HARBIN, China, April 1, 2008 /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 programs and training both through online networks and an on-site training center in China, today reported strong financial results for the fourth quarter and fiscal year ended December 31, 2007.
Fourth Quarter 2007 Highlights
-- Total Revenue increased 90% year over year to $4.8 million
-- Gross profit rose 113.8% to $4.0 million or 82.6% of sales, compared to
73.4% of sales in the fourth quarter of 2006
-- Operating income totaled $1.1 million, versus an operating loss of $0.5
million in the fourth quarter of 2006
-- Net loss was $1.4 million, versus net loss of $0.6 million in the
fourth quarter of 2006
-- Non-GAAP net income grew to record $1.9 million, or $0.08 per fully
diluted share
Full Year 2007 Highlights
-- Total revenue increased 108.1% in 2007 to $17.3 million
-- Gross profit increased 139.3% to $13.8 million; gross margin was 79.6%
versus 69.2% in year 2006
-- Operating income increased 131% in 2007 to $6.3 million
-- Net income was $3.1 million, or $0.14 per fully diluted earning per
share
-- Non-GAAP net income grew 151% to $6.9 million, or $0.31 per fully
diluted earning per share
-- Completed a one-for-three reverse stock split went effective on
October 12
-- In January 2009, signed a series of strategic collaboration agreements
with 35 domestic institutions in Beijing
Fourth Quarter 2007 Results
Revenue in the fourth quarter increased to $4.8 million, up 90% from $2.5 million in the prior year, primarily driven by strong growth of both the online education and training center businesses. Advertising income is included in on-line education revenue and its growth is the result of the increased awareness of the Company’s website, which resulted in more viewers going to the website. Online education represented 76.4% of total revenue for the fourth quarter of 2007 versus 86.5% in the same period in prior year, while the training center business generated the remaining 23.6% of total revenue for the fourth quarter of 2007 versus 13.5% in the fourth quarter last year.
"Both our online education and training center businesses have experienced rapid growth during the fourth quarter of 2007; the training center business generated particularly dramatic growth due to our rapid expansion of our vocational education business," commented Mr. Xiqun Yu, Chairman and CEO of China Education Alliance. "The strong growth of our online education business was mainly driven by our success in replicating our online business model to other provinces from our dominant position in Heilongjiang province."
Online education revenue was $3.7 million in the quarter, up 67.8% from $2.2 million in the fourth quarter of 2006, reflecting the strong demand for our education materials downloadable through the Internet. Training center revenue for the fourth quarter was $1.1 million, up 232.2% from $341,249 in the fourth quarter last year, mainly driven by more extensive face-to-face tutoring courses for middle and high school students, as well as strong demand for our on-site vocational education services.
Overall cost of sales increased 24.5% to $837,004 in the fourth quarter of 2007, compared to $672,493 in the same period of 2006. Gross profit increased to $4.0 million in the fourth quarter, up 113.8% from $1.9 million in the same quarter of 2006. Gross margin for the quarter was a record 82.6%, as compared to 73.4% in the same quarter a year ago. The improved gross margin was due to the fact that online education costs are somewhat fixed and margins increase with volume, advertising revenue increased and there were no substantial costs associated with it, as well as decreased payments to lecturers for the training center business. The online education gross margin increased to 85.3% in fourth quarter of 2007 from 75.7% in the same period of 2006. The training center gross margin increased to 73.6% for the three months ended December 31, 2007 from 58.4% in the same period of last year.
Selling expenses increased 90.1% to $1.8 million, compared to $939,233 in the fourth 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 $0.9 million, down from $1.3 million in the fourth quarter of 2006, primarily due to a decline in bonuses paid in the fourth quarter of 2007 compared to the prior year. As a percentage of revenue, G&A expenses decreased to 19% in the fourth quarter, down from 52.8% in the same period of last year.
Operating income in the fourth quarter increased to $1.1 million, from $(453,231) in the same period a year ago. Operating margin was 23.4% in the fourth quarter of 2007.
Net loss for the fourth quarter was $1.4 million, due to $3.5 million in non-cash charges related to the Company’s convertible notes and warrants as well as $0.3 million in non-cash liquidation damages related to the May 2007 private placement financing, compared to a loss of $554,409 in the year earlier period. Adjusting for non-cash expenses, fourth quarter of 2007 non-GAAP net income was $1.9 million, or $0.08 per fully diluted share.
Full Year 2007 Financial Results
For the full year 2007, total revenue was $17.3 million, up 108.1% from the prior year. Online education revenue was $13.6 million, up 105.8% from $6.6 million and represented 78.6% of total revenue. The training center business contributed 21.4% of revenue or $3.7 million, up 117.1% from $1.7 million in the full year of 2006. Gross profit for the full year of 2007 was $13.8 million, up 139.3% from gross profit of $5.8 million in the comparable period a year ago. Gross margin was 79.6% compared to 69.2% for the full year of 2007 and 2006, respectively. Income from operations was $6.3 million, up 131% from $2.7 million in the full year of 2006. Net income for the full year 2007 was $3.1 million, or $0.14 per fully diluted share, compared to $2.6 million, or $0.14 per fully diluted share, in 2006. Non-GAAP net income in 2007 was $6.9 million, or $0.31 per fully diluted share, up 151.4% from non-GAAP net income of $2.7 million, or $0.14 per fully diluted share in 2006.
Financial Condition
As of December 31, 2007, China Education Alliance had $11.8 million in cash and cash equivalents, $11.8 million in working capital, and no long-term debt. Shareholders’ equity was $18.6 million up from $7.2 million at December 31, 2006. The company generated $8.8 million in cash flow from operating activities in the full year of 2007.
Financial Guidance for 2008
China Education Alliance has targeted revenue for 2008 to be approximately $23.0 million, net income to be in the range of $8.5 to $11.0 million and earnings per share of $0.32 to $0.41, which excludes the impact of any potential future acquisitions the company may make in 2008. Additionally, the forecasted earnings per share is calculated using fully diluted shares of 27.5 million, which assumes conversion of all outstanding preferred stock and warrants. The Company’s guidance reflects its expectations for continued strong demand for its online materials and educational services, as well as contributions from recent strategic collaborations and initiatives in its vocational education segment.
Business Outlook
China Education Alliance is now replicating its core online business model from its dominant market position in Heilongjiang to other provinces, by broadening its online product offering through introducing new, downloadable modules, as well as expanding and optimizing its new online gaming platform. Approximately 1.9 million learning debit cards were sold during the fiscal year ended December 31, 2007.
The Company also provides an on-site exam-oriented tutoring business that provides face-to-face exam-oriented tutorship and network video technology courseware resources to middle and high school students, mainly based at the Heilongjiang Zhonghe Education Centre. The Company continues to look for ways to execute its on-site tutoring business expansion plans, to further supplement the online education business.
The vocational education business includes on-site vocational skill training programs for various industries, national standard vocational certification training and exam-oriented courses, as well as career development for graduates. The vocational business segment is expected to accelerate in year 2008 due to more vocational training programs by collaborating or acquiring educational institutions and acting as the official operator of the National Association of Vocational Education of China’s (NAVEC) Education Examination Center. The Company signed a series of strategic collaboration agreements with thirty-five domestic education institutions in Beijing in January that cover subjects including remote education, IT training, vocational qualification education and foreign language. The Company began operating NAVEC’s Education Examination Center, which has access to the resources of 30,000 famous vocational experts and instructors who are members and it will provide six national standard exam-oriented vocational training courses. To date, over 5,000 students have received vocational training related services. The Company plans to establish over 20 training branches in 2008.
In addition, its "Millions of College Students Employment Crossroads" program is designed to resolve the high jobless rate for China’s current graduates. The Company has established a database that currently includes 23,000 graduates and 10,000 corporate profiles, and provides graduates access to employment training services, which should continue to fuel its fast growing vocational business.
"We have experienced robust growth in 2007 compared to 2006 due to strong demand for our online education resources and fast expansion of our on-site tutoring business and vocational education business through a series of strategic collaborations," said Mr. Yu. "We remain optimistic about our outlook for 2008 because our core online business continues to grow steadily and we expect our vocational education business to continue to gain momentum. We plan to establish over 20 vocational training branches in 2008 and we also have plans to enter the language training business this year."
Conference Call
The Company will host a conference call to discuss its fourth quarter 2007 results at 9:00 a.m. Eastern Time on Wednesday, April 2, 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 888-481-7939. International participants can dial 617-847-8707. Passcode 532 671 22.
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=1796168 . 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 Wednesday, April 2 at 11:00 a.m. Eastern Time. To access the replay, dial 888-286-8010, international callers should dial 617-801-6888, and enter the passcode 76795906.
Use of Non-GAAP Financial Measures
GAAP results for the three months and the year ended December 31, 2007 and the year ended December 31, 2006 include non-cash financing costs associated with private placement financings of convertible notes and warrants conducted in May 2007 and September 2006, as well as non-cash liquidation damages paid to investors of the May 2007 private placement financing due to the Company’s inability to meet certain conditions of the purchase agreement. To supplement the Company’s condensed consolidated financial statements presented on a GAAP basis, the Company has provided non-GAAP financial information excluding the impact of these items in this release. The Company’s management believes that this non-GAAP measure provides investors with a better understanding of how the results relate to the Company’s historical performance. A reconciliation of the adjustments to GAAP results appears in the table accompanying this press release. This additional non-GAAP information is not meant to be considered in isolation or as a substitute for GAAP financials. The non-GAAP financial information that the Company provides also may differ from the non-GAAP information provided by other companies.
About China Education Alliance, Inc.
The Company is 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 online 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 online 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.
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 Statement of Operations
For
Three months ended December 31, Years Ended December 31,
2007 2006 2007 2006
Revenues
Online education
revenues $3,665,504 $2,184,445 $13,623,707 $6,620,519
Training center
revenues 1,133,529 341,249 3,699,827 1,703,954
Total revenue 4,799,033 2,525,694 17,323,534 8,324,473
Cost of Goods Sold
Online education
costs 537,994 530,672 2,393,945 1,766,442
Training center costs 299,050 141,821 1,147,364 797,448
Total cost of goods
sold 837,044 672,493 3,541,309 2,563,890
Gross Profit
Online education
gross profit 3,127,510 1,653,773 11,229,762 4,854,077
Training center gross
profit 834,479 199,428 2,552,463 906,506
Total gross profit 3,961,989 1,853,202 13,782,225 5,760,583
Operating Expenses
Selling expenses 1,785,213 939,233 5,198,011 1,404,319
Administrative 912,191 1,332,839 1,825,264 1,516,865
Depreciation and
amortization 143,342 34,361 484,643 123,610
Total operating
expenses 2,840,746 2,306,433 7,507,918 3,044,794
Other Income (Expense)
Other Income 561,387 -- 860,037 --
Interest income 20,592 2,481 54,931 12,530
Interest expense (3,060,924) (147,355) (3,603,097) (147,355)
Total other income
(expense) (2,478,945) (144,874) (2,688,129) (134,825)
Net Income Before
Provision for Income
Tax (1,357,702) (598,105) 3,586,178 2,580,964
Provision for Income
Taxes
Current 86,057 -- 481,271 --
Deferred -- -- -- --
86,057 -- 481,271 --
Net Income Before
Minority Interest (1,443,759) (598,105) 3,104,907 2,580,964
Minority Interest in
loss of subsidary -- -- -- 43,696
Net Income $(1,443,759) $(598,105) $3,104,907 $2,624,660
Basic Earnings Per
Share $(0.07) $(0.03) $0.16 $0.14
Basic Weighted
Average
Shares Outstanding 19,345,543 19,311,667 19,325,872 19,307,119
Diluted Earnings Per
Share $(0.06) $(0.03) $0.14 $0.14
Diluted Weighted
Average
Shares Outstanding 25,642,543 19,311,667 22,549,837 19,307,119
The Components of
Other
Comprehensive Income
Net Income $(1,443,759) $(554,409) $3,104,907 $2,624,660
Foreign currency
translation
adjustment (917,012) 219,456 965,708 258,766
Comprehensive Income $(2,360,771) $(334,953) $4,070,615 $2,883,426
China Education Alliance, Inc. and Subsidiaries
Consolidated Balance Sheet
December 31, 2006 and December 31, 2007
ASSETS
2006 2007
Current Assets
Cash and cash equivalents $1,838,339 $11,778,954
Other receivables 54,723 --
Advance to related parties 108,536
Prepaid expenses 1,321,448 1,612,779
Total current assets 3,214,510 13,500,269
Property and equipment, net 5,329,798 6,186,824
Franchise rights 689,642 579,864
Goodwill 43,696 43,696
$9,277,646 $20,310,653
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable and accrued
expenses $211,149 $423,109
Deferred revenues 309,366 1,245,507
Loan from shareholder 135,944
Notes payable 1,448,437
Total current liabilities 2,104,896 1,668,616
Minority interest -- --
Stockholders’ Equity
Preferred stock ($0.001 par value,
20,000,000 shares authorized,
9,397,645 issued and outstanding,
aggregate liquidation preference
of $3,383,152) 3,677,944
Common stock ($0.001 par value,
150,000,000 shares authorized,
19,409,830 issued and outstanding) 57,935 19,410
Additional paid-in capital 2,618,857 6,378,110
Accumulated other comprehensive
income 277,833 1,243,541
Retained earnings 4,218,125 7,323,032
Total stockholders’ equity
before related parties offset 7,172,750 18,642,037
Advances to related parties
Total stockholders’ equity net
of advances to related parties 7,172,750 18,642,037
$9,277,646 $20,310,653
China Education Alliance, Inc. and Subsidiaries
Audited Consolidated Statements of Cash Flows
Years Ended December 31,
2007 2006
Cash flows from operating activities
Net Income $3,104,907 $2,624,660
Adjustments to reconcile net cash
provided by operating activities
Depreciation and amortization 975,470 334,974
Amortization of loan discount -
warrants attached to loans 1,969,163 122,345
Beneficial conversion feature 1,512,400
Warrants issued for services 264,401
Preferred stock issued for
liquidation damages 277,944
Minority interest in loss of
subsidiary -- (43,696)
Stock issued for services 15,900 7,000
Interest on convertible note
accounted for as capital
contribution 40,427
Net change in assets and
liabilities
Other receivables 54,723 (46,460)
Prepaid expenses and other (291,331) (1,252,749)
Advances from related parties (244,480) --
Accounts payable and accrued
liabilities 211,960 103,616
Deferred revenue 936,141 12,241
Net cash provided by operating
activities 8,827,625 1,861,931
Cash flows from investing activities
Purchases of fixed assets (1,722,718) (1,738,159)
Acquisition of franchise rights -- (689,642)
Net cash (used in) investing
activities (1,722,718) (2,427,801)
Cash flows from financing activities
Payments on loans (1,530,000) --
Proceeds from loans 3,400,000 1,530,000
Advances from (payments to)
related parties -- 17,999
Net cash provided by financing
activities 1,870,000 1,547,999
Effect of exchange rate 965,708 258,766
Net increase in cash 9,940,615 1,240,895
Cash and cash equivalents at beginning
of year 1,838,339 597,444
Cash and cash equivalents at end of
year $11,778,954 $1,838,339
Supplemental disclosure of cash flow
information
Interest paid $297,838 $25,010
Taxes paid $408,749 $ --
Value of warrants issued for
services $15,485 $ --
Value of preferred stock issued
for liquidation damages $277,944 $ --
Non-cash investing and financing
activities
Conversion of notes payable to
preferred stock $3,400,000 $ --
Cashless exercise of warrants $88 $ --
China Education Alliance, Inc. and Subsidiaries
Reconciliation of Non-GAAP Net Income and Diluted EPS
Years Ended December 31,
2007 2006
Net Diluted Net Diluted
Income EPS Income EPS
Adjusted amount $6,904,841 $0.31 $2,746,985 $0.14
Adjustments
Amortization of loan
discount - warrants
attached to loans (1) 1,969,163 0.09 122,325 $0.00
Beneficial conversion
feature (2) 1,512,400 0.07 -- --
Preferred stock issued
for liquidation damages
(3) 277,944 0.01 -- --
Interest on convertible
note accounted for as
capital contribution
(4) 40,427 0.00 -- --
Amount per consolidated statement
of operations $3,104,907 $0.14 $2,624,660 $0.14
(1) Associated with the May 2007 and September 2006 private
placement financings
(2) Amortization of the beneficial conversation feature of the
notes issued in the May 2007 private placement financing
(3) Granted to investors of the May 2007 private placement
financing due to the Company’s inability to meet certain
conditions of the securities purchase agreement
(4) Related to the May 2007 private placement financing
Quarter Ended December 31,
2007 2006
Net Diluted Net Diluted
Income EPS Income EPS
Adjusted amount $1,935,536 $0.08 ($554,140) ($0.02)
Adjustments
Amortization of loan
discount - warrants
attached to loans (1) 1,548,524 0.06 -- --
Beneficial conversion
feature (2) 1,512,400 0.06 -- --
Preferred stock issued
for liquidation damages
(3) 277,944 0.01 -- --
Interest on convertible
note accounted for as
capital contribution
(4) 40,427 0.00 -- --
Amount per consolidated statement
of operations
($1,443,759)($0.06) ($554,140) ($0.02)
(1) Associated with the May 2007 and September 2006 private
placement financings
(2) Amortization of the beneficial conversation feature of the
notes issued in the May 2007 private placement financing
(3) Granted to investors of the May 2007 private placement
financing due to the Company’s inability to meet certain
conditions of the securities purchase agreement
(4) Related to the May 2007 private placement financing
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
Investor Relations Contact:
Mr. Crocker Coulson
President
CCG Elite Investor Relations
Tel: +1-646-213-1915 (NY Office)
Email: crocker.coulson@ccgir.com
