UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-Q




x  Quarterly report pursuant Section 13 or 15(d) of the Securities Exchange Act of 1934




For the quarterly period ended March 31, 2010


o  Transition report pursuant Section 13 or 15(d) of the Securities Exchange Act of 1934





For the transition period from _______ to _______.





000-53463


(Commission file number)




COVENANT GROUP OF CHINA INC.(Exact name of small business issuer as specified in its charter)




Nevada

68-0677260(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification No.)





Two Bala Plaza, Suite 300

Bala Cynwyd, PA 19004(Address of principal executive offices)








(610) 660-7828(Issuer’s telephone number)




N/A(Former name, former address and former fiscal year, if changed since last report)


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 has submitted electronically and posted on its corporate website, if any, Every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).


Yes     o                 No  o





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


Large accelerated filero
Accelerated filero
Non-accelerated filero

(Do not check if a smaller reporting company)
Smaller reporting companyx


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).


Yes     x            No   o





On May 17, 2010, 9,858,909 shares of the registrant's common stock were outstanding.








1




TABLE OF CONTENTS




PART I – FINANCIAL INFORMATIONItem 1.
Financial Statements


3Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations


20Item 3.
Quantitative and Qualitative Disclosures About Market Risk


26Item 4T.
Controls and Procedures


27PART II - OTHER INFORMATIONItem 1.
Legal Proceedings


27Item 1A.
Risk Factors


27Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds


27Item 3.
Defaults Upon Senior Securities


28Item 4.
Removed and Reserved


28Item 5.
Other Information


28Item 6.
Exhibits


28SIGNATURES



29
  2








PART I – FINANCIAL INFORMATION





Item 1.                 Financial Statements


COVENANT GROUP OF CHINA INC. AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEET


March 31, 2010


December 31, 2009ASSETS

(Unaudited)


(Audited)CURRENT ASSETSCash and cash equivalent

$
1,273,928


$
969,271Accounts receivable, net


1,492,206



2,156,112Retentions receivable


268,105



344,428Other receivables


171,897



234,066Prepayment and deposits


37,543



98,537Inventories


263,810



102,950Total current assets


3,507,489



3,905,364NON-CURRENT ASSETSRetentions receivable


236,731



146,451Property, plant and equipment, net


27,702



21,794Goodwill


572,020



572,020Intangible assets


25,000



-Total non-current assets


861,453



740,265Assets of discontinued operations


-



4,162,726Total assets

$
4,368,942


$
8,808,355LIABILITIES AND STOCKHOLDERS' EQUITYCURRENT LIABILITIESShort term loans

$
261,928


$
37,638Note payable


-



100,000Accounts payable


440,208



983,656Unearned revenue


192,479



155,432Taxes payable


18,570



9,980Other payables and accrued liabilities


280,658



438,774Dividend payable


478,394



478,260Total current liabilities


1,672,237



2,203,740Liabilities of discontinued operations


-



1,616,586Total liabilities


1,672,237



3,820,326STOCKHOLDERS' EQUITIYCommon stock, $0.00001 par value, 20,000,000 shares

authorized, 11,280,909 shares issued and 9,880,909 shares

outstanding as of March 31, 2010, and  11,480,909

shares issued and outstanding as of December 31, 2009

respectively


113



115Additional paid-in capital


6,100,020



5,572,018Statutory surplus reserve


67,737



67,737Accumulated deficit


(681,174
)


(647,735
)Accumulated other comprehensive loss


(1,938
)


(4,106
)5,484,758



4,988,029Less: treasury stock, at cost; 1,400,000 shares of common stock


(2,788,053
)


-Total stockholders' equity


2,696,705



4,988,029TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$
4,368,942


$
8,808,355
  See accompanying notes to financial statements.
 3
  COVENANT GROUP OF CHINA INC.


CONSOLIDATED STATEMENT OF OPERATION AND OTHER COMPREHENSIVE INCOME
 FOR THE THREE MONTHS ENDED MARCH 31, 2010
 (Unaudited)


NET SALES

$
1,425,941COST OF SALES


1,006,965GROSS PROFIT


418,976OPERATING EXPENSESSelling expenses


16,093General and administrative expenses


244,323Total Operating Expenses


260,416INCOME FROM OPERATIONS


158,560OTHER INCOME (EXPENSES)Other income


199Other expense


(202
)Loss on settlement of debt


(428,000
)Interest expense


(4,259
)Total Other Expenses, net


(432,262
)NET LOSS


(273,702
)OTHER COMPREHENSIVE INCOMEForeign currency translation


2,168COMPREHENSIVE LOSS

$
(271,534
)BASIC AND DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING


10,063,131BASIC AND DILUTED NET LOSS PER SHARE

$
0.00
  See accompanying notes to financial statements.
 4





COVENANT GROUP OF CHINA INC.
 CONSOLIDATED STATEMENT OF CASH FLOW FOR THE THREE MONTHS ENDED MARCH 31, 2010


CASH FLOWS FROM OPERATING ACTIVITIES:$
(273,702
)Adjustments to reconcile net loss to net cashprovided by operating activities:Depreciation and amortization


1,832Change in allowance for doubtful accounts


(10,301
)Loss on disposal of fixed assets


115Loss on settlement of debt


428,000(Increase) decrease in current assets:Accounts receivable


674,750Retentions receivable


(13,819
)Other receivables


62,229Prepayment and deposits


61,016Inventory


(160,817
)Increase (decrease) in current liabilities:Accounts payable


(543,674
)Unearned revenue


37,001Accrued liabilities and other payables


(158,224
)Taxes payable


8,587Net cash provided by operating activities


112,993CASH FLOWS FROM INVESTING ACTIVITIES:Acquisition of property & equipment


(32,848
)Net cash used in investing activities


(32,848
)CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from short term loans


224,260Net cash provided by financing activities


224,260EFFECT OF EXCHANGE RATE CHANGE ON CASH & CASH EQUIVALENTS


252NET INCREASE IN CASH & CASH EQUIVALENTS


304,657CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD


969,271CASH & CASH EQUIVALENTS, END OF PERIOD

$
1,273,928Supplemental disclosure of cash flow information:Cash paid during the period for:Income tax paid

$
18,578Interest paid

$
681Supplemental disclosure of non-cash investing activities:Net assets of discontinued operations

$
2,788,053





See accompanying notes to financial statements.
 5





COVENANT GROUP OF CHINA INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED MARCH 31, 2010
 (unaudited)


1. ORGANIZATION AND DESCRIPTION OF BUSINESS





Covenant Group of China Inc. (Covenant Group or the Company) (FKA: Everest Resources Corp.) was incorporated in the State of Nevada on November 8, 2006. On December 24, 2009, Covenant Group entered into and closed on a share exchange agreement with Covenant Group Holdings Inc. (Covenant Holdings), a privately held company incorporated under the laws of the State of Delaware. Pursuant to the share exchange agreement, Covenant Group acquired all of the issued and outstanding capital stock of Covenant Holdings in exchange for 9,380,909 shares of common stock.  Prior to the acquisition of Covenant Holdings, the Company was in the development stage and had minimal business operations.





Covenant Holdings was formed in the State of Delaware on June 10, 2009 to acquire equity interests in private Chinese operating companies and providing these companies with strategic support. The total number of Covenant Holdings shares authorized for issuance is 20,000,000 with $0.00001 par value.  Covenant Holdings identified companies that focus on IT applications in Government mandated areas such as communications and media, government manufacturing and security and surveillance. There was no significant activity from June 10, 2009 through December 31, 2009 except for two acquisitions.





On June 24, 2009, Covenant Holdings entered into a stock acquisition and reorganization agreement with Hainan Jien Intelligent Engineering Co. Ltd. (Jien) and its stockholders. Pursuant to the terms of the agreement, Covenant Holdings acquired 100% of the common stock of Jien, representing 100% of its outstanding equity interests, in exchange for 1,350,000 shares of a public shell's common stock, which would acquire all of the rights and obligations of Covenant Holdings.  The acquisition stock price was initially valued at a provisional amount of $2 per share, which was the stock price for Covenant Holdings’ prior private capital raises. The Company changed its valuation stock price to $1.76 per share, which was determined by the volume weighted average stock price for the first day of trading of the Company’s common stock plus all private sales of Covenant Holdings’ common stock prior to the completion of the reverse merger with the Company.  Jien was incorporated in Hainan Province, People’s Republic of China in 1999.  Jien specializes in the design and installation of security and surveillance infrastructure to protect financial institutions and government agencies, and it also implements IC projects for commercial customers.





On June 24, 2009, Covenant Holdings entered into a stock acquisition and reorganization agreement with Chongqing Sysway Information Technology Co. Ltd. (Chongqing Sysway) and its stockholders. Pursuant to the terms of the agreement, Covenant Holdings acquired 100% of the common stock of Chongqing Sysway, representing 100% of its outstanding equity interests, in exchange for 1,400,000 shares of a public shell's common stock, which would acquire all of the rights and obligations of Covenant Holdings.  The acquisition stock price was initially valued at a provisional amount of $2 per share, which was the stock price for Covenant Holdings’ prior private capital raises. The Company changed its valuation stock price to $1.76 per share, which was determined by the volume weighted average stock price for the first day of trading of the Company’s common stock plus all private sales of Covenant Holdings’ common stock prior to the completion of the reverse merger with the Company.   Chongqing Sysway was incorporated in Chongqing City, Sichuan Province, PRC, in 1999 as a State Owned Enterprise (SOE). Since 2005, Chongqing Sysway has operated as a private enterprise mainly engaged in systems integration services, including computer system installation, website design, and system firewall setup, particularly for the tobacco industry.





For accounting purposes, the effective acquisition date of Jien and Chongqing Sysway is deemed to be July 1, 2009 as the results of any activity from June 24, 2009 through June 30, 2009 were deemed to be immaterial to the financial statements taken as a whole.





6


COVENANT GROUP OF CHINA INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED MARCH 31, 2010
 (unaudited)


On December 24, 2009, Covenant Holdings entered into a share exchange agreement with Covenant Group.  Covenant Group agreed to exchange 9,380,909 shares of its common stock, on a one-for-one basis, for each share of Covenant Holdings shares held of record on the date of the closing. Concurrent with the share exchange agreement, one of Covenant Group’s shareholders agreed to cancel 4,500,000 shares out of 6,600,000 of the total issued and outstanding shares of Covenant Group in exchange for the immediate payment of $100,000.  He further agreed to cancel an additional 500,000 shares upon Covenant Holdings’ payment of the principal due on a note issued to the shareholder in the amount of $190,000, which, together with the $100,000 payment, represented the consideration for the acquisition of the shell company.  As of December 31, 2009, $90,000 of the $190,000 note payable was paid. During the first quarter of 2010, the 500,000 shares were cancelled and the Company issued 300,000 shares to this shareholder in lieu of the payment for the note payable of $100,000. In May of 2010, the Company and this shareholder agreed to revise and reduce the 300,000 shares to 70,000 shares. The Share Exchange was being accounted for as a "reverse acquisition," since the Covenant Holdings shareholders own a majority of the outstanding shares of the Company's common stock immediately following the share exchange.  Covenant Holdings was deemed to be the accounting acquiror in the reverse acquisition.  Consequently, the assets and liabilities and the historical operations that were reflected in the financial statements prior to the share exchange were those of Covenant Holdings and were recorded at the historical cost basis of Covenant Holdings.  The consolidated financial statements after completion of the share exchange would include the assets and liabilities of the Company and Covenant Holdings, and the historical operations of Covenant Holdings and operations of the Company from the closing date of the share exchange.  As a result of the issuance of the shares of the Company’s common stock pursuant to the share exchange, a change in control of the Company occurred on the date of the consummation of the share exchange.




The Company's Board of Directors decided on April 30, 2010, to terminate and rescind the Acquisition Agreement with Chongqing Sysway due to several breaches of the agreement by Chongqing Sysway, including the failure of the prior owners of Chongqing Sysway to repay a dividend paid to them by Chongqing Sysway in excess of that permitted under the agreement and under China law and the failure of Chongqing Sysway and its prior owners to cooperate with the Company in the preparation of its financial statement disclosures required under United States securities laws. As a result of the termination and rescission of the agreement, the Company will transfer all of the shares of capital stock of Chongqing Sysway to the prior owners of Chongqing Sysway, and the 1,400,000 shares of common stock of the Company issued in exchange for the shares of capital stock of Chongqing Sysway will be returned to the Company and treated as treasury shares. The intent of this transaction is to return the Company, Chongqing Sysway, and the prior owners of the capital stock of Chongqing Sysway to their status prior to the completion of the acquisition by the Company of the capital stock of Chongqing Sysway on December 24, 2009.




On January 12, 2010, the Company formed a wholly owned subsidiary – Pandaz LLC, a Delaware LLC (Pandaz Delaware). On January 13, 2010, Pandaz Delaware entered into an asset purchase agreement with The Pandaz LLC, a Nevada LLC, for certain assets and intellectual property associated with an automobile dealer and customer interface, vehicle search function and automobile purchasing website that the company is tentatively looking to implement in China.  The total purchase consideration was $25,000, of which, $10,000 was paid as the forgiveness of a bridge loan that the Company provided to the seller on January 7, 2010 and $15,000 was paid as a one-time cash payment.





2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Principle of Consolidation





The consolidated financial statements include the accounts of Covenant Holdings, Covenant Group, Pandaz Delaware and Jien. All intercompany transactions and account balances are eliminated in consolidation.





Basis of Presentation





The accompanying unaudited financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010.





7


COVENANT GROUP OF CHINA INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED MARCH 31, 2010
 (unaudited)


Use of Estimates





In preparing the financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting year. Significant estimates, required by management, include the recoverability of long-lived assets and the valuation of inventories. Actual results could differ from those estimates.





Cash and Cash Equivalents





For purposes of the statement of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.





Accounts and Retentions Receivable





The Company’s policy is to maintain reserves for potential credit losses on accounts receivable.  Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves.  Based on historical collection activity, the Company had allowances of $4,505 at March 31, 2010 and $78,356 at December 31, 2009.





At March 31, 2010, the Company had retentions receivable for product quality assurance of $504,836. At December 31, 2009, the Company had $490,879 of retentions receivable. The retention rate varies from 3% to 5% of the sales price, with variable terms from 1 year to 3 years. $268,105 and $344,428 of the retentions receivable at March 31, 2010 and December 31, 2009, respectively, are current and due within one year; $236,731 and $146,451 of the retentions receivable are treated as long term assets at March 31, 2010 and December 31, 2009, respectively.





Inventories





Jien’s inventories are valued at the lower of cost or market with cost determined on a first-in, first-out basis.





Property and Equipment





Property and equipment are stated at cost, net of accumulated depreciation. Expenditures for maintenance and repairs are expensed as incurred; additions, renewals and betterments are capitalized.  When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations.  Depreciation of property and equipment is provided using the straight-line method for substantially all assets with 5% salvage value and estimated lives ranging from 3 to 25 years as follows:




Building
20 - 25 yearsLeasehold improvements
Shorter of lease term or 10 yearsVehicle
5 - 10 yearsOffice Equipment
3 - 5 years





8


COVENANT GROUP OF CHINA INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED MARCH 31, 2010
 (unaudited)


Impairment of Long-Lived Assets





Long-lived assets, which include property, plant and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.





Recoverability of long-lived assets to be held and used is measured by comparing the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable.  Based on its review, the Company believes that, as of March 31, 2010, there were no significant impairments of its long-lived assets.





Goodwill





Goodwill represents the excess of the fair value of the consideration transferred over the net of the acquisition date amount of identifiable assets acquired and the liability assumed. In accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“Statement No. 142”), codified in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 350, goodwill is not amortized but is tested for impairment annually, or when circumstances indicate a possible impairment may exist. Impairment testing is performed at a reporting unit level. An impairment loss generally would be recognized when the carrying amount of the reporting unit exceeds the fair value of the reporting unit, with the fair value of the reporting unit determined using a discounted cash flow (DCF) analysis. A number of significant assumptions and estimates are involved in the application of the DCF analysis to forecast operating cash flows, including the discount rate, the internal rate of return, and projections of realizations and costs to produce. Management considers historical experience and all available information at the time the fair values of its reporting units are estimated.





Warranties





The Company offers a warranty to its customers on its products for a period from three months to three years depending on the contract terms negotiated with the customers; most of warranty term is one year. The Company accrues for warranty costs based on estimates of the costs that may be incurred under its warranty obligations. The warranty expense and related accrual is included in the Company's selling expenses and other payables respectively, and is recorded at the time revenue is recognized. Factors that affect the Company's warranty liability include the number of sold equipment, its estimates of anticipated rates of warranty claims, costs per claim and estimated support labor costs and the associated overhead.  The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.  The Company’s warranty expense was immaterial for the three months ended March 31, 2010.





Income Taxes





The Company utilizes Statement of Financial Accounting Standards (SFAS) No. 109, “Accounting for Income Taxes,” codified in FASB ASC Topic 740, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns.  Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income.  Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.





9


COVENANT GROUP OF CHINA INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED MARCH 31, 2010
 (unaudited)


The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (codified in FASB ASC Topic 740) on June 10, 2009.  As a result of the implementation of FIN 48, the Company made a comprehensive review of its portfolio of tax positions in accordance with recognition standards established by FIN 48.  As a result of the implementation of Interpretation 48, the Company recognized no material adjustments to liabilities or stockholders equity.  When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained.  The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any.  Tax positions taken are not offset or aggregated with other positions.  Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.





Interest associated with unrecognized tax benefits are classified as interest expense and penalties are classified in selling, general and administrative expenses in the statements of income. The adoption of FIN 48 did not have a material impact on the Company’s financial statements.





Covenant Holdings had a US net operating loss of $818,290 at March 31, 2010 and $690,724 at December 31, 2009.  A 100% valuation allowance has been established due to the uncertainty of its realization.





Covenant Group of China and Pandaz Delaware had US net operating loss of $16,918 and $8,400 at March 31, 2010, respectively.





Jien is qualified as a small business in the construction industry in the PRC.  The Company is subject to a 1.76% and 3% tax rate on net sales for 2010 and 2009. Since the tax is based on sales, under US GAAP, it is not an income tax.  Accordingly, $25,695 was recorded as general and administrative expense for the three months ended March 31, 2010.





The following table reconciles the U.S. statutory rates to the Company’s consolidated effective tax rate for the three months ended at March 31, 2010:





U.S. statutory rates

$
(93,059)Foreign tax rate less than U.S. statutory rate


(27,645)Unrecognized tax benefit on US operating loss


51,980Non tax deductible expense for US company


145,520Foreign income exempt from foreign income tax


(76,796)Income tax expense

$
-





Deferred tax assets (liabilities) consist of the following:





U.S. net operating loss


Deferred tax assetU.S. net operating loss

$
51,980Less valuation allowance


(51,980)Net deferred tax asset

$
-





The valuation allowance for deferred tax assets as of March 31, 2010 was $286,826. The change in the total valuation for the three months ended March 31, 2010 was an increase of $51,980.  The deferred tax asset arose from the net operating loss generated at the US parent company level. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.  The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the net operating losses and temporary differences become deductible.  Management considered projected future taxable income and tax planning strategies in making this assessment.  The value of the deferred tax assets was offset by a valuation allowance, due to the current uncertainty of the future realization of the deferred tax assets.





10


COVENANT GROUP OF CHINA INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED MARCH 31, 2010
 (unaudited)


Revenue Recognition





The Company's revenue recognition policies are in compliance with Securities and Exchange Commission (SEC) Staff Accounting Bulletin (SAB) 104 (codified in FASB ASC Topic 480).  Revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectibility is reasonably assured.  Payments received before all of the relevant criteria for revenue recognition are recorded as unearned revenue.





The Company records its revenue when certain milestones as defined in the service contract are reached. These service contracts have clear milestones and deliverables with distinct values assigned to each milestone.  The milestones do not require the delivery of multiple elements as noted in Emerging Issues Task Force (EITF) Issue 00-21 “Revenue Arrangements with Multiple Deliverables” (EITF No. 00-21) (codified in FASB ASC Topic 605).  In accordance with SAB No. 104, the Company treats each milestone as an individual revenue agreement and only recognizes revenue for each milestone when all the conditions of SAB 104 defined earlier are met. Sales revenue represents the invoiced value of goods and services, net of value-added tax (VAT).





Jien is qualified as a small business so that all of the Company’s products sold or services provided in the PRC are subject to a fixed VAT rate of 4% of the gross sales price regardless of the VAT paid for 2010.  Sales revenue represents the invoiced value of goods or services, net of VAT.  This VAT cannot be offset by VAT paid by the Company on equipment and other materials included in the cost of completing contracts with customers.





The standard warranty of Jien is provided to its customers and is not considered an additional service; rather it is considered an integral part of the product and services’ sale. The Company believes that the existence of its standard product warranty in a sales contract does not constitute a deliverable in the arrangement and thus there is no need to apply the EITF 00-21(codified in FASB ASC Topic 605) separation and allocation model for a multiple deliverable arrangement. FAS 5 (codified in FASB ASC Topic Warranty) specifically addresses the accounting for standard warranties, and neither SAB 104 nor EITF 00-21 supersedes FAS 5. The Company believes that accounting for its standard warranty pursuant to FAS 5 does not impact revenue recognition because the cost of honoring the warranty can be reliably estimated.





Cost of Revenue





Cost of goods sold consists primarily of material costs, labor costs, and related overhead which are directly attributable to the production of the service.  Write-down of inventory to lower of cost or market is also recorded in cost of goods sold.





Basic and Diluted Earnings (Loss) per Share (EPS)





Basic EPS is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS is similarly computed, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Diluted net earnings per share are based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to have been exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.  Since the company does not have any outstanding options or warrants, the basic and diluted EPS are the same.





11


COVENANT GROUP OF CHINA INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED MARCH 31, 2010
 (unaudited)


Concentration of Credit Risk





Financial instruments that potentially subject the Company to credit risk consist primarily of accounts receivable and other receivables. The Company does not require collateral or other security to support these receivables. The Company conducts periodic reviews of its clients' financial condition and customer payment practices to minimize collection risk on accounts receivable.





The operations of the Company are located in the PRC.  Accordingly, the Company's business, financial condition, and results of operations may be influenced by the political, economic, and legal environments in the PRC, as well as by the general state of the PRC economy.





Statement of Cash Flows





In accordance with SFAS No. 95, “Statement of Cash Flows,” codified in FASB ASC Topic 230, cash flows from the Company's operations are calculated based upon the local currencies.  As a result, amounts related to assets and liabilities reported on the statement of cash flows may not necessarily agree with changes in the corresponding balances on the balance sheet.





Fair Value of Financial Instruments





For certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, other receivables, accounts payable, accrued liabilities and short-term debt, the carrying amounts approximate their fair values due to their short maturities.





ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, “Financial Instruments,” defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures.  The carrying amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:





·
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.·
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.·
Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.





The Company analyzes all financial instruments with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities from Equity,” and ASC 815.





As of March 31, 2010, the Company did not have any financial instruments that are required to be presented on the balance sheet at fair value.





Foreign Currency Translation and Transactions





The accompanying consolidated financial statements are presented in United States Dollars (“USD”). The Company’s functional currency is the USD, while the Company’s wholly-owned Chinese subsidiaries’ functional currency is the Renminbi (“RMB”). The functional currencies of the Company’s foreign operations are translated into USD for balance sheet accounts using the current exchange rates in effect as of the balance sheet date and for revenue and expense accounts using the weighted-average exchange rate during the fiscal year. The translation adjustments are recorded as a separate component of stockholders’ equity, captioned accumulated other comprehensive income (loss). Gains and losses resulting from transactions denominated in foreign currencies are included in other income (expense) in the consolidated statements of operations. There have been no significant fluctuations in the exchange rate for the conversion of RMB to USD after the balance sheet date.





12


COVENANT GROUP OF CHINA INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED MARCH 31, 2010
 (unaudited)


Comprehensive Income (Loss)







The Company uses SFAS 130 “Reporting Comprehensive Income” (codified in FASB ASC Topic 220). Comprehensive income is comprised of net income and all changes to the statements of stockholders’ equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders. Comprehensive income for the three months ended March 31, 2010 included net income and foreign currency translation adjustments.





Segment Reporting





SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," codified in FASB ASC Topic 280, requires use of the “management approach” model for segment reporting.  The management approach model is based on the way a company's management organizes segments within the company for making operating decisions and assessing performance.  Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.





SFAS 131 has no effect on the Company's financial statements as substantially all of the Company's operations are conducted in one industry segment.  The Company consists of one reportable business segment.  All of the Company's assets are located in the PRC and its principal market is in the PRC.





New Accounting Pronouncements





On February 25, 2010, the FASB issued Accounting Standards Update (“ASU”) 2010-09 Subsequent Events Topic 855, “Amendments to Certain Recognition and Disclosure Requirements,” effective immediately. The amendments in the ASU remove the requirement for an SEC filer to disclose a date through which subsequent events have been evaluated in both issued and revised financial statements. Revised financial statements include financial statements revised as a result of either correction of an error or retrospective application of US GAAP. The FASB believes these amendments remove potential conflicts with the SEC’s literature. Subsequent events have been evaluated through the date the financial statements were issued.





Recently Issued Accounting Pronouncements Not Yet Adopted





As of March 31, 2010, there are no recently issued accounting standards not yet adopted which would have a material effect on the Company’s financial statements.





3. INVENTORY





Inventory consisted of the following at March 31, 2010 and December 31, 2009:





2010


2009Raw Material

$
52,204


$
20,056Work in Process


211,606



82,894Total

$
263,810


$
102,950





13


COVENANT GROUP OF CHINA INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED MARCH 31, 2010
 (unaudited)


4. ACQUISITION





On June 24, 2009, Covenant Holdings entered into stock acquisition and reorganization agreements with Jien and Chongqing Sysway (note 1).





For convenience of reporting the acquisition for accounting purposes, July 1, 2009 has been designated as the acquisition date.





The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition.





Jien


Chongqing Sysway


TotalCash

$
710,552


$
44,098


$
754,650Accounts receivable


2,420,881



1,380,413



3,801,294Retention receivable


271,770



1,084,047



1,355,817Prepaid expenses


238,275



-



238,275Advance to suppliers


-



1,661



1,661Other receivables


154,237



132,186



286,423Inventory


134,087



83,858



217,945Property and equipment


45,102



37,265



82,367Intangible assets-core software


-



152,256



152,256Goodwill


572,020



902,303



1,474,323Accounts payable


(1,442,990
)


(991,463
)


(2,434,453
)Other current liabilities


(182,370
)


(25,499
)


(207,869
)Unearned revenue


(108,245
)


-



(108,245
)Tax payable


(405,263
)


(337,125
)


(742,388
)Short term loan


(32,056
)


-



(32,056
)Purchase price

$
2,376,000


$
2,464,000


$
4,840,000





The fair value of the consideration transferred was initially valued at a provisional amount of $2 per share, which was the stock price for Covenant Holdings’ prior private capital raises. The Company changed its valuation stock price to $1.76 per share, which was determined by the volume weighted average stock price for the first day of trading of the Company’s common stock plus all private sales of Covenant Holdings’ common stock prior to the completion of the reverse merger with the Company.  The excess of the fair value of the consideration transferred over the net of the acquisition date amounts of identifiable assets acquired and liabilities assumed was allocated to goodwill.




The Company's Board of Directors decided on April 30, 2010 to terminate and rescind the Acquisition Agreement with Chongqing Sysway due to several breaches of the agreement by Chongqing Sysway, including the failure of the prior owners of Chongqing Sysway to repay a dividend paid to them by Chongqing Sysway in excess of that permitted under the agreement and under China law and the failure of Chongqing Sysway and its prior owners to cooperate with the Company in the preparation of its financial statement disclosures required under United States securities laws.




The following pro forma consolidated results of operations of the Company for the three months ended March 31, 2009 presents the consolidated operations of the Company as if the acquisition of Jien occurred on January 1, 2009.





For the Three months Ended March 31,

2009Net revenue

$
2,028,041Cost of revenue


(1,575,432
)Gross profit


452,609Total operating expenses


(144,529)Income  from operations


308,080Non-operating expenses


(1,302)Income tax


-Net income

$
306,778





14


COVENANT GROUP OF CHINA INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED MARCH 31, 2010
 (unaudited)


5. PROPERTY AND EQUIPMENT, NET





Property and equipment consisted of the following at March 31, 2010 and December 31, 2009:





2010


2009Vehicle

$
7,336


$
-Office equipment


30,618



32,876Leasehold Improvement


12,254



12,251Subtotal


50,208



45,127Less: Accumulated depreciation


(22,506
)


(23,333
)$
27,702


$
21,794





Depreciation expense for the three months ended March 31, 2010 was $1,832.





6. OTHER RECEIVABLES





Other receivables consisted of the following at March 31, 2010 and December 31, 2009:





2010


2009Short term advance to third parties

$
109,778


$
180,043Advance to staffs


60,654



42,307Deposit


1,465



11,716$
171,897


$
234,066





7. INTANGIBLE ASSETS





Intangible assets of $25,000 at March 31, 2010 mainly consisted of website operating software with vehicle search function, manufacture’s code and dealer interface capabilities for the amount of $15,000 and intellectual property for technical information for the amount of $10,000, which were purchased by Pandaz Delaware during the three months ended March 31, 2010.  The amortization for the intangible assets for the three months ended March 31, 2010 was immaterial.





8. TAX PAYABLE





Tax payable consisted of the following at March 31, 2010 and December 31, 2009:





2010


2009Income tax payable

$
45,718


$
38,590Business tax payable


(14,220
)


(26,346
)Other taxes payable


(12,928
)


(2,264
)$
18,570


$
9,980





15


COVENANT GROUP OF CHINA INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED MARCH 31, 2010
 (unaudited)


9. ACCRUED LIABILITIES AND OTHER PAYABLES





Accrued liabilities and other payables consisted of the following at March 31, 2010 and December 31, 2009:





2010


2009Warranty provision

$
44,094


$
48,475Short term advance from third parties


132,695



216,031Sales and business tax payable


103,869



174,268$
280,658


$
438,774





10. COMMON STOCK





Effective November 10, 2009, the Company and the lender of the three bridge loans have agreed to cancel the promissory note of $399,870. In lieu of principal and interest payments due to the lender, the Company issued 200,909 shares of the Company’s common stock to the lender.





Pursuant to the confidential private placement memorandum dated November 24, 2009, the Company was offering to sell up to 750,000 shares at $2.00 per share, with a minimum purchase of 10,000 Shares per investor, requiring a minimum investment of $20,000, with a minimum total quantity of 150,000 Shares ($300,000) that must be subscribed for by all investors to affect a closing and avoid termination of the Offering. At December 16, 2009, the Company sold 200,000 shares through the private placement, which were converted into publicly-traded securities upon the Company’s merger with a public shell company on December 24, 2009.





During the first quarter of 2010, one shareholder cancelled 500,000 shares of the Company’s stock that was originally held as collateral for a note arising from the share exchange transaction on December 24, 2009 with an outstanding balance of $100,000. The Company issued 300,000 shares to this shareholder in lieu of the payment for the note payable of $100,000 (Note 14).





11. DIVIDEND PAYABLE





The Company declared a 30% dividend of Jien’s 2008 net income to Jien’s original shareholders and management as part of the acquisition agreement dated June 24, 2009. The dividend declared for Jien was $200,608, and has been recorded as a dividend payable at December 31, 2009. As part of the acquisition agreement, the Company also agreed to pay the original shareholders and management of Jien a 30% dividend on 2009 year end profits. The dividend was declared and was recorded as a dividend payable for Jien in the amount of $277,653, which was the retained earnings that were available for declaring a dividend at December 31, 2009.





At March 31, 2010, the dividend payable was approximately $478,000.





12. MAJOR CUSTOMERS





Three customers accounted for 85% of the total sales for the three months ended March 31, 2010, and these three customers accounted for 39%, 28% and 17%, respectively. At March 31, 2010, the total receivable balance due from these customers was $757,677.





Two suppliers accounted for 76% of the total purchases for the three months ended March 31, 2010 and these two vendors accounted for 63% and 13%, respectively. At March 31, 2010, the total payable due to these vendors was $253,322.





16


COVENANT GROUP OF CHINA INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED MARCH 31, 2010
 (unaudited)


13. SHORT TERM LOANS





During the three months ended March 31, 2010, the Company borrowed $261,928 (RMB 1,788,000) from Shenzhen Development Bank. The loan bears interest at 5.59% per year and is due on June 26, 2010.  This loan is collateralized by $393,971 (RMB 2,689,360) of accounts receivable.





At December 31, 2009, the Company had borrowed $37,600 from Shenzhen Development Bank with interest at 5.832% per year, due in February of 2010; this loan was paid in full upon maturity.





14. NOTE PAYABLE





At December 31, 2009, note payable represented the $100,000 remaining balance from a $190,000 promissory note issued to a former majority shareholder of Covenant Group plus cash consideration for the acquisition of the shell company. This note was settled by issuing the shareholder 300,000 common shares of the Company with a fair value of $528,000, resulting in a loss on settlement of $428,000.  In May of 2010, the Company and this shareholder agreed to revise and reduce the 300,000 shares to 70,000 shares.





15. STATUTORY RESERVES





Pursuant to the corporate law of the PRC effective January 1, 2006, PRC subsidiaries of the Company are   required to maintain a statutory reserve by appropriating from its after-tax profit before declaration or payment of dividends. The statutory reserve represents restricted retained earnings.





Surplus reserve fund





The PRC subsidiaries of the Company are required to transfer 10% of their net income, as determined under PRC accounting rules and regulations, to a statutory surplus reserve fund until such reserve balance reaches 50% of the Company’s registered capital.  The Company had $67,737 in this reserve at March 31, 2010.





The surplus reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any, and may be utilized for business expansion or converted into share capital by issuing new shares to existing shareholders in proportion to their shareholding or by increasing the par value of the shares currently held by them, provided that the remaining reserve balance after such issue is not less than 25% of the registered capital.





Common welfare fund





Common welfare fund is a voluntary fund to which the Company can elect to transfer 5% to 10% of its net income.  The Company did not make any contribution to this fund for the period since business inception through March 31, 2010.





This fund can only be utilized on capital items for the collective benefit of the Company’s employees, such as construction of dormitories, cafeteria facilities, and other staff welfare facilities. This fund is non-distributable other than upon liquidation.





Pursuant to the "Circular of the Ministry of Finance (MOF) on the Issue of Corporate Financial Management after the Corporate Law Enforced" (No.67 [2006]), effective on April 1, 2006, issued by the MOF, companies transferred the balance of SCWF (Statutory Common Welfare Fund) as of December 31, 2005 to Statutory Surplus Reserve. Any deficit in the SCWF was charged in turn to Statutory Surplus Reserve, additional paid-in capital and undistributed profit of previous years. If a deficit still remains, it should be transferred to retained earnings and be reduced to zero by a transfer from after tax profit of following years. At December 31, 2005, the Company did not have a deficit in the SCWF.





17


COVENANT GROUP OF CHINA INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED MARCH 31, 2010
 (unaudited)


16. COMMITMENTS





Jien leased its office under a long term, non-cancelable, and renewable operating lease agreement on November 8, 2007, with an expiration date of November 7, 2009.  Upon expiration, the Company renewed the lease for a period from November 8, 2009 to November 7, 2012, with monthly rent of approximately $3,600 (RMB 24,509). Annual rental expense is approximately $43,200 for the years ended December 31, 2010 and 2011, and approximately $36,000 for 2012. For the three months ended March 31, 2010, the rental expense was $10,770.





17. DISPOSAL OF SUBSIDIARY





The Company records discontinued operations if both of the following conditions are met: (a) the operations and cash flows of the component have been (or will be) eliminated from the ongoing operations of the Company as a result of the disposal transaction and (b) the Company will not have any significant continuing involvement in the operations of the component after the disposal transaction. During a period in which a component of the Company either has been disposed of or is classified as held for sale, the income statement of the Company for current and prior periods shall report the results of operations of the component, including any gain or loss recognized in accordance with SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets,” (codified in FASB ASC Topic 360) in discontinued operations. The results of operations of a component classified as held for sale shall be reported in discontinued operations in the period(s) in which they occur. The results of discontinued operations, less applicable income taxes (benefit), shall be reported as a separate component of income before extraordinary items and the cumulative effect of accounting changes (if applicable).




The Company's Board of Directors decided on April 30, 2010 to terminate and rescind the Acquisition Agreement with Chongqing Sysway due to several breaches of the agreement by Chongqing Sysway, including the failure of the prior owners of Chongqing Sysway to repay a dividend paid to them by Chongqing Sysway in excess of that permitted under the agreement and under China law and the failure of Chongqing Sysway and its prior owners to cooperate with the Company in the preparation of the financial statement disclosures required under United States securities laws.




As a result of the termination and rescission of the agreement, the Company will transfer all of the shares of capital stock of Chongqing Sysway to the prior owners of Chongqing Sysway, and the 1,400,000 shares of common stock of the Company issued in exchange for the shares of capital stock of Chongqing Sysway will be returned to the Company and treated as treasury shares. The intent of this transaction is to return the Company, Chongqing Sysway, and the prior owners of the capital stock of Chongqing Sysway to their status prior to the completion of the acquisition by the Company of the capital stock of Chongqing Sysway on December 24, 2009. For convenience of reporting for accounting purposes, January 1, 2010 has been designated as the date of rescission.





The assets and liabilities of Chongqing Sysway have been reclassified at December 31, 2009 as assets of discontinued operations and liabilities of discontinued operations.





Identifiable net assets Chongqing Sysway as of December 31, 2009 were as follows:




Cash & cash equivalents

$
413,093Accounts receivable, net


1,456,008Other current assets


1,159,231Goodwill


902,303Other noncurrent assets


232,091Total assets

$
4,162,726Accounts payable

$
829,444Tax payable


536,633Dividend payable


242,851Other current liabilities


7,658Total liabilities

$
1,616,586




18


COVENANT GROUP OF CHINA INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED MARCH 31, 2010
 (unaudited)


18. CONTINGENCIES





The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange. The Company’ s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.





The Company’s sales, purchases and expenses transactions are denominated in RMB, and all of the Company’s assets and liabilities are also denominated in RMB. The RMB is not freely convertible into foreign currencies under the current law. In China, foreign exchange transactions are required by law to be transacted only by authorized financial institutions. Remittances in currencies other than RMB may require certain supporting documentation in order to affect the remittance.





19. EQUITY CREDIT AGREEMENT





On January 31, 2010, the Company entered into an equity credit agreement with an institutional investor providing the Company with the right, but not the obligation, to issue shares of its common stock at any time and from time to time during the next two years for gross proceeds of up to $20,000,000. The Company may require the investor to purchase shares of its common stock from time to time under the equity credit agreement by delivering a put notice specifying the total purchase price for the shares to be purchased. The investment amount may not be greater than the lesser of (a) $1,000,000 or (b) 300% of the average dollar volume (closing bid price times the volume on the OTC Bulletin Board for a trading day) for the 20 trading days preceding the put notice. The purchase price per share for the shares to be purchased for the investment amount will be 94% of the lowest closing bid price on the OTC Bulletin Board during the five trading days following the put notice.





The Company also agreed to issue to the investor warrants to purchase an additional 300,000 shares of its common stock during a five year period at an exercise price of $2.00 per share. The warrant will be issued to the investor upon the effectiveness of a registration statement on Form S-1 to be filed with the Securities and Exchange Commission (SEC).  The warrant will be exercisable in whole or in part upon issuance and will remain exercisable for a five year period.





The Company also entered into a registration rights agreement as part of the transaction. The registration rights agreement requires the Company to prepare promptly, and file with the SEC within 60 days, the registration statement for the resale of the shares of common stock issuable upon exercise of the warrant.





As of March 31, 2010, the Company has not made any requirements to the investor.





20. SUBSEQUENT EVENT





On April 22, 2010, the company entered into a bridge loan agreement to obtain $120,000 in short-term financing from a private investor.   In addition, 200,000 restricted common stock shares were issued to this investor in connection with this financing.   The entire principal balance will be payable in full three months from April 22, 2010.





On May 13, 2010, the Company and the Company’s shareholder (the $100,000 note holder as described in Note 1 and Note 14) entered into a Second Amendment to the Share Cancellation and Loan Agreement, whereby the shareholder agreed to reduce the 300,000 shares to 70,000 shares as settlement of the debt.


19


CAUTIONARY STATEMENT FOR FORWARD-LOOKING STATEMENTS





This quarterly report on Form 10-Q and other reports filed by the Company from time to time with the SEC (collectively the “Filings”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the filings, the words “anticipate”, “believe”, “estimate”, “expect”, “future”, “intend”, “plan”, or the negative of these terms and similar expressions as they relate to Company or Company’s management identify forward-looking statements. Such statements reflect the current view of Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors (including the factors discussed in the section “results of operations” below), and any businesses that Company may acquire. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.





Although the Company believes that the expectations reflected in the forward-looking statements are based on reasonable assumptions, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this quarterly report, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations, and prospects.





Our financial statements are prepared in US Dollars and in accordance with accounting principles generally accepted in the United States. See “Foreign Currency Translation” and “Comprehensive Income (Loss)” below for information concerning the exchange rates at which Renminbi (“RMB”) were translated into US Dollars (“USD”) at various pertinent dates and for pertinent periods.


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations


Overview





We are a holding company engaged in the business of acquiring equity interests in private companies based and operating in the People’s Republic of China (“PRC”) and providing these companies with support, including administrative, legal, accounting and marketing assistance, and an infusion of capital with the long term goal of preparing them to become public companies in their own right.  We plan to continue to focus on the acquisition of small-to-medium-sized private companies doing business in certain growth industries located in China.





We were incorporated in the State of Nevada on November 8, 2006 under the name Everest Resources Corp. as an exploration stage corporation that intended to engage in the exploration of gold.  On December 24, 2009 we changed our name to Covenant Group of China Inc. and acquired all of the equity interests in Covenant Group Holdings Inc. (“Covenant Holdings”), a privately held company incorporated under the laws of the State of Delaware and engaged in the business of acquiring equity interests in private Chinese operating companies and providing these companies with strategic support.  The acquisition of the equity interests of Covenant Holdings was accomplished on December 24, 2009 pursuant to the terms of a share exchange agreement by and among the Company, Covenant Holdings and all of the shareholders of Covenant Holdings.  Upon the closing of the share exchange, each of the Covenant Holdings shareholders exchanged their respective shares of Covenant Holdings, on a one-for-one basis, for 9,380,909 shares of the Company’s common stock.  As a result of the share exchange, Covenant Holdings became a wholly owned subsidiary of the Company.





20





Prior to our acquisition of Covenant Holdings, we were in the development stage and had minimal business operations.  We had no interest in any property, but had the right to conduct mineral exploration activities on 471 acres located in southern British Columbia, Canada pursuant to an agreement with the former majority shareholder of the Company, Gary Sidhu. In connection with the acquisition of Covenant Holdings, Mr. Sidhu terminated the Company’s mineral exploration rights, and he agreed to surrender 5,000,000 shares of the Company’s common stock in exchange for $100,000 and a promissory note from the Company in the principal amount of $190,000, $90,000 of which the Company has prepaid.  Mr. Sidhu has surrendered 4,500,000 shares of our common stock and has agreed to surrender his remaining 500,000 shares upon full payment of the promissory note by the Company.  On March 25, 2010, Mr. Sidhu and the Company entered into an agreement pursuant to which Mr. Sidhu agreed to cancel the promissory note and surrender his remaining 500,000 shares in exchange for the Company issuing to him 300,000 shares of common stock of the Company.





There was no significant activity from June 10, 2009 through December 31, 2009 except for the acquisitions of our two operating subsidiaries, Hainan Jien Intelligent Engineering Co. Ltd. (“JIEN”) and Chongqing HongSheng Sysway Information Technology Co. Ltd. (“Sysway”).  On June 24, 2009, Covenant Holdings entered into a stock acquisition and reorganization agreement with JIEN and its stockholders. Pursuant to the terms of this agreement, Covenant Holdings acquired 100% of the capital stock of JIEN, representing 100% of the company’s outstanding equity interests, in exchange for 1,350,000 shares of a public shell's common stock.  For purposes of this acquisition, the common stock of the shell company that would acquire all of the rights and obligations of Covenant Holdings was valued at $1.76 per share, which was determined by the volume weighted average stock price for the first day of trading of the Company’s common stock plus all private sales of Covenant Holdings’ common stock prior to the completion of the reverse merger with the Company.  JIEN was incorporated in Hainan Province, People’s Republic of China in 1999.  JIEN specializes in the design and installation of security and surveillance infrastructure to protect financial institutions and government agencies, and it also implements intelligent construction projects for commercial customers.





On June 24, 2009, Covenant Holdings entered into a stock acquisition and reorganization agreement with Chongqing Sysway and its stockholders. Pursuant to the terms of this agreement, Covenant Holdings acquired 100% of the capital stock of Sysway, representing 100% of the company’s outstanding equity interests, in exchange for 1,400,000 shares of a public shell's common stock.  For purposes of this acquisition, the common stock of the shell company that would acquire all of the rights and obligations of Covenant Holdings was valued at $1.76 per share, which was determined by the volume weighted average stock price for the first day of trading of the Company’s common stock plus all private sales of Covenant Holdings’ common stock prior to the completion of the reverse merger with the Company.   Chongqing Sysway was incorporated in Chongqing City, Sichuan Province, PRC, in 1999 as a State Owned Enterprise (“SOE”).  Since 2005, Chongqing Sysway has operated as a private enterprise mainly engaged in systems integration services, including computer systems installation, website design, and system firewall setup, particularly for the tobacco industry.





On January 12, 2010, the Company formed a wholly owned subsidiary – Pandaz LLC, a Delaware LLC (“Pandaz Delaware”). On January 13, 2010, Pandaz Delaware entered into an asset purchase agreement with The Pandaz LLC, a Nevada LLC, purchasing certain assets and intellectual property associated with an automobile dealer and customer interface, vehicle search function and automobile purchasing website that the company is tentatively looking to implement in China.  The total purchase consideration was $25,000, of which, $10,000 was paid as the forgiveness of a bridge loan that the Company provided to the seller on January 7, 2010 and $15,000 was paid as a one-time cash payment.





On April 30, 2010, the Board of Directors of the Company voted to terminate and rescind the stock acquisition and reorganization agreement with Chongqing Sysway due to multiple breaches of such agreement by Sysway, including the failure of the prior owners of Sysway to repay a dividend paid to them by Sysway in excess of that permitted under the agreement and under China law and the failure of Sysway and its prior owners to cooperate with the Company in the preparation of the financial statement disclosures required under United States securities laws.





As a result of the termination and rescission of the agreement, the Company will transfer all of the shares of capital stock of Sysway to the prior owners of Sysway, and the 1,400,000 shares of common stock of the Company issued in exchange for the shares of capital stock of Sysway will be returned to the Company and treated as treasury shares.   The intent of this transaction is to return the Company, Sysway, and the prior owners of the capital stock of Sysway to their status prior to the completion of the acquisition by the Company of the capital stock of Sysway on December 24, 2009.





21





Critical Accounting Policies





While our significant accounting policies are more fully described in Note 2 to our consolidated financial statements, we believe the following accounting policies are the most critical to aid you in fully understanding and evaluating this management’s discussion and analysis.




Basis of Presentation





The Company’s financial statements are prepared in accordance with generally accepted accounting principles in the United States of America ("US GAAP”).





Principle of Consolidation





The consolidated financial statements include the accounts of Covenant Holdings, Covenant Group of China, Pandaz Delaware and JIEN, and all intercompany transactions and account balances are eliminated in consolidation.





Use of Estimates





In preparing the financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting year.  Significant estimates, required by management, include the recoverability of long-lived assets and the valuation of inventories.  Actual results could differ from those estimates.





Accounts Receivable and Retentions Payable





The Company’s policy is to maintain reserves for potential credit losses on accounts receivable.  Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer creditworthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves.  We have retentions receivable for product quality assurance; our retention rate varies from 3% to 5% of the sales price with variable terms from 1 year to 3 years.





Inventories





JIEN’s inventories are valued at the lower of cost or market with cost determined on a first in, first out basis.





Property and Equipment





Property and equipment are stated at cost, net of accumulated depreciation.  Expenditures for maintenance and repairs are expensed as incurred; additions, renewals and betterments are capitalized.  When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations.  Depreciation of property and equipment is provided using the straight-line method for substantially all assets with 5% salvage value and estimated lives ranging from 3 to 25 years as follows:





Building
20-25 yearsLeasehold improvements
Shorter of lease term or 10 yearsVehicle
5-10 yearsOffice Equipment
3-5 years





22





Goodwill





Goodwill represents the excess of the fair value of the consideration transferred over the net of the acquisition date amount of identifiable assets acquired and the liability assumed. In accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“Statement No. 142”), codified in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 350, goodwill is not amortized but is tested for impairment annually, or when circumstances indicate a possible impairment may exist. Impairment testing is performed at a reporting unit level. An impairment loss generally would be recognized when the carrying amount of the reporting unit exceeds the fair value of the reporting unit, with the fair value of the reporting unit determined using a discounted cash flow (DCF) analysis. A number of significant assumptions and estimates are involved in the application of the DCF analysis to forecast operating cash flows, including the discount rate, the internal rate of return, and projections of realizations and costs to produce. Management considers historical experience and all available information at the time the fair values of its reporting units are estimated.





Revenue Recognition





The Company's revenue recognition policies are in compliance with Securities and Exchange Commission (SEC) Staff Accounting Bulletin (SAB) 104 (codified in FASB ASC Topic 480).  Revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured.  Payments received before all of the relevant criteria for revenue recognition are recorded as unearned revenue.





The Company records its revenue when certain milestones as defined in the service contract are reached. These service contracts have clear milestones and deliverables with distinct values assigned to each milestone.  The milestones do not require the delivery of multiple elements as noted in Emerging Issues Task Force (EITF) Issue 00-21 “Revenue Arrangements with Multiple Deliverables” (EITF No. 00-21) (codified in FASB ASC Topic 605).  In accordance with SAB No. 104, the Company treats each milestone as an individual revenue agreement and only recognizes revenue for each milestone when all the conditions of SAB 104 defined earlier are met. Sales revenue represents the invoiced value of goods and services, net of value-added tax (VAT).





JIEN is qualified as a small business so that all of its products sold or services provided in the PRC are subject to a fixed VAT rate of 4% of the gross sales price regardless of the VAT paid.  Sales revenue represents the invoiced value of goods or services, net of VAT.  This VAT cannot be offset by VAT paid by JIEN on equipment and other materials included in the cost of completing contracts with customers.





The standard warranty of JIEN is provided to its customers and is not considered an additional service; rather it is considered an integral part of the product and services’ sale.  JIEN believes that the existence of its standard product warranty in a sales contract does not constitute a deliverable in the arrangement and thus there is no need to apply the EITF No. 00-21 separation and allocation model for a multiple deliverable arrangement. SFAS No. 5 specifically address the accounting for standard warranties and neither SAB No. 104 nor EITF No. 00-21 supersedes SFAS No. 5 (codified in FASB ASC Topic Warranty). The Company believes that accounting for its standard warranty pursuant to SFAS No. 5 does not impact revenue recognition because the cost of honoring the warranty can be reliably estimated.





Cost of Revenue





Cost of goods sold consists primarily of material costs, labor costs, and related overhead that are directly attributable to the production of the service.  Write-down of inventory to lower of cost or market is also recorded in cost of goods sold.





Foreign Currency Translation and Transactions





The accompanying consolidated financial statements are presented in United States Dollars (“USD”). The Company’s functional currency is the USD, while the Company’s wholly-owned Chinese subsidiaries’ functional currency is the Renminbi (“RMB”). The functional currencies of the Company’s foreign operations are translated into USD for balance sheet accounts using the current exchange rates in effect as of the balance sheet date and for revenue and expense accounts using the weighted-average exchange rate during the fiscal year. The translation adjustments are recorded as a separate component of stockholders’ equity, captioned accumulated other comprehensive income (loss). Gains and losses resulting from transactions denominated in foreign currencies are included in other income (expense) in the consolidated statements of operations. There have been no significant fluctuations in the exchange rate for the conversion of RMB to USD after the balance sheet date.





23





Comprehensive Income (Loss)





The Company uses SFAS 130 “Reporting Comprehensive Income” (codified in FASB ASC Topic 220). Comprehensive income is comprised of net income and all changes to the statements of stockholders’ equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders.





Segment Reporting





SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information” (codified in FASB ASC Topic 280), requires use of the “management approach” model for segment reporting.  The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance.  Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.





SFAS 131 has no effect on the Company’s financial statements as substantially all of the Company’s operations are conducted in one industry segment.  The Company consists of one reportable business segment.  All of the Company’s assets are located in the PRC.





RESULTS OF OPERATIONS





For the three months ended March 31, 2010 and the comparative period of 2009





The following table presents the actual consolidated results of operations of Covenant Group of China for the three months ended March 31, 2010 as compared to the pro forma consolidated results of operations of Covenant Group of China for the period from January 1, 2009 through March 31, 2009 as if the acquisition of JIEN occurred on January 1, 2009, indicated as a percentage of net sales.








For Three Months Ended March 31,2010


2009 (Pro Forma)$



% of Sales


$



% of SalesSales


1,425,941






2,028,041Cost of sales


1,006,965



71
%


1,575,432



78
%Gross Profit


418,976



29
%


452,609



22
%Operating Expenses


260,416



18
%


144,529



7
%Income from Operations


158,560



11
%


308,080



15
%Other Income (Expenses), net


(432,262)



(30)
%


(1,302)



0
%Net Loss


(273,702)



(19)
%


306,778



15
%





NET REVENUES





Net revenues for the three months ended March 31, 2010 were $1,425,941, as compared to net revenues of $2,028,041 for the comparative period of 2009, a decrease of $602,100, or approximately 30%. This decrease was mainly attributed to JIEN obtaining several large projects for government agencies in the beginning of 2009, such as Rural Credit Cooperative Branches Supervisory Control System and Hainan Province Medical School. We believe the recovery of the Chinese economy through the central government’s effective economic stimulation programs creates an active environment for JIEN’s business, which we predict, combined with the strengthening of JIEN’s own sales force, will bring JIEN more new projects throughout 2010 despite the decrease in sales for the first quarter of 2010.





24





COST OF REVENUES





Cost of revenue includes material costs, labor costs, and related overhead, which are directly attributable to our provided services. For the three months ended March 31, 2010, cost of revenues amounted to $1,006,965, or approximately 71%, of net revenues as compared to cost of revenues of $1,575,432, or approximately 78% of net revenues for the comparative period of 2009.





The decrease in cost of revenue as a percentage to net revenue was attributed to the effective control of cost of equipment and other materials purchased to complete contracts and overhead cost by our subsidiaries’ management. The cost of each project varies based on the nature of each project.





GROSS PROFIT





Gross profit for the three months ended March 31, 2010 was $418,976, as compared to $452,609 for the comparative period of year 2009, a decrease of $33,633 or approximately 7%. Gross profit margin was 29% for the three months ended March 31, 2010 and 22% for the comparative period of 2009. This increase in gross profit margin was due to some government projects generated in the first quarter of 2010, which usually have relatively higher profit margins, as well as successful negotiations with customers on contact price and related terms.





OPERATING EXPENSES





Operating expenses consisted of selling, general and administrative expenses totaling $260,416 for the three months ended March 31, 2010, compared to $144,529 for the comparative period of 2009, an increase of $115,887 or 80%.  The increase in operating expenses was primarily due to increased expenses in audit, legal, and consulting fees arising from the Company being a public company as a result of the reverse merger at the end of 2009.





The operating expense for JIEN was approximately $82,039 for the quarter ended March 31, 2010 as compared to $144,529 for the same period of 2009, a decrease of $62,490 or 43%. This decrease was mainly attributed to the efficient control of costs and expenses by JIEN’s management, as well as the decreased tax rate on net sales from 3% in 2009 to 1.76% in 2010.





NET INCOME





For the three months ended March 31, the Company realized a net loss of $273,702 as compared to net income $306,778 for the comparative period of 2009, a decrease of $580,480, or approximately 189%. This decrease in net income was mainly due to a one-time, non-cash expense of $428,000 resulting from the settlement of a note payable to one of the Company’s shareholders in exchange for the issuance of 300,000 shares of the Company’s common stock.





LIQUIDITY AND CAPITAL RESOURCES





For the three Months Ended March 31, 2010 and the comparative period of 2009





As of March 31, 2010, we had cash and cash equivalents of $1,273,928, of which the Company directly held $25,209, Covenant Holdings held $303, Pandaz Delaware held $5,570 and JIEN held $1,242,666. Other current assets were $2,233,561 and current liabilities were $1,672,237.  Working capital was $1,835,252. The ratio of current assets to current liabilities was 2.1:1 at March 31, 2010.





The following table presents the actual summary of cash provided by or used in each of the indicated types of activities of Covenant Group of China for the three months ended March 31, 2010 as compared to the pro forma summary of cash provided by or used in each of the indicated types of activities of Covenant Group of China for the three months ended March 31, 2009 as if the acquisition of JIEN occurred on January 1, 2009.





25





2010


(Pro Forma)

2009Cash provided by (used in):Operating Activities

$
112,993


$
310,684Investing Activities


(32,848)



-Financing Activities


224,260



-





Net cash flow generated by operating activities was $112,993 during the three months ended March 31, 2010, as compared to net cash flow provided by operating activities of $310,684 for the comparative period of 2009. The decrease in net cash flow generated in operating activities during the three months ended March 31, 2010 was mainly due to decreased net income, decreased accounts payable outstanding, but partially offset by the quick repayment of accounts receivable.




Net cash flow used in investing activities was $32,848 in the three months ended March 31, 2010, compared to net cash used in investing activities of $0 in the comparative period of 2009. The cash was used mainly for the acquisition of fixed assets.




Net cash flow provided by financing activities was $224,260 in the three months ended March 31, 2010 as compared to net cash provided by financing activities of $0 in the comparative period of 2009.  The increased cash flow provided by financing activities is primarily due to a short-term bank loan received by JIEN in the first quarter of 2010.





Recent Accounting Pronouncements





On February 25, 2010, the FASB issued Accounting Standards Update (“ASU”) 2010-09 Subsequent Events Topic 855, “Amendments to Certain Recognition and Disclosure Requirements,” effective immediately. The amendments in the ASU remove the requirement for an SEC filer to disclose a date through which subsequent events have been evaluated in both issued and revised financial statements. Revised financial statements include financial statements revised as a result of either correction of an error or retrospective application of US GAAP. The FASB believes these amendments remove potential conflicts with the SEC’s literature. Subsequent events have been evaluated through the data the financial statements were issued.





Off-Balance Sheet Arrangements





We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as stockholder’s equity or that are not reflected in our consolidated financial statements.  Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity.  We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.





Item 3.    Quantitative and Qualitative Disclosures About Market Risk





We are exposed to market risks related to changes in interest rates and foreign currency exchange rates.  However, we believe those risks to be not material in relation to our operations. We are not a party to any derivative financial instruments.





Interest Rate Risk





As of December 31, 2009, we held no money market securities or short term available for sale marketable securities. Accordingly, an immediate 10% change in interest rates would not have a material effect on the fair market value of our portfolio. Therefore, we would not expect our operating results or cash flows to be affected to any significant degree by the effect of a sudden change in market interest rates on our securities portfolio.





Foreign Currency Exchange Risk





All of our revenues are denominated in RMB and, as a result, we have certain exposure to foreign currency exchange risk with respect to current revenues. A majority of our expenses are payable in foreign currency. We do not use forward exchange contracts to hedge exposures denominated in foreign currencies or any other derivative financial instruments for trading or speculative purposes. The effect of an immediate 10% change in exchange rates would not have a material impact on our future operating results or cash flows.





26





Credit Risk





Financial instruments that potentially subject the Company to credit risk consist primarily of accounts receivable and other receivables. The Company does not require collateral or other security to support these receivables. The Company conducts periodic reviews of its clients' financial condition and customer payment practices to minimize collection risk on accounts receivable.





The operations of the Company are located in the PRC.  Accordingly, the Company's business, financial condition, and results of operations may be influenced by the political, economic, and legal environments in the PRC, as well as by the general state of the PRC economy.





Item 4T.    Controls and Procedures




The Company carried out an evaluation, under the supervision and with the participation of its management, including the President and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in the Exchange Act Rule 13a-15(e)) as of the end of the period covered by this quarterly report. Based upon that evaluation, the President and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective.







There was no change in the Company’s internal control over financial reporting that occurred during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.





Part II.    OTHER INFORMATION





Item 1.    Legal Proceedings





There have been no material changes from the disclosure provided in Part 1, Item 3 of our Annual Report on Form 10-K for the year ended December 31, 2009.





Item 1A.    Risk Factors





There have been no material changes from the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2009.




Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds





On March 24, 2010, Gary Sidhu and the Company entered into a first amendment to a share cancelation and loan agreement pursuant to which Mr. Sidhu agreed to cancel the $100,000 remaining balance on a promissory note and surrender his remaining 500,000 shares of the Company’s common stock in exchange for the Company issuing to him 300,000 shares of common stock of the Company.  Subsequently, on May 13, 2010, Mr. Sidhu agreed to accept a revised issuance of 70,000 shares of common stock of the Company pursuant to a second amendment to a share cancelation and loan agreement.  The issuance of such shares was exempt from the registration requirements of the Securities Act pursuant to the exemption provided under Section 4(2) of the Securities Act.





27





On April 22, 2010, the Company entered into a bridge loan agreement for short-term financing with Sui Generis Capital Partners LLC (“Sui Generis”).  As additional consideration for entering into the bridge loan agreement, the Company issued 200,000 shares of common stock of the Company to Sui Generis. The issuance of such shares was exempt from the registration requirements of the Securities Act pursuant to the exemption provided under Section 4(2) of the Securities Act.




On April 30, 2010, the Company’s board approved two issuances of 6,000 shares and 2,000 shares of the Company’s common stock to two of the Company’s vendors as consideration for services rendered. The issuance of such shares was exempt from the registration requirements of the Securities Act pursuant to the exemption provided under Section 4(2) of the Securities Act.





Item 3.    Defaults Upon Senior Securities





None.





Item 5.    Other Information




None.





Item 6.    Exhibits





(a)
Exhibits





Exhibit Number

Description of Exhibit10.1

Bridge Loan Agreement by and between Covenant Group of China Inc. and Sui Generis Capital Partners LLC, dated April 22, 2010.10.2

First Amendment to Equity Credit Agreement by and between Covenant Group of China Inc. and Southridge Partners II, LP, dated May 17, 201010.3

Second Amendment to the Share Cancelation and Loan Agreement by and among Covenant Group of China Inc., Covenant Group Holdings Inc. and Gary Sidhu.31.1

Certification of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended.31.2

Certification of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d 14(a), promulgated under the Securities and Exchange Act of 1934, as amended.32.1

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer).32.2

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer).


28


SIGNATURES





In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.





COVENANT GROUP OF CHINA INC.May 17, 2010
By:
/s/  Kenneth WongKenneth WongPresident(Principal Executive Officer)May 17, 2010
By:
/s/ Justin D. CsikJustin D. CsikChief Financial Officer

(Principal Financial and Accounting Officer)