’d)




(i)  Accounting
for Uncertainty in Income Taxes


On July 1, 2007,
the Company adopted Financial Accounting Standards Board (FASB) Interpretation
No. 48, “Accounting for Uncertainty in Income
Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48
clarifies the accounting for income taxes recognized in a Company’s financial
statements in accordance with FASB Statement No. 109, Accounting for Income
Taxes (SFAS 109). FIN 48 prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. This interpretation also
provides guidance on derecognition, classification, interest and penalties, and
transition. In accordance with theinterpretation,
the Company has recorded the cumulative effect adjustment as a $225,150 decrease
to opening retainedearnings,
with no restatement of prior periods. During the two months ending August 31,
2007, an adjustment to increaseincome
tax expense by $4,600 was recorded in accordance with U.S. GAAP.




(j)  Recent
Accounting Pronouncements – US GAAP


In September 2006,
the FASB issued SFAS No. 157, “Fair Value
Measurements”. This Statement defines fair value, establishes a framework
for measuring fair value in generally accepted accounting principles (GAAP),
expands disclosures about fair value measurements, and applies under other
accounting pronouncements that require or permit fair value measurements. SFAS
No. 157 does not require any new fair value measurements.  However,
the FASB anticipates that for some entities, the application of SFAS No. 157
will change current practice.  SFAS No. 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007, which for
the Company would be the fiscal year beginning July 1, 2008.  The
Company is currently evaluating the impact of SFAS No. 157, but does not expect
that it will have a material impact on its financial position or results of
operations.





In February 2007,
the FASB issued SFAS No. 159, “The Fair Value
Option for Financial Assets and Financial Liabilities”. This Statement
permits entities to choose to measure many financial assets and financial
liabilities at fair value.  Unrealized gains and losses on items for
which the fair value option has been elected are reported in
earnings.  SFAS No. 159 is effective for fiscal years beginning after
November 15, 2007.  The Company is currently evaluating the impact of
SFAS No. 159, but does not expect that it will have a material impact on its
financial position or results of operations.




In December 2007,
the FASB issued SFAS No. 141 (Revised) “Business Combinations”. SFAS 141 (Revised)
establishes principles and requirements for how the acquirer of a business
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree. The statement also provides guidance for recognizing and measuring the
goodwill acquired in the business combination and determines what information to
disclose to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. The guidance will become
effective for the fiscal year beginning after December 15, 2008. The Company is
currently evaluating the impact SFAS 141 (Revised) will have on the Company’s
financial position or results of operations upon adoption.




In December 2007,
the FASB issued SFAS No. 160 “Noncontrolling
Interests in Consolidated Financial Statements-an amendment of ARB No.
51”. SFAS 160 establishes accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. The guidance will become effective for the fiscal year beginning
after December 15, 2008. The Company is in the process of evaluating the impact
SFAS 160 will have on the Company’s financial position and results of operations
upon adoption.




In March 2008, the
FASB issued SFAS No. 161, “Disclosures about
Derivative Instruments and Hedging Activities” ("SFAS 161"). SFAS 161 is
intended to improve financial reporting about derivative instruments and hedging
activities by requiring enhanced disclosures to enable investors to better
understand their effects on an entity's financial position, financial
performance, and cash flows. SFAS 161 achieves these improvements by requiring
disclosure of the fair values of derivative instruments and their gains and
losses in a tabular format. It also provides more information about an entity's
liquidity by requiring disclosure of derivative features that are credit
risk-related. Finally, it requires cross-referencing within footnotes to enable
financial statement users to locate important information about derivative
instruments. SFAS 161 will be effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008, and will be
adopted by the Company beginning in the first quarter of 2009. The Company does
not expect there to be any significant impact of adopting SFAS 161 on its
financial position or results of operations.


F-24
 
 CIBT
EDUCATION GROUP INC.
 (Previously
Capital Alliance Group Inc.)
 NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 AUGUST
31, 2007 AND 2006
 UNAUDITED
 (Amounts
in US Dollars)


NOTE
15 – DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (cont’d)




(j)  Recent
Accounting Pronouncements – US GAAP (cont’d)


In May 2008, the
FASB issued SFAS No. 163, "Accounting for
Financial Guarantee Insurance Contracts" ("SFAS 163”). SFAS 163 clarifies
how SFAS 60, Accounting and Reporting by Insurance Enterprises applies to
financial guarantee insurance contracts issued by insurance enterprises,
including the recognition and measurement of premium revenue and claim
liabilities. It also requires expanded disclosures about financial guarantee
insurance contracts. SFAS 163 is effective for the Company’s annual and interim
period commencing after December 12, 2008, except for disclosures about an
insurance enterprise's risk-management activities, which are effective for the
Company’s first interim period commencing after May 2008.  The Company
does not expect the adoption of SFAS 163 to have a material impact on the
Company’s financial position, cash flows and results of operations.




(k)  International
Financial Reporting Standards (“IFRS”)


In 2006, the
Canadian Accounting Standards Board (“AcSB”) published a new strategic plan that
will significantly affect financial reporting requirements for Canadian
companies. The AcSB strategic plan outlines the convergence of Canadian
generally accepted accounting principles with IFRS over an expected five year
transitional period. In February 2008, the AcSB announced that 2011 is the
changeover date for publicly-listed companies to use IFRS, replacing Canada’s
own generally accepted accounting principles. The date is for interim and annual
financial statements relating to fiscal years beginning on or after January 1,
2011. The transition date of January 1, 2011 will require the restatement for
comparative purposes of amounts reported by the Company for the year ended
December 31, 2010. While the Company has begun assessing the adoption of IFRS
for 2011, the financial reporting impact of the transition to IFRS cannot be
reasonably estimated at this time.




NOTE
16 – SUBSEQUENT EVENTS




On November 14,
2007, the Company changed its name from Capital Alliance Group Inc. to CIBT
Education Group Inc.




On November 27,
2007, the Company completed a brokered private placement (1,578,947 units –
C$2,999,999) and non-brokered private placement (1,164,500 units – C$2,212,550)
for a total of 2,743,447 units at C$1.90 per unit for total proceeds of
C$5,212,549.  Each unit consists of one common share and one share
purchase warrant entitling the holder to purchase one-half additional common
share of the Company at a price of C$2.25 per share for a period of two years
from the date of issuance.  For the brokered portion of the private
placement, the Company paid C$210,000 in fees and commissions, and 236,842
agent’s warrants.  Each agent’s warrant entitle the agent to purchase
one common share of the Company at a price of C$1.90 per share in the first year
and at a price of C$2.25 per share in the second year.




Effective December
10, 2007, Shane exercised their 5,361,667 share purchase warrants resulting in
proceeds payable to CIBT of $5,000,000.  CIBT and Shane agreed that
the amounts owing to Shane would be forgiven as consideration for the exercise
of the warrants.  Also during the period, CIBT paid all interest owing
to Shane totalling $280,096.  The continuity of the debt carrying
value since inception is as follows:






Carrying
      value at issuance
            $
      2,870,596Accretion of
      fair value interest and accrued finance costs
            162,309Balance at
      June 30, 2007
            3,032,905Accretion of
      fair value interest and accrued finance costs
            437,212Interest
      payments
            (280,096)Balance at
      December 10, 2007 before repayment
            3,190,021Accelerated
      amortization on repayment of debt
            1,809,9795,000,000Less:
      repayment
            (5,000,000)Balance at
      December 10, 2007
            $
      -





F-25
 
 CIBT
EDUCATION GROUP INC.
 (Previously
Capital Alliance Group Inc.)
 NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 AUGUST
31, 2007 AND 2006
 UNAUDITED
 (Amounts
in US Dollars)


NOTE
16 – SUBSEQUENT EVENTS (cont’d)




Shane’s exercise of
the share purchase warrants for 5,361,667 common shares of CIBT reduced the
Company’s ownership in CIBT to 78.1%.  Immediately following this
transaction, the Company acquired these newly issued shares of CIBT from Shane
through the issuance of 10,000,000 of the Company’s common
shares.  The result of this second transaction was an increase in the
Company’s ownership in CIBT from 78.1% to 99.9%.  These transactions
are summarized as follows:


(a)   CIBT
issued 5,361,667 of its common shares on the exercise of 5,361,667 warrants for
total proceeds of $5,000,000 which was effectively used to repay the $5,000,000
debt;
 (b)   The Company
acquired these newly issued CIBT shares in exchange for 10,000,000 of the
Company’s common shares with an estimated fair value of $17,951,856
(C$17,600,000).




Effective December
17, 2007, the Company acquired, through Sprott-Shaw Degree College Corp.
(“SSDC”) (a newly incorporated wholly owned subsidiary of the Company), the
primary assets and liabilities used in the operation of the Sprott-Shaw
Community College group of schools (the “SSCC Assets”).  The SSCC
Assets will enable the Company to continue to operate the SSCC business which
consists of career and vocational schools, language training schools, and a
baccalaureate degree granting college through 17 campuses in Western
Canada.  In addition, the business has locations in Vietnam, the
Philippines, Jordan and China.




As consideration
the Company has paid an initial amount to the vendors of $7,428,954 with a
further C$1,000,000 being held in escrow which will be released 12 months after
the closing date (December 17, 2007), subject to:




(a)   the
satisfaction of certain conditions; and


(b)   adjustments
based on the final determination of the working capital acquired at the time of
closing.




In addition to the
C$1,000,000 being held in escrow, the Company has agreed to pay a total of
C$1,158,999 of further consideration which will be paid upon the achievement of
the following milestones by the newly acquired business (the “SSCC
Business”):





(a)
            up to
      C$386,333 if the net income of the SSCC Business before interest, taxes,
      depreciation and amortization calculated in accordance with Generally
      Accepted Accounting Principles (the “EBITDA”) is equal to or exceeds
      C$2,300,000 for the period September 1, 2007 to August 29, 2008, such
      amount to be calculated according to a formula which is based upon the
      excess;


(b)
            up to a
      maximum of C$386,333 if the EBITDA for the SSCC Business is equal to or
      exceeds C$2,300,000 for the period August 30, 2008 to August 28, 2009,
      such amount to be calculated according to a formula which is based upon
      the excess; and


(c)
            up to a
      maximum of C$386,333 if the EBITDA for the SSCC Business is equal to or
      exceeds C$2,300,000 for the period August 29, 2009 to August 27, 2010,
      such amount to be calculated according to a formula which is based upon
      the excess.




The additional
consideration will be reduced if the EBITA is less than C$2,300,000 for the
first two fiscal years following closing.




The acquisition of
the SSCC Assets has been accounted for using the purchase method with the fair
value of the assets acquired and liabilities assumed being as
follows:




Fair
      Value ofAssets
      AcquiredAccounts
      receivable
            $
      5,358,961Inventory
            691,294Prepaids
      and other current assets
            374,340Property
      and equipment
            2,330,153Goodwill
            12,434,804Bank
      overdraft
            (115,136)Accounts
      payable and accrued liabilities
            (2,119,553)Deferred
      revenue
            (9,983,945)Long
      term debt and lease obligations
            (1,054,141)Net assets
      acquired equal to purchase price
            $ 7,916,777





F-26
 
 CIBT
EDUCATION GROUP INC.
 (Previously
Capital Alliance Group Inc.)
 NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 AUGUST
31, 2007 AND 2006
 UNAUDITED
 (Amounts
in US Dollars)


NOTE
16 – SUBSEQUENT EVENTS (cont’d)




Fair
      Value ofAssets
      AcquiredNet assets
      acquired equal to purchase price
            $
      7,916,777Made up as
      follows:Cash
      purchase price
            $
      7,428,954Other
      transaction costs
            487,823Total
      purchase price
            $ 7,916,777




The purchase price
allocation for this acquisition is preliminary and may be adjusted further as a
result of obtaining additional information regarding preliminary estimates of
fair values and costs made at the date of purchase.




On January 7, 2008,
the Company completed a private placement of 1,265,042 units at C$1.90 per unit
for total proceeds of C$2,403,580.  Each unit consists of one common
share and one share purchase warrant entitling the holder to purchase one-half
additional common share of the Company at a price of C$2.25 per share for a
period of two years from the date of issuance.  The Company paid
C$19,950 in fees and commissions, and 22,500 agent’s warrants.  Each
agent’s warrant entitle the agent to purchase one common share of the Company at
a price of C$1.90 per share in the first year and at a price of C$2.25 per share
in the second year.




On March 20, 2008,
850,000 stock options were granted to employees, officers, directors and
consultants of the Company at prices ranging from C$1.70 per share to C$2.00 per
share, exercisable for a term of three years.




In April 2008, the
Company received approval from the American Stock Exchange to list its common
shares on the exchange under the symbol “MBA”.  On April 11, 2008, the
Company’s common shares commenced trading on the American Stock
Exchange.  The Company’s Canadian trading symbol on the TSX Venture
Exchange was changed to “MBA” to be consistent with the American Stock
Exchange.




On April 30, 2008,
the Company acquired certain business assets of Tourism Training Institute
(“TTI”), an accredited education institution headquartered in Vancouver, Canada,
with branch offices in Beijing, China.  TTI is an established educator
and has been in operation for 19 years in Canada and for four years in
China.  For C$230,000, the Company acquired selective assets,
including approvals and licenses, but no liabilities of TTI.  TTI’s
Canadian operations will be integrated with SSDC’s operations in Canada, and
TTI’s China operations will be integrated with CIBT’s operations in
China.




In April 2008, the
Company issued 1,277,273 common shares on the exercise of share purchase
warrants at C$0.58 per share and 25,000 common shares on the exercise of stock
options at C$0.50 per share for total proceeds of C$753,318.




On June 26, 2008,
the Company changed its fiscal year end from June 30th to August 31st to
coincide with the year end of Sprott-Shaw Community College, the Company's major
subsidiary, and to coincide with the fiscal year end date commonly used in the
education industry.




















F-27


ITEM 19.  Exhibits




Exhibit
      Number
            Description12.1
            CEO Certification Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200212.2
            CFO Certification Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200213.1
            CEO Certification Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 200213.2
            CFO Certification Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002






26


SIGNATURES






The registrant
hereby certifies that it meets all of the requirements for filing on Form 20-F
and that it has duly caused and authorized the undersigned to sign this annual
report on its behalf.






CIBT Education
Group Inc.


(Registrant)






SIGNATURES
            TITLE
            DATE/s/
      Toby Chu
            
            September 26,
      2008Toby
      Chu
            Director,
      President, Chief Executive Officer/s/
      Tim Leong
            
            September 26,
      2008Tim
      Leong
            Director,
      Chief Financial Officer, Principal Accounting Officer, Secretary, Senior
      Vice President




27