China Interactive Education Reports Financial Results for the First Quarter 2010

Jun 17, 2010, 09:00 ET from China Interactive Education, Inc.

ZHONGSHAN CITY, China, June 17 /PRNewswire-Asia-FirstCall/ -- China Interactive Education, Inc., (OTC Bulletin Board: CIVN) ("China Interactive Education" or the "Company"), a pioneer in interactive teaching and learning solutions in China, today announced financial results for the three months ended March 31, 2010.

    Q1 2010 Financial Highlights
    -- Revenues increased 13% quarter over quarter to $3.6 million
    -- Gross profit decreased 39% quarter over quarter to $1.2 million,
       representing a 34% gross margin
    -- Operating income decreased 117% to $0.3 million of net operating loss,
       with a 8% operating loss margin
    -- Net income decreased 177% to $1.0 million, or $0.016 loss per basic and
       diluted share

"The net-loss generated in this quarter represents an increase in advertising expense as the Company sought to expand rapidly in the market for educational products with the introduction of our own brand," commented Mr. Ruofei Chen, CEO of China Interactive Education. "Although this quarter generated a net-loss, our quarter-over-quarter revenue has increased. During the quarter we also secured multiple framework contracts for our products valued at approximately $94 million, the majority of which we expect to realize as revenues this year. We believe that these new contracts signify market acceptance of our branded products and validate our investment in marketing during the 2010 period. Furthermore, we expect that advertisement in the first quarter will help us to secure additional orders in the newly introduced Interactive Classroom Solution product line during the second quarter with revenue to be recognized in the third quarter as schools in China usually place their orders for completion during the summer break. As we launch to market our own brand during 2010, we expect that our advertising expense will be higher initially and will gradually decrease as a percentage of sales as our sales volume increases. We plan to adjust our advertising expenditure on a quarterly basis to reflect the seasonality of our business."

Q1 2010 Financial Results

For the three months ended December 31, 2009, revenue increased to $3.6 million in the three months ended March 31, 2010 from $3.2 million for the same period in 2009, representing a 13% increase. During the 2010 period, the Company changed its principal business from providing product and licensing fees, or PLFs, to providing educational learning products, or ELPs, under its own "Five Best Students" brand. The increase in revenue reflects acceptance of this change by our customers.

Gross profit for the first quarter of 2010 decreased $0.8 million, or 39%, to $1.2 million in the three months ended March 31, 2010 from $2.0 million for the same period in 2009. Gross profit as a percentage of net revenue was 62% and 34% for the three months ended March 31, 2010 and 2009, respectively. The decrease in gross profit represents the different gross margin in providing licensing revenue in the 2009 period and product revenue in the 2010 period.

Selling, general and administrative expenses increased $1.9 million, or 570%, to $2.2 million in the three months ended March 31, 2010 from $0.3 million for the same period in 2009. During the 2010 period, the Company incurred expense on a marketing campaign regarding its change in business and to build up its own "Five Best Students" brand. The cost of advertisement related to brand building in the first quarter of 2010 totaled approximately $1.2 million.

Income from operations, excluding one-off merger expenses, decreased by $2.6 million, or 164%, to ($1.0) million in the three months ended March 31, 2010, from $1.6 million for the same period in 2009, primarily due to increased marketing expenses during the 2010 period.

Net income, excluding one-off merger expenses, we generated a net (loss) income of ($1.0) million, a decrease of $2.4 million, or 177%, from $1.3 million for the same period in 2009, as a result of the factors described above.

Recent Developments

Since January 1, 2010, the Company has signed multiple framework contracts valued at approximately $94 million with local area distributors for the sale of its new Interactive Classroom Solution ("ICS") products, which it plans to launch in 2010, and its new Educational Learning Products ("ELP") which it launched in 2009. The contracts are with local area distributors who have agreed to purchase the Company's products at wholesale prices and sell them within specific authorized geographic locations throughout China, subject to the Company's right to terminate or renew distribution contracts if sales targets are not met.

Approximately $80 million of the Company's contract wins are in the ICS product segment and approximately $14 million are in the ELP segment. The Company expects that as a result of these contracts, the Company's pioneering ICS product sales and distribution network will cover more than 149,000 schools in Guangdong, Shandong, Fujian, Sichuan, Guangxi, Shanghai and Beijing, and that the Company's ELP products will reach retail distribution networks in 18 provinces resulting in more than 2,000 points of sale. The ELP contract wins mark the Company's introduction of its own "Five-Best Student" brand into existing distribution channels throughout China, along with its other licensed brands.

Mr. Ruofei Chen further remarked, "our revenues are usually higher in the second half of the year than in the first half of the year, based on the tendency of parents and students to make purchases relating to their education just prior to or at the beginning of the school year in the autumn. With framework contracts signed up-to-date and new sales orders on-hand, we remain confident that we can achieve the 2010 guidance. Therefore, we reaffirm our previous guidance of $90 - $106 million in revenue and net income range of $17 - $20 million."

About China Interactive Education

China Interactive Education, Inc., headquartered in Zhongshan, China, is a pioneer in providing interactive teaching and learning solutions to China's educational institutions, professional training schools, and individuals. The Company's proprietary educational materials, co-developed with one of China's leading universities and groups of educational professionals, are embedded in its self-developed interactive hardware and software solutions. China Interactive Education sells its interactive classroom solutions (ICS) directly to educational institutions, as well as through area distributors, and its electronic learning products (ELP) are sold under its own "Five-Best Student" consumer brand as well as other licensed brands through retail points of sale throughout China. To learn more about the Company, please visit .

Safe Harbor Statement

This press release may contain certain 'forward-looking statements' relating to the business of China Interactive Education, Inc., and its subsidiary companies. All statements, other than statements of historical fact included herein are forward-looking statements, including statements regarding: the significance of the Company's contract wins on the Company's business and operations; the likelihood that the Company's ICS solution will be successfully launched in 2010 and the ability of the Company to perform under such contracts; the general ability of the Company to achieve its commercial objectives, including the fiscal year 2010 guidance; the business strategy, plans and objectives of the Company and its subsidiaries; and any other statements of non-historical information. These forward-looking statements are often identified by the use of forward-looking terminology such as 'believes,' 'expects' or similar expressions, involve known and unknown risks and uncertainties. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks and uncertainties, and these expectations may prove to be incorrect. Investors should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in the Company's reports that are filed with the Securities and Exchange Commission and available on its website ( All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these factors. Other than as required under the securities laws, the Company does not assume a duty to update these forward-looking statements.

                         --FINANCIAL TABLES FOLLOW--

                           MARCH 31, 2010 AND 2009

                                                    2010            2009

    Net sales                                  $  3,572,989    $   3,162,404

    Cost of sales                                 2,365,652        1,188,260

    Gross profit                                  1,207,337        1,974,144

    Selling, General and Administrative
     Expenses                                     2,248,278          339,082

    (Loss) income from operations                (1,040,941)       1,635,062

    Other income                                         58              186

    (Loss) income before income taxes            (1,040,883)       1,635,248

    Income taxes                                         --          287,730

    Net (loss) income                            (1,040,883)       1,347,518

                         CONSOLIDATED BALANCE SHEETS
                     MARCH 31, 2010 AND DECEMBER 31, 2009

                                                     2010            2009


    Cash and cash equivalents                 $     180,762   $      351,544
    Accounts receivable, net of
     allowance of $710,828
     (unaudited) and nil as of March
     31, 2010 and December 31, 2009
     respectively                                 8,437,780       11,006,809
    Inventories                                   2,240,470        1,152,365
    Deposits, prepayment and other
     receivables                                  1,171,525          656,236
    TOTAL CURRENT ASSETS                         12,030,537       13,166,954

    Property and equipment                          441,332          402,897
    Intangible assets                               529,702          581,604

    TOTAL ASSETS                              $  13,001,571   $   14,151,455



    Accounts payable                          $   4,082,595   $    4,687,232
    Other payables and accrued expenses             251,032          160,449
    Advances from customers                         641,030          255,852
    Value added and other taxes payable           1,900,253        1,737,623
    Income tax payable                              850,197          742,937
    Due to related parties                          964,829        1,357,954
    TOTAL CURRENT LIABILITIES                     8,689,936        8,942,047


    Common stock, par $0.01;
    Authorized capital, 200,000,000
    Shares issued and outstanding
     2008: 60,400,000 shares)                        65,000           65,000
    Additional paid-in capital                    1,128,000        1,128,000
    Retained earnings                             2,499,624        3,540,507
    Statutory reserves                               87,884           87,884
    Accumulated other comprehensive income          531,127          388,017

    TOTAL STOCKHOLDERS' EQUITY                    4,311,635        5,209,408

     EQUITY                                   $  13,001,571   $   14,151,455

                  THREE MONTHS ENDED MARCH 31, 2010 AND 2009

                                                      2010            2009
    Net (loss) income                     $       (1,040,883)$     1,347,518
    Adjustments to reconcile net income to
     cash provided by operating activities:
       Depreciation of property, plant and
        equipment                                     23,382           3,511
       Amortization of intangible assets              54,827          54,817
    Decrease (increase) in assets:
       Accounts receivable                         2,594,517         111,649
       Inventories                                (1,087,469)        (50,377)
       Deposits, prepayment and other
        receivables                                 (394,673)         88,621
    Increase (decrease) in liabilities:
       Accounts payable                             (606,280)             --
       Other payable and accrued expenses            384,582         293,796
       Advances from customers                        90,500              --
       Value added and other tax payable             381,797              --
       Income tax payable                           (112,709)        (17,943)
    Net cash provided by operating
     activities                                      287,521       1,831,592

    Purchase of property, plant and
     equipment                                       (61,715)        (52,876)
    Purchase of intangible assets                     (3,222)
    Repayment from related parties                    22,017
    Advances to related parties                                     (243,079)
    Net cash used in investing activities            (42,920)     (2,089,970)

    Repayment of advancing from directors           (415,530)     (1,794,015)
    Net cash used in financing activities           (415,530)     (1,794,015)

    Effect of foreign currency translation               147          (7,857)

    Decrease in cash and cash equivalents           (170,782)       (266,235)

    Cash and cash equivalents, beginning
     of year                                         351,544         440,000

    CASH AND CASH EQUIVALENTS, end of year           180,762         173,765

    Finance cost paid                                     --              --
    Income tax paid                                  112,710              --

    For more information, please contact:

     Mr. Michael Lin
     Vice President, Investor Relations
     China Interactive Education, Inc.
     Tel:   +1-949-743-0868

SOURCE China Interactive Education, Inc.