China Education Alliance Announces Third Quarter 2011 Financial Results

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

Financial Highlights for the Third Quarter ended September 30, 2011

Total revenue decreased 33.5% year-over-year to $9.6 million.
Gross profit declined to $6.8 million or 71.0% of sales, compared to $12.0 million, or 83.3% of sales last year.

"Despite the challenges we faced, as a Chinese US-listed company, in the capital market this year, we have not been discouraged by the harsh evaluation and scrutiny. In fact, we have been persistent to focus on delivering premium educational services and course materials to our students and promoting our elite teachers and effective training courses," said Xiqun Yu, Chairman and Chief executive Officer of China Education Alliance. "We are pleased to see continuous improvement in our business."

Third Quarter 2011 Review

China Education Alliance reported total revenue of $9.6 million for the third quarter ended September 30, 2011, a decrease of $4.8 million or 33.5%, compared to $14.4 million from same period in the prior year. Revenue from training centers comprised of technology training classes, language training classes, vocational training classes, etc, decreased 20.6% to $4.1 million, compared to $5.2 million in the third quarter last year. The decrease was mainly due to a decrease in revenue of approximately $1 million from technology training classes. Revenue for online education decreased 38.2% to $5.3 million, compared to revenue of $8.6 million in the same quarter last year. The decrease was due to the in progress recovery of the Company's name brand and image; however, the Company continues to see moderate improvement in enrollment numbers. Other revenue, including revenue generated from online advertising, decreased 84.6% to $80,530, compared to revenue of $0.5 million in the third quarter last year. The decrease was mainly due to the decrease in advertising income related to online education as the Company is turning away from advertising to focus on its core business lines: examination preparation courses, vocational training and language training.

Overall cost of sales increased to $2.8 million in the third quarter of 2011, compared to $2.4 million for the same period prior year. This was mainly due to continuous amortization of prepaid course materials.

Gross profit was $6.8 million in the third quarter 2011 compared with $12.0 million in the same period prior year. As a percentage of sales, gross margin was 71.0% in the third quarter, compared with 83.3% in the third quarter of 2010.

Gross profit for online education decreased to $3.7 million from $7.3 million in the same period in the prior year, or to 70.2% as a percentage of sales in the third quarter of 2011 from 85.1% in the same period prior year, due to lower online education revenues and higher cost of sales. Gross profit for training centers decreased 7.5% to $3.0 million compared with $4.1 million in the same period last year. Gross profit for training centers as a percentage of sales in the third quarter of 2011 was 71.8%, compared to 79.3% same period last year. The decrease was mainly due to higher amortization charges. Gross profit for other business decreased to $69,927 from $0.49 million in the third quarter last year, or to 86.8% as a percentage of sales in the third quarter of 2011 from 93.0%, mainly due to the decrease in advertising revenue.

Selling expenses decreased 57.6% to $2.2 million in the third quarter from $5.2 million in the same period last year. As a percentage of sales, selling expenses was 23.0% of sales, compared to 36.0% in the same quarter last year. The decrease in selling expenses was a result of the decrease in revenue and the decrease in marketing and advertising expenses.

Administrative expenses increased to $1.4 million for the third quarter of 2011, compared with $0.8 million in the same quarter of the prior year. The increase in administrative expenses was a result of the increase in insurance expense, attorney professional fee and three new schools: Tianlang, Harbin Nuoya and Changchun Nuoya.

Depreciation and amortization increased to $0.5 million in third quarter, up from $0.2 million in the same quarter last year.

Net income was $3.2 million in the third quarter of 2011, or $0.3 per fully diluted share, compared with $5.4 million, or $0.51 per basic share and $0.51per fully diluted share last year.

Recent Development

On September 26, 2011, the Company implemented a one-for-three reverse stock split of its issued and outstanding common stock. As a result, the outstanding basic weighted average shares and diluted weighted average shares were 10,582,503 as of September 30, 2011.

Financial Position

As of September 30, 2011, China Education Alliance had approximately $73.7 million cash and cash equivalents, an increase from $71.1 million at December 31, 2010. Working capital was $75.2 million, an increase of $2.6 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 $8.0 million for the nine months ended September 30, 2011, a decrease of 52.7% from $16.9 million for the nine months ended September 30, 2010. This decrease was due to the decrease in net income, deferred revenue and a loss resulting from the disposal of fixed assets.

Conference Call

China Education Alliance will host a conference call and live webcast at 8 a.m. Eastern Standard Time (EST) (9 p.m. Harbin/Beijing time on Thursday, November 10, 2011).

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

- Participant Dial In (Toll Free USA): + 1-866-519-4004

- International Dial In: +1-718-354-1231

- China Toll Free: 8008190121

- Hong Kong Toll Free: +852-32475-0994

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: +1-866-214-5335

- International dial-in number: +1-718-354-1232

Passcode: 25360813

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 famous-teacher resources and onsite, personalized instruction. All resources and tutoring services are provided by famous 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: +852 2232 3907

Email: jwu@christensenIR.com


China Education Alliance, Inc. and Subsidiaries
Consolidated Balance Sheets (Expressed in US Dollars) As at December 31, 2010 and September 30, 2011

		September 30,		December 31,
		2011		2010
		(Unaudited)		(Audited)
ASSETS

Current Assets
Cash and cash equivalents	$	73,738,147	$	71,105,415
Accounts receivable		158,174		-
Other receivable		866,566		432,030
Prepaid expenses		2,127,893		2,834,976
Total current assets		76,890,779		74,372,421

Non-current Assets
Note receivable		7,816,676		7,172,301
Property and equipment, net		8,420,669		9,946,729
Intangibles and capitalized software, net		12,671,056		1,515,381
Long-term investment		-		559,269
Deferred tax assets		363,580		-
Total non-current assets		29,271,980		19,193,680

Total Assets	$	106,162,760	$	93,566,101

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
Accounts payable and accrued expenses	$	739,989	$	686,102
Deferred revenues		997,561		1,072,373
Total current liabilities		1,737,551		1,758,475

Stockholders' Equity
Common stock ($0.001 par value, 150,000,000 shares authorized,10,582,242 and 10,420,637 issued at September 30, 2011 and December 31, 2010, respectively; and 137,512 shares held in treasury)		10,582		10,421
Additional paid-in capital		40,886,556		39,726,468
Statutory reserve		5,063,769		3,731,672
Retained earnings		48,407,580		44,591,566
Accumulated other comprehensive income		8,448,883		5,573,565
Less: Treasury stock		(977,072)		(977,072)
Stockholders' equity - China Education Alliance, Inc. and Subsidiaries		101,840,298		92,656,619
Noncontrolling interests in subsidiaries		2,584,911		(848,991)
Total stockholders' equity		104,425,209		91,807,627

Total Liabilities and stockholders' Equity	$	106,162,760	$	93,566,101


China Education Alliance, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
		Three months ended September 30				Nine months ended September 30
		2011		2010		2011		2010
Revenues
Online education revenues	$	5,330,692	$	8,629,101	$	14,458,244	$	21,246,633
Training center revenues		4,147,879		5,223,860		11,618,155		11,013,279
Other Revenues		80,530		524,249		206,214		1,587,128
Total revenue		9,559,101		14,377,210		26,282,613		33,847,040

Cost of Goods Sold
Online education costs		1,586,084		1,281,634		4,888,630		3,524,119
Training center costs		1,170,677		1,081,937		2,985,553		2,344,862
Other costs		10,603		36,776		28,986		114,613
Total cost of goods sold		2,767,364		2,400,347		7,903,170		5,983,594

Gross Profit
Online education gross profit		3,744,607		7,347,467		9,569,614		17,722,514
Training center gross profit		2,977,203		4,141,923		8,632,602		8,668,417
Other gross profit		69,927		487,473		177,227		1,472,515
Total gross profit		6,791,737		11,976,863		18,379,443		27,863,446

Operating Expenses
Selling expenses		2,199,187		5,182,765		7,743,091		10,902,529
Administrative		1,358,716		781,169		5,046,511		1,808,209
Depreciation and amortization		475,871		219,435		1,198,840		716,909
Total operating expenses		4,033,773		6,183,369		13,988,441		13,427,647

Income/(Loss) from operations		2,757,963		5,793,494		4,391,002		14,435,799

Other Income/ (Expense)
Other income/(Expense)		(92,088)		631		(162,108)		21,769
Loss on disposal of fixed assets		(5,908)		-		(647,352)		-
Interest income		470,716		61,384		1,377,097		158,919
Investment loss		-		(526)		-		(8,132)
Total other income/(Expense)		372,721		61,489		567,638		172,556

Net Income Before Provision for Income Tax		3,130,684		5,854,983		4,958,639		14,608,355
Income taxes:
Current		(54,622)		(638,216)		175,429		(1,531,361)
Deferred		(77,884)		-		14,042		-

Net Income		2,998,178		5,216,767		5,148,111		13,076,994
Net Income attributable to the noncontrolling interests		177,136		161,018		96,530		101,333
Net Income/(Loss) - attributable to CEU and Subsidiaries	$	3,175,313	$	5,377,785	$	5,244,640	$	13,178,327

Basic Earnings Per Share	$	0.30	$	0.52	$	0.50	$	1.25
Diluted Earnings Per Share	$	0.30	$	0.51	$	0.50	$	1.25

Basic Weighted Average Shares Outstanding		10,582,503		10,441,245		10,568,979		10,509,797
Diluted Weighted Average Shares Outstanding		10,582,503		10,454,418		10,568,979		10,544,575

The Components of Other Comprehensive Income
Net income/(Loss)	$	3,175,313	$	5,377,785	$	5,244,640	$	13,178,327
Foreign currency translation adjustment		2,353,258		1,271,450		2,875,318		1,441,115

Comprehensive income	$	5,528,571	$	6,649,235	$	8,119,958	$	14,619,442


China Education Alliance, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited) (Expressed in US Dollars) As at September 31, 2010 and 2011

		Nine Months Ended September 30,
		2011		2010
Cash flows from operating activities
Net Income	$	5,148,111	$	13,076,994
Adjustments to reconcile net income to net cash provided by
Operating activities
Depreciation and amortization		1,198,840		1,244,677
Loss on disposal of fixed assets		641,444		-
Stock based compensation		1,161,211		169,710
Loss on equity investment		-		8,710
Deferred tax assets		(347,801)		-
Net change in assets and liabilities
Account receivables		(155,739)		(632,276)
Prepaid expenses and other		948,608		655,210
Accounts payable and accrued liabilities		198,362		1,212,226
Other payable/receivable		(519,030)		-
Deferred revenue		(281,873)		1,174,971
Net cash provided by operating activities		7,992,133		16,910,222

Cash flows from investing activities
Purchases of property and equipment		-		(760,273)
Proceeds from disposal of fixed assets		1,765,322		-
Deposit on fixed asset acquisition		-		(4,553,530)
Cash used for acquisitions		(7,860,157)		(884,938)
Net cash used in investing activities		(6,094,835)		(6,198,741)

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		735,434		1,441,115

Net increase in cash		2,632,732		12,490,002

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

Cash and cash equivalents at end of period	$	73,738,147	$	77,525,334

Supplemental disclosure of cash flow information
Income taxes paid	$	613,842	$	1,428,684

Non-cash investing and financing activities
Conversion of preferred stock to common	$	-	$	1,867,644
Cancellation of WEI Acquisition	$	-	$	932,000