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China Education Alliance Announces Fourth Quarter and Full Year 2013 Financial Results

March 31, 2014

HARBIN, China, March 31, 2014 /PRNewswire/ — China Education Alliance, Inc. (“China Education Alliance” or the “Company”, OTCQX: CEAI), a China-based education resource and services company today announced its fourth quarter and full year 2013 results.

The Company will host a conference call on Tuesday, April 1, 2013, at 8 a.m. EDT (8 p.m. Beijing time on the same day).

Financial Highlights for the Fourth Quarter Ended December 31, 2013

    --  Total revenues were $0.7 million.
    --  Gross loss was $0.8 million.
    --  Operating loss was $7.9 million
    --  Net loss was $10 million.
    --  EPS was loss $0.89 per fully diluted share.

Financial Highlights for Full Year 2013

    --  Total revenue was $6.7 million compared to $11.7 million in 2012.
    --  Gross profit was $(0.8) million compared to $1.6 million in 2012.
    --  Operating loss was $23.1 million compared to operating income of $14.4
        million in 2012.
    --  Net loss was $24.7 million compared to $14.1 million in 2012.
    --  Loss per share was $2.33 per fully diluted share compared to earnings
        per share of $1.33 in 2012.

Fiscal Year 2013 Review:

Revenue decreased by $5.0 million, or 43% to $6.7 million for the full year 2013 from $11.7 million in 2012. The decline in revenue for the year ended December 31, 2013 was a result of decline in revenue across all of our business. We believe revenue was affected by external factors including slowdown in economic growth within the PRC, untruthful allegations about our businesses, and increased competition. These factors contributed to the continuous decline in interest of existing and new students, which resulted in decrease in student enrollments and led to a decline in revenue as compared to the year ended December 31, 2012. We expect to improve the performance of our online education division in the future by providing students with more competitive, up-to-date study materials and easy access. We have contracted technology companies to design a new web-based platform providing video based long-distance teaching services which encompass online community system and online teaching management system. Additionally, we successfully established more than ten new training centers in Beijing during the fiscal year ended December 31, 2013, and these new centers have started operations since the third quarter of fiscal 2013. We will continue to implement the new strategic business development plan for 2014, which targets to optimize the operation of existing training centers while seeking good opportunities to expand our market share. As such, we predict that our revenue will gradually recover after we launch the new web-based platform and set up more training centers.

Revenue from the on-line education division decreased by $2.4 million, or 52%, to $2.2 million in 2013 from $4.5 million in 2012.

Revenue from the training center division decreased by $2.6 million, or 52%, to $4.5 million in 2013 from $7.2 million in 2012.

Total cost of revenue decreased by $2.5 million, or 25%, to $7.6 million in 2013 from $10.1 million in 2012.

Cost of revenue for the online education division decreased by $1.9 million, or 26% in 2013 to $5.3 million from $7.2 million in 2012. This decrease is primarily in tandem with the decrease in revenue in our online education division. While we strive to provide high-quality and up-to-date online materials, we continue to control cost of revenue for the online education division by closely monitoring the variable costs while maintaining fixed costs at a stable level.

Cost of revenue for the training center division decreased by $0.6 million, or 22% to $2.3 million in 2013 from $2.9 million in 2012. The decrease was mainly due to a decrease in teachers’ salary as our teachers are paid by the number of classes they teach and there was a decrease in classes we offered during the year ended December 31, 2013 as compared to the year ended December 31, 2012. However, the rental cost for our onsite training centers are comparatively stable and fixed, therefore, the cost of revenue for the year ended December 31, 2013 did not decrease proportionately with the decrease in revenue.

Gross profit for the full year 2012 was $(0.8) million compared to $1.6 million in 2012.

Selling expenses increased by $4.4 million, or 76%, to $10.2 million in 2013 from $5.8 million in 2012. Selling expenses were 152% of total revenue in 2013 compared with 50% in 2012. The increase in selling expenses was mainly due to the increase in advertising and marketing expenses. We incurred advertising and marketing expenses of $7,035,270, an increase of $4,264,282 or 154% from the year ended December 31, 2012, due to increased marketing and sales promoting activities for our newly opened onsite training schools, as well as to rebuild our brand name and reputation. Such activities include advertising through media, online and onsite promotion, handouts, brochures, etc.

Administrative expenses increased by $1.8 million, or 25% to $8.7 million in 2013 from $6.9 million in 2012.Total administrative expenses were 130% of total revenue for 2013 as compared to 59% for 2012. This increase was mainly due to the increase in research and development expenses relating to the development of the web-based platform, office expenses, and labor costs throughout the period. The office and administrative expenses associated with the newly-opened onsite training centers also contributed to the increase in administrative expenses.

Interest income was $0.2 million for 2013 as compared with $1.9 million for 2012 as a loan to Nanchang Institute of Technology was paid off.

Provision for income tax was nil for both full year 2013 and 2012.

Net loss for the year of 2013 was $24.7 million compared to $14.1 million in 2012. Basic and diluted loss per share was $2.33 in 2013 as compared to $1.33 in 2012.

Financial Position

At December 31, 2013, the Company had cash and cash equivalents of $56.4 million. At December 31, 2013, 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 April 1, 2014 (8 p.m. in 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:      +65-6723-9381

    China Toll Free:           8008-190-121

    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 1 hour after the end of the conference for seven days.

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


    US Toll Free:              +1-855-452-5696

    International Toll:        +61-2-8199-0299

    Passcode Number:                       22786169

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 2009 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, 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.


                                                                             China Education Alliance, Inc. and Subsidiaries

                                                                                       Consolidated Balance Sheets

                                                                                                                                 December 31,                                     December 31,

                                                                                                                                                    2013                                             2012
                                                                                                                                                    ----                                             ----

    ASSETS

    Current Assets

      Cash and cash equivalents                                                                                                              $56,377,154                                      $64,172,917

      Other receivables                                                                                                                          262,547                                          841,003

      Prepaid expenses and other current assets                                                             727,708                                          660,054

        Total current assets                                                                             57,367,409                                       65,673,974
                                                                                                         ----------                                       ----------

    Non-current Assets

      Note receivable                                                                                                                                  -                                        7,935,122

      Property and equipment, net                                                                         8,251,612                                       11,349,025

      Intangibles and capitalized software, net                                                           5,099,934                                        9,213,515

        Total non-current assets                                                                         13,351,546                                       28,497,662
                                                                                                         ----------                                       ----------

        Total Assets                                                                                                                         $70,718,955                                      $94,171,636
                                                                                                                                             ===========                                      ===========

                                                                                   LIABILITIES AND STOCKHOLDERS' EQUITY

    Current Liabilities

      Accounts payable and accrued expenses                                                                                                   $1,076,625                                       $1,106,935

      Deferred revenue                                                                                                                           854,027                                          646,119

      Income tax and other taxes payable                                                                    111,500                                          179,544

        Total current liabilities                                                                         2,042,152                                        1,932,598
                                                                                                          ---------                                        ---------

      Commitments and Contingent Liabilities                                                                      -                                                -

    Stockholders' Equity

      Common stock ($0.001 par value,
       150,000,000 shares authorized,
       10,582,530 and 10,582,530 issued as of
       December 31, 2013 and December 31, 2012,
       respectively; 137,512 and 137,512 shares
       held in treasury, as of December 31,
       2013 and December 31, 2012,
       respectively)                                                                                         10,583                                           10,583

      Additional paid-in capital                                                                         40,942,009                                       40,941,215

      Statutory reserve                                                                                                                        3,792,161                                        3,792,161

      Retained earnings                                                                                                                       11,516,661                                       36,186,436

      Accumulated other comprehensive income                                                             12,705,287                                       10,322,490

      Less: Treasury stock                                                                                 (977,072)                                        (977,072)

        Stockholders' equity -CEAI and
         Subsidiaries                                                                                    67,989,629                                       90,275,813

      Noncontrolling interests in subsidiaries                                                              687,174                                        1,963,225
                                                                                                                                                           ---------

        Total stockholders' equity                                                                       68,676,803                                       92,239,038
                                                                                                         ----------                                       ----------

        Total Liabilities and Stockholders'
         Equity                                                                                                                              $70,718,955                                      $94,171,636

                                                         The accompanying notes are an integral part of these consolidated financial statements.


                                                            China Education Alliance, Inc. and Subsidiaries

                                                     Consolidated Statements of Operations and Comprehensive Income

                                                                                                                                     Year ended December 31

                                                                                                                                                   2013                                          2012
                                                                                                                                                   ----                                          ----

    Revenue

      Online education revenue                                                                                $2,168,803                                    $4,539,378

      Training center revenue                                                                   4,541,027                                     7,185,731

                                                                      Total revenue                                                           6,709,830                                    11,725,109

    Cost of Revenue

      Online education costs                                                                    5,300,181                                     7,199,678

      Training center costs                                                                     2,259,012                                     2,895,065

                                                                      Total cost of revenue                                                   7,559,193                                    10,094,743

    Gross Profit/(Loss)

      Online education gross profit/(loss)                                                     (3,131,378)                                   (2,660,300)

      Training center gross profit                                                              2,282,015                                     4,290,666

                                                                      Total gross profit/(loss)                                                (849,363)                                    1,630,366

    Operating Expenses

      Selling expenses                                                                         10,217,712                                     5,815,968

      Administrative expenses                                                                   8,701,767                                     6,946,247

      Depreciation and amortization                                                             3,286,947                                     3,292,471

                                                                      Total operating expenses                                               22,206,426                                    16,054,686

    Loss from operations                                                                                                                    (23,055,789)                                  (14,424,320)
                                                                                                                                            -----------                                   -----------

    Other Income (Expense)

      Other expenses, net                                                                         (24,355)                                       (5,138)

      Loss on disposal of property and equipment                                                  (22,859)                                     (118,581)

      Impairment loss on intangible assets                                                     (2,746,622)                                   (1,447,173)

      Interest income                                                                             215,976                                     1,867,440

                                                                       Total other income/
                                                                       (Expense), net                                                        (2,577,860)                                      296,548

    Net Loss Before Provision for Income Tax                                                                                                (25,633,649)                                  (14,127,772)

      Income taxes:

                                                                      Current                                                                         -                                             -

                                                                      Deferred                                                                        -                                      (319,255)

    Net Loss                                                                                                                                (25,633,649)                                  (14,447,027)

      Net Loss attributable to the noncontrolling
       interests                                                                                 (963,874)                                     (384,423)
                                                                                                 --------                                      --------

    Net Loss - attributable to CEAI and Subsidiaries                                                                                       $(24,669,775)                                 $(14,062,604)

    Net Loss per common stock-basic and diluted                                                                                                  $(2.33)                                       $(1.33)

    Weighted Average Shares Outstanding-basic and diluted                                                                                    10,582,530                                    10,582,530
                                                                                                                                             ==========                                    ==========

    The Components of Other Comprehensive Income

      Net Loss                                                                                              $(24,669,775)                                 $(14,062,604)

      Foreign currency translation adjustment                                                   2,382,797                                     1,054,905
                                                                                                ---------                                     ---------

    Comprehensive Loss                                                                                                                     $(22,286,978)                                 $(13,007,699)

                                        The accompanying notes are an integral part of these consolidated financial statements.


                                                                                                                                            China Education Alliance, Inc. and Subsidiaries

                                                                                                                                                 Consolidated Statements of Cash Flows

                                                                                                                                                                                                                                        Year ended December 31,

                                                                                                                                                                                                                                                                        2013                                                          2012

    Cash flows from operating activities

                                              Net loss                                                                                                                                            $(25,633,649)                                                 $(14,447,027)

                                              Adjustments to reconcile net loss to net cash used in

                                              operating activities

                                                                                                      Depreciation and amortization -operating
                                                                                                      expenses                                                                                                  3,286,948                                                     3,292,471

                                                                                                      Depreciation and amortization -cost of
                                                                                                      revenue                                                                                                   2,709,788                                                     2,844,824

                                                                                                     Loss on disposal of fixed assets                                                                              22,859                                                       118,581

                                                                                                     Bad debt written off on other receivables                                                                          -                                                        18,969

                                                                                                     Impairment loss on intangible assets                                                                       2,746,622                                                     1,447,173

                                                                                                     Stock based compensation                                                                                         794                                                         5,109

                                              Net changes in operating assets and liabilities

                                              Prepaid expenses and other receivables                                                                                                                   549,542                                                       453,995

                                              Deferred tax assets                                                                                                                                            -                                                       319,255

                                              Accounts payable and accrued liabilities                                                                                                                 (37,798)                                                     (333,639)

                                              Income tax and other taxes payable                                                                                                                       (68,044)                                                     (352,710)

                                              Deferred revenue                                                                                                                                         164,476                                                    (1,650,090)
                                                                                                                                                                                                       -------                                                    ----------

    Net cash used in operating activities                                                                                                                                                                                                                        (16,258,462)                                                   (8,283,089)
                                                                                                                                                                                                                                                                 -----------                                                    ----------

    Cash flows from investing activities

                                              Purchases of property and equipment                                                                                                                     (996,551)                                                   (1,489,552)

                                              Loan received back from NIT                                                                                                                            8,072,197                                                        23,291

                                              Proceeds from disposal of property and equipment                                                                                                          22,859                                                             -

    Net cash (used in) provided by investing activities                                                                                                                                                                                                            7,098,505                                                    (1,466,261)
                                                                                                                                                                                                                                                                   ---------                                                    ----------

    Cash flows from financing activities

                                              Advance to a stockholder                                                                                                                                       -                                                      (132,696)

                                              Dividend paid to noncontrolling shareholders                                                                                                            (355,177)                                                     (158,643)

    Net cash used in financing activities                                                                                                                                                                                                                           (355,177)                                                     (291,339)
                                                                                                                                                                                                                                                                    --------                                                      --------

    Effect of exchange rate changes on cash                                                                                                                                                                                                                        1,719,371                                                       616,447
                                                                                                                                                                                                                                                                                                                                   -------

    Net increase (decrease) in cash and cash equivalents                                                                                                                                                                                                          (7,795,763)                                                   (9,424,242)

    Cash and cash equivalents at beginning of period                                                                                                                                                                                                              64,172,917                                                    73,597,159

    Cash and cash equivalents at end of period                                                                                                                                                                                                                   $56,377,154                                                   $64,172,917

    Supplemental disclosure of cash flow information
    ------------------------------------------------

                                              Income tax paid                                                                                          $                                                     -                                                       $92,832
                                                                                                                                                                                                           ===

                                                                                                                        The accompanying notes are an integral part of these consolidated financial statements.


                                                                                         China Education Alliance, Inc. and Subsidiaries

                                                                                               For the year ended December 31, 2013

                             Common stocks   Additional paid-in capital   Statutory reserve        Retained earnings             Accumulated other       Treasury stocks    Total CEAI stockholders'
                                                                                                                                comprehensive income                                  equity           Noncontrolling interest    Total stockholders' equity

                                  US$                    US$                     US$                      US$                           US$                    US$                     US$                       US$                          US$

    As of December 31, 2012           10,583                   40,941,215          3,792,161                  36,186,436                      10,322,490          (977,072)                90,275,813                  1,963,225                  92,239,038

    Loss for the period                                                                                      (24,669,775)                                                                 (24,669,775)                  (963,874)                (25,633,649)

    Stock based compensation                                          794                                                                                                                         794                                                    794

    Exchange adjustments                                                                                                                       2,382,797                                    2,382,797                     42,999                   2,425,796

    Dividend                                                                                                                                                                                                            (355,176)                   (355,176)
                                                                                                                                                                                                                                                    --------

    As of December 31, 2013           10,583                   40,942,009          3,792,161                  11,516,661                      12,705,287          (977,072)                67,989,629                    687,174                  68,676,803
                                      ======                   ==========          =========                  ==========                      ==========          ========                 ==========                    =======                  ==========

SOURCE China Education Alliance, Inc.


Source: PR Newswire



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