China Education Alliance (PINK:CEU)

HARBIN, China, December 23, 2011 /PRNewswire-Asia-FirstCall/ -- China Education Alliance, Inc. (NYSE: CEU) announced that on December 21, 2011, NYSE Regulation, Inc. (NYSE Regulation) delivered a notice to the company confirming that the exchange will suspend trading of the company's common stock on the NYSE prior to the opening of business on Thursday, December 29, 2011 and that the exchange intends to delist the company's common stock. The Company expects to commence trading on the over-the-counter (OTC) market that same day under a symbol yet to be determined.

Mr. Yu Xiqun, CEO of China Education Alliance commented: "We are very disappointed with the NYSE's decision to suspend trading and delist our shares. Since the onset of the unfounded allegations a year ago, we have at all times kept our doors open to all shareholders who have wanted to research our business inChina and have made ourselves available to help investors correctly understand our business. We have held two Annual General Meetings to discuss the future development goals and strategic plans of the Company. We have refused to be intimidated by rumors, none of which have proved true in more than one year. Our business performance has been recovering and our future prospects remains strong.

As of September 30, 2011 we achieved USD26.3 million in revenue and USD18.4 million of profit. We strongly believe our stock price and market value do not correctly reflect the performance and future prospects of our Company.

At the end of 2010, there were allegations that we failed to disclose material adverse facts about our business, operations, and prospects (the “Allegations”) which were cited by major websites and other media. The reason for the decrease was the result of the Company's name brand and imagine still in the process of slowly recovering. Some parents and students have been reluctant to use our services. As a result, there was a decrease in the number of students seeking our services both online and on-site. In addition, the morale of our employees and teachers was adversely affected, which led to unfavorable conditions in our daily operation.

On October 28, 2011, a purported derivative lawsuit was filed in the U.S. District Court for the Central District of California against certain of the Company's current or former directors and officers. The complaint in Padnos v. Yu, et al., No. 11-cv-8973 (C.D. Cal.) alleges that the defendants made or issued false and misleading statements about the Company's operations and financial performance in filings with the U.S. Securities and Exchange Commission, and thereby breached their fiduciary duties, enriched themselves, and damaged the Company. The derivative complaint seeks monetary damages and other relief, including costs and expenses. The Company believes the complaint has no merit and intends to vigorously oppose the lawsuit.

ARBIN, China, July 30, 2011 /PRNewswire-Asia-FirstCall/ -- China Education Alliance, Inc. ("China Education Alliance" or the "Company") (NYSE: CEU), a China-based education resource and services company, today announced that the Company was notified by the New York Stock Exchange ("NYSE") on July 12, 2011 that the Company was not in compliance with the NYSE continued listing standard requiring a listed security to maintain a minimum average closing price of $1.00 per share over a consecutive 30-trading-day period. The NYSE noted that the minimum average closing price is the only listing criteria the Company is not in compliance with. The Company has six months from receipt of the notification to bring its share price and average share price back above $1.00.

HARBIN, China, June 1, 2011 /PRNewswire-Asia/ -- China Education Alliance, Inc. ("China Education Alliance" or the "Company") (NYSE: CEU), a China-based education resource and services company, today announced that the company successfully acquired Noah International Education Group (or "Noah International"), the largest multi-language learning institute in Northern China offering courses of English, Japanese, Korean, Russian, German, French, Spanish, Italian, Arabic, etc. in Northern China, for RMB 16 million in cash.

Currently, Noah International serves a student body of roughly 1,000 students with its two training centers in Harbin and Changchun, and generates annual revenue of RMB 10 million and net profit of RMB 3 million. There are courses designed for Junior college students, part time, summer and winter classes as well as VIP one-on-one classes, catering to the mass population. Noah runs a successful and effective system for teaching foreign languages to white-collars and foreign language enthusiasts.

As a result of the rapid economic growth in China, every year there are about a million Chinese students that leave China to go study abroad and seek further study to overcome language barriers. China's foreign trade expansion increases the demand for people with multi-lingual skills. With an increasing number of foreigners visiting and living in China each year, it is increasingly important for the locals to master various foreign languages. Given the small number of multi-language education institutes in China, Noah's long term goal is to maintain its leadership position in the market.

Mr. Yu, CEO of China Education Alliance, commented, "The acquisition of Noah International Education Group is a new attempt by China Education Alliance to integrate a variety of quality educational resources. This should help enhance our brand name. In addition, Noah's students can enroll in the other courses that China Education Alliance provides and grow our customer base. After the acquisition we will maintain the existing business model and expand Noah's business by leveraging CEU's wide range of educational resources. We believe this will have a positive impact on CEU's performance going forward".

On May 31, 2011, China Education Alliance, Inc. entered into Share Transfer Agreements (the “Agreements”) with the shareholders of Changchun City Chaoyang District Nuoya Foreign Languages School (“Changchun Nuoya”) and Harbin City Nangang District Nuoya Foreign Languages School (“Harbin Nuoya”), two foreign language schools that have a total of 1,000 current students, based in the People’s Republic of China.

Financial Highlights for the First Quarter ended March 31, 2011

• Total revenue decreased 18.8% year-over-year to $7 million.
• Gross profit declined to $4.6 million or to 66.0% of sales, compared to $6.8 million, or to 79.3% of sales last year.
• Non-GAAP net income was $0.5 million compared with $3.7 million last year. On a GAAP-basis, net loss was $0.5 million compared with net income of $3.7 million last year.
• Non-GAAP fully diluted earnings per share were $0.02, compared with EPS of $0.12 per fully diluted share in the first quarter of 2010.

"As a result of the unfounded allegations made against the Company at the end of 2010, we faced a difficult quarter with numerous challenges to retain our high-quality teachers and attract new students. Our business relies on our reputation in the market and these allegations hindered our business performance considerably. We implemented strategic promotional and marketing campaigns to improve our corporate brand image and to restore our reputation, and we are beginning to see a stabilization in the business," said Mr. Xiqun Yu, Chairman and Chief Executive Officer of China Education Alliance. "We remain confident in growing our core business and seeking new opportunities to expand our platform as we continue to explore M&A opportunities."

Business Outlook

"We will continue to focus on designing and providing premium online education and vocational training services with our high-quality teachers and exclusive training materials. We plan to establish 50 additional training centers in 10 different cities in China this year. We also expect to grow organically as well as through mergers or acquisitions if we can find quality businesses at attractive valuation levels that fit our overall business strategy," said Chairman Yu.

2011 Guidance

The Company expects full year 2011 total revenues to be between $47 million and $52 million.

Fourth Quarter Highlights:

• Total revenue increased 19.3% year-over-year to $12.4 million.
• Gross profit rose 16.4% to $10.2 million or 82.3% of sales, compared to 84.3% of sales, or $8.78 million, in the fourth quarter of 2009.
• Operating income decreased 53.6%.
• Net income decreased 53.5% year-over-year to $2.1 million.
• EPS was $0.06 per fully diluted share, compared to EPS of $0.15 per fully diluted share in the fourth quarter of fiscal 2009

"We are pleased with our solid growth in online education and our training center businesses due to industry organic growth, which validates our focus on exam-oriented educational services and vocational training programs in China," said Mr. Xiqun Yu, Chairman and Chief Executive Officer of China Education Alliance. "Going forward, we will continue to develop and deliver high quality supplemental education resources and professional training programs. This will help us continue our business expansion and reaffirm our position as one of the leading education resource and service company in China."

HARBIN, China, March 16, 2011 /PRNewswire-Asia-FirstCall/ -- China Education Alliance, Inc. announced today that it purchased 60% of the equity interests of Harbin Tianlang Culture and Education School ("Tianlang") for RMB35,000,000. This acquisition is advantageous to China Education Alliance's comprehensive integration of its training programs. Tianlang currently has 5,000 students and generates an annual profit of RMB10 million.

Mr. Yu Xiqun, Chairman and Chief Executive Officer of China Education Alliance, commented, "The acquisition of Tianlang is the beginning of the implementation of the Company's National Expansion Plan. We plan to complete two to three similar acquisitions within one month after we acquired Tianlang. We have established offices in 27 provinces and cities nationwide. By thoroughly studying the market demand for training programs in different regions, as well as using our talented teachers, we hope to add 100 new teaching centers through establishment or acquisition within one year. We are confident that we will become one of the few large-scale educational institutions in China."

On February 28, 2011, Mr. Zibing Pan resigned as Chief Financial Officer and director of the Company, effective March 1, 2011.

On February 28, 2011, the board of directors appointed Alice Lee Rogers as our new Chief Financial Officer. The appointment was effective March 1, 2011. Ms. Rogers’ nomination and compensation have been approved by the Company’s Nominating Committee and Compensation Committee respectively.

Rodman and Renshaw on CEU                      01/21/2011

CEU – Termination of Coverage 

TERMINATION OF COVERAGE 

Effective immediately, we are terminating coverage of China Education Alliance (NYSE: CEU) to allocate resources more effectively within our coverage universe. Effective upon the termination of coverage, any of our prior financial projections on this stock should not be relied upon. Our last rating on CEU shares was 'Under Review.’

COMPANY DESCRIPTION 

Founded in 1996, China Education Alliance is a private education company that provides online and on-site learning services to children ages 6-18 for their standardized secondary school exams. In early 2009, the company expanded into vocational training for adults 18+ given the surging unemployment rates for recent college graduates in China. Geographically, CEU’s operations began in Heilongjiang Province but recently expanded into adjacent regions including Liaoning (2008) and Inner Mongolia (2009). It has three reporting segments: 1) online education 2) training center; and 3) advertising.


Notice Regarding Privacy and Confidentiality: 


This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member FINRA.
Member SIPC.

On January 6, 2011, the Company was served notice of a stockholder class action lawsuit filed on December 28, 2010 in the U.S. District Court for the Central District of California against the Company, Xiqun Yu, the Company’s Chief Executive Officer, Susan Liu, the Company’s ex-Chief Financial Officer and Zibing Pan, the Company’s Chief Financial Officer.

HARBIN, China, Dec. 8, 2010 /PRNewswire-Asia-FirstCall/ -- China Education Alliance, Inc. (today announced that its board of directors authorized a stock repurchase program. The program authorizes a buyback of the Company's common stock up to a value of $10 million and is valid through December 1, 2011. The program will be initialized by having the company funds utilized to open a brokerage account in the United States.

Mr. Xiqun Yu, Chairman and Chief Executive Officer of China Education Alliance, Inc. stated, "After careful consideration from our shareholders and advisors, the Company is pleased to announce the authorization to repurchase the Company's common stock. Today there is no other investment China Education Alliance can make with a higher return then making it in ourselves. We are fully committed to receiving feedback and taking recommendations from our investors, evaluating all our options and acting in the best interest of all shareholders."

China Education (NYSE:CEU) has been the newest casualty of fraud allegations brought on by a wave of short attacks on the ChinaHyrid space. We understand why investors may have targeted CEU due to its nearly $20 million equity raise it closed on October 5, 2009, a raise which really made little sense for a company that revealed $31.5 million in cash on its balance sheet just prior to the deal.

Non-matching SAIC vs. SEC filings and a less than stellar onsite visit to CEU's brick and mortar vocational location were used as an argument to help round out the fraud case presented by kerrisdalecap.com on November 29, 2010. CEU has fought back commenting that “the Company’s auditor, Sherb & Co., LLP performed on site confirmation procedures on most of the Company’s bank balances in the People’s Republic of China (“PRC”).”

I have discussed my thoughts on the SAIC issue in several instances throughout 2010.

CEU is a Foreign Invested Enterprise (FIE), inferring that SAIC filings should have been audited by a local PRC firm and should be the same filings that were submitted to the PRC State Administration of Taxation (SAT). Investors may wrongfully assume that the auditor's verification of cash balances pokes a hole in the FIE, SAT, SEC chain relationship. Remember that there are at least two types of fraud to consider: Business fraud vs. tax fraud.

For the more serious issue of business fraud, investors will have to make their own assumptions, but the Kerrisdalecap allegations are very compelling.  We would urge kerrisdalecap to continue its investigation against CEU, especially the charge that the vocational business is a hoax.  It may also entail uncovering a scheme to prove that either the auditor or that some or all of five CEU’s banks have colluded with the company to manipulate cash balances.  Another tactic that could be used would be for the company to arrange a short-term transfer of cash to its accounts via a loan.

It is certainly a good sign that companies are finally getting off their rumps and commenting about auditors actually seeing bank statements. This is something we have urged IR firms to make happen for some time now. Although we can be thankful for their efforts, we need more, as evidenced by CEU disastrous reaction to the company's emergency conference call this morning..

Even if the auditors give a stamp of verification on existing cash balances basically endorsing operations, tax fraud could still exist if they do not publicly and independently verify SAT documents as opposed to just viewing a tax certificate provided by the company.  Regardless, CEU needs to make its SAT documents public. If they can be reconciled with SEC filings and shown that they differ from SAIC documents it could be a big win for the ChinaHybrid space, give additional credence to the veracity of SAIC filings and discredit the  SAIC, SAT, SEC relationship for FIE's that we believe to be accurate. It is time for CEU and Sherb to man up and set an example for other ChinaHybrid firms. If you have nothing to hide, show us your hand.  We have initiated a preliminary investigation into the operations of CEU, especially since management commented that it will not make SAT documents available.  

Please reference our Qingdao Footwear Inc (OTC BB:QING) note for what can happen when tax fraud is found in China.

Rodman & Renshaw on CEU                                                                       10/07/2010

CEU: Investor Call Inadequate; Rating Under Review

WHAT HAPPENED? 

China Education Alliance (NYSE: CEU) hosted a prepared 45-minute call to address shareholders’ concerns over the fraud allegations initiated by Kerrisdale Capital in its 28-page report.

OUR VIEW 

We were initially encouraged by CEU’s timely responses, as the company 1) categorically denied all allegations contained in the report; 2) announced a conference call to address shareholder concerns; 3) verified that the company’s auditor, Sherb & Co., LLP has confirmed its cash balance as of the end of 3Q10; and 4) announced its annual shareholder meeting to be held on December 20^th in Beijing, while also welcoming investors to their Harbin facilities the following day.

However, the forcefulness of CEU’s response is inadequate in quelling investor concerns and in debunking the allegations. In addition to proof that its secondary education portal, www.edu-chn.com is functioning, we were expecting the company to provide to investors substantive material including 1) pictures of its training facilities showing that they are currently operational; and 2) a list of its training facilities with verifiable addresses. While we have not uncovered evidence of fraud in our own forensic studies of the company and its operations, we believe that the company has to step up in providing hard evidence of its operations and accuracy of its financials before shares of CEU stock can experience meaningful appreciation. This also includes the verification of its cash balance and preferably, a one-time audit of its latest quarterly financials filed with the SEC, by a reputable third-party that CEU has not partnered with in the past.

Rating Under Review. The stock has been treading at little above the $2.50 cash on its balance sheet, and we believe that there has been overly negative reaction to the call. That said, we are placing our rating under review given the lack of clarity on CEU’s near-term revenue and earnings prospects. As noted on the call, the branding of an education company goes hand-in-hand with its ability to generate revenues. Therefore, the fact that the CEU brand is tarnished, even if temporarily, will impact its revenue-generating prospects near-term, in our view. We also believe that unless the company releases more substantive evidence of the extent of its operations as depicted by its SEC filings, CEU shares will continue to be driven by speculative plays, resulting in a high degree of volatility.


Notice Regarding Privacy and Confidentiality:

This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member FINRA.
Member SIPC.

Operator:     Good day, ladies and gentlemen, and thank you for standing by.  Welcome to the China Education Alliance Shareholder Update Conference Call.  During this Conference call, all participants are in a listen-only mode except speakers.  As a reminder, this conference is being recorded.

It is now my pleasure to introduce our host, Alan Sheinwald, Managing Director of HSC Global.  Thank you.  Please go ahead, Mr. Sheinwald.

Alan Sheinwald:     Thank you very much.  Good morning, everybody in North America and good evening to those of you in China, and welcome to the China Education Alliance shareholder update conference call.  With us today is Chairman and CEO of the Company, Mr. Xiqun Yu, and Chief Financial Officer, Mr. Zack Pan, who will be the translator and will also be speaking on behalf of Mr. Yu.

I’d like to remind listeners that during the call, management’s prepared remarks may contain forward-looking statements which are subject to risks and uncertainties.  Management may make additional forward-looking statements in response to your questions today.  Therefore, the company claims protection under Safe Harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.  Actual results may differ from results discussed today and, therefore, we refer you to a more detailed discussion of these risks and uncertainties in the Company’s filings with the SEC.  In addition, any projections as to the Company’s future performance represented by management include estimates today, as of December 7, 2010, and the Company assumes no obligation to update these projections in the future as market conditions change.

And at this time, I’d like to welcome the Chairman, Mr. Yu, who will give opening comments and will be translated by Zack Pan, CFO.

Zack Pan:     The following is the TRANSLATION OF MR. YU’S OPENING COMMENTS

Over the last week, we have received a significant number of calls and emails from investors. We have worked around the clock to respond to each investor inquiry. To be consistent and open with all our current and prospective investors, we thought it appropriate to address the investment community on this call which will be recorded and held as part of our Company public records.

Our Chief Financial Officer and I have collected and summarized a number of the over-riding questions which have been posed and have prepared responses we think addresses the most important themes.

We stand by the integrity of our company and hope that our disclosure and transparency provided by this conference call, in addition to having a U.S. based CFO that is always available for US based investor meetings, timely financial reporting to the SEC, and periodic press releases will help investors foster close ties and a clearer understandings of our business operations, business decisions and growth strategies.

In addition, we have scheduled a shareholder tour for later this month at both our Beijing facility and headquarters and training centers located in Harbin. While it might be cold our amazing ice festival will help make your visit quite memorable. I welcome you to attend and look forward to personally discussing our exciting growth plans.

This concludes translation of Mr. Yu’s opening remarks.

Since the past week I have worked closely with the Chairman, our IR firm, our lawyers, and auditor, to address the current situation at hand in the most efficient and responsible manner possible. China Education Alliance has always strived to be a transparent company and we will continue to cross language and cultural barriers to actively engage the investment community and be responsive to their needs.

We recognize that many of our investors do not have the ability to readily visit our facilities and operations in China and the distance presents a special challenge. We have always been open to any investor requests to visit our headquarters and training facilities in Harbin, Heilongjiang Province. Recently we announced our annual meeting of stockholders which will take place on December 20, 2010. Following the meeting on the 20th we would like to invite our investors to tour our new facility in Beijing. The next day, the 21st, we will host a tour of our training facilities in Harbin.

Additionally, our website was updated today to include several pictures of our facilities to bridge the gap for our investors who are not able to visit China. We have also posted a video tutorial showing investors a step by step process of how to use our prepaid cards online. Both the pictures and video can be found at   www.chinaeducationalliance.com.

Recently we announced that on November 5, 2010, as a supplemental procedure of our third quarter financial review, our audit firm Sherb & Co.,LLP performed additional confirmation procedures to our bank balances. These procedures were performed by staff members from Sherb’s Beijing office. The confirmation procedures were applied to approximately $67 million or 86% of our total cash balance of approximately $77 million. Such procedures included visits to PRC financial institutions, meeting bank personnel and obtaining cash balance information as of September 30, 2010. As of September 30, 2010 we also maintained approximately $8.6 million in the U.S. at JP Morgan and EastWest Bank and approximately $1.3 million at ICBC bank in Beijing which auditors reviewed related bank statements.  These balances encompass our total cash at September 30, 2010 of $77.5 million. Some questions were raised with regards to the dates on the confirmations.  The confirmations were all processed and sent on the same date.  Sherb sent a staff member with its standard form bank confirmation, who visiting all the banks on the same day to verify the cash balances.  The date was penned by the same staff member when the bank affixed its seal.

More detailed information regarding the additional procedures by our audit firm can be found in the press release issued on December 2nd and the 8k filed with the SEC.

A number of our investors have voiced the opinion that as a NYSE firm they would prefer to have a top name brand audit firm represent CEU. Our current auditor, Sherb & Co., LLP has provided China Education Alliance with timely and accurate review of our financial information for our quarterly and yearend financial results.  Additionally, they have performed enhanced audit procedures at the 3rd quarter this year as discussed above which have been filed with the SEC and reported to our shareholders. The interests of our shareholders are our number one priority and at the moment our board of directors is evaluating their recommendations.  We will gladly update investors when the board reaches a final determination on this issue.


For the purposes of this call, we have categorized the different questions and will be responding to them by reading the question and then the answer.

TOPICS:

MARGINS:

   1. What contributed to the seemingly high gross margins (20+ %) relative to CEU’s competitors? How do you do things so much better?

Gross margins are different with different business segments and at different companies. Our high gross margin was mainly due to the Company’s effective control on costs.  Our higher gross margins are typically received with our on-line course materials, versus our on-site training revenue that requires physical classrooms and teachers. On-line materials typically have higher set up and implementation costs, or fixed costs, and minimal variable costs on a per unit basis, or on a student by student basis. Due to this structural advantage of on-line education, and our large on-line student customer base, we are able to achieve high gross margins. Our high margins are a reflection of our educational products. Other educational company’s margins might differ from ours that might be due to their own course material offered and their own operating structure. The student focus of our on-line effort is geared to middle and high school students. The student focus of other on-line educational companies might be different from ours resulting in different gross profit margins.

   2. What accounts for the majority of the company’s learning card sales? What are the mostly likely locales we will find students using the learning cards?  How many sales people do you have selling prepaid cards?

The majority of our cards are sold by our sales people to students.  We have around 200 sales people located at different areas in North China, not including part-time sale agent 

   3. How does the company explain the declining balance of deferred revenue yet 30+% higher online and combined sales figures in 2009 relative to 2008?

Our deferred revenue declined slightly from approximately $1.2 million in 2008 to $1.0 million in 2009. Our deferred revenue reflects the unearned portion of debit cards sold in the online division and unearned tuition from training centers. The deferred revenue is not necessarily in direct proportion to our revenue. Usually our deferred revenue remains at a relatively low level, as most students consume their debit cards in a short period of time, and mostly tuition fees are expensed monthly. So a change in deferred revenue is not necessarily related to students’ enrollment, and also has no significant impact in subsequent periods.

   4. Given the high margins, how will the company hold on to those margins given that the abundance of similar websites that offer free downloads?  You have publicly stated your intent to invest more capital to training and education centers and not on online – do you see troubling trends as the landscape becomes more competitive and suitable alternatives are available for free?

We realize that some free download learning material is available online. However, most students view the free available material as inferior products. We believe that our testing material is the most updated, high quality and relevant  material to the locale of the students. Most our materials are prepared by famous local and popular teachers, and they are either members of  the high school entrance or college entrance exam paper committee, or certified top-level teachers.  We promote our products to students and parents with this information.

We realize the competition is getting very strong in the education sector in China. However, we believe our business model has its own special advantage and strength. We are confident in our future growth.

INTERNAL CONTROLS:

   5. Why do you not audit “internal controls”?  Perhaps it is not required, but it would help to dispel any questions about your financial statements.

 
Since the inception of the Company, we have constantly been upgrading our internal controls and we believe that we have strict internal controls in place. We are required to and will have our internal controls audited in connection with our December 31, 2010 audit.  We believe our internal controls are adequate and well documented and anticipate having an unqualified opinion on our internal control procedures.

AUDITOR:

   6. An audit committee is a must and it should include at least one partner-level auditor from a recognized institution.  CEU needs to find an auditor more appropriate for a company of its size and investor base.  All of this will cost money but the value that will accrue to equity owners from having an infrastructure that gives US shareholders comfort will vastly outweigh these costs.  So the question is: when can we expect these changes?

We have an independent audit committee consisting of 3 highly trained professionals.   Sherb & Co. LLP has been doing a competent job for us and their audit is thorough and strict. Meanwhile, we are also sensitive to our shareholder’s suggestions, and we will take these suggestions into consideration. 

   7. Why the change in auditors every couple of years and why not hire a big-4 audit firm to give credibility to the company?

It was not the Company’s intent to change auditors frequently. We have listened to our investors at different stages of the Company’s growth.  Our current auditor, Sherb & Co., LLP, has been auditing us for three years and they have always delivered timely and accurate service. We will continue to evaluate our investor’s request and make the best decision both for the Company and investors

SAIC AND SEC FILINGS:

   8. Please explain the discrepancy between the financials filed with the SEC and the SAIC filings.

Every U.S. listed Chinese company with actual business operations in China has to file financial statements with at least three agencies: The SEC, China's State Administration of Industry and Commerce (SAIC), and the Chinese State Administration of Taxation (SAT).

SAIC

The SAIC (http://www.saic.gov.cn) is primarily responsible for business registration, business licenses and acts as the government supervisor of corporations. The SAIC is the Chinese government registrar for official documents like articles of incorporation, legal persons, registered capital and company ownership. In order to renew their annual business licenses, all Chinese companies must file a so-called 'Company Annual Inspection Report' with the SAIC between March and June every year. This report includes financial statements such as balance sheet and income statement, but those numbers are not verified or audited by the SAIC. The agency is primarily concerned with legal compliance issues and not with operating data or taxes.

State Administration of Taxation (SAT)

Chinese companies pay a variety of taxes as VAT, Enterprise Income Tax (EIT), business tax and payroll taxes. The tax filings made with the SAT (http://www.chinatax.gov.cn) are much more similar to SEC filings than what has to be submitted to the SAIC for business licenses. The SAT requires audited financial data including balance sheet, income statement and cash flow statement and the tax bureaus audit those reports quite frequently themselves and fine offenders who under-report to the SAT. Financial statements to the SAT are much more reliable than SAIC filings.  It is with the SAT numbers that our auditor verifies our earnings.  Unfortunately, these reports are not readily available to the public.

Reasons for non-matching SAIC/SEC Numbers

There are several legitimate reasons for SAIC reported financial statements not to match those numbers filed with the SEC. First of all, the SAIC is the business registrar and not the Chinese equivalent of the SEC. The SAIC does neither review nor audit financial statements submitted with the annual inspection report. Most companies see the sole purpose of an SAIC filing in getting their business license renewed, and some even hire a third party to do the filing for them. In our case, we have outsourced our filing work to a third party agent too and their filings are as a matter of custom, not reviewed by us because the SAIC does not require reviewed or require audited financial statements.  Oftentimes, Chinese companies access SAIC filings to learn more about their competitors to gain a commercial advantage.  As a result many companies have understated their financial results in such filings. Investors knowledgeable in the China field do not rely on SAIC filings as a basis for determining the company’s financial position.  Rather they rely on a company’s tax filings and payments to the authorized PRC government authorities. 

Another reason is the difference in accounting principles. Chinese documents are audited under PRC GAAP, while SEC filings are based on U.S. GAAP standards for financial reporting. There are many differences between those standard, starting with how revenue is recognized. I can't get into detail here but the bottom line is that certain key numbers don't have to be the same in order to still both be correct.

Business Consolidation: In China every legal entity has to file its own annual inspection report with the SAIC. This includes every individual division or subsidiary of the U.S.-listed company and a separate report from the parent company. Sometimes the parent report is consolidated while other times it is not. Inter-company transactions might be treated differently than in the U.S. For U.S. GAAP purposes, inter-company transactions are treated carefully to avoid double counting. However, for PRC tax purposes, PRC tax professionals may seek to use inter-company transactions in ways to minimize tax. This includes using different consolidation approaches and/or using inter-company transactions to allocate profits to entities that are subject to lower tax rates (including Hong Kong companies or PRC entities that have special tax benefits).

Overseas Activities: SAIC filings only reflect business activities in the PRC while filed reports with the SEC have to reflect worldwide financial data for the consolidated U.S.-listed company. Revenue that is generated overseas or assets held outside of the PRC (even Hong Kong) will not be included in the SAIC filings. Another good example for the effects is that cash that a company keeps on U.S. bank accounts to pay for overseas expenses might not show up on the balance sheet submitted to the SAIC.

Notwithstanding the above mentioned reasons, because of the recent attacks on Chinese companies and the severe discrepancies between SAIC and SEC filings, we will be more vigilant on the reports filed by our agent to ensure accuracy of such reports.

SHARE BUYBACK

   9. The company initiated a 1 million share buy back program in 2008. According to your 2009 10K, no shares has been bought in 2009.  Considering the stock is currently valued at less then it's Enterprise Value which is extremely rare, do you intend to buy back any shares at these very low valuations?

At this point in time, our focus will be on restoring investor confidence in us and using assets to expand our operations.  However, we are keeping all our options open and may consider a share buyback at the appropriate time.
 
 10. What was the purpose of raising additional capital in the most recent stock offering?  Why was a secondary offering necessary with so much cash on the books for the company? And if we should expect more dilution going forward.

When you look back you will see that at the time of offering we didn’t have this much cash balance as compared to today ($77 million). We had about $38.8 million cash at the time of offering. We planned to acquire a vocational training center at that time. However, due to market competition we didn’t accomplish that goal.
 
Another important reason for the offering was to increase the Company’s visibility and our shareholder base. We were a small OTCBB company for most of the past few years. The offering helped us with the trading volumes of our stock and increased the Company’s visibility greatly.  In part, thanks to the offering, we were successfully upgraded to NYSE listing in January this year. We do not plan to raise more capital presently and will focus on using our funds wisely and efficiently by building more training centers and making accretive acquisitions.

 11. Will the CEO buy shares?

The CEO’s annual salary is only about $20,000, and his shares are restricted. Currently he does not have enough funds to buy stock. The board is considering a raise for him, and if he gets a raise, he may use part of the raise to buy some shares.

INTEREST|

 12. Why is interest income so low with $80M in cash?

We earn 0.36% on our deposits with the banks in China, and 0.2% on our deposits with US banks . Based on these rates our interest income is accurate with market yields.   However, we are considering investors’ suggestion on how to get better rates of return on our cash balances.

FACILITY

 13. A complete and logical explanation needs to address the recent allegations regarding the facilities of CEU.

The Company has many training centers, and they are used for different purpose. The one that has been questioned more recently is one of our older training centers, which requires some maintenance and remodelling work. The facility was in the process of being remodeled when a video was taken.
 
That building’s remodelling has now been completed. We plan to cooperate with one of the famous arts colleges and use this remodeled building as a training center for students preparing for entry into colleges for the arts. The program is still in the planning stage.
 
We believe it is irresponsible for anyone to use footage of a building that was undergoing remodeling without inquiry or investigation to allege fraud on our part.

OPERATIONS

 14. What growth do you plan to achieve in 2011?

As in the past we will release our 2011’s revenue and earnings projection when we release our 2010 annual report.
 
We would like to state for the record that the recent rumors have badly hurt the Company’s reputation. Since the rumors came out, about 10 major media agencies in China have reported it. As you know, our reputation is critical to our performance as an education company. Once the image is tainted, it will take time to recover. At this time management is under great pressure to minimize the negative impact by proving our integrity, while trying our best to reach our goals. 

 15. How do most of your customers pay for the online tests?

The Company employs a sales force of approximately 200 individuals working on a salary and commission basis that sell our cards to students. Each salesperson has its own customer base. When customers need cards they usually contact our sales rep, and the cards are delivered to their hands on time

 16. What are your learning cards face values? Please also provide me a prepaid card to test the online download

Our learning cards have 4 face values: 10, 20, 50, and 100 RMB. We have provided 20 cards with user name and password for our investors to test online.  If you need a card to test please contact our IR firm, Alan Sheinwald at HSC Global.

 17. Can you summarize the revenue breakdown of CEU so that investors are more aware what amount of revenue comes from various segments of the business?

Our two major lines of revenue:
Online downloadable exam preparation material,  about 60% of our total revenue.
Onsite training centers, about 30% of our total revenue.
We also have less than 10% revenue from other sources, mostly online advertising and network services.

 18. Are websites, training facilities in operation and all assets real and do you believe that your Income statement, balance sheet and statement of Cash flows filed with the SEC are accurate?
Our websites, training facilities and assets, along with our financial statements are audited annually and reviewed quarterly by an independent third party auditor. Our reports are reliable.   So as to give comfort to our investors, we are literally opening our doors to our investors to view our facilities both in Beijing and in Harbin.  Details are found in our press release of December 3, 2010 and also our Current Report on Form 8-K filed with the SEC on the same day.

WEBSITE

 19. Why does the company’s websites have so many non-functioning payment systems and broken links? How large is your technology team. Do you ever get complaints from customers? What percent of your online revenues come from Prepaid vs. Direct Pay (credit or debit card?).

 
Our server is located in North China and we do not have any servers outside of China, so there may be some delays in gaining access from the United States. In the near future we plan to increase the number of servers and improve processing speeds to help minimize this problem in the future.

The Company has approximately 50 people on its technology team. 

Almost all our online revenues are from prepaid cards.  Revenue is recognized upon downloading of exam preparation materials being accessed by the student /customer in accordance to US GAAP and our revenue recognition policy.  Prepaid sales cards are distributed primarily in the Northern provinces.   Since we derive all our online revenue through the sales of prepaid card as opposed to payment online, we have disabled the credit card payment function on our website and it has been disabled for some time.   We have presently removed the credit card payment option on our website.

As a reminder we have provided an online tutorial of how to use our prepaid cards which can be found on the homepage of our website.

 20.  Why were there so many error screens on the website when you click on a link?

Our technicians maintain and monitor our website daily. Maintenance work is usually conducted after hours, which is day time in the U.S.   Also, there could be some delay in accessing our website from overseas as our server is primarily located in China.   Based on our daily monitoring record, we do not see many errors.   We would be happy to demonstrate the use of our website at our tours later this month.

 21. How do you explain the low traffic counts to the company’s websites? Please provide some user metrics and how those have trended during the past 2 years.

There is no global standard for statistics on website traffic and there are several different measurement criteria that may be used.  We believe that the Alexa website is a useful tool to gauge our website traffic. Alexa ranks us as 1,845th in China and 15,259th globally.  This rank has been stable in the past.   If you are interested, you may do a search on Alexa.com and look for our website at www.edu-chn.com .  Considering that we are 1,845 in all of China and the size of the Chinese population, we do not regard our website as having a low traffic count.

FINANCIAL RESULTS:

 22. Are your financial figures correct or will we see an adjustment of revenues like with other Chinese companies over the past weeks?

Our financial statements are accurate and we do not expect any adjustments. Actually, the SEC just finished reviewing our 2009 10K with some comments in late October. We then re-filed our 10K including these comments on October 28, 2010, but there was no revision to our financial statements.

This concludes our formal comments.

Again, we would like to thank our shareholders and everyone who has participated on today’s call. We look forward and welcome those of you who will be able to attend our annual stockholders meeting on December 20th. For those of you who cannot attend we invite you to visit our website to view the pictures of our facilities in China. If you have any further questions, I’d appreciate it if you would feel free to contact myself or Alan Sheinwald of HSC Global.

Investigation Journal - CEU

Conversation between the GeoTeam and Attorney (Bob) who is coordinating due diligence proceedings:

Monday, November 29, 2010

GeoTeam:

Please take a closer look at CEU as it is the newest company where fraud has been insinuated.

December 3, 2010

Bob:

Can you send me the Kerrisdale report?

I do not like CEU in my first impression. My reasons are as follows:

1. Company structure.

CEU applies a Foreign invested entity structure (FIE) where ZHLD is directly owned by the offshore company. ZHLD directly owns several domestic owned subsidiaries (DES) in China. However, ZHLD and Beijing HuaYu HuiZhong offer online service through www.edu-chn.com and www.360ve.com which contribute 60% of the revenue. Based on PRC law, these online business can not be performed by wholly foreign owned enterprise and/or Sino-foreign joint venture enterprise with a foreign investor who holds more than 50% of the shares. I really do now know how these two subsidiaries obtained their licenses. It is possible that these two subsidiaries obtained their licenses before the reverse merger and they did not report the status change. 

2. Revenue of CEU

CEU has three parts of revenue: online education, training center, and advertising. CEU reported a USD 12 million training center revenue. This is really high in a regional city such as Harbin. At the same time, I searched online and can not figure out what kind of training that the training center provides. It may provide IT training.

3. The online discussions of CEU

There is some negative information on CEU in different forums in China. The key issues are about the bad human resource management. It seems that it keeps firing and hiring people.

4. SAT/SAIC files

Based on the structure, if ZHLD is an FIE and its file shall be filed to SAT and SAIC at the same time. However, it has several domestic owned enterprises (DES) which means we need more DD into these operations to derive a conclusion.

GeoTeam:

What do you make of the information that was released in the press release regarding auditors verifying cash in several bank accounts?

Bob:

I read the 8-k of CEU. The standard form of bank balance provided by CEU is the form always used by CPA firms in China and the relevant banks stamped the firm to confirm the information in the firm. If the documents are real and accurate, it means that CEU did have lots of money on its bank account at the date of Sep. 30th, 2010. But, I really can not understand why CEU needs to put so many money on its bank account...it is too much.

GeoTeam:

How can the document be wrong? Could they are colluding with the bank with the big balance, but this seems like a stretch?

Bob:

At first, it can be forged...this is the worst case scenario. At the same time, CEU also can transfer money (borrow money for one day) to the identified bank account for one day for the purpose of confirmation by the auditor. But this is just conjecture at this point.

I would send a people to [learn about] the training center and continue with the DD.

December 5, 2010

GeoTeam:

Please take a look at this blog post and tell me what you think - http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_C/threadview?m=mm&bn=97188&tid=2712&mid=2712&tof=4&frt=2

Bob:

I did the similar thing as the blogger did. I tried to call several numbers (three numbers) that the training center has (got these numbers online). However, I did not call through any line. The site of the training center is exactly what the Kerrisdale report showed to us. I searched online, it is very hard to find what kind of training that the training center can provide. There is a site to say that the training center provides IT training but we do not know exactly what class the training center provides and how much is the tuition. Some sites say that this training center provides K-12 tutoring. We also cannot find the exactly what class the training center provides and what is the price for different classes. Based on the information from the website of www.edu-chn.com (the site of CEU), it has two other small training centers in different apartment buildings other than the big training center.

For the learning card business, it is a franchise business of CEU to promote the online learning resource. The customers can purchase the prepaid card and use the money in the card to download the study materials online. I am not sure how many people purchase this card and use it online. There is lots of promotion of the business card business of CEU. But I do see some people claimed that this franchise business of learning card of CEU is a cheating business.

December 7, 2010

Bob:

Maj,

As you informed, I attended the conference call of CEU.  As we discussed, without real time questions,  this conference call was a kind of waste of time .

In the session, the CFO made a mistake regarding the SAIC/SAT file.  As ZHLD (the main subsidiary of CEU in Harbin) is a FIE, the annual inspection of ZHLD shall be jointly done by SAIC, SAT, SAFE and several other government authorities (the disclosed annual inspection report is clearly a joint report).  The income statement filed to SAIC shall be the same as the income statement filed to SAT.  The CFO acknowledged that SAT file shall be more accurate and said that it is usually not disclose to public.  He did not realize the joint inspection issue. 

For the training center, the CFO claimed that when the video was taken, the training center was under renovation.  However, he can not explain where the students have their classes when the building was under renovation. 

For the confirmation of bank balance issued by the CPA firm, the date of the document is Nov. 5th, 2010 (a Friday) and the filing date of the 10-Q in SEC is Nov. 8 (Mon.).  I am not sure whether the CPA and CEU can finish the10-Q that fast or not. 

China Education Alliance, Inc.  issued a press release and announced today that on November 5, 2010, as an added supplement to the Company’s third quarter financial review, the Company’s auditor, Sherb & Co., LLP (“Sherb”) also performed confirmation procedures on most of the Company’s bank balances in the People’s Republic of China (“PRC”).  These procedures were performed by staff members from Sherb’s Beijing office.

Confirmations of the cash balance as of September 30, 2010 were conducted at the following financial institutions:

   • ICBC, Harbin Kunlun Branch, in the amount of RMB 315,787,237.07, located in 36 Kangshun Street, Nangang District , Harbin, Heilongjiang Province, China.

   • Agricultural Bank of China, Huijin Branch, in the amount of RMB 37, 533,479.85, located in 14 Hongzhuan Street, Daoli District, Harbin, Heilongjiang Province, China.

   • Agricultural Bank of China, Huijin Branch, in the amount of USD 7,052,922.91, located in 14 Hongzhuan Street, Daoli District, Harbin, Heilongjiang Province, China.

   • Harbin Bank, Keji Branch, in the amount of RMB 97,274.63, located in 323, Tianshun Street, Nangang District, Harbin, Heilongjiang Province, China.

   • China Everbright Bank, Harbin Hongqi Branch, in the amount of RMB 52,305,796.33, located in 257, Hongqi Street, Nangang District, Harbin, Heilongjiang Province, China.

The enhanced procedures were applied to approximately $67 million in deposits, or 86%, of the Company’s total cash balance of approximately $78 million. Such procedures included visits to the PRC financial institutions, meeting bank personnel and obtaining cash balance information as of September 30, 2010.

As of September 30, 2010 the Company also maintained approximately $8.6 million in its J. P. Morgan and EastWest Bank accounts in the U.S. and approximately $1.3 million at ICBC in Beijing, which Sherb also verified by reviewing the relevant bank statements

The Company categorically denies all the allegations contained in the blog and regards such baseless accusations very seriously. While the Company, as a matter of policy, does not respond to third party research reports, it is consulting with its advisors and legal counsel on the appropriate response in order to preserve investor confidence and shareholder value. Additional information will be forthcoming. The management team, including Mr. Yu, China Education Alliance, Inc. Chairman and CEO, welcomes investors and shareholders to visit their Harbin headquarters.

The Company will explore all options available to it, including without limitation, aggressively pursuing legal remedies for damages caused to the Company and its shareholders.

See Full Report

We believe that China Education Alliance (CEU) is fabricating its SEC financial statements. We believe that the company’s revenue and profit are highly overstated in its SEC  filings and that the company is mostly a hoax.

We have put together a 30-page report on CEU and why we believe it is a fraud.

Our evidence includes:

• The company’s websites do not work, despite the fact that CEU is an online education provider and its websites are the company’s main revenue-generating assets. We have recorded three videos here, here and here which show that the main www.edu-chn.com and www.pk1234567.com websites have non-functioning payment methods and are full of broken links and HTML errors.

• The company’s websites receive a fraction of the visitor traffic generated by comparable sites such as those operated by China Distance Education Holdings (DL), which reports lower revenue and lower margins than CEU despite having functioning websites, a larger number of web assets, operational payment schemes and no broken links on their sites.

• We hired an investigator to visit the company’s training center in Harbin and found it to be barren of desks and teaching equipment. We provide a video where we present a slideshow of the empty building. We also explain why we are confident we visited the correct location.

• The company’s local filings to the Chinese government show that the online business generated less than $1 million in revenue in 2008. We provide SAIC filings from 2006, 2007 and 2008, including both original Chinese photocopies as well as English translations.

• The company’s financial figures are not believable when compared to publicly traded comparable companies. CEU reports higher margins and revenue growth when compared to DL, CEDU and CAST, despite having a non-functioning website and a vacant training center.

• The company has had 4 low-quality auditors in the past 6 years. In contrast, the comparable Chinese education providers DL, CEDU and CAST all have top-4 auditors.

• The company raised capital in 2009 at an irrationally low valuation without providing a sensible rationale for why the capital was needed. It already supposedly had $38 million of cash on its balance sheet prior to its unnecessary capital raise.

Rodman & Renshaw on CEU

3Q10 Results. CEU reported 3Q10 EPS of $0.17, a penny below the consensus EPS estimate of $0.18, as a modestly better-than-expected topline and gross margin was offset by operating expenses that we view to be crucial for brand-building and driving sales of online debit cards. Consolidated sales rose 40.5% YoY to $14.4MM, with outperformance in online education, which grew 49.6% to $8.6MM. Training center revenues grew 35.6% YoY to $5.2MM. The gross margin expanded 294 bps YoY to 83.3%, sustaining momentum from LQ. The SG&A rate rose 605 bps YoY to 43.0%, as a result of a 70.1% increase in SG&A dollars to $6.0MM. Overall, the net income margin came in at 36.6% vs. 40.8% LY. 

Appropriately focused on the topline. We are pleased with CEU’s focus on growing its topline. In light of the company’s less than 5% market share in the four Northeastern provinces (Heilongjiang, Jilin, Liaoning, and Inner Mongolia), we believe that market share capture should remain the company’s top priority. Given that the start of the school year was an opportune time for brand-building and boosting sales of its online debit cards, the heighted sales & marketing spend in 3Q10 should pay dividends throughout the school year, in our view. Already, we have noticed that deferred revenues (unearned portion of debit cards sold and tuition payments received) have risen to $2.2MM from $0.84MM LQ and vs. $1.25MM LY, which should bode well for 4Q10 sales. 

Near-term Catalysts. 1) CFO Zack Pan will be presenting at two investor conferences over the next two weeks; 2) Cash deployment plans – potential $7-$9MM acquisition of a building in Beijing to erect a flagship training center and establish CEU’s brand name in the education epicenter of China; as well as a potential acquisition of a vocational training company.

Maintaining Market Outperform Rating and 12-month PT of $9. We are revising our 4Q10 EPS estimate to $0.17 from $0.19 previously to account for modestly higher SG&A expenses compared with our previous forecast, but are maintaining our 2011 EPS estimate of $0.76. Trading at 7.0x our 2011 EPS estimate, we still view CEU shares as significantly undervalued compared to their Chinese education peers listed in the U.S., which are trading at an average 2011 P/E of 27.3x. These peers, on average, have comparable topline growth rate outlooks as CEU (expected 2011 sales growth: 36.1% for peers vs. 30.0% for CEU) but carry significantly lower net margins (expected 2011 net margin: 15.3% vs. 38.0% for CEU). As CEU’s organic EPS growth accelerates from single-digits currently to 20-30% for 2011, it would be more difficult for investors to not see the value. Our 12-month price target of $9 assumes nearly 12x our 2011 EPS estimate, in our view.

Notice Regarding Privacy and Confidentiality:

This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member FINRA.
Member SIPC.

• Revenue for the three months ended September 30, 2010  increased by $4,145,532, or 40.5%, to $14,377,210 compared to $10,231,678 for the three months ended September 30, 2009 (the “September 30, 2009 quarter”)
  
• Net income of $5,258,415, or $.17 per share for both basic and diluted, for the September 30, 2010 quarter, as compared with net income of $4,178,718, or $.18 per share for basic and $.16 for diluted, for the September 30, 2009 quarter.

We believe the education market in China is large and significantly fragmented. Our current activities are primarily in the Northeast four provinces of China. China has about 150 million students aged 6 -18, which are the target of our education services. In the Northeast four provinces, there are about 10 million students in the 6-18 age group, while the number of student we are serving is only about 500,000 – 600,000, only about 5% of the students in our current market. Therefore, we believe that we have great potential to grow. Our growth will depend on how we penetrate and expand into the market. Our expansion may take the form of organic growth and acquisitions and the key to our growth will be the increase in students’ enrollment.

"We achieved strong growth in our online education and training center businesses. This acceleration in our organic revenue growth led to further margin expansion, signifying the high profitability of incremental revenues in our business model," stated Xiqun Yu, Chief Executive Officer of China Education Alliance, Inc. "Today our operations are centered within the four northeast provinces of China where there are an estimated 10 million students, aged 6 to 18. Of those students, we are currently providing our education services to approximately 500,000 to 600,000, or 5% of the addressable market. Going forward, we expect our growth initiative will enable us to penetrate this market and gain additional market share, and for this year, we remain confident in achieving our target of 30 percent revenue growth."

 

China education amends recent 10K:

This Annual Report on Form 10-K is being filed as Amendment No. 1 to our Annual Report on Form 10-K (the “Report”), which was originally filed on March 15, 2010 with the Securities and Exchange Commission ("SEC").  We are amending this Report in response to certain comments from the SEC.  In particular, we have:

• revised our Management’s Discussion and Analysis of Financial Condition and Results of Operations to provide a more detailed and quantitative analysis of known material trends and uncertainties in accordance with the SEC’s Interpretive Release No. 34-48960, “Commission Guidance Regarding Management’s Discussion and Analysis of Financial Condition and Results of Operations” and enhanced discussion on our costs of sales for our online education division and training center.

•  revised our “Liquidity and Capital Resources” section to address in more detail the anticipated costs associated with our development of a nation-wide advertising campaign as well as the additional funding we will need for the expansion of our business through the sale of equity, if necessary;    
   

We believe that our working capital, together with our cash flow from operations will be sufficient to enable us to meet our cash requirements for the next 12 months. However, in the long term we may incur additional expenses as we seek to expand our business to offer services in other parts of the PRC. During the next five years, we may incur substantial expenditure for acquisitions and the setup of new schools and training centers in new markets. During this five year expansion period we may require additional funding for the expansion purpose. At this time we are unable to accurately project the funding needs beyond the next twelve months since long-term needs depend on the availability and the scale of acquisitions we might make. The anticipated cost for the future expansion may also associate with the development of a nation-wide advertising campaign, which is estimated to be approximately additional 5% of our total revenue. If additional funds are needed in the future we anticipate obtaining such funds through the sale of equity. We cannot assure you that funding will be available if and when we require funding.

    Financial Highlights for the Three Months Ended June 30, 2010:

    -- Total revenue increased 33.7% year-over-year to $10.85 million, 
       compared to revenue of $8.12 million in the second quarter of fiscal
       2009.
    -- Net income increased 29.9% year-over-year to $4.26 million, compared to
       net income of $3.28 million in the second quarter of fiscal 2009.
    -- EPS was $0.14 per fully diluted share, compared to $0.13 in the second
       quarter of fiscal 2009.
    -- Operating income totalled $4.74 million, compared to $3.72 million same
       period in fiscal 2009.
    -- Gross profit rose 39.0% to $9.06 million or 83.4% of sales, compared to 
       80.2% of sales or $6.51 million in the second quarter of fiscal 2009.

"We are pleased to again report solid revenue and earnings growth driven largely by strong demand for our exam-oriented educational services and our vocational training programs in China," stated Xiqun Yu, Chief Executive Officer of China Education Alliance, Inc. "We remain optimistic about the opportunities for continued growth in both our supplemental education resources and in IT and professional training programs offered through our vocational centers. We remain focused on our expansion efforts into new geographic markets, which will be supported by enhanced marketing strategies to develop our core businesses. We are confident in achieving 30 percent revenue growth for the full year 2010, based on strong enrolment for our online educational services and our vocational training services."

"We believe the education market in China is quite large and significantly fragmented. Our current activities are primarily in the Northeast four provinces of China. China has about 150 million students aged 6 -18, which are the target of our education services. In the Northeast four provinces, there are about 10 million students in the 6-18 age group, while the number of student we are serving is only about 500,000 – 600,000, only about 5% of the students in our current market. Therefore, we believe that we have great potential to grow. Our growth will depend on how we penetrate and expand into the market. Our expansion may take the form of organic growth and acquisitions and the key to our growth will be the increase in students’ enrollment.

We believe that our working capital, together with our cash flow from operations will be sufficient to enable us to meet our cash requirements for the next 12 months. However, we may incur additional expenses as we seek to expand our business to offer services in other parts of the People’s Republic of China as well as to market and continue the development of our vocational training activities, and it is possible that we may require additional funding for that purpose. It is possible that we may seek to acquire one or more businesses in the education field, and we may require financing for that purpose. We cannot assure you that funding will be available if and when we require funding.

We are removing China Education Alliance from the GeoBargain List: Stock no longer meets our EPS minimum growth rate criteria of 30%.

Added to GeoBargain list on June 3, 2009 ($2.77).

CEU is currently trading at $5.47 and reached a high of $7.48 on January 11, 2010.

Valuation Scenarios

Added to GeoBargain list on June 3, 2009 ($2.77)

Data Inputs:

Fiscal Year Ends in December
Tax Adjusted 2008 non-GAAP EPS: $0.28 ^a,b

Date	06/17/09	08/14/09
Price	$3.05	$5.02
12 Months Trailing Tax-Adjusted EPS a,b	$0.31	$0.36
Published 2009 Analyst Tax-Adjusted EPS Estimate  a,b	$0.43	$0.38
Published 2010 Analyst Tax-Adjusted EPS Estimate  a,b	n/a	$0.54
Future EPS Growth Rate Based on 2009 Tax-Adjusted Estimate a,b	53.6%	35.7%
Future EPS Growth Rate Based on 2010 Tax-Adjusted Estimate a,b	n/a	42.1%
Trailing P/E Ratio a,b	9.84	13.94
PEG Ratio Based on 2009 Growth Rate (P/E divided by growth rate) a,b	0.18	0.39
PEG Ratio Based on 2010 Growth Rate (P/E divided by growth rate) a,b	n/a	0.33

Short-Term Valuation Scenarios

Date	06/12/09	08/14/09
Price Based on P/E of 25 on Four Quarters Trailing EPS	$7.75	$9.00
Price Based on P/E of 20 on Four Quarters Trailing EPS	$6.20	$7.20
Price Based on P/E of 15 on 2009 Tax-Adjusted Analyst EPS Estimates	$7.75	$5.70
Price Based on P/E of 15 on 2010 Tax-Adjusted Analyst EPS Estimates	n/a	$8.10

Long-Term (6 to 18 Months Forward) Valuation Scenarios

Date	06/12/09	08/14/09
Price Based on P/E of 25 on 2009 Tax-Adjusted Analyst EPS Estimates	$10.75	$9.50
Price Based on P/E of 20 on 2009 Tax-Adjusted Analyst EPS Estimates	$8.60	$7.60
Price Based on P/E of 25 on 2010 Tax-Adjusted Analyst EPS Estimates	n/a	$13.50
Price Based on P/E of 20 on 2010 Tax-Adjusted Analyst EPS Estimates	n/a	$10.80

Peg Ratio Analysis - Common rule of thumb that PEG ratio should be less than 1.0

PEG Ratio Less than 1?

YES

^a China Education Alliance is not paying a full U.S. tax rate.  The GeoTeam® prefers to use U.S. fully-taxed EPS figures when calculating potential valuation scenarios. Therefore, all EPS numbers have been adjusted by the GeoTeam ® to reflect a standard U.S. tax rate of 36%

^b Non-GAAP EPS Figures exclude certain non-operating gains and losses as well as certain non-cash items. Non-GAAP information should not be viewed in isolation or as a substitute for reported, or GAAP information . The GeoTeam ® non-GAAP figures may, from time to time, differ from company supplied figures.

These scenarios are not investment advice, but are scenarios based on some commonly used investment guidelines.  They are provided to aid investors in making their own investment decisions.

China Education Alliance announced its second quarter financial results on August 11, 2009. 

• Revenues increased 82% to $8.2 million  
• Earnings per share increased 86% to $0.13 and met analyst estimates. 

The GeoTeam® has updated The Company's  financial snapshot and valuation scenario tables.

It is important to note that 2009 earnings per share analyst estimates have been reduced, as reflected in our valuation scenario tables. The estimates portray quarterly growth of 4% to 15% for the next four quarters before picking up again to over 45% in the company's September ending 2010 third quarter.  This may have some bearing on investor valuation assumptions in the short-run.  On the flip side the stock is still selling at a significant discount to its peer group and has a PEG ratio that is solidly under 1.

2nd QUARTER 2009 vs. 2008 FINANCIAL SNAPSHOT ENDED JUNE

	2nd Quarter 2009	2nd Quarter 2008	Period Change
GAAP Revenue	$8.2 million	$4.5 million	82.2%
GAAP EPS	$0.13	$0.07	85.7%
Tax Rate	13.6%	7.2%	89.9%
Fully Tax-Adjusted GAAP EPS b	$0.10	$0.05	100.0%
Fully Diluted Shares	25,085,474	24,818,668	1.1%

Source: See Release

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1st QUARTER 2009 vs. 2008 FINANCIAL SNAPSHOT ENDED MARCH

	1st Quarter 2009	1st Quarter 2008	Period Change
GAAP Revenue	$8.2 million	$4.1 million	100.0%
GAAP EPS	$0.13	$0.08	62.5%
Tax Rate	4.9%	8.4%	-3.1%
Fully Tax-Adjusted GAAP EPS b	$0.09	$0.06	50.0%
Fully Diluted Shares	24,425,179	24,861,752	-0.02%

Source: See Release

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FULL YEAR 2008 vs. 2007 FINANCIAL SNAPSHOT ENDED DECEMBER

	Full Year 2008	Full Year 2007	Period Change
GAAP Revenue	$24.9 million	$17.4 million	43.1%
GAAP EPS	$0.40	$0.14	187.7%
Geo Supplied Non-GAAP EPS a	$0.41	$0.30	30.0%
Tax Rate	6.3%	6.5%	-3.1%
Fully Tax-Adjusted GEO Supplied Non-GAAP EPS a	$0.28	$0.21	33.3%
Fully Diluted Shares	24,662,830	22,549,837	9.4%

^a Non-GAAP EPS Figures exclude certain non-operating gains and losses as well as certain non-cash items contained in the company's filings. Non-GAAP information should not be viewed in isolation or as a substitute for reported, or GAAP information . The GeoTeam® non-GAAP figures may, from time to time, differ from company supplied figures. 

^b The GeoTeam ® tax rate calculations may deviate from the company's reported tax rate, arising from the different treatment, in China vs. the U.S.A, with regards to the deductibility of certain expenses as well as the tax liabilities associated with certain gains.  These differences typically  arise from non-cash items.  China Education Allianceis not paying a full U.S. tax rate.  The GeoTeam ® prefers to use U.S. fully-taxed EPS figures when calculating potential valuation scenarios. Therefore, EPS numbers have been adjusted by the GeoTeam ® to reflect a tax rate of 36%. 

GeoNuggets® - Quick Check List Highlighting Undiscovered Opportunities

China Education Alliance (OTCBB:CEUA)

Company Description: China Education Alliance (the Company), Inc. is a leading educational service company offering high-quality online education materials and on-site training and tutoring to families, provincial education officials, administrators, schools and teachers in China . The Company distributes online test preparation materials, researchers' materials, study guides, audio recordings, and provide vocational skills and certification training.

Data Ended 6/18/2009

• Price = $2.90
• Trailing EPS = $0.46
• Fully-Taxed Trailing EPS = $0.31
• EPS Estimate = $0.62
• Fully-Taxed EPS Estimate = $0.43
• P/E based on Fully-Taxed Trailing EPS = 9.35

Reasons for Optimism

1. CEUA meets 10 out of 10 GeoBargain® Requirements ^a
   
   

   	Requirement	Comments
   	Recent 52-week High (generally within 3 months)	$3.40 on 6/1/2009
   	30% EPS Growth Rate	Full year 2008 vs 2007 EPS growth rate of 33% Forecast 2009 EPS growth rare of 54%
   	10% Revenue Growth	1st Qtr. 2009 vs 2008 revenue increased 102%. Full year 2008 vs 2007 revenue growth rate of 43%
   	Strong Balance Sheet	As of 1st Qtr 2009
   	Positive Cash Flow	$3.9 Million as of 1st Qtr. 2009 $9.8 million for 2008
   	Debt to Equity Ratio less than 20%	0%
   	Current Ratio is at least 2:1	15:1
   	Return on Equity is at least 15%	19.3% trailing, 20.5% for 2008
   	Minimum Pre-tax Operating Margins of 8%	41.4% as of 1st Qtr. 2009, 42.6% for 2008
   	Preferably Under 50 Million Shares	24.4 million shares as of  Qtr. 2009
   	High Insider Ownership (generally greater than 15%)	57.7% as of March 23, 2009
   	Limited Institutional Ownership (generally less than 20%)	<20%
   	P/E Divided by EPS Growth Rate (PEG Ratio) is Less Than 1.	0.18

   
   
2. Over the last ten years, there has been increased awareness of the value of educating the youth of China. (Source Wikipedia). Initiatives to help students receive higher education and respected degrees has prompted a nationwide expansion of tools geared towards the edification of an increasing number of individuals.  Although the Chinese government has always considered education an important component of its economic and social development, the recent emergence of its market economy has made schooling a top priority in order to maintain a healthy growth of available learning resources.  CEUA provides services and products that meet the market demand for learning material that stresses the importance of doing well in standardized tests, a vehicle which the government has adopted as a predominant measure for evaluating students at different levels of the learning process. (Source 2008 10K)
   
   
3. China Education Alliance is expanding into vocational training and education, adding another element of growth to its business.  As China continues to focus on attaining its modernization goals, there will be an increasing number of people entering into vocational programs geared towards imparting technical skills to its students. In 2007, China had 14,832 secondary vocational and technical institutions. About 19.9 million students were studying in secondary and post-secondary vocational institutions. (Source Wikipedia)
   
   Additionally, with the increased importance of becoming multi-lingual, CEUA has taken the appropriate steps to expand their business to offer English language programs through their recently acquired subsidiary, World Exchange Inc.
   
   
4. The Company uses a model of "vertical integration" that potentially guides students to use China Education Alliance resources throughout different stages of the learning process.  This gives the Company the potential to receive a consistent long-term revenue stream.
   
   
5. The Company is becoming more proactive in disseminating information about their story.  They recently hired a qualified Investor Relations firm, a move that the GeoTeam has always maintained to be a required step to increase shareholder value.   In fact, they just participated in the Red Chip Companies 2009 Small-cap Investor Conference Live Webcast event on June 16, 2009.

 Potential Valuation Scenarios if the Company can achieve its EPS growth goals

Short-Term Potential value based on fully taxed adjusted trailing EPS

P/E 20 * $0.31 = $6.20
P/E 25 * $0.31 = $7.75

Short-term Potential value based on 2009 fully taxed adjusted Estimates or Guidance

P/E 15 * $0.60 = $9.00

^a CEUA is not paying a full U.S. tax rate. Therefore, all EPS numbers have been adjusted by the GeoTeam to reflect a U.S. tax rate of 36%.  Figures also exclude non-cash and non-operating items.  Ratios and growth rates reflect these adjustments.

These scenarios are not intended to be investment advice, but are scenarios based on some commonly used investment guidelines. They are provided to aid investors in making their own investment decisions.

Valuation Scenarios

Added to Geo Bargain list on June 3, 2009 ($2.77)

Data Inputs:

Fiscal Year Ends in December

Date	06/17/09
Price	$3.05
12 Months Trailing EPS a,b	$0.31
Published 2009 Analyst EPS Estimate $0.62	$0.43 a,b
Future EPS Growth Rate Based on 2009 Tax- Adjusted Estimate a,b	53.6%
Trailing P/E Ratio a,b	9.8
PEG Ratio (P/E divided by growth rate) a,b	0.18

Short-Term Valuation Scenarios

Date	06/12/09
Price Based on P/E of 25 on Four Quarters Trailing EPS	$7.75
Price Based on P/E of 20 on Four Quarters Trailing EPS	$6.20
Price Based on P/E of 15 on 2009 Tax-Adjusted Analyst EPS Estimates	$7.75

Long-Term (12 Months Forward) Valuation Scenarios

Date	06/12/09
Price Based on P/E of 25 on 2009 Tax-Adjusted Analyst EPS Estimates	$10.75
Price Based on P/E of 20 on 2009 Tax-Adjusted Analyst EPS Estimates	$8.60

Peg Ratio Analysis - Common rule of thumb that PEG ratio should be less than 1.0

PEG Ratio Less than 1?

YES

^a China Education Alliance is not paying a full U.S. tax rate.  The GeoTeam ® prefers to use U.S. fully-taxed EPS figures when calculating potential valuation scenarios. Therefore, all EPS numbers have been adjusted by the GeoTeam ® to reflect a standard U.S. tax rate of 36%

^b Non-GAAP EPS Figures exclude certain non-operating gains and losses as well as certain non-cash items. Non-GAAP information should not be viewed in isolation or as a substitute for reported, or GAAP information . The GeoTeam ® non-GAAP figures may, from time to time, differ from company supplied figures.

These scenarios are not investment advice, but are scenarios based on some commonly used investment guidelines.  They are provided to aid investors in making their own investment decisions.