HARBIN, China, Aug. 15 /Xinhua-PRNewswire-FirstCall/ -- China Education Alliance, Inc. (OTC Bulletin Board: CEDA) ("China Education Alliance" or "the Company"), a leading distributor of educational resources, offering high-quality programs and training both through online networks and an on-site training center in China, today reported financial results for the second quarter ended June 30, 2007.
Second Quarter 2007 Highlights
-- Revenues increased 101% year over year to $4.3 million
-- Online education revenues rose 112% year over year to $3.7 million
-- Gross profit rose 133% to a record $3.5 million or 80.5% of sales,
compared to 69.4% in the prior year
-- Net income grew 6.9% year over year to $1.4 million or $0.02 per
fully diluted share
-- Pro forma net income excluding non-cash expenses was $1.8 million
or $0.03 per fully diluted share
Second Quarter 2007 Results
Revenues in the second quarter increased to $4.4 million, up 100% from $2.2 million in the prior year, driven primarily by growth in the online education business. Online education represented 85.5% of total revenues for the quarter with the remaining 14.5% generated by the training center business. Net income increased 6.9% to $1.4 million from $1.3 million in last year's second quarter. Earnings per share on a fully diluted basis were $0.02, compared to $0.01 per share in last year's second quarter. On a pro forma basis, net income excluding non-cash expenses of $0.38 million for the second quarter was $1.8 million or $0.03 per diluted share.
"We are pleased with our performance of the online education business, which accounted for most of our strong top-line growth. The online education business performed well due to continued strong demand of our downloadable online materials, and increased advertising revenues," commented Mr. Xiqun Yu, President, CEO and Director of China Education Alliance. "However, selling and administrative expenses rose more rapidly, reflecting our plan to build our sales team to increase market penetration, set up a new office in Beijing, and associated legal and consulting fees."
Online education segment revenues were $3.7 million in the quarter, up 112% from $1.8 million in the second quarter of 2006, reflecting the increasing use of the Internet for educational purposes. On a sequential basis, revenues increased 41.5% from the first quarter of 2007 due to strong demand for downloadable education materials, which accounted for 72.6% of total revenues.
Training center revenues for the second quarter were $0.6 million, up 52.6% from $0.4 million last year. On a sequential basis, revenues from the training centers increased by 37.5% as China Education Alliance offered more extensive face-to-face training courses.
Gross profit increased to $3.5 million in the second quarter, up 133% from $1.5 million in the same quarter of 2006. Gross margin for the quarter was a record 80.5%, as compared to 69.4% in the same quarter a year ago. Gross margin was favorably impacted by higher mix of online education revenues. In addition, the cost of goods sold in the second quarter declined sequentially as the Company spent more to purchase online education materials in the first quarter.
Selling expenses were $1.1 million, or 25.1% of revenues, compared to $0.1 million, or 5.5% of revenues in the second quarter of 2006, due to increased expenses to build the marketing team and higher debit card agency expenses. General and administrative ("G&A") expenses were $0.4 million, up from $0.08 million primarily due to expenses related to the opening of a new office in Beijing, and associated legal and consulting expenses in the US. As a percentage of revenue, G&A expenses increased to 10.1% in the second quarter, up from 3.6% last year.
Operating income in the second quarter was $1.9 million, up 43.9% from $1.3 million in the same period a year ago. Operating margin was 43% in the second quarter, compared to 60% in last year.
Net income for the second quarter was $1.4 million, up 6.9% from $1.3 million in the year earlier period. Fully diluted earnings per share were $0.02 compared to $0.01 in the comparable period for 2006.
Six Month Financial Results
For the first six months of 2007, total revenue was $7.4 million, up 112% from the prior year. Online education revenues were $6.3 million, up 136% from $2.7 million and represented 85.3% of total revenue. The training center business contributed 14.7% of revenues or $1.1 million, up 33% from $0.8 million in the first six months of 2006. Gross profit for the first six months of 2007 was $5.7 million, up 142% from gross profit of $2.4 million in the comparable period a year ago. Gross margin was 76.7% compared to 67.1% for the first six months of 2007 and 2006, respectively. Income from operations for the period was $3.1 million, up 54% from $2.0 million in the first six months of 2006. Net income for the first six months of 2007 was $2.4 million, up 21% from $2.0 million in the first six months of last year. Fully diluted earnings per share were $0.04 for the first half of 2007, which compared to $0.03 in the first six months of 2006. On a pro forma basis, net income excluding non-cash expenses of $0.40 million for the first half of 2007 was $2.8 million or $0.05 per diluted share.
Financial Condition
As of June 30, 2007, China Education Alliance had $8.3 million in cash and cash equivalents, $4 million in working capital, and no long-term debt. Shareholders' equity was $10.2 million up from $7.2 million at December 31, 2006. The Company generated $4.9 million in cash flow from operating activities in the first half of 2007.
Business Outlook
China Education Alliance's revenue growth in the second quarter of 2007 increased dramatically due to strong demand for downloadable materials, which is expected to experience continued rapid growth in the next few years. Advertising income is expected to increase as the result of the increasing awareness of the Company's website. Advertising revenue has no substantial cost associated with it and thus contributes a much higher gross margin. The Company is currently developing several new products for our online education business and establishing a research and development center. In the second half of the year 2007, the company plans to set up new network servers, which should help to provide incremental revenues and profits for the online education business. "We are optimistic about our online education business as we develop new modules and cross-institution online education programs," commented Mr. Yu.
The Company also intends to capitalize on its dominant market position in Heilongjiang Province and its core business in the primary/middle school market by targeting the large and growing vocational education market nationwide. It is adding several new programs for vocational studies and certification programs aimed at students who want to go to vocational school. These students include high school students who do not wish to continue their education at universities and university graduates who are not able to find employment. Mr. Yu said, "Last year, the Company formed a partnership with The Vocational Education Guidance Center of China, a quasi-government entity, which will enable us to use their network to expand our business. We also acquired the Harbin Nangang Compass Computer Training School and as a result, we became the exclusive partner of Beida Qingniao APTEC Software Engineering within Heilongjiang Province in China for vocational training. We plan to leverage these two platforms to launch the next phase of our growth."
About China Education Alliance, Inc.
China Education Alliance, Inc. was originally founded in 1996 and had engaged in several different businesses with various names before focusing on the education sector and changing its name to China Education Alliance, Inc. in November 2004. The Company is currently an educational resource Company offering high-quality educational programs and training through both online networks and an on-site training center. The Company's products include on-line test preparation materials, researchers' materials, study guides, and audio recordings, vocational training services and vocational certifications. The Company conducts educational services through three main channels: a large educational on-line portal, educational software and media, and education and vocational training centers. The Company is currently selling educational products and services to families, provincial education officials, administrators, schools and teachers in China. China Education Alliance was listed on the OTC Bulletin Board in September 2004.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
Certain statements in this press release and oral statements made by China Education Alliance on its conference call in relation to this 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 capacity expansion in 2007 and 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 but they involve risks and uncertainties 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. You 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 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.
--Financial tables below--
China Education Alliance, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
For the Three and Six Months Ended June 30, 2007 and 2006
(Unaudited)
Three months ended Six months ended
June 30, June 30,
2007 2006 2007 2006
Revenues
Online education
revenues $3,717,985 $1,752,959 $6,344,653 $2,692,462
Training center
revenues 631,770 413,895 1,091,329 821,795
Total revenue 4,349,755 2,166,854 7,435,982 3,514,257
Cost of Goods Sold
Online education costs 619,870 466,445 1,287,617 793,549
Training center costs 227,525 197,167 446,089 363,814
Total cost of goods
sold 847,395 663,612 1,733,706 1,157,363
Gross Profit
Online education gross
profit 3,098,115 1,286,514 5,057,036 1,898,913
Training center gross
profit 404,245 216,728 645,240 457,981
Total gross profit 3,502,360 1,503,242 5,702,276 2,356,894
76.7 % 67.1 %
Operating Expenses
Selling expenses 1,088,728 118,870 1,839,166 207,893
Administrative 438,003 78,636 595,666 108,231
Depreciation and
amortization 107,052 6,803 213,177 62,781
Total operating
expenses 1,633,783 204,309 2,648,009 378,905
Operating Income 1,868,577 1,298,933 3,054,267 1,977,989
Other Income (Expense)
Other Income 55,494 -- 55,494 --
Interest income 10,459 4,026 16,086 4,922
Interest expense (388,582) -- (493,079) --
Total other income
(expense) (322,629) 4,026 (421,499) 4,922
Net Income Before
Provision for Income Tax 1,545,948 1,302,959 2,632,768 1,982,911
Provision for Income Taxes
Current 152,838 -- 236,745 --
Deferred -- -- -- --
152,838 -- 236,745 --
Net Income Before
Minority Interest 1,393,110 1,302,959 2,396,023 1,982,911
Minority Interest in
loss of subsidiary -- -- -- --
Net Income 1,393,110 1,302,959 2,396,023 1,982,911
Basic Earnings Per Share 0.02 0.02 0.04 0.03
Basic Weighted Average
Shares Outstanding 57,965,000 57,915,000 57,965,000 57,915,000
Diluted Earnings Per
Share 0.02 0.01 0.04 0.01
Diluted Weighted Average
Shares Outstanding 60,917,777 57,915,000 60,917,777 57,915,000
The Components of Other
Comprehensive Income
Net Income 1,393,110 1,302,959 2,396,023 1,982,911
Foreign currency
translation adjustment (210,170) (10,533) 48,596 8,534
Comprehensive Income 1,182,940 1,292,426 2,444,619 1,991,445
China Education Alliance, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet
June 30, 2007
(Unaudited)
June 30, 2007 December 31, 2006
ASSETS
Current Assets
Cash and cash equivalents $ 8,315,833 $ 1,838,339
Other receivable 54,723
Prepaid expenses 827,955 1,321,448
Total current assets 9,143,788 3,214,510
Property and equipment, net 5,504,230 5,329,798
Franchise rights 632,208 689,642
Goodwill 43,696 43,696
Total Assets $ 15,323,922 $ 9,277,646
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 448,024 $ 211,149
Deferred revenues 1,157,791 309,366
Loan from shareholder 133,391 135,944
Notes payable 3,400,000 1,448,437
Total current liabilities 5,139,206 2,104,896
Minority interest -- --
Stockholders' Equity
Preferred stock ($0.001 par value,
5,000,000 shares authorized,
none issued and outstanding) -- --
Common stock ($0.001 par value,
150,000,000 shares authorized,
57,965,000 issued and outstanding) 57,965 57,935
Additional paid-in capital 2,986,174 2,618,857
Accumulated other comprehensive
income 526,429 277,833
Retained earnings 6,614,148 4,218,125
Total stockholders' equity 10,184,716 7,172,750
Total Liabilities and SE $ 15,323,922 $ 9,277,646
China Education Alliance, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2007 and 2006
(Unaudited)
2007 2006
Cash flows from operating activities
Net Income $ 2,396,023 $ 1,982,911
Adjustments to reconcile net cash
provided by operating activities
Depreciation and amortization 383,734 78,477
Amortization of loan discount 420,639 --
Stock issued for services 15,900 --
Warrants issued for services 12,371 --
Net change in assets and liabilities
Inventories 1,624
Other receivables 54,723 8,315
Prepaid expenses and other 493,493 (1,865)
Accounts payable and accrued liabilities 236,875 23,410
Advances by customers 848,425 26,001
Net cash provided by operating activities 4,862,183 2,118,873
Cash flows from investing activities
Purchases of fixed assets (500,732) (1,955)
Net cash (used in) investing activities (500,732) (1,955)
Cash flows from financing activities
Payments on loans (1,330,000)
Proceeds from loans 3,400,000
Proceeds from loan from shareholder (2,553) 52,065
Net cash provided by financing activities 2,067,447 52,065
Effect of exchange rate 48,596 8,534
Net increase in cash 6,477,494 2,177,517
Cash and cash equivalents at beginning of year 1,838,339 597,444
Cash and cash equivalents at end of year $ 8,315,833 $ 2,774,961
Supplemental disclosure of cash flow
information
Interest paid $ 59,588 $ --
Taxes paid $ -- $ --
Stock issued for services $ 15,900 $ --
Value of warrants issued for services $ 12,371 $ --
Value of warrants from convertible debt $ 339,076 $ --
For more information, please contact:
Mr. Xiqun Yu
Chairman and CEO
China Education Alliance, Inc.
Tel: +86-451-8233-5794
Email: yxq8877@126.com
Investor Relations Contact:
Mr. Crocker Coulson
President
CCG Elite Investor Relations
Tel: +1-646-213-1915 (NY Office)
Email: crocker.coulson@ccgir.com
