omniture

China Education Alliance, Inc. Announces Second Quarter 2008 Results

2008-08-15 21:33 824

HARBIN, Heilongjiang, China, Aug. 15 /Xinhua-PRNewswire-FirstCall/ -- China Education Alliance, Inc. (OTC Bulletin Board: CEUA) ("China Education Alliance" or "the Company"), a leading distributor of educational resources, offering high-quality materials and training and tutoring services through both online networks and an on-site training center in China, today reported financial results for the second quarter ended June 30, 2008.

Second Quarter 2008 Highlights

-- Net revenue was $4.5 million, an increase of 2.5% from 2007

-- Gross profit was $3.7 million, an increase of 6.2% from 2007; Gross

margin improved to 83.5% from 80.5% for the second quarter of 2007

-- Operating income was $1.8 million, compared to $1.9 million in 2007

-- Other income was $16,354 versus other net expense of $322,629 in 2007

-- Net income was $1.7 million, an increase of 18.9% from $1.4 million in

2007

-- Fully diluted earnings per share was $0.07, equivalent to that of 2007

-- Purchased 70% of the issued share capital of World Exchanges Inc.

("World Exchanges"), which provides English training programs, English

test preparation courses and overseas study and consulting services

-- Invested in a joint venture company, Harbin New Discovery Media Co.,

Ltd. ("Harbin Media"), to gain an additional distribution channel for

educational material

Second Quarter 2008 Results

Revenue in the second quarter increased to $4.5 million, up 2.5% from $4.3 million in the prior year, which was primarily attributable to the online education business and the addition of several new programs for vocational studies and certification programs.

China Education Alliance provides exam-oriented education to 11-18 year olds, middle and senior high school students, including online downloadable materials and online classrooms, as well as famous instructors’ face-to-face training and tutoring services in training centers. The Company also provides vocational education to students older than 18 years of age and adults, through both on-site and training center channels.

Online education represented 86.4% of total revenue for the second quarter of 2008 versus 85.5% in the same period of last year, while the training center business generated the remaining 13.6% of total revenue for the second quarter of 2008 versus 14.5% in the second quarter last year.

"We experienced a slight increase in our revenue in this quarter led by our online education business," commented Mr. Xiqun Yu, Chairman and CEO of China Education Alliance, Inc. "We continue to dominate the online education business in Heilongjiang Province and expand into surrounding provinces."

Online education revenue was $3.9 million for the second quarter, up 3.7% from $3.7 million in the second quarter of 2007. Training center revenue for the second quarter was $604,752, a decrease of 4.3% compared to $631,770 in the second quarter of last year.

Overall cost of sales decreased 12.9% to $737,692 in the second quarter of 2008, compared to $847,395 in the same period of 2007. Gross profit increased to $3.7 million in the second quarter, up 6.2% from $3.5 million in the same quarter of 2007. Gross margin for the quarter increased to 83.5% from 80.5% in the same quarter a year ago. The improved gross margin was due to the fact that on-line education costs are somewhat fixed and margins increase with volume and an increase in advertising revenue, which has no substantial costs associated with it. This was offset by more amortization of training center related intangible assets and decreased payments to lecturers. The online education gross margin increased to 87.5% in second quarter of 2008 from 83.3% in the same period of 2007. The training center gross margin decreased to 57.9% for the three months ended June 30, 2008 from 64% in the same period of last year.

Selling expenses increased 30% to $1.4 million, compared to $1.1 million in the second quarter of 2007, reflecting increased agency fees due to more sales of debit cards. General and administrative ("G&A") expenses decreased 27.3% to $318,543 from $438,003 in the second quarter of 2007, due primarily to decreased salaries, and a decrease in travel and telephone expenses.

Operating income in the second quarter was $1.8 million, compared to $1.9 million recorded in the same period a year ago. Operating margin was 39.7% in the second quarter of 2008 compared to 43% in the prior year.

Interest expense decreased 94.4% to $21,842 from $388,582 in the second quarter of 2007, which was related to a bridge loan made in September 2006.

Net income for the second quarter was $1.7 million, up 18.9% from $1.4 million in the year earlier period. Fully diluted earnings per share were $0.07 compared to $0.07 in the comparable period for 2007.

Six Months Financial Results

For the first six month of 2008, total revenue was $8.5 million, up 14.7%, from $7.4 million for the same period of the prior year. Online education revenue was $6.9 million, up 9.4% from $6.3 million for the first six months of 2007. The training center business contributed $1.6 million, up 45.5% from $1.1 million in the first six months of 2007. Cost of sales was $1.6 million for the six months ended June 30, 2008, a decrease of $171,382, or 9.9%, compared to $1.7 million for the same period of the prior year. Gross profit was $7.0 million, up 22.2% from gross profit of $5.7 million in the comparable period a year ago. Overall gross margin increased to 81.7% from 76.7% for the six months ended June 30, 2007. The Company’s net profit during the six months ended June 30, 2008 increased 49% to $3.6 million from $2.4 million for the six months ended June 30, 2007. Fully diluted earnings per share were $0.14 for the six months ended June 30, 2008, compared to $0.12 per share for the six months ended June 30, 2007.

Financial Condition

As of June 30, 2008, China Education Alliance, Inc. had $19.4 million in cash and cash equivalents, $18.8 million in working capital, and no long-term debt. Shareholders’ equity was $27.1 million up from $18.6 million at December 31, 2007. The company generated $1.7 million in cash flow from operating activities in the second quarter of 2008.

Recent Developments

In April 2008, China Education Alliance, Inc. purchased 70% of the entire issued share capital of World Exchanges Inc. (‘‘World Exchanges’’), which provides English training programs, English test preparation courses and overseas study and consulting services through its five existing branches in regions of Beijing, Yantai, Xiamen and Qingdao. World Exchanges will establish a Wholly Foreign Owned Enterprise ("WFOE") as its English education headquarters to operate World Exchanges College of Language ("WECL") English Education business. WECL works closely with local universities to promote its on-campus language instruction programs that create a total English language environment in Chinese universities to enhance practical English skills and English examination skills for students. In addition, WECL also provides part-time language training programs, test preparation programs as well as overseas study and consulting services for students.

In July 2008, the Company contributed approximately $430,000 cash to purchase a 49.02% equity interest in a joint venture company, Harbin New Discovery Media Co., Ltd. ("Harbin Media"), with Harbin Daily Newspaper Group ("Harbin Daily"). The Company will cooperate with Harbin Daily to run the newspaper, "Scientific Discovery," which has won strong brand recognition and a loyal readership in Heilongjiang province. The Company plans to publish this newspaper twice per week by targeting primary and middle school students and the general population to provide after-school tutorship materials and scientific knowledge of daily life.

"In this quarter, the operating results combined with first quarter results met our first half year expectations and plans and we remain confident that we can resume our growth trend in the latter half of 2008. We believe we can achieve our previously stated goals for $23 million in revenue and $8.5 to $11.0 million in net income," said Mr. Yu. "We will continue to provide exam-oriented education by primarily targeting the 10 million students in the northeast region of China, and to increase our market share in these areas. We believe that our language training business will create another major platform for growth beginning in the second half of this year. We will establish another ten WECL branches by the end of year 2008. We also believe our newly established educational media distribution platform will generate considerable revenues for us later this year, help us to promote the China Education Alliance brand, and facilitate our nationwide expansion with minimal advertising expenses."

Conference Call

The Company will host a conference call to discuss its second quarter 2008 results at 8:00 a.m. Eastern Time on Monday, August 18, 2008. The management team will be on the call to discuss quarterly results and highlights and to answer questions. The toll-free number for U.S. participants is 888-419-5570. International participants can dial 617-896-9871. Passcode 544 642 48.

The conference call will also be webcast live over the Internet and can be accessed by all interested parties by using the following link: http://phx.corporate-ir.net/playerlink.zhtml?c=178111&s=wm&e=1926674 . To listen to the call, please visit this link at least 15 minutes prior to the start of the call to register, download and install any necessary audio software. For those unable to participate during the live webcast, it will be archived using the same link for 90 days.

If you are unable to participate in the call at this time, a replay will be available for fourteen days starting on Monday, August 18 at 10:00 a.m. Eastern Time. To access the replay, dial 888-286-8010, international callers should dial 617-801-6888, and enter the passcode 57138714.

About China Education Alliance, Inc.

The Company is a leading distributor of educational resources offering high-quality materials and training and tutoring services through both online networks and an on-site training center in China. The Company’s online material products include on-line test preparation materials, researchers’ materials, study guides, and audio recordings. The Company also provides educational services through online and on-site channels, including exam-oriented after-school tutoring services, vocational education, employment education and language training. The company is currently selling educational products and services to schools and universities, teachers and students. The Company’s website is: http://www.chinaeducationalliance.com .

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 2008 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 and are not a guarantee of future performance 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, the adoption by consumers of its new game business, the unproven advertising model that is dependent on attracting a large game user base, 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.

-- Financial tables below --

China Education Alliance, Inc. and Subsidiaries

Consolidated Balance Sheet

June 30, 2008

(Unaudited)

June 30, December 31,

2008 2007

ASSETS (unaudited)

Current Assets

Cash and cash equivalents $ 19,377,514 $ 11,778,954

Advances to related parties -- 108,536

Other Receivable 477,094 --

Prepaid expenses 710,522 1,612,779

Total current assets 20,565,130 13,500,269

Long term investment 436,567 --

Property and equipment, net 6,137,680 6,186,824

Intangible, net 1,759,150 623,560

$ 28,898,527 $ 20,310,653

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities

Accounts payable and accrued expenses $ 456,895 $ 423,109

Deferred revenues 1,298,279 1,245,507

Total current liabilities 1,755,174 1,668,616

Stockholders’ Equity

Preferred stock ($0.001 par value, 20,000,000

shares authorized, 7,597,645 and

9,397,645 issued and outstanding,

respectively, aggregate liquidation

preference

of $2,717,152 and $3,383,152, respectively) 3,010,144 3,677,944

Common stock ($0.001 par value, 150,000,000

shares authorized, 21,892,631

and 19,409,830, issued and outstanding,

respectively) 21,893 19,410

Additional paid-in capital 10,642,986 6,378,110

Statutory reserve

Accumulated other comprehensive income 2,575,382 1,243,541

Retained earnings 10,892,948 7,323,032

Total stockholders’ equity 27,143,353 18,642,037

$ 28,898,527 $ 20,310,653

China Education Alliance, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

For the Three and Six Months Ended June 30, 2008 and 2007

(Unaudited)

Three months ended Six months ended

June 30, June 30,

2008 2007 2008 2007

Revenues

Online education revenues $3,853,942 $3,717,985 $6,940,727 $6,344,653

Training center revenues 604,752 631,770 1,588,384 1,091,329

Total revenue 4,458,694 4,349,755 8,529,111 7,435,982

Cost of Goods Sold

Online education costs 482,825 619,870 907,867 1,287,617

Training center costs 254,867 227,525 654,457 446,089

Total cost of goods sold 737,692 847,395 1,562,324 1,733,706

Gross Profit

Online education gross

profit 3,371,117 3,098,115 6,032,860 5,057,036

Training center gross profit 349,885 404,245 933,927 645,240

Total gross profit 3,721,002 3,502,360 6,966,787 5,702,276

Operating Expenses

Selling expenses 1,415,683 1,088,728 2,613,018 1,839,166

Administrative 318,543 438,003 625,905 595,666

Depreciation and

amortization 218,173 107,052 415,831 213,177

Total operating expenses 1,952,399 1,633,783 3,654,754 2,648,009

Other Income (Expense)

Other Income 6,668 55,494 528,497 55,494

Interest income 31,528 10,459 56,436 16,086

Interest expense (21,842) (388,582) (21,842) (493,079)

Total other income

(expense) 16,354 (322,629) 563,091 (421,499)

Net Income Before Provision

for Income Tax 1,784,957 1,545,948 3,875,124 2,632,768

Provision for Income Taxes

Current 128,964 152,838 305,208 236,745

Net Income $1,655,993 $1,393,110 $3,569,916 $2,396,023

Basic Earnings Per Share $0.08 $0.02 $0.17 $0.04

Basic Weighted Average

Shares Outstanding 21,202,359 57,965,000 21,202,359 57,965,000

Diluted Earnings Per Share $0.07 $0.02 $0.14 $0.04

Diluted Weighted Average

Shares Outstanding 24,818,668 60,917,777 24,818,668 60,917,777

The Components of Other

Comprehensive Income

Net Income $1,655,993 $1,393,110 $3,569,916 $2,396,023

Foreign currency translation

adjustment 55,303 (210,170) 1,331,841 48,596

Comprehensive Income $1,711,296 $1,182,940 $4,901,757 $2,444,619

China Education Alliance, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

Six Months Ended June 30,

2008 2007

Cash flows from operating activities

Net Income $ 3,569,916 $ 2,396,023

Adjustments to reconcile net cash provided

by operating activities

Depreciation and amortization 673,059 383,734

Amortization of loan discount - warrants

attached to loans -- 420,639

Warrants issued for services -- 12,371

Stock issued for services -- 15,900

Net change in assets and liabilities

Other receivables (477,094) 54,723

Prepaid expenses and other 484,128 493,493

Advances from related parties 108,536 --

Accounts payable and accrued liabilities 33,786 236,875

Deferred revenue 52,772 848,425

Net cash provided by operating activities 4,445,103 4,862,183

Cash flows from investing activities

Purchases of fixed assets (409,378) (500,732)

Long-term investment (436,567) --

Net Cash (used in) investing activities (845,945) (500,732)

Cash flows from financing activities

Warrants exercised 2,667,559 2,067,447

Effect of exchange rate 1,331,841 48,596

Net increase in cash 7,598,558 6,477,494

Cash and cash equivalents at beginning of

year 11,778,954 1,838,339

Cash and cash equivalents at end of year $ 19,377,514 $ 8,315,833

Supplemental disclosure of cash flow

information

Interest paid $ -- $ 59,588

Taxes paid $ 94,737 $ --

Value of warrants issued for services $ -- $ 12,371

Non-cash investing and financing activities

Conversion of preferred stock to common $ 667,800 $ 339,076

For more information, please contact:

Company Contact:

Mr. Xiqun Yu

Chairman and CEO

China Education Alliance, Inc.

Tel: +86-451-8233-5794

Email: yxq@edu-chn.com

Web: http://www.chinaeducationalliance.com

Investor Relations Contact:

Mr. Crocker Coulson

President

CCG Investor Relations

Tel: +1-646-213-1915 (NY Office)

Email: crocker.coulson@ccgir.com

Web: http://www.ccgir.com

Source: China Education Alliance, Inc.
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