China Education Alliance Announced Second Quarter 2011 Financial Results

HARBIN, China, Aug. 9, 2011 /PRNewswire-Asia/ -- China Education Alliance, Inc. ("China Education Alliance" or the "Company") (NYSE: CEU), a China-based education resource and services company, today announced second quarter 2011 results. The Company will host a conference call on Wednesday, August 10, 2011, at 8 a.m. EDT or 8 p.m. Harbin time.

Financial Highlights for the Second Quarter ended June 30, 2011

Total revenue decreased 10.2% year-over-year to $9.7 million.
Gross profit declined to $7.0 million, or to 71.2% of sales, compared to $9.1 million, or to 83.4% of sales during the same period in 2010.
On a GAAP-basis, net income was $1.9 million compared with net income of $4.3 million during the same period in 2010.
Non-GAAP net income was $3.0 million compared with non-GAAP net income of $4.4 million in the second quarter of 2010. Non-GAAP fully diluted earnings per share were $0.10, compared with EPS of $0.14 per fully diluted share in the second quarter of 2010.

"We are encouraged by the early signs of an improvement in our business following the baseless allegations made against the Company at the end of last year. The strategic promotional and marketing campaigns that we implemented in response to the allegations have been successful in restoring our reputation," said Xiqun Yu, Chairman and Chief executive Officer of China Education Alliance. "We continue to execute on our strategy of acquiring businesses to explore our educational platform."

Second Quarter 2011 Review

China Education Alliance reported total revenue of $9.7 million for the second quarter ended June 30, 2011, a decrease of $1.1 million or 10.2%, compared to revenues of $10.9 million for the second quarter of 2010. Revenues for the training center increased 51.5% to $4.4 million but were offset by a 39.0% decline on online education revenues to $4.5 million. The decrease was due to the negative allegations mentioned above which was offset by the positive contributions of recent acquisitions. Other revenues increased 45.0% to $0.8 million compared with $0.5 million during the period ended June 30, 2010.

Overall cost of sales increased to $2.8 million in the second quarter of 2011, compared to $1.8 million for the second quarter of 2010. The increase was mainly due to continuous amortization of prepaid class materials.

Gross profit was $7.0 million in the second quarter 2011 compared with $9.1 million for the second quarter of 2010. As a percentage of sales, gross margin was 71.2% during the quarter, compared with 83.4% in the second quarter of 2010.

Gross profit in the online division decreased to $3.0 million compared with $6.3 million in the comparable period of 2010, or to 66.6% as a percent of sales in the second quarter of 2011 from 84.7% in the same period of 2010 due to lower online revenues and higher costs. Gross profit for the training center increased 44% to $3.3 million compared with $2.3 million during the second quarter of 2010. However, gross margin as a percentage of sales in the division decreased to 74.4% from 78.5% during the second quarter of 2010 due to higher amortization charges. Gross profit for other revenues increased 33% to $0.7 million. Gross margin in the segment was 85.5% versus 93.1% during the second quarter of 2010.

Selling expenses decreased 10.3% to $3.1 million from $3.5 million. As a percentage of sales, selling expenses remained flat at 31.1% of sales.

Administrative expenses increased to $1.2 million for the second quarter of 2011 compared with $0.6 million for the second quarter of 2010. Depreciation and amortization increased to $0.4 million, up from $0.3 million during the second quarter of 2010.

During the quarter, the Company disposed of one training center building and other fixed assets after evaluating the lack of profitability of the location. The total disposal loss and loss of other fixed assets was $0.5 million which was recorded under other income and expenses.

Net income was $2.0 million, or $.06 per share, basic and diluted, for the second quarter as compared with net income of $4.3 million, or $0.14 per share, basic and diluted, during the second quarter of 2010.

On a non-GAAP basis, net income was $3.0 million in the second quarter of 2011, or $0.10 per fully diluted share as compared with non-GAAP net income of $4.4 million, or $0.14 per fully diluted share for the second quarter of 2010.

Recent Developments

During the quarter, the Company acquired Nuoya Foreign Languages School (a.k.a. "Noah International"), the largest multi-language learning institute in Northern China offering courses in English, Japanese, Korean, Russian, German, French, Spanish, Italian, Arabic, etc., for RMB 16 million in cash. Currently, Noah International serves a student body of roughly 1,000 students with its two training centers in Harbin and Changchun, and generates annual revenue of RMB 10 million and net profit of RMB 3 million.

The Company was also notified by the New York Stock Exchange ("NYSE") that it was not in compliance with the NYSE continued listing standard requiring a listed security to maintain a minimum average closing price of $1.00 per share over a consecutive 30-trading-day period. The Company has six months from receipt of the notification to bring its share price and average share price back above $1.00.

Business Outlook

China Education Alliance continues to execute its strategy to augment its National Expansion Plan with the completion of several acquisitions.

During the quarter, the Company established a new Board of Directors following its purchase of a 60% interest in Harbin Tianlang Culture and Education School. The Company appointed three out of the five new directors and co-manages the school with the previous majority owner.

In June, the Company also acquired the aforementioned, Noah International, for RMB16 million in cash. Its financial statement was been consolidated with the Company's balance sheets as of May 2011.

"We continue to identify opportunities to expand our platform with quality businesses that fit our overall business strategy. We are pleased that our recent acquisitions positively contributed to sales in the current quarter," said Chairman Yu.

2011 Guidance

The Company reiterates that it expects full year 2011 total revenues to be between $47 million and $52 million.

Financial Position

As of June 30, 2011, China Education Alliance had approximately $72.6 million cash and cash equivalents, an increase from $71.1 million at December 31, 2010. Working capital was $72.4 million, a decrease of $0.2 million from working capital of $72.6 million at December 31, 2010. The Company believes that current working capital and borrowing capabilities are adequate to cover its planned operating and capital requirements. Cash provided from operating activities was $6.3 million for the six months ended June 30, 2011, compared with cash provided from operating activities of $10.1 million for the six months ended June 30, 2010.

Conference Call

China Education Alliance will host a conference call and live webcast at 8 a.m. Eastern Daylight Time (EDT) (8 p.m. Harbin/Beijing time on Wednesday, August 10, 2011).

The dial-in details for the live conference call are as follows:

- Participant Dial In (Toll Free USA): + 1-866-770-7051

- International Dial In: +1-617-213-8064

- China Toll Free: +86-108008521490

- Hong Kong Toll Free: +852-3002-1672

Passcode: CEU

A live webcast of the conference call will be available on the investor relations section of the Company's website at: http://www.chinaeducationalliance.com. A telephone replay of the call will be available for seven days after the conclusion of the conference call. The dial-in details for the replay are as follows:


- U.S. Toll Free Number:	+1-888-286-8010
- International dial-in number:	+1-617-801-6888
Passcode:	32845653

About China Education Alliance, Inc.

China Education Alliance, Inc. (http://www.chinaeducationalliance.com) is a fast-growing, leading, China-based company offering high-quality education resources and services to students ages 6 to 18 and adults (university students and professionals) ages 18 and over. For students ages 6 to 18, China Education Alliance offers supplemental, online exam-oriented training materials and onsite, exam-oriented training and tutoring services. The company provides online, downloadable resources prepared by distinguished teachers and onsite, personalized instruction. All resources and tutoring services are provided by distinguished teachers within mainland China. The purpose of online exam-orientated resources and onsite tutoring is to help Chinese students (ages 6 to 18) pass the two most important and highly competitive exams in their educational career: the senior high school entrance and college entrance exams. For graduates and professionals age 18 and over, China Education Alliance provides vocational training including IT and several professional training programs.

Forward-Looking Statements

Statements contained in this press release, which are not historical facts, are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, expectations of signing new customers and contracts, developing new products, projected revenues and earnings, and the success of new products. These forward-looking statements are based largely on current expectations and are subject to a number of known and unknown risks, uncertainties and other factors beyond our control that could cause actual events and results to differ materially from these statements. These statements are not guarantees of future performance, and readers are cautioned not to place undue reliance on these forward-looking statements, which are relevant as of the date of the given press release and should not be relied upon as of any subsequent date. China Education Alliance undertakes no obligation to update the forward-looking information contained in this press release.

For more information, please contact:

China Education Alliance, Inc.

Alice Lee Rogers, CFO

Tel: +1-626-379-5956

Email: alice@edu-chn.com

Christensen

Jenny Wu

Telephone: +86 10 5826 4939

Email: jwu@christensenIR.com


China Education Alliance, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)

	Three months ended			Six months ended
	June 30, 2011	March 31, 2011	June 30, 2010	June 30, 2011	June 30, 2010
Revenues
Online education revenues	$4,506,649	$3,923,588	$7,386,469	$8,430,237	$12,617,532
Training center revenues	4,443,432	3,026,843	2,932,222	7,470,275	5,789,419
Other Revenues	773,027	49,973	533,405	823,000	1,062,879
Total revenue	9,723,108	7,000,404	10,852,096	16,723,620	19,469,830

Cost of Goods Sold
Online education costs	1,507,330	1,693,222	1,128,927	3,200,552	2,242,485
Training center costs	1,138,760	676,116	630,956	1,814,876	1,262,925
Other costs	112,299	8,079	37,060	120,378	77,837
Total cost of goods sold	2,758,389	2,377,416	1,796,943	5,135,806	3,583,247

Gross Profit
Online education gross profit	2,999,319	2,230,366	6,257,542	5,229,685	10,375,047
Training center gross profit	3,304,672	2,350,726	2,301,266	5,655,399	4,526,494
Other gross profit	660,728	41,895	496,345	702,622	985,042
Total gross profit	6,964,719	4,622,987	9,055,153	11,587,815	15,886,583

Operating Expenses
Selling expenses	3,117,607	2,426,297	3,478,810	5,543,904	5,719,764
Administrative	1,237,904	2,449,891	572,847	3,687,795	1,027,040
Depreciation and amortization	405,107	317,862	264,663	722,969	497,474
Total operating expenses	4,760,618	5,194,050	4,316,320	9,954,668	7,244,278

Income/(Loss) from operations	2,204,101	(571,063)	4,738,833	1,633,146	8,642,305

Other Income/ (Expense)
Other income/(Expense)	(10,164)	(59,856)	2,245	(70,020)	21,138
Loss on disposal of fixed assets	(499,532)	(141,912)	-	(641,444)	-
Interest income	80,661	62,459	50,842	143,120	97,535
Investment loss	-	-	(6,076)	-	(7,606)
Total other income/(Expense)	(429,034)	(139,309)	47,011	(568,343)	111,067

Net Income Before Provision for Income Tax	1,775,067	(710,373)	4,785,844	1,064,803	8,753,372
Income taxes:
Current	344,541	-	(549,966)	344,541	(893,145)
Deferred	(71,353)	163,279	-	91,926	-

Net Income	2,048,254	(547,094)	4,235,878	1,501,270	7,860,227
Net Income attributable to the noncontrolling interests	(128,946)	48,340	21,162	(80,606)	59,685
Net Income/(Loss) - attributable to CEU and Subsidiaries	$1,919,308	($498,754)	$4,257,040	$1,420,664	$7,919,912

Basic Earnings Per Share	$0.06	($0.02)	$0.14	$0.05	$0.25
Diluted Earnings Per Share	$0.06	($0.02)	$0.14	$0.05	$0.25

Basic Weighted Average Shares Outstanding	31,324,823	30,976,810	31,323,734	31,273,519	31,323,734
Diluted Weighted Average Shares Outstanding	31,324,823	30,976,810	31,363,255	31,273,519	31,377,877

The Components of Other Comprehensive Income
Net income/(Loss)	$1,919,308	($498,754)	$4,257,040	$1,420,664	$7,919,912
Foreign currency translation adjustment	1,028,559	522,060	242,100	1,550,619	169,665

Comprehensive income	$2,947,867	$23,306	$4,499,140	$2,971,282	$8,089,577


China Education Alliance, Inc. and Subsidiaries
Consolidated Balance Sheets
(Expressed in US Dollars)
As at December 31, 2010 and June 30, 2011
	June 30,	December 31,
	2011	2010
	(Unaudited)	(Audited)
ASSETS
Current Assets
Cash and cash equivalents	$ 72,643,017	$ 71,105,415
Accounts receivable	127,340	-
Other receivable	393,536	432,030
Prepaid expenses	2,197,498	2,834,976
Total current assets	75,361,392	74,372,421

Non-current Assets
Note receivable	7,349,528	7,172,301
Property and equipment, net	6,531,891	9,946,729
Intangibles and capitalized software, net	12,908,169	1,515,381
Long-term investment	-	559,269
Deferred tax assets	441,464	-
Total non-current assets	27,231,052	19,193,680

Total Assets	$ 102,592,444	$ 93,566,101

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
Accounts payable and accrued expenses	$209,952	$ 686,102
Deferred revenues	2,658,865	1,072,373
Total current liabilities	2,868,817	1,758,475

Stockholders' Equity
Common stock ($0.001 par value, 150,000,000 shares authorized,31,747,249and 31,261,911 issued at June 30, 2011 and December 31, 2010, respectively; and 412,536 shares held in treasury)

	31,747	31,263
Additional paid-in capital	40,864,105	39,705,625
Statutory reserve	5,063,769	3,731,672
Retained earnings	44,760,739	44,591,566
Accumulated other comprehensive income	7,124,184	5,573,565
Less: Treasury stock	(977,072)	(977,072)
Stockholders' equity - China Education Alliance, Inc. and Subsidiaries	96,867,471	92,656,619
Noncontrolling interests in subsidiaries	2,856,156	(848,991)
Total stockholders' equity	99,723,627	91,807,627

Total Liabilities and stockholders' Equity	$ 102,592,444	$ 93,566,101


China Education Alliance, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Expressed in US Dollars)
As at June 30, 2010 and 2011
	Six Months Ended June 30,
	2011	2010
Cash flows from operating activities
Net Income	$ 1,501,270	$ 7,860,227
Adjustments to reconcile net income to net cash provided by Operating activities
Depreciation and amortization	722,969	497,474
Depreciation and amortization-Cost of goods sold	915,447	416,180
Loss on disposal of fixed asset	641,444	-
Stock based compensation	1,158,965	157,730
Loss on equity investment	-	8,174
Deferred tax asset	(441,464)	-
Net change in assets and liabilities
Account receivables	(120,542)	(272,210)
Prepaid expenses and other	701,043	713,278
Accounts payable and accrued liabilities	(297,760)	919,764
Other receivable	97,732	-
Deferred revenue	1,378,346	(165,976)
Net cash provided by operating activities	6,257,450	10,134,641

Cash flows from investing activities
Proceeds from disposal of fixed assets	1,772,265	(110,111)
Cash used for acquisitions	(7,788,424)	(876,395)
Net cash used in investing activities	(6,016,159)	(986,506)

Cash flows from financing activities
Warrants exercised	-	298,749
Options exercised	-	38,657
Net cash provided by financing activities	-	337,406

Effect of exchange rate changes on cash	1,296,311	169,665

Net increase in cash	1,537,602	9,655,206

Cash and cash equivalents at beginning of period	71,105,415	65,035,332

Cash and cash equivalents at end of period	$ 72,643,017	$ 74,690,538

Supplemental disclosure of cash flow information
Income taxes paid	$ 2,187,294	$ 2,719,163

Non-cash investing and financing activities
Conversion of preferred stock to common	$ -	$ 1,867,644