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, 2009
 
 
 [ ]            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.
 (F.K.A. ENVIROSAFE CORPORATION)
 (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 whether the registrant (1) 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 [ ]
 
 Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Date File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for 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
þ
 
 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 common stock outstanding as of August 19, 2009:24,767,798
 Number of shares of preferred stock outstanding as of August 19, 2009:     910,000
 
 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 Consolidated 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
 
 TABLE OF CONTENTSPART I. FINANCIAL INFORMATIONITEM I
PAGEITEM 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

ITEM 4T. CONTROL AND PROCEDURES
11

11PART II. OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGS

ITEM 1A. RISK FACTORS
12

12ITEM 2. UNREGISTERED SALES OF EQUITY 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
 Table of Contents
 
 ITEM 1.CONSOLIDATED FINANCIAL STATEMENTS
 
 INDEX TOCHINA EDUCATION TECHNOLOGY, INC. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
 CHINA EDUCATION TECHNOLOGY, INC.                                                                                                                     PAGE
 
 Unaudited Consolidated Balance Sheets                                                                                                                  4
 
 Unaudited ConsolidatedStatements of Operations5
 
 Unaudited ConsolidatedStatements of Cash Flows6
 
 Notes to Unaudited ConsolidatedFinancial Statements7
 
 3
 Table of Contents
 
 CHINA EDUCATION TECHNOLOGY INC. AND SUBSIDIARIESUNAUDITED CONSOLIDATED BALANCE SHEETSAS OF JUNE 30, 2009 AND DECEMBER 31, 2008June 30, 2009


December 31, 2008(Audited)ASSETSCurrent assets:Cash and cash equivalents

$
68,575


$
87,254Trade receivables, net


1,487,450



1,224,879Other receivables and prepayments


271,191



132,978Inventories


221,802



253,446Total current assets


2,049,017



1,698,557Property, plant and equipment, net


32,372



38,087Non-current assets:Warranty receivable


15,611



15,633Others


37,291



35,502Total non-current assests


52,901



51,135Total assets

$
2,134,291


$
1,787,779LIABILITIES AND STOCKHOLDERS’ EQUITYCurrent liabilities:Notes payable - short term


-



439,734Trade payables


300,464



106,212Other payables and accrued expenses


164,193



112,966Amount due to a director


35,663



35,663Income tax payable


315,108



210,757Total current liabilities


815,428



905,332Long-term liabilities:Warranty and maintenance reserves


23,167



30,203STOCKHOLDERS’ EQUITYPreferred stock, $0.0001 par value, 10,000,000 shares authorized,


91



135910,000 shares issued and outstanding as of June 30, 2009 and 1,350,000 shares issued and outstanding as of December 31, 2008Common stock, $0.0001 par value, 50,000,000 shares authorized,


2,477



27724,767,798 shares issued and outstanding as of June 30, 2009 and 2,767,798 shares issued and outstanding as of December 31, 2008Additional paid in captial


120,634



122,790Statutory and other reserves


69,565



69,565Accumulated other comprehensive income


75,734



76,908Retained earnings


1,027,194



582,568Total stockholders’ equity


1,295,696



852,243Total liabilities and stockholders’ equity


2,134,291



1,787,779See accompanying notes to consolidated financial statements.
 
 4
 Table of Contents
 
 CHINA EDUCATION TECHNOLOGY INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOMEFOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008(UNAUDITED)For the three months ended


For the six months endedJune 30, 2009


June 30, 2008


June 30, 2009


June 30, 2008Sales

$
747,595


$
878,547


$
971,460


$
1,881,201Cost of goods sold


(307,678
)


(442,694
)


(397,885
)


(938,715
)Gross profit


439,917



435,853



573,576



942,486Operating expensesGeneral and administrative expenses


51,736



57,563



102,755



110,062Research and development expenses


18,111



45,355



46,675



62,431Selling expenses


7,024



19,838



25,626



35,462Total operating expenses


76,871



122,756



175,057



207,955Net operating Income (loss)


363,046



313,097



398,519



734,531Other incomeSubsidy income from the PRC authorities for general operations


80,738



67,528



100,309



164,789Interest income (expenses)


(3,200
)


(14,132
)


(9,530
)


(13,968
)Other income (expenses)


(191
)


264



34,898



18,438Total other income


77,348



53,660



125,678



169,259Income before income taxes


440,394



366,757



524,196



903,790Income taxes


(66,367
)


(100,351
)


(79,571
)


(221,079
)Net Income (loss)

$
374,027


$
266,406


$
444,626


$
682,711Other comprehensive income (loss)Foreign currency translation adjustment


345



17,497



(1,173
)


38,909Total comprehensive income (loss)

$
374,372


$
283,903


$
443,453


$
721,620Earnings (loss) per shareBasic

$
0.05


$
0.22


$
0.09


$
0.55Diluted

$
0.01


$
0.01


$
0.01


$
0.02Weighted average number of shares outstandingBasic


7,656,687



1,309,360



5,212,242



1,309,360Diluted


70,267,798



29,434,360



70,267,798



29,434,360See accompanying notes to consolidated financial statements.
  5
 Table of Contents
  CHINA EDUCATION TECHNOLOGY INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWSFOR THESIX MONTHS ENDED JUNE 30, 2009 AND 2008(UNAUDITED)For the six months endedJune 30, 2009


June 30, 2008Cash flows from operating activitiesNet income (loss)

$
444,626


$
682,711Adjustments to reconcile net loss to net cash used inoperating activities:Depreciation


6,920



16,720Changes in operating assets and liabilities:Trade receivables


(264,292
)


(403,055
)Other receivables and prepayments


(138,400
)


(504,975
)Inventories


31,288



230,306Other noncurrent assets


(1,838
)


-Warranty and maintenance reserves


(6,994
)


-Trade payables


194,401



(662,355
)Other payables and accrued expenses


51,382



(38,283
)Income tax payable


104,647



411,432Net cash flows used in operating activities


421,740



(267,499
)Cash flows from investing activitiesPayments to acquire property, plant and equipment


(1,259
)


(8,259
)Net cash flows used in investing activities


(1,259
)


(8,259
)Cash flows from financing activitiesProceeds from (repayment to) short-term loan


(439,117
)


437,375Capital contribution


-



11,351Repayment to due to director


-



(129,143
)Net cash flows provided by financing activities


(439,117
)


319,583Effect of foreign currency translation on cash and cash equivalents


(43
)


(38,439
)Net increase in cash and cash equivalents


(18,679
)


5,386Cash and cash equivalents - beginning of year


87,254



136,441Cash and cash equivalents - end of year


68,575



141,827Supplemental disclosure of cash flow information:Cash paid for:Interest

$
-


$
-Income taxes

$
-


$
-See accompanying notes to consolidated financial statements.
   6
 Table of Contents
  CHINA EDUCATION TECHNOLOGY INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008
 
 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 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 our annual audited consolidated financial statements for the preceding fiscal year. Accordingly, these condensed consolidated financial statements should
be read in conjunction with the consolidated financial statements and the related notes thereto contained in the Annual Report on Form 10-K for the year ended December 31, 2008.
 
 2.
ORGANIZATION BACKGROUND
 
 Envirosafe Corporation (the “Company”) was incorporated in the state of Delaware in 1996. 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.
 
 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 Haoyu 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.
 
 Haoyu also engages in the trading of hardware and computer products such as monitors and computer notebooks.
  4.
RECENTLY ISSUED ACCOUNTING STANDARS
 
 In January 2009, the FASB issued FSP EITF 99-20-1, “Amendments to the Impairment Guidance of EITF Issue No. 99-20, and EITF Issue No. 99-20, Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets”. FSP EITF 99-20-1 changes the impairment model included within
EITF 99-20 to be more consistent with the impairment model of SFAS 115. FSP EITF 99-20-1 achieves this by amending the impairment model in EITF 99-20 to remove its exclusive reliance on “market participant” estimates of future cash flows used in determining fair value. Changing the cash flows used to analyze other-than-temporary impairment from the “market participant” view to a holder’s estimate of whether there has been a “probable” adverse change in estimated cash
flows allows companies to apply reasonable judgment in assessing whether an other-than-temporary impairment has occurred. The adoption of FSP EITF 99-20-1, which is effective for annual reporting periods ending after December 15, 2008, did not have a material impact on our consolidated financial statements.
 
 In April 2009, the FASB issued FSP SFAS 157-4,  “Determining Whether a Market Is Not Active and a Transaction Is Not Distressed, ” (“FSP FAS 157-4”). FSP FAS 157-4 provides guidelines for making fair value measurements more consistent with the principles presented in SFAS 157. FSP FAS 157-4 provides additional
authoritative guidance in determining whether a market is active or inactive, and whether a transaction is distressed, is applicable to all assets and liabilities (i.e. financial and nonfinancial) and will require enhanced disclosures. This standard is effective for periods ending after June 15, 2009. The Company is evaluating the impact that this standard will have on the Company’s financial position and results of operations.
 
 In April 2009, the FASB issued FSP SFAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments,” (“FSP FAS 107-1 and APB 28-1”). FSP FAS 107-1 and APB 28-1 amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” to require disclosures about fair value
of financial instruments in interim as well as in annual financial statements. FSP FAS 107-1 and APB 28-1 also amend APB Opinion No. 28, “Interim Financial Reporting,” to require those disclosures in all interim financial statements. This standard is effective for periods ending after June 15, 2009. The Company is evaluating the impact that this standard will have on the Company’s financial position and results of operations.
  7
 Table of Contents
 CHINA EDUCATION TECHNOLOGY INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008
 
 5. INVENTORIES
 
 June 30,


December 31,2009



2008(Unaudited)


(Audited)Raw materials

$
3,946


$
13,330Finished goods


217,856



240,116221,802



253,446Provision for obsolete inventories


-



-$
221,802


$
253,446
 
 The Company had no provision for obsolete inventories charged to the statements of operations for the six months ended June 30, 2009 and for the year ended December 31, 2008.
 
 6.
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, 2009 and December 31, 2008, the Company had warranty and maintenance reserves of $23,167 and $30,203, respectively.
 
 7.
INCOME TAXES
 
 The Company is subject to the United States of America Tax law at tax rate of 34%.  It has no assessable profit for both reporting periods.  The Company has not provided deferred taxes on undistributed earnings of its non-U.S. subsidiaries as of March 31, 2009 as it is the Company’s current policy to reinvest
these earnings in non-U.S. operations.
 
 ADDE is subject to Hong Kong profits tax.  No provision for Hong Kong profits tax has been made as ADDE had no taxable income for the reporting period.
 
 Commencing from the fiscal year 2008, Haoyu is subject to the PRC Enterprise Income Tax (“EIT”) at the statutory rate of 25% (under the new law as detailed below) on the profits as reported in its PRC statutory financial statements adjusted by profit and loss items that are not taxable or deductible.
  PRC’s legislative body, the National People’s Congress, adopted the unified EIT Law on March 16, 2007. This new tax law replaces the existing separate income tax laws for domestic enterprises and foreign-invested enterprises and became effective on January 1, 2008. Under the new tax law, a unified income tax rate
is set at 25% for both domestic enterprises and foreign-invested enterprises. However, there will be a transition period for enterprises, whether foreign-invested or domestic, that are currently receiving preferential tax treatments granted by relevant tax authorities. Enterprises that are subject to an enterprise income tax rate lower than 25% may continue to enjoy the lower rate and will transit into the new tax rate over a five year period beginning on the effective date of the EIT Law. Enterprises that are
currently entitled to exemptions for a fixed term may continue to enjoy such treatment until the exemption term expires. Preferential tax treatments may continue to be granted to industries and projects that qualify for such preferential treatments under the new law.
 
 Income taxes in the statements of operations and comprehensive income (loss) for the reporting periods represent provision for EIT for the Company’s continuing operations in the PRC.
 
 In July 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”).  This interpretation requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach.  The Company adopted FIN 48 on January
1, 2007.  The management evaluated the Company’s tax positions and considered that no additional provision for uncertainty in income taxes is necessary as of March 31, 2009.
 
 8.
PREFERRED STOCK
 
 On June 10, 2009, 440,000 shares of preferred stock were converted into 22,000,000 shares of common stock.
 
 The preferred stock, at the option of the holder, is convertible at any time after one year from the date of issuance into 50 shares of fully paid and non-assessable shares of common stock without further consideration.  The holders of preferred stock are entitled to vote together with the common stock on all matters presented
to a vote on an as converted basis, which is each preferred shares convertible into 50 shares of common stock.  The dividends on outstanding shares of preferred stock shall be paid or declared and set apart for payment before any dividends shall be paid or declared and set apart for payment on common shares with respect to the same dividend period.  The board of directors is empowered to fix and determine the designations, powers, preferences and rights of the shares of each series and the
qualifications, limitations or restrictions thereof.
 
 9.
EARNINGS PER SHARE
 
 The following table sets forth the computation of basic and diluted earnings per share for the periods indicated:
 
 For three months ended


For six months ended6/30/2009


6/30/2008


6/30/2009


6/30/2008Total comprehensive income (loss)

$
374,372


$
283,903


$
443,453


$
721,620Earnings (loss) per shareBasic

$
0.05


$
0.22


$
0.09


$
0.55Diluted

$
0.01


$
0.01


$
0.01


$
0.02Weighted average number of shares outstandingBasic


7,656,687



1,309,360



5,212,242



1,309,360Diluted


70,267,798



29,434,360



70,267,798



29,434,360
  The basic and diluted earnings (loss) per share were calculated using the comprehensive income (loss) and the weighted average number of shares outstanding during the reporting periods.  All share and per share data have been adjusted to reflect the recapitalization of the Company in the Exchange and the Reverse Split.
 
 10.
SEGMENT INFORMATION
 
 The Company uses the “management approach” in determining reportable operating segments.  The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s
reportable segments.  Management, including the chief operating decision maker, reviews operating results solely by monthly revenue of hardware and software and the overall operating results of the Company.  The revenue of hardware and software for the reporting periods is as follows:
 
 Hardware


Software


TotalThree months ended
June 30,


Three months ended
June 30,


Three months ended
June 30,2009


2008


2009


2008


2009


2008Revenue from external customers, net of warranty and maintenance reserves

$
284,406


$
368,032


$
463,189


$
510,515


$
747,595


$
878,547
 
 Hardware


Software


TotalSix months ended
June 30,


Six months ended
June 30,


Six months ended
June 30,2009


2008


2009


2008


2009


2008Revenue from external customers, net of warranty and maintenance reserves

$
368,521


$
786,867


$
602,939


$
1,094,334


$
971,460


$
1,881,201
 
 All of the Company’s long-lived assets and customersare located in the PRC.
 
 8
 Table of Contents
 ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERAT ION
 
 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 consolidated financial statements included herein.
 
 GENERAL DESCRIPTION OF BUSINESS
 
 As used herein the terms "We", the "Company", "CEDT", the "Registrant," or the "Issuer" refers to China Education Technology, Inc., its subsidiaries 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 Haoyu 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.
 
 Haoyu also engages in the trading of hardware and computer products such as monitors and computer notebooks.
 
 9
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 RESULTS OF OPERATIONS - THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 (UNAUDITED)
 
 Revenues
 
 Gross profits were $439,917 and $435,853 for the three months ended June 30, 2009 and 2008, respectively, due primarily to sales of information collectors, sensors, digital meteorological stations, and digital analyzing software. We did not record any product returns for the three months ended June 30, 2009. The increase in gross profits
by $4,064 in 2009 is due primarily to the decrease in cost of goods sold for our specialized products.
 
 Gross profits were $573,576 and $942,486 for the six months ended June 30, 2009 and 2008, respectively, due primarily to sales of information collectors, sensors, digital meteorological stations, and digital analyzing software. We did not record any product returns for the six months ended June 30, 2009. The decrease in gross profits by
$368,910 in 2009 is due primarily to the decrease in sales for our specialized products.
 
 Income / Loss
 
 We had a net gain of $374,027 and $266,406 for the three months ended June 30, 2009 and 2008, respectively. The increase by $107,621 in net income for the three months ended June 30, 2009 compared to June 30, 2008 is due primarily to the decrease in operating expenses by $45,885, and an increase in subsidy income of $13,210, a decrease
in interest expense in the amount of $10,932. Also, our income taxes decreased by $33,984 for the three months ended June 30, 2009.
 
 We had a net gain of $444,626 and $682,711 for the six months ended June 30, 2009 and 2008, respectively. The decrease by $238,085 in net income for the six months ended June 30, 2009 compared to June 30, 2008 is due primarily to the decrease in sales in the amount of $909,741.
 
 We hope to continue to incur profits from operations during fiscal year 2009. There can be no assurance that we will achieve or maintain profitability, or that any revenue growth will take place in the future.
 
 Expenses
 
 Operating expenses for the three months ended June 30, 2009 and 2008 were $76,871 and $122,756 respectively. The decrease of $45,885 in operating expenses for the three months ended June 30, 2009 compared to June 30, 2008 is due primarily to the decrease in research and development costs in the amount of $27,244. Additionally offset by
a decrease in selling expenses in the amount of $12,814.The decrease in these operating expenses can be attributed to the decrease in overall sales.
 
 Operating expenses for the six months ended June 30, 2009 and 2008 were $175,057 and $207,955 respectively. The decrease of $32,898 in operating expenses for the six months ended June 30, 2009 compared to June 30, 2008 is due primarily to the decrease in research and development costs in the amount of $15,756. Additionally offset by a decrease
in selling expenses in the amount of $9,836.The decrease in these operating expenses can be attributed to the decrease in overall sales in the amount of $909,741.
 
 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. During the three months ended June 30, 2009, we had $307,678 in cost of goods sold, or 41.2% of sales revenue. During the three months ended June 30, 2008,
we had $442,694 in cost of goods sold, or 50.6% of sales revenue. The lower cost of goods sold as a percentage during the three months ended June 30, 2009 was due to the decrease in sales revenue by $130,952.
 
 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. During the six months ended June 30, 2009, we had $397,885 in cost of goods sold, or 41% of sales revenue. During the six months ended June 30, 2008, we had
$938,715 in cost of goods sold, or 50% of sales revenue. The lower cost of goods sold as a percentage during the six months ended June 30, 2009 was due to the decrease in sales revenue by $909,741.
 
 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 provided (used in) by operating activities were $421,740 for the six months ended June 30, 2009, compared to cash flows of $(267,499) used in operating activities for the six months ended June 30, 2008. Negative cash flows used in operations in 2008 were due primarily to trade payables in the amount of $(662,355), additionally
offset by other receivables and prepayments in the amount of $(504,975). Positive cash flows from operations in the six months 2009 were due primarily to other payables in the amount of $194,401 and the increase in trade payables to $194,401 as compared to $(662,355) for 2008.
 
 Cash flows used in investing activities were $(1,259) and $(8,259) for the six months ended June 30, 2009 and 2008, respectively. This change in cash flows used in investing is attributable to payments to acquire property, plant, and equipment.
 
 Cash flows provided by (used in) financing activities were $(439,117) and $319,583 for the six months ended June 30, 2009 and 2008, respectively. Cash flows used in financing activities in 2009 were due primarily to repayments of $439,117 to a short-term loan.
 
 Overall, we have funded our cash needs from inception through June 30, 2009 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 $68,575 on hand and a working capital of $1,233,589 as of June 30, 2009. Currently, we have enough cash to fund our operations for about six months. This is based on current cash flows from financing activities and projected revenues. Also, if the projected revenues fall short of needed capital we may not be able to sustain
our capital needs. 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 $500,000 to sustain operations through year 2009 and approximately $700,000 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.
 
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 ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKETRISK
 
 The information to be reported under this item is not required of smaller reporting companies.
 
 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, 2009, 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, 2009, 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 consolidated 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 consolidated 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 consolidated 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, 2009. 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.
 
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 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, 2008.
 
 ITEM 2.      UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
 On June 10, 2009, 440,000 shares of preferred stock were converted into 22,000,000 shares of common stock.
 
 The preferred stock, at the option of the holder, is convertible at any time after one year from the date of issuance into 50 shares of fully paid and non-assessable shares of common stock without further consideration.  The holders of preferred stock are entitled to vote together with the common stock on all matters presented
to a vote on an as converted basis, which is each preferred shares convertible into 50 shares of common stock.  The dividends on outstanding shares of preferred stock shall be paid or declared and set apart for payment before any dividends shall be paid or declared and set apart for payment on common shares with respect to the same dividend period.  The board of directors is empowered to fix and determine the designations, powers, preferences and rights of the shares of each series and the
qualifications, limitations or restrictions thereof.
 
 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 submissions 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
 
 (b) None
 
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 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 18, 2009
By:
/s/ Yan Bin GuoYan Bin Guo
President, Chief Executive Officer