U.S.
Securities and Exchange Commission
 Washington,
D.C. 20549
 
 FORM
10-Q
 
 [X]  QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF
      1934
 
 For
the Quarterly Period Ended June 30, 2010
 
 [    ]      TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF
      1934
 
 For
the Transition Period From ____to _____
 
 Commission
file number   000-52407
 
 CHINA EDUCATION TECHNOLOGY,
INC.
 (Name of
Small Business Issuer in its Charter)
 
 NEVADA
 (State or
Other Jurisdiction of Incorporation of Organization)
 
 94-3251254
 (I.R.S.
Employer Identification No.)
 
 8/F,
Tower B, National Software Industry Zone,
 Gao
Tang Xin Jian Zone, Tian He District
 Guangzhou,
P.R.China  510663
 (Address
of principal executive offices)
 
 (8620)
6108-8998 - Tel
 (8620) 6108-8999 -
Fax
 (Issuer's
telephone number)
  Indicate
by check mark if the registrant is a well-know seasoned issuer, as defined in
Rule 405 of the Securities Act.
 Yes
[  ]                                No
[x]
 
 Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act
 Yes
[  ]                                No
[x]
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 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 [  ]
 
 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 (232.405 of this
chapter) during the preceding 12 months (or such shorter period that the
registrant was required to submit and post such files).
 Yes
[  ]                                No
[  ]
 
 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
definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
 
 Large
      accelerated filer
              Non-accelerated
      filer
              (Do
      not check if a smaller reporting company)Accelerated
      filer
              Smaller
      reporting company
              x
 
 Indicate
by check mark whether the registrant is a shell company (as defined in rule
12b-2 of the exchange act).
 Yes
[  ]                                No
[x]
 
 Number of
shares of preferred stock, par value $.0001, outstanding as of August 18,
2010:          870,000
 Number of
shares of common stock, par value $.0001, outstanding as of August 18,
2010:      26,767,798
  CAUTIONARY
STATEMENT REGARDING FORWARD LOOKING INFORMATION
 
 The
discussion contained in this 10-Q under the Securities Exchange Act of 1934, as
amended, contains forward-looking statements that involve risks and
uncertainties. The issuer's actual results could differ significantly from those
discussed herein. These include statements about our expectations, beliefs,
intentions or strategies for the future, which we indicate by words or phrases
such as "anticipate," "expect," "intend," "plan," "will," "we believe," "the
Company believes," "management believes" and similar language, including those
set forth in the discussions under "Notes to Financial Statements" and
"Management's Discussion and Analysis or Plan of Operation" as well as those
discussed elsewhere in this Form 10-Q. We base our forward-looking statements on
information currently available to us, and we assume no obligation to update
them. Statements contained in this Form 10-Q that are not historical facts are
forward-looking statements that are subject to the "safe harbor" created by the
Private Securities Litigation Reform Act of 1995.
 
 1
  INDEX TO
FORM 10-Q
 PART
    I
              Page
  No.Item
      1.  Financial
      Statements
              3Item
      2.  Management's Discussion and Analysis of Financial Condition
      and Results of Operations
              9Item
      3.  Quantitative and Qualitative Disclosures About Market
      Risk
              11Item
      4. Controls and Procedures
              11Item
      4T. Controls and Procedures
              11PART
      IIItem
      1.  Legal Proceedings
              12Item
      1A. Risk Factors
              12Item
      2.  Unregistered Sales of Equity Securities and Use of
      Proceeds
              12Item
      3.  Defaults Upon Senior Securities
              12Item
      4.  Submission of Matters to a Vote of Security
      Holders
              12Item
      5.  Other Information
              12Item
      6.  Exhibits
              12
 
 2
 
 ITEM 1. FINANCIAL
STATEMENTS
 
 INDEX
TOCHINA EDUCATION
TECHNOLOGY, INC. FINANCIAL STATEMENTS
 
 PageUnaudited
      Condensed Consolidated Balance Sheets
              
              4Unaudited
      Condensed Consolidated Statements of Operations And Comprehensive
      Income
              
              5Unaudited
      Condensed Consolidated Statements of Cash
Flows
              
              6Notes
      to Unaudited Financial Statements
              
              7
 
 3
  CHINA
      EDUCATION TECHNOLOGY INC. AND SUBSIDIARIESUNAUDITED
      CONDENSED CONSOLIDATED BALANCE SHEETSAS
      OF JUNE 30, 2010 AND DECEMBER 31, 2009ASSETSJune
      30, 2010
                
                
                December
      31, 2009Current assets:
                
                
                
                
                AuditedCash
      and cash equivalents
                
                $
                38,133
                
                
                $
                29,656Trade
      receivables, net
                
                
                628,626
                
                
                
                822,926Inventories
                
                
                423,843
                
                
                
                372,971Prepayments
                
                
                486,470
                
                
                
                483,812Other
      receivables
                
                
                13,457
                
                
                
                5,339Refundable
      deposit
                
                
                222,062
                
                
                
                220,849Total
      current assets
                
                
                1,812,590
                
                
                
                1,935,552Property, plant and equipment,
      net
                
                
                118,251
                
                
                
                131,867Non-current assets:Others
                
                
                67,419
                
                
                
                67,050Total
      non-current assests
                
                
                67,419
                
                
                
                67,050Total
      assets
                
                $
                1,998,260
                
                
                $
                2,134,470LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent liabilities:Short-term
      note payable
                
                
                736,279
                
                
                
                732,257Trade
      payables
                
                
                285,695
                
                
                
                272,083Salary
      payable
                
                
                6,008
                
                
                
                4,936Other
      payables and accrued expenses
                
                
                97,680
                
                
                
                32,865Amount
      due to a director
                
                
                140,991
                
                
                
                97,279Income
      tax payable
                
                
                26,995
                
                
                
                29,277Total
      current liabilities
                
                
                1,293,648
                
                
                
                1,168,698Long-term liabilities:Warranty
      and maintenance reserves
                
                
                37,822
                
                
                
                50,976STOCKHOLDERS’
      EQUITYPreferred
      stock, $0.0001 par value, 10,000,000 shares authorized,
                
                
                87
                
                
                
                87870,000
      shares issued and outstanding as of March 31, 2010 and December 31,
      2009Common
      stock, $0.0001 par value, 50,000,000 shares authorized,
                
                
                2,677
                
                
                
                2,67726,767,798
      shares issued and outstanding as of March 31, 2010 and December 31,
      2009Additional
      paid in captial
                
                
                120,438
                
                
                
                120,438Statutory
      and other reserves
                
                
                69,565
                
                
                
                69,565Accumulated
      other comprehensive income
                
                
                81,165
                
                
                
                76,246Retained
      earnings
                
                
                392,859
                
                
                
                645,783Total
      stockholders’ equity
                
                
                666,791
                
                
                
                914,796Total
      liabilities and stockholders’ equity
                
                
                1,998,260
                
                
                
                2,134,470See
      accompanying notes to consolidated financial
  statements.
  4
  CHINA
      EDUCATION TECHNOLOGY INC. AND SUBSIDIARIESUNAUDITED
      CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
      INCOMEFOR
      THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009For
      the Three Months Ended
                
                
                For
      the Six Months EndedJune
      30, 2010
                
                
                June
      30, 2009
                
                
                June
      30, 2010
                
                
                June
      30, 2009Sales
                
                $
                9,995
                
                
                $
                747,595
                
                
                $
                16,676
                
                
                $
                971,460Cost
      of goods sold
                
                
                -
                
                
                
                (307,678
                )
                
                
                -
                
                
                
                (397,885
                )Gross
      profit
                
                
                9,995
                
                
                
                439,917
                
                
                
                16,676
                
                
                
                573,576Operating
      expensesGeneral
      and administrative expenses
                
                
                197,338
                
                
                
                51,736
                
                
                
                235,230
                
                
                
                102,755Research
      and development expenses
                
                
                19,654
                
                
                
                18,111
                
                
                
                19,654
                
                
                
                46,675Selling
      expenses
                
                
                6,131
                
                
                
                7,024
                
                
                
                14,436
                
                
                
                25,626Total
      operating expenses
                
                
                223,123
                
                
                
                76,871
                
                
                
                269,319
                
                
                
                175,057Net
      operating Income (loss)
                
                
                (213,128
                )
                
                
                363,046
                
                
                
                (252,643
                )
                
                
                398,519Other
      incomeSubsidy
      income from the PRC authorities for general operations
                
                
                -
                
                
                
                80,738
                
                
                
                -
                
                
                
                100,309Interest
      income (expenses)
                
                
                (45
                )
                
                
                (3,200
                )
                
                
                (282
                )
                
                
                (9,530
                )Other
      income (expenses)
                
                
                -
                
                
                
                (191
                )
                
                
                -
                
                
                
                34,898Total
      other income
                
                
                (45
                )
                
                
                77,348
                
                
                
                (282
                )
                
                
                125,678Income
      before income taxes
                
                
                (213,173
                )
                
                
                440,394
                
                
                
                (252,924
                )
                
                
                524,196Income
      taxes
                
                
                -
                
                
                
                (66,367
                )
                
                
                -
                
                
                
                (79,571
                )Net
      Income (loss)
                
                $
                (213,173
                )
                
                $
                374,027
                
                
                $
                (252,924
                )
                
                $
                444,626Other
      comprehensive income (loss)Foreign
      currency translation adjustment
                
                
                4,653
                
                
                
                345
                
                
                
                4,919
                
                
                
                (1,173
                )Total
      comprehensive income (loss)
                
                $
                (208,520
                )
                
                $
                374,372
                
                
                $
                (248,005
                )
                
                $
                443,453Earnings
      (loss) per shareBasic
                
                
                **
                
                
                $
                0.05
                
                
                
                **
                
                
                $
                0.09Diluted
                
                
                **
                
                
                $
                0.01
                
                
                
                **
                
                
                $
                0.01Weighted
      average number of shares outstandingBasic
                
                
                26,767,798
                
                
                
                7,656,687
                
                
                
                26,767,798
                
                
                
                5,212,242Diluted
                
                
                70,267,798
                
                
                
                70,267,798
                
                
                
                70,267,798
                
                
                
                70,267,798**
      Less than $.01See
      accompanying notes to consolidated financial
  statements.
  5
  CHINA
      EDUCATION TECHNOLOGY INC. AND SUBSIDIARIESUNAUDITED
      CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSFOR
      THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009For
      the Six Months EndedJune
      30, 2010
                
                
                June
      30, 2009Cash
      flows from operating activitiesNet
      income (loss)
                
                $
                (252,924
                )
                
                $
                444,626Adjustments
      to reconcile net loss to net cash used inoperating
      activities:Depreciation
                
                
                16,109
                
                
                
                6,920Changes
      in operating assets and liabilities:Trade
      receivables
                
                
                198,664
                
                
                
                (264,292
                )Inventories
                
                
                (48,578
                )
                
                
                31,288Other
      receivables and prepayments
                
                
                (8,048
                )
                
                
                (138,400
                )Refundable
      deposits
                
                
                -
                
                
                
                -Other
      noncurrent assets
                
                
                -
                
                
                
                (1,838
                )Warranty
      and maintenance reserves
                
                
                (13,367
                )
                
                
                (6,994
                )Trade
      payables
                
                
                12,057
                
                
                
                194,401Salary
      payable
                
                
                1,040
                
                
                
                -Other
      payables and accrued expenses
                
                
                64,509
                
                
                
                51,382Income
      tax payable
                
                
                (2,431
                )
                
                
                104,647Net
      cash flows used in operating activities
                
                
                (32,969
                )
                
                
                421,739Cash
      flows from investing activitiesPayments
      to acquire property, plant and equipment
                
                
                (1,840
                )
                
                
                (1,259
                )Net
      cash flows used in investing activities
                
                
                (1,840
                )
                
                
                (1,259
                )Cash
      flows from financing activitiesProceeds
      from (repayment to) short-term loan
                
                
                -
                
                
                
                (439,117
                )Due
      to (repayment to) a director
                
                
                43,155
                
                
                
                -Net
      cash flows provided by financing activities
                
                
                43,155
                
                
                
                (439,117
                )Effect
      of foreign currency translation on cash and cash
    equivalents
                
                
                131
                
                
                
                (43
                )Net
      increase in cash and cash equivalents
                
                
                8,477
                
                
                
                (18,679
                )Cash
      and cash equivalents - beginning of year
                
                
                29,656
                
                
                
                87,254Cash
      and cash equivalents - end of year
                
                
                38,133
                
                
                
                68,575Supplemental
      disclosure of cash flow information:Cash
      paid for:Interest
                
                $
                25,566
                
                
                $
                -Income
      taxes
                
                $
                -
                
                
                $
                -See
      accompanying notes to consolidated financial
  statements.
  6
  CHINA
EDUCATION TECHNOLOGY INC. AND SUBSIDIARIES
 Notes
to Unaudited Condensed Consolidated Financial Statements
 For
the Three and Six Months Ended June 30, 2010 and 2009
 (Stated
in US Dollars)
  1.
                BASIS
      OF PRESENTATION
 
 The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with both generally accepted accounting principles for
interim financial information, and the instructions to Form 10-Q and Article 8
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. The accompanying unaudited condensed consolidated
financial statements reflect all adjustments (consisting of normal recurring
accruals) that are, in the opinion of management, considered necessary for a
fair presentation of the results for the interim periods presented. Interim
results are not necessarily indicative of results for a full year.
 
 The
unaudited condensed consolidated financial statements and related disclosures
have been prepared with the presumption that users of the interim financial
information have read or have access to the Company’s annual audited
consolidated financial statements for the preceding fiscal year. Accordingly,
these unaudited condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and the related
notes for the years ended December 31, 2009 and 2008 thereto contained in the
Annual Report on Form 10-K for the year ended December 31, 2009.
 
 2.
                ORGANIZATION
      AND BUSINESS BACKGROUND
 
 China
Education Technology Inc. (the “Company”) was incorporated in the state of
Delaware in 1996 in name of Envirosafe Corporation. Its shares were traded on
the OTC Bulletin Board of the United States of America.
 
 On
October 6, 2008, the Company redomiciled from Delaware to
Nevada.  Additionally, on October 9, 2008, the Company’s board of
directors authorized and approved a reverse stock split (the “Reverse Split”) of
the Company’s common stock on the basis of one share for eight shares currently
authorized or issued and outstanding. Accordingly, the number of authorized
shares of common stock decreased from 400,000,000 shares to 50,000,000 shares
and the number of issued and outstanding shares decreased from 22,141,375 shares
to 2,767,672 shares. The Reverse Split was effective on October 31, 2008. The
Company has retroactively adjusted all the share information to reflect the
reverse stock split in the audited condensed consolidated financial
statements.
 
 The
Company is an investment holding company, whose only asset is 100% equity
interest in ADDE Education Hldgs Limited (“ADDE”). ADDE is a corporation
organized and existing under the laws of Hong Kong Special Administrative Region
of People’s Republic of China (the “PRC”) and is an investment holding company
whose only asset is 100% equity interest in Guangzhou Haoyu Educational
Technology Company Limited (“Haoyu”).  Haoyu was established in the
PRC on March 27, 2001 as a domestic enterprise.
 
 On March
1, 2008, ADDE entered into an agreement with the then sole stockholder of Haoyu
to acquire the stockholder’s entire interest in Haoyu (the “Transfer”) at a
consideration of Renminbi (“RMB”) 1 million.  Haoyu was wholly owned
by the spouse of ADDE’s sole stockholder before the consummation of the
Transfer.  The Transfer was subsequently approved by the government
bureau in May 2008.  Haoyu re-registered as a wholly foreign owned
enterprise and obtained its business license in August 2008.
 
 On March
4, 2008, a Plan of Exchange (the “Exchange”) was executed between and among the
Company, ADDE, the majority stockholder of the Company and the stockholder of
ADDE.  The Exchange was consummated on July 31, 2008, pursuant to
which 2,500,000 (after taking into account the Reverse Split) shares of the
Company’s common stock and 1,350,000 shares of the Company’s preferred stock
were issued to the stockholder of ADDE.  Thereafter, ADDE and Haoyu
became the Company’s wholly-owned subsidiaries and the former stockholder of
ADDE owned 93.2% of the Company’s issued and outstanding shares.
 
 The
Exchange and the Transfer have been respectively accounted for as reverse
acquisition and recapitalization of the Company and ADDE whereby ADDE is deemed
to be the accounting acquirer (legal acquiree) and the Company to be the
accounting acquiree (legal acquirer) under the Exchange, and Haoyu is deemed to
be the accounting acquirer (legal acquiree) and ADDE to be the accounting
acquiree (legal acquirer) under the Transfer. The audited condensed consolidated
financial statements are in substance those of Haoyu, with the assets and
liabilities, and revenues and expenses, of the Company and ADDE being included
effective from the respective consummation dates of the Exchange and the
Transfer.
 
 China
Education Technology Inc. and its wholly-owned subsidiaries, ADDE and Haoyu, are
hereafter referred to as (the “Company”).
 
 On April
3, 2008, the Company changed its corporate name to China Education Technology
Inc. to more accurately reflect its business after the Exchange transaction with
ADDE and Hao Yu.
  3.
                DESCRIPTION
      OF BUSINESS
 
 The
Company’s primary business operations are conducted through Haoyu, which is
specialized in the research and development of educational products and
technology applications.  Haoyu is located in the Guangzhou Province
of the PRC with three manufacture bases for research and development
purpose.
 
 The
educational software developed by the Company is in conformity to the new
educational purpose.  The software uses the advanced technology of
data collection, sensor and wireless control and video image with handy
appearance, which can virtually upload the live experiment and analyze the
information collected.  Teachers and students can have the experiments
done automatically instead of the traditional method by hand.
 
 The
Company also engages in the trading of hardware and computer products such as
monitors and computer notebooks.
 
 4.
                RECENTLY
      ISSUED ACCOUNTING PRONOUNCEMENTS
 
 Fair Value Measurements and
Disclosures
 
 (Accounting
Standards Update (“ASU”) 2010-06)
 
 In
January 2010, the FASB issued ASU No. 2010-06, “Fair Value Measurements and
Disclosures (Topic 820) - Improving Disclosures about Fair Value Measurements.”
ASU 2010-06 requires new disclosures regarding transfers in and out of the Level
1 and 2 and activity within Level 3 fair value measurements and clarifies
existing disclosures of inputs and valuation techniques for Level 2 and 3 fair
value measurements. ASU 2010-06 also includes conforming amendments to
employers’ disclosures about postretirement benefit plan assets. The new
disclosures and clarifications of existing disclosures are effective for interim
and annual reporting periods beginning after December 15, 2009, except for
the disclosure of activity within Level 3 fair value measurements, which is
effective for fiscal years beginning after December 15, 2010, and for
interim periods within those years. The adoption of this statement is not
expected to have a material impact on our consolidated financial position or
results of operation.
 
 7
  CHINA
EDUCATION TECHNOLOGY INC. AND SUBSIDIARIES
 Notes
to Unaudited Condensed Consolidated Financial Statements
 For
the Three and Six Months Ended June 30, 2010 and 2009
 (Stated
in US Dollars)
  5.
                      TRADE
      ACCOUNTS RECEIVABLE
  Trade
accounts receivable is comprised of the following amounts at the respective
dates:
  June
      30, 2010
                      
                      
                      December
      31, 2009(Unaudited)
                      
                      
                      (Audited)Gross
      trade accounts receivable from customers
                      
                      $
                      840,240
                      
                      
                      $
                      866,253Allowance
      for doubtful customer accounts
                      
                      
                      (211,614
                      )
                      
                      
                      (43,327
                      )$
                      628,626
                      
                      
                      $
                      822,926
  Bad debt
expense of $168,048 was recognized during the six months ended June 30, 2010 in
the accompanying consolidated income statements, representing approximately 20%
of accounts receivable as of June 30, 2010.
 6.
                INVENTORIES
 
 June
      30, 2010
                
                
                December
      31, 2009(Unaudited)
                
                
                (Audited)Raw
      materials
                
                $
                7,283
                
                
                $
                7,243Finished
      goods
                
                
                416,560
                
                
                
                365,728423,843
                
                
                
                372,971Provision
      for obsolete inventories
                
                
                -
                
                
                
                -$
                423,843
                
                
                $
                372,971
 
 The
Company had no provision for obsolete inventories charged to the statements of
operations for the three and six months ended June 30, 2010 and 2009,
respectively.
 
 7.
                PREPAYMENTS
 
 The
balances of $486,470 and $483,812 as of June 30, 2010 and December 31, 2009,
respectively, represented prepaid goods, supplies and other items used in
packaging of the products.
 
 8.
                REFUNDABLE
      DEPOSIT
 
 The
balance of $220,062 and $220,849 as of June 30, 2010 and December 31, 2009,
respectively, represented the deposit to an independent party, which acts as a
guarantor issuing the guarantee to the Company in connection with a short-term
loan from a bank. (see Note 9)
 
 9.
                WARRANTY
 
 The
Company maintains a policy of providing after sales support for certain products
by way of a warranty program. The Company provided 3 years warranties for the
software products to certain customers.  Further, the relevant
customers are allowed to defer the settlement of certain percentage (normally
5%) of the billed amount for certain period of time (normally three year) after
acceptance of the Company’s products under the warranty program.
 
 Since the
aforementioned products were well developed, the Company did not encounter any
claims from such customers. However, the Company will periodically assess the
estimation of its warranty liability and recognize the reserve when necessary
based on the actual experience.
 
 As of
June 30, 2010 and December 31, 2009, the Company had warranty and maintenance
reserves of $37,822 and $50,976, respectively.
 
 10.
                SHORT-TERM
      NOTE PAYABLE
 
 The
short-term note payable was the loan from a bank denominated in RMB and
repayable within one year.  It carries annual interest at 6.903%,
which is determined by the benchmark rate of 5.31% in the People’s Bank of China
(the “PBOC”) for six-month to one-year short-term loans per annum, and the
floating rate of 30%.
 
 The bank
loan is secured by a guarantee put up by an independent party, as well as a real
estate with the market value of approximately $295,000 deposited to the bank as
collateral.  The guarantor received $220,062 from the Company for
issuing the guarantee. The receivable due from the guarantor was recorded as
refundable deposit under current assets as of June 30, 2010.
 
 11.
                AMOUNT
      DUE TO A DIRECTOR
 
 The
balances due to a director represented unsecured advances which are
interest-free and repayable on demand. As of June 30, 2010 and December 31,
2009, the balances of due to a director were $140,991 and $97,279,
respectively.
 
 12.
                SUBSEQUENT
      EVENTS
 
 We
evaluated subsequent events through the date and time our financial statements
were issued on August 23, 2010. There are no subsequent events through August
23, 2010.
 8
 
 ITEM 2.  
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
 
 FORWARD
LOOKING STATEMENTS
 
 Management’s
Discussion and Analysis contains various “forward looking statements” within
regarding future events or the future financial performance of the Company that
involve risks and uncertainties. Certain statements included in this 10-Q,
including, without limitation, statements related to anticipated cash flow
sources and uses, and words including but not limited to “anticipates”,
“believes”, “plans”, “expects”, “future” and similar statements or expressions,
identify forward looking statements. Any forward-looking statements herein are
subject to certain risks and uncertainties in the Company’s business, including
but not limited to, reliance on key customers and competition in its markets,
market demand, product performance, technological developments, maintenance of
relationships with key suppliers, difficulties of hiring or retaining key
personnel and any changes in current accounting rules, all of which may be
beyond the control of the Company. Management will elect additional changes to
revenue recognition to comply with the most conservative SEC recognition on a
forward going accrual basis as the model is replicated with other similar
markets (i.e. SBDC). The Company’s actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those set forth therein.
 
 Management’s
Discussion and Analysis of Results of Financial Condition and Results of
Operations (“MD&A”) should be read in conjunction with the financial
statements included herein.
 
 OVERVIEW
 
 As used
herein the terms "We", the "Company", "CEDT", the "Registrant," or the "Issuer"
refers to China Education Technology Inc., its subsidiary and predecessors,
unless indicated otherwise. We were originally incorporated in Delaware in 1996
as Envirosafe Corporation. On October 6, 2008, our board decided to redomicile
from the State of Delaware to the State of Nevada. Their decision was approved
by the holders of a majority of the voting rights of our common stock. On April
3, 2009, we changed our name to China Education Technology, Inc. to more
accurately reflect our business after the Exchange (as defined below) between
ADDE and Haoyu.
 
 We are an
investment holding company, whose only asset is a 100% equity interest in ADDE
Education Hldgs Limited (“ADDE”). ADDE is a corporation organized and existing
under the laws of Hong Kong Special Administrative Region of the People’s
Republic of China (the “PRC”) and is an investment holding company whose only
asset is a 100% equity interest in Guangzhou Haoyu Educational Technology
Company Limited (“Haoyu”).  Haoyu was originally established in the
PRC on March 27, 2001 as a domestic enterprise.
 
 On March
1, 2008, ADDE entered into an agreement with the then sole stockholder of Haoyu
to acquire the stockholder’s entire interest in Haoyu (the “Transfer”) for
consideration of 1,000,000 Renminbi (“RMB”).  Haoyu was wholly owned
by the spouse of ADDE’s sole stockholder before the consummation of the
Transfer.  The Transfer was subsequently approved by the government
bureau in May 2008.  Haoyu re-registered as a wholly foreign owned
enterprise and obtained its business license in August 2008.
 
 On March
4, 2008, a Plan of Exchange (the “Exchange”) was executed between and among the
Company, ADDE, the majority stockholder of the Company and the majority
stockholder of ADDE.  The Exchange was consummated on July 31, 2008,
pursuant to which 2,500,000 (after taking into account the Reverse Split) shares
of the Company’s common stock and 1,350,000 shares of the Company’s preferred
stock were issued to the stockholder of ADDE.  Thereafter, ADDE and
Haoyu became the Company’s wholly-owned subsidiaries and the former stockholder
of ADDE owned 93.2% of the Company’s issued and outstanding shares.
 
 The
Exchange and the Transfer have been respectively accounted for as a reverse
acquisition and recapitalization of the Company and ADDE whereby ADDE is deemed
to be the accounting acquirer (legal acquiree) and the Company to be the
accounting acquiree (legal acquirer) under the Exchange, and Haoyu is deemed to
be the accounting acquirer (legal acquiree) and ADDE to be the accounting
acquiree (legal acquirer) under the Transfer. The audited condensed consolidated
financial statements are in substance those of Haoyu, with the assets and
liabilities, and revenues and expenses, of the Company and ADDE being included
effective from the respective consummation dates of the Exchange and the
Transfer.
 
 Since the
reverse merger was consummated, we have continued operation conducted through
Haoyu, which is specializes in the research and development of educational
products and technology applications.  Haoyu is located in the
Guangzhou Province of the PRC with three manufacture bases for research and
development purpose.
 
 The
educational software developed by the Company is in conformity to the new
educational purpose.  The software uses advanced technology of data
collection, sensor and wireless control and video imaging, which can virtually
upload live media and analyze the information collected.  Our software
allows teachers and students to conduct experiments automatically instead of the
traditional method by hand.
 
 The
Company also engages in the trading of hardware and computer products such as
monitors and computer notebooks.
 
 9
 
 CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
 
 Management’s
Discussion and Analysis of Financial Condition and Results of Operations are
based upon our Unaudited Condensed Consolidated Financial Statements, which we
have prepared in accordance with U.S. generally accepted accounting principles.
The preparation of these financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue and expenses, and related disclosure of contingent assets
and liabilities. Estimates are based on historical experience, knowledge of
economic and market factors and various other assumptions that management
believes to be reasonable under the circumstances. Actual results may differ
from those estimates.
 
 On a
regular basis we evaluate our estimates, assumptions and judgments and make
changes accordingly. An accounting policy is deemed to be critical if it
requires an accounting estimate to be made based on assumptions about matters
that are highly uncertain at the time the estimate is made, if different
estimates reasonably could have been used, or if changes in the estimate that
are reasonably likely to occur could materially impact the financial statements.
We believe that the estimates, assumptions and judgments involved in revenue
recognition, receivables and allowances for doubtful accounts, accruals,
inventories, income taxes, warranty, warranty and maintenance reserves have the
greatest potential impact on our condensed consolidated financial statements, so
we consider these to be our critical accounting policies.
 
 RECENT
ACCOUNTING PRONOUNCEMENTS
 
 For a
description of the new accounting standards that affect us, see Note 4 of notes
to our unaudited condensed consolidated financial statements included under Part
I, Item 1 of this Quarterly Report on Form 10-Q.
 
 RESULTS
OF OPERATIONS – THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(UNAUDITED)
 
 Revenues
 
 Our
revenues for the three and six months ended June 30, 2010 were $9,995 and
$16,676, respectively, compared to revenues of $747,595 and $971,460 for the
comparative periods ended June 30, 2009, respectively. We generated our revenues
from sales of information collectors, sensors, digital meteorological stations,
and digital analyzing software, certain products of which were covered by a
warranty program for 3 years provided by the Company. The warranty liability
will be assessed periodically and amortized overtime when no actual claims
occurred. We had no actual sales for the three and six months ended June 30,
2010 since the current market demand for digital labs dropped significantly as
results of the decrease in government subsidy. The revenues for both three-month
and six-month periods ended June 30, 2010 were due primarily to the amortization
of the warranty liabilities.
 
 Income /
Loss
 
 We had
net loss of $213,173 and $252,924 for the three and six months ended June 30,
2010, compared to the net income of $374,027 and $444,626 for the three and six
months ended June 30, 2009. The increase in net loss by $587,200 and $697,550
during the three and six months ended June 30, 2010 was due primarily to the
decrease in sales by $737,600 and $954,784, respectively. In addition, we had no
subsidy income during the first half of 2010, which were $80,738 and $100,309
for the comparative periods ended June 30, 2009.
 
 Expenses
 
 Operating
expenses for the three and six months ended June 30, 2010 were $223,123 and
$269,319 respectively, compared to operating expenses of $76,871 and $175,057
for the same periods ended June 30, 2009. The increase in operating expenses
during the three and six months ended June 30, 2010 was due primarily to bad debt
expense of $168,048 recognized during the six months ended June 30, 2010,
representing approximately 20% of accounts receivable as of June 30,
2010. In addition, we had research and development expenses of
$19,654 in the first half of 2010.
 
 Cost of Goods
Sold
 
 Cost of
goods sold included expenses directly related to the manufacturing and selling
our products. Product delivery and direct labor would be examples of cost of
goods sold items. We had no cost of goods sold during the three and six months
ended June 30, 2010 due to the revenues for these periods primarily from the
amortization of the warranty liabilities. Comparably, we had $307,678 and
$397,885 in cost of goods sold, or 41.2% and 41.0% of sales revenue, during the
three and six months ended June 30, 2009, respectively.
 
 Impact of
Inflation
 
 We
believe that inflation has had a negligible effect on operations during this
period. We believe that we can offset inflationary increases in the cost of
sales by increasing sales and improving operating efficiencies.
 
 Liquidity and Capital
Resources
 
 Cash
flows used in operating activities were $32,969 for the six months ended June
30, 2010, compared to cash flows of $421,739 provided by operating activities
for the six months ended June 30, 2009. Negative cash flows from operations in
the first half of 2010 were due primarily to net loss of $252,924, increase in
inventories by the amount of $48,578, partially offset by the decrease in trade
receivables by $198,664 and the increase in other payables and accrued expenses
by $64,509. Positive cash flows from operations in the same period in 2009 were
due primarily to the net income of $444,626, plus the increase in trade
payables, other payables and income tax payables in the amounts of $194,401,
$51,382 and $104,647, respectively, partially offset by the increase in trade
receivables and other receivables by $264.292 and $138,400,
respectively.
 
 We had
cash flows of $1,840 and $1,259 used in investing activities during the six
months ended June 30, 2010 and 2009, respectively, attributable to payments to
acquire property, plant, and equipment for both periods.
 
 We had
cash flows of $43,155 provided by financing activities during the six months
ended June 30, 2010 due to a loan from our director, representing unsecured
advances which were interest-free and repayable on demand. Comparably, we had
cash flows of $439,117 used in investing activities during the six months ended
June 30, 2009, attributable to repayments to short-term loan.
 
 Overall,
we have funded our cash needs from inception through June 30, 2010 with a series
of debt and equity transactions, primarily with related parties. If we are
unable to receive additional cash from our related parties, we may need to rely
on financing from outside sources through debt or equity transactions. Our
related parties are under no legal obligation to provide us with capital
infusions. Failure to obtain such financing could have a material adverse effect
on operations and financial condition.
 
 We had
cash of $38,133 on hand and a working capital of $518,942 as of June 30, 2010.
Currently, we do not have enough cash to fund our operations for about six
months. This is based on our projected revenues. We will then need to obtain
additional capital through equity or debt financing to sustain operations for an
additional year. Our current level of operations would require capital of
approximately $300,000 to sustain operations through year 2010 and approximately
$500,000 per year thereafter. Modifications to our business plans may require
additional capital for us to operate. For example, if we are unable to raise
additional capital in the future we may need to curtail our number of product
offers or limit our marketing efforts to the most profitable geographical areas.
This may result in lower revenues and market share for us. In addition, there
can be no assurance that additional capital will be available to us when needed
or available on terms favorable to us.
 
 10
 
 ITEM 3.  QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
 We do not use derivative
financial instruments in our investment portfolio and has no foreign exchange
contracts. Our financial instruments consist of cash and cash equivalents, trade
accounts receivable, accounts payable and long-term obligations. We consider
investments in highly liquid instruments purchased with a remaining maturity of
90 days or less at the date of purchase to be cash equivalents. However, in
order to manage the foreign exchange risks, we may engage in hedging activities
to manage our financial exposure related to currency exchange fluctuation. In
these hedging activities, we might use fixed-price, forward, futures, financial
swaps and option contracts traded in the over-the-counter markets or on
exchanges, as well as long-term structured transactions when
feasible.
 
 Foreign
Exchange Rates
 
 All of
our sales are denominated in Renminbi (“RMB”). As a result, changes in the
relative values of U.S. Dollars and RMB affect our reported levels of revenues
and profitability as the results are translated into U.S. Dollars for reporting
purposes. Fluctuations in exchange rates between the U.S. dollar and RMB
affect our gross and net profit margins and could result in foreign exchange and
operating losses.
 
 Our
results of operations and cash flow are translated at average exchange rates
during the period, and assets and liabilities are translated at the unified
exchange rate as quoted by the People’s Bank of China at the end of the period.
Translation adjustments resulting from this process are included in accumulated
other comprehensive income in our statement of shareholders’ equity. We recorded
net foreign currency gain of $4,653 and $4,919 for the three and six months
ended June 30, 2010, respectively, compared to net foreign currency gain of $345
for the three months ended June 30, 2009, and loss of $1,173 for the six months
ended June 30, 2009. We have not used any forward contracts, currency options or
borrowings to hedge our exposure to foreign currency exchange risk. We cannot
predict the impact of future exchange rate fluctuations on our results of
operations and may incur net foreign currency losses in the future.
 
 Our
financial statements are expressed in U.S. dollars but the functional
currency of our operating subsidiary is RMB. The value of your investment in our
stock will be affected by the foreign exchange rate between U.S. dollars
and RMB. To the extent we hold assets denominated in U.S. dollars,
including the net proceeds to us from this offering, any appreciation of the RMB
against the U.S. dollar could result in a change to our statement of
operations and a reduction in the value of our U.S. dollar denominated
assets. On the other hand, a decline in the value of RMB against the
U.S. dollar could reduce the U.S. dollar equivalent amounts of our
financial results, the value of your investment in our company and the dividends
we may pay in the future, if any, all of which may have a material adverse
effect on the price of our stock.
 
 2010
              2009Balance
      sheet items, except for the registered and paid-up capital as of June 30,
      2010 and December 312009
              USD
      0.1473:RMB 1
              USD
      0.1466:RMB 1Amounts
      included in the statements of operations, and statements of cash flows for
      the six months ended June 30, 2010 and 2009
              USD
      0.1465:RMB 1
              USD
      0.1464:RMB 1
 
 ITEM 4. CONTROLS AND
PROCEDURES
 
 We
maintain disclosure controls and procedures designed to ensure that information
required to be disclosed in reports filed under the Securities Exchange Act of
1934 (“Exchange Act”) is recorded, processed, summarized and reported within the
specified time periods. Our Chief Executive Officer and its Chief Financial
Officer (collectively, the “Certifying Officers”) are responsible for
maintaining our disclosure controls and procedures. The controls and procedures
established by us are designed to provide reasonable assurance that information
required to be disclosed by the issuer in the reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the Commission’s rules and forms.
 
 As of the
end of the period covered by this report, the Certifying Officers evaluated the
effectiveness of our disclosure controls and procedures. Based on the
evaluation, the Certifying Officers concluded that our disclosure controls and
procedures were effective to provide reasonable assurance that information
required to be disclosed by us in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the applicable rules and forms, and that it is accumulated
and communicated to our management, including the Certifying Officers, as
appropriate to allow timely decisions regarding required
disclosure.
 
 The
Certifying Officers have also concluded, based on their evaluation of our
controls and procedures that as of June 30, 2010, our internal controls over
financial reporting are effective and provide a reasonable assurance of
achieving their objective.
 
 The
Certifying Officers have also concluded that there was no change in our internal
controls over financial reporting identified in connection with the evaluation
that occurred during our fourth fiscal quarter that has materially affected, or
is reasonably likely to materially affect, our internal control over financial
reporting.
 
 ITEM 4T. CONTROLS AND
PROCEDURES
 
 (a) Conclusions
regarding disclosure controls and procedures. Disclosure controls and
procedures are the Company’s controls and other procedures that are designed to
ensure that information required to be disclosed by the Company in the reports
that the Company files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission’s rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by the Company in the reports that it files
under the Exchange Act is accumulated and communicated to the Company’s
management, including its Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding required disclosure.
Management is responsible for establishing and maintaining adequate internal
control over financial reporting.
 
 Under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of our disclosure controls and procedures, as such term is defined
under Rule 13a-14(c) promulgated under the Exchange Act as of June 30, 2010,
and, based on their evaluation, as of the end of such period, the our disclosure
controls and procedures were effective as of the end of the period covered by
the Quarterly Report,
 
 (b) Management’s
Report On Internal Control Over Financial Reporting. It is management’s
responsibilities to establish and maintain adequate internal controls over the
Company’s financial reporting. Internal control over financial reporting is
defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a
process designed by, or under the supervision of, the issuer’s principal
executive and principal financial officers and effected by the issuer’s
management and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles and includes those policies and procedures that:
 
 •           Pertain
to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of the assets of the issuer;
and
 
 
 •           Provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles and that receipts and expenditures of the issuer are being
made only in accordance with authorizations of management of the issuer;
and
 
 
 •           Provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the issuer’s assets that could have a
material effect on the financial statements.
 
 As of the
end of the period covered by the Quarterly Report, an evaluation was carried out
under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, of the effectiveness of
our internal control over financial reporting.
 
 Management
assessed the effectiveness of our internal control over financial reporting as
of June 30, 2010. In making this assessment, management used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission in
Internal Control-Integrated Framework.
 
 Based on
that evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that, as of the end of such period, internal controls over financial
reporting were effective as of the end of the period covered by the
Report.
 
 Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate. All internal control systems, no matter
how well designed, have inherent limitations. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation. Because of the inherent
limitations of internal control, there is a risk that material misstatements may
not be prevented or detected on a timely basis by internal control over
financial reporting. However, these inherent limitations are known features of
the financial reporting process. Therefore, it is possible to design into the
process safeguards to reduce, though not eliminate, this risk.
 
 This
Quarterly Report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only management’s report in this Quarterly
Report.
 
 (c) Changes in
internal control over financial reporting. There were no changes in our
internal control over financial reporting identified in connection with the
evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that
occurred during our last fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
 
 11
 
 PART II.  OTHER
INFORMATION
 
 ITEM
1.      LEGAL PROCEEDINGS
 
 As of the
date of this report, we are not a party to any pending legal proceeding and are
not aware of any threatened legal proceeding.
 
 ITEM
1A.   RISK FACTORS
 
 The
information to be reported under this item has not changed since the previously
filed 10K, for the year ended December 31, 2009.
 
 ITEM
3.      DEFAULTS UPON SENIOR SECURITIES
 
 We have
not had any default upon senior securities.
 
 ITEM
4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
 
 We have
not had any submission of matters to a vote of security holders.
 
 ITEM
5.      OTHER INFORMATION
 
 We do not
have any other information to report.
 
 ITEM
6.      EXHIBITS
 
 31.1
CEO Certification Pursuant to Section 302
 31.2
CFO Certification Pursuant to Section 302
 32.1
CEO Certification Pursuant to Section 906
 32.2
CFO Certification Pursuant to Section 906
 
 Reports on Form8-K
 
 None
 
 12
 
 SIGNATURES
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
 
 CHINA
      EDUCATION TECHNOLOGY, INC.
                (Registrant)Date:
      August 23, 2010
              By:
              /s/ Yan Bin GuoYan
      Bin Guo
                President,
      Chief Executive Officer