China Education Alliance Announces Second Quarter 2012 Financial Results

HARBIN, China, Aug. 21, 2012 /PRNewswire-Asia/ -- China Education Alliance, Inc. ("China Education Alliance" or the "Company", OTCQX: CEAI), a China-based education resource and services company, today announced its second quarter 2012 results. The Company will host a conference call on Tuesday, August 21, 2012, at 8 a.m. EDT (8 p.m. Beijing time the same day).

Financial Highlights for the Second Quarter ended June 30, 2012

• Total revenues decreased by 68.4% to $3.1 million.
• Gross profit decreased 90.4% to $0.7 million.
• Net loss of $4.0 million.
• Loss per share was $0.38 per fully diluted share.

"Faced with the economic slowdown and an increasing number of new competitors, we are actively taking measures to cope with these challenges while we continue to restructure our businesses. While our bottom line performance continues to suffer in the short term, we have great confidence that we will be able to improve our performance going forward. While pushing our restructuring efforts forward, we are also controlling cost with a high level of discipline. The investments that we must make today will generate income in the future, especially for those on-site training centers that are expected to make profits in the following 12 to 18 months. We set up 8 training centers in the past 6 months and they are still mostly in their early stages. We are planning to set up another 10 centers by the end of this year. We have continued to integrate our existing on-site training business, and believe it will improve our business and allow it to develop better in the future," said Mr. Xiqun Yu, Chairman and Chief Executive Officer of China Education Alliance.

"Meanwhile, we are optimizing our online training business. With the founding of Harbin Information and Technology Ltd in June, we are building an information platform for teachers and students to communicate in a more convenient and efficient way. We believe the establishment of this information platform will enhance the efficiency of the existing online training business and convince potential students and teachers of the high quality of our services."

Second Quarter 2012 Review:

Revenue decreased by $6.7 million, or 68.4% to $3.1 million for the quarter ended June 30, 2012 from $9.7 million during the same period in 2011. The decrease in revenue was primarily due to external factors including slowdown in economic growth, untruthful allegation about the Company's business, and increased competition. These factors contributed to the continuous decline in interest of existing and new students, which resulted in lower student enrollments as compared to the same period in 2011.

The Company expects to improve revenue from its online education division in the future by providing more competitive and up to date study materials and easy access to students. The Company believes that revenue from the training center division will recover as it continues to expand its onsite training centers throughout the main cities of the PRC.

Revenue from the on-line education division decreased by $4.0 million, or 76.4%, to $1.2 million for the quarter ended June 30, 2012 from $5.3 million for the quarter ended June 30, 2011. Revenue from the training center division decreased by $2.6 million, or 59.0%, to $1.8 million for the quarter ended June 30, 2012 from $4.4 million for the quarter ended June 30, 2011.

Overall cost of revenue decreased by $0.4 million, or 12.8%, to $2.4 million for the quarter ended June 30, 2012 from $2.8 million for the same period in 2011.

Cost of revenue for the online education division increased by $48,470, or 3.0% to $1.7 million for the quarter ended June 30, 2012 from $1.6 million for the same period in 2011. The slight increase was mainly attributable to the purchase of new examination papers, tutorial materials, new servers and computers. Gross profit margin for the online education division decreased to negative 33.6% for the quarter ended June 30, 2012 from positive 69.3% during the same period in 2011 due to the decrease in revenue and increase in cost of revenue.

Cost of revenue for the training center division decreased $0.4 million, or 35.3% to $0.7 million for the quarter ended June 30, 2012 from $1.1 million for the same period in 2011. The increase was mainly attributable to the decrease in revenue and our effective cost controls. Gross profit margin for the training center division decreased to 59.6% for the quarter ended June 30, 2012 from 74.4% during the same period in 2011 as a result of the decrease in revenue and the increase in cost of revenue.

Gross profit for the second quarter of 2012 was $0.7 million compared to $7.0 million for the second quarter 2011.

Selling expenses decreased by $1.9 million, or 61.2%, to $1.2 million in the second quarter of 2012 from $3.1 million in the second quarter of 2011. Selling expenses were 39.4% of total sales in the second quarter of 2012 compared with 32.1% in the second quarter of 2011. The decrease in selling expenses was a result of the decrease in revenue and a decrease in the sales commissions in the online education division.

Administrative expenses increased by $0.1 million, or 10.5% to $1.4 million for the quarter ended June 30, 2012 from $1.2 million for the quarter ended June 30, 2011. The decrease was mainly due to an increase in expenses relating to the depreciations and amortizations, training center rentals, and office expenses. Total administrative expenses were about 44.5% of total revenue for the three months ended June 30, 2012, compared to 12.7% for the same period in 2011.

Interest income increased by $16,953, or 3.7%, to $479,709 for the quarter ended June 30, 2012 from $462,756 for the same period in 2011. The increase was primarily due to the exchange rate differences between the comparable periods.

Net loss for the second quarter of 2012 was $4.0 million compared to net income of $2.2 million for the second quarter of 2011. Basic and diluted loss per share was $0.38 for the second quarter of 2012 compared to income per share of $0.21 for the second quarter of 2011. The basic weighted average shares outstanding and diluted weighted average shares outstanding were 10,582,530 for the quarter ended June 30, 2012, and 10,441,608 in the same period of 2011.

Financial Position

At June 30, 2012, the Company had cash and cash equivalents of $71.5 million and working capital of $72.0 million.The Company had a net loss from operating activities of $2.4 million.

At June 30, 2012, the Company had no long-term debt.

Conference Call

China Education Alliance will host a conference call and live webcast at 8 a.m. Eastern Daylight Time (EDT) on August 21, 2012 (8 p.m. in Harbin/Beijing on the same day).

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: [phone]
- China Toll Free: 800-819-0121
- Hong Kong Toll Free: 8009-30346
Conference Password: CEU

A live webcast of the conference call will be available in the investor relations section of the Company's website at: http://www.chinaeducationalliance.com/index.jsp

A telephone replay of the call will be available 2 hours after the end of the conference for seven days.

The dial-in details for the replay are as follows:

- US Toll Free: 1-866-214-5335
- International Toll: [phone]
Passcode Number: 23336300

About China Education Alliance, Inc.

China Education Alliance, Inc. (http://www.chinaeducationalliance.com) is a leading educational services company offering high-quality instructors and online education materials for students between the ages of 6 to 18 and adults (university students and professionals) aged 18 and over. Divided into two segments, students and graduate professionals, our business model delivers the skills and knowledge necessary to excel in a rapidly growing and highly competitive China. The Company provides students in the first segment with online education materials sourced from top tier schools and famous instructors for download, as well as online training and tutoring services. With teaching centers located across China, the Company also offers hands on training and tutoring to aid Chinese students pass the two most important tests they will face in their educational careers: the senior high school entrance and college entrance exams. In the second segment for graduates and professionals, China Education Alliance provides vocational training courses in subjects including IT, administration, multimedia, as well as several professional training programs.

Safe Harbor Statement

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Certain statements in this press release, constitute forward-looking statements for purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of 1995. These statements include, without limitation, statements regarding our ability to prepare the company for growth, the Company's planned expansion in 2009and predictions and guidance relating to the Company's future financial performance. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs and are not a guarantee of future performance but they involve risks anduncertainties that could cause actual results to differ materially from those in the forward-looking statements, which may include, but are not limited to, such factors as unanticipated changes in product demand especially in the education industry, pricing and demand trends for the Company's products, changes to government regulations, risk associated with operation of the Company's new facilities, risk associated with large scale implementation of the company's business plan, the ability to attract new customers, ability to increase its product's applications, cost of raw materials, downturns in the Chinese economy, and other information detailed from time to time in the Company's filings and future filings with the United States Securities and Exchange Commission. Investors are urged to consider these factors carefully in evaluating the forward-looking statements herein and are cautioned not to place undue reliance on such forward-looking statements, which are qualified in their entirety by this cautionary statement. The forward-looking statements made herein speak only as of the date of this press release, readers are cautioned not to place undue reliance on any of them and the Company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the company's expectations.

For more information, please contact:

China Education Alliance, Inc.
Ms. Cloris Li
Chief Financial Officer
Email: [e-mail]

Christensen
Mr. Christian Arnell
Telephone: [phone]
Email: [e-mail]

China Education Alliance, Inc. and Subsidiaries
Unaudited Consolidated Statements of Operations and Comprehensive Income (unaudited)
	For the three months ended			For the six months ended
In US dollars	June30,2012		June30,2011 (Restated)	June30,2012		June30,2011 (Restated)
Revenue
Online education revenue	$ 1,248,318		$ 5,279,676	$ 3,311,407		$ 9,253,345
Training center revenue	1,822,569		4,443,432	4,569,087		7,470,275
Total revenue	3,070,887		9,723,108	7,880,494		16,723,620
Cost of revenue
Online education costs	1,667,990		1,619,520	3,434,765		3,320,930
Training center costs	736,920		1,138,760	1,578,116		1,814,876
Total cost of revenue	2,404,910		2,758,280	5,012,881		5,135,806
Gross profit (Loss)
Online education gross profit	(419,672)		3,660,156	(123,358)		5,932,415
Training center gross profit	1,085,649		3,304,672	2,990,971		5,655,399
Total gross profit	665,977		6,964,828	2,867,613		11,587,814
Operating expenses						1,908,056
Selling expenses	1,209,551		3,117,607	2,278,386		5,543,904
Administrative expenses	1,367,628		1,237,904	2,392,613		3,687,795
Depreciation and amortization	834,979		405,107	1,659,590		722,969
Total operating expenses	3,412,158		4,760,618	6,330,589		9,954,668
(Loss) Income from operations	(2,746,181)		2,204,210	(3,462,976)		1,633,146
Other income (Expense)
Other Income (Expense)	4,680		(10,164)	(3,065)		(70,020)
Loss on disposal of property and equipment	-		(499,532)	(15,818)		(641,443)
Impairement loss on intangible assets	(1,447,334)		-	(1,447,334)		-
Interest income	479,709		462,756	962,645		906,692
Total other (Expense) income	(962,945)		(46,940)	(503,572)		195,229
Net (loss) income before income tax	(3,709,126)		2,157,270	(3,966,548)		1,828,375
Income taxes (credit):
Current	32		(230,005)	32		(230,005)
Deffered	436,350		14,101	319,290		(91,925)
Net (loss) income	(4,145,508)		2,373,174	(4,285,870)		2,150,305
Net (loss) income attributable to the noncontrolling interests	(165,773)		220,872	(191,976)		172,532
Net (loss) income - attributable to CEAI and subsidiaries	$ (3,979,735)		$ 2,152,302	$ (4,093,894)		$ 1,977,773
Basic (loss) income per share	$ (0.38)		$ 0.21	$ (0.39)		$ 0.19
Diluted (loss) income per share	$ (0.38)		$ 0.21	$ (0.39)		$ 0.19
BasicWeightedAverageSharesOutstanding	10,582,530		10,441,608	10,582,530		10,424,506
Diluted Weighted Average Shares Outstanding	10,582,530		10,441,608	10,582,530		10,424,506
The components of other comprehensive income
Net (loss) income	$ (3,979,735)		$ 2,152,302	$ (4,093,894)		$ 1,977,773
Foreigncurrencytranslationadjustment	66,061		1,036,914	733,556		1,559,173
Comprehensive (loss) income	$ (3,913,674)		$ 3,189,216	$ (3,360,338)		$ 3,536,946

China Education Alliance, Inc. and Subsidiaries
Consolidate Balance Sheets (unaudited)
	For the three months ended
In US dollars	June 30, 2012		December 31, 2011
Assets
Current assets
Cash and cash equivalents	$ 71,536,556		$ 73,597,159
Accounts receivable	183,075		-
Other receivables	778,150		652,526
Prepaid expenses and other current assets	1,011,928		1,305,496
Total current assets	73,509,709		75,555,181
Non-current assets
Note receivable	7,925,312		7,869,678
Property and equipment	12,282,012		14,203,136
Intangibles and capitalized software	10,045,709		12,420,620
Deferred tax assets	-		316,737
Total non-current assets	30,253,033		34,810,171
Total assets	$ 103,762,742		$ 110,365,352
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued expenses	$ 531,212		$ 1,430,499
Deferred revenue	625,698		2,277,620
Income tax and other taxes payable	168,374		532,254
Due to a stockholder	151,186		131,650
Total current liabilities	1,476,470		4,372,023
Stockholder's Equity
Common stock ($0.001 par value, 150,000,000 shares authorized, 10,582,503 and 10,582,503 issued at June 30, 2012 and December 31, 2011, respectively; and 137,512 shares held in treasury)	10,583		10,583
Additional paid-in capital	40,940,025		40,936,106
Statutory reserve	3,792,161		3,792,161
Retained earnings	46,155,146		50,249,040
Accumulated other comprehensive income	10,001,141		9,267,585
Less: Treasury stock	(977,072)		(977,072)
Stockholder's equity - CEAI and subsidiaries	99,921,984		103,278,403
Noncontrolling interests in subsidiaries	2,364,288		2,714,926
Total stockholder's equity	102,286,272		105,993,329
Total liabilities and stockholder's equity	$ 103,762,742		$ 110,365,352

China Education Alliance, Inc. and Subsidiaries
Unaudited Consolidated Statements of Cash Flows (unaudited)
	For the six months ended
In US dollars	June30,2012		June30,2011 (Restated)
Cash flows from operating activities:
Net (loss) income	$ (4,285,870)		$ 2,150,305
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization - operating expenses	1,659,590		722,969
Depreciation and amortization - cost of revenue	1,421,674		915,447
Loan to Nanchang Institute of Technology	-		(386,817)
Loss on disposal of fixed assets	15,818		641,444
Bad debt written off on other receivables	18,889		-
Impairment loss on intangible assets	1,447,334		-
Stock based compensation	3,919		1,158,965
Net change in assets and liabilities
Accounts receivable	(183,255)		(120,542)
Prepaid expenses and other receivables	162,980		701,043
Deferred tax assets	319,290		(441,464)
Accounts payable and accrued expenses	(908,897)		(181,716)
Income tax and other taxes payable	(363,880)		(289,085)
Deferred revenue	(1,669,664)		1,378,346
Net cash provided by operating activities	(2,362,072)		6,248,895
Cash flows from investing activities
Purchases of property and equipment	(40,531)		-
Proceeds from disposal of fixed assets	4,097		1,772,265
Cash used for acquisitions	-		(7,788,424)
Net cash used in investing activities	(36,434)		(6,016,159)
Cash flows from financing activities:
Advance from stockholder	18,624		-
Dividend distribution	(158,662)		-
Net cash provided by financing activities	(140,038)		-
Effect of exchange rate changes on cash	477,941		1,304,866
Net (decrease) increase in cash	(2,060,603)		1,537,602
Cash and cash equivalents, beginning of period	73,597,159		71,105,415
Cash and cash equivalents, at end of period	$ 71,536,556		$ 72,643,017
SUPPLEMENTAL DISCLOSURES:
Income taxes	$ 92,917		$ 2,187,294

SOURCE China Education Alliance, Inc.