China Interactive Education Reports Financial Strong Results for the Fourth Quarter and Fiscal Year 2009 and Guidance for 2010

ZHONGSHAN CITY, China, April 5 /PRNewswire-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 strong financial results for the fiscal year ended December 31, 2009.

Q4 2009 Financial Highlights

• Revenues increased 191% year over year to $15.0 million
• Gross profit rose 65% year over year to $5.0 million, representing a 33% gross margin
• Operating income, excluding stock based compensation issued in relation to the reverse merger cost, rose 65% to $4.6 million, with a 43% operating margin
• Net income, excluding stock based compensation issued in relation to the reverse merger cost, grew 74% to $4.0 million, or $0.06 per basic and diluted share
• Stock based compensation issued in relation to the reverse merger cost was $1.1 million

Fiscal year ended 2009 Financial Highlights

• Revenues increased 85% year over year to $27.5 million
• Gross profit rose 53% year over year to $13.3 million, representing a 48% gross margin
• Operating income, excluding stock based compensation issued in relation to the reverse merger cost, rose 47.2% to $11.7 million, with a 43% operating margin
• Net income, excluding stock based compensation issued in relation to the reverse merger cost, grew 47% to $10.0 million, or $0.15 per basic and diluted share

"We saw strong growth in revenues and profits in the fiscal year ended 2009 as we successfully launched our Educational Learning Product ("ELP") and completed our reverse acquisition of MenQ Technology Group Limited," commented Mr. Ruofei Chen, CEO of China Interactive Education.

Q4 2009 Financial Results

For the three months ended December 31, 2009, revenue grew 191% to $15.0 million, compared to $5.1 million in the same period of 2008. The increase in revenue was largely due to the launch of our new Education Learning Product ("ELP") product line.

Gross profit for the fourth quarter of 2009 grew 65% year over year to $5.0 million, compared to $3.0 million in the same period of 2008. Gross profit as a percentage of net revenue was 33.3% and 58.7% for the fourth quarter of 2009 and 2008, respectively. The decrease in the gross margin was primarily due to our discount in the 2009 fourth quarter of the selling price for our ELP product in order to  increase the volume of products sold during the period.

Selling, general and administrative expenses grew $0.14 million, or 67% year over year to $0.36 million, compared to $0.22 million in the same period of 2008. This increase was mainly due to expenses incurred in connection with the establishment and new operation of MenQ China during the 2009 fourth quarter.

Income from operations, excluding one-off merger expenses of $1.1 million, increased by $1.8 million, or 63.3%, to $4.6 million, compared to $2.8 million in the same period of 2008. The reason for such an increase was mainly due to the introduction of our new ELP product line and ELP sales which commenced in 2009.

Net income, excluding one-off merger expenses of $1.1 million, grew 74.0%, to $4.0 million, compared to $2.3 million in the same period of 2008.

Full Year 2009 Financial Results

During the year, the Company achieved the following milestones:

• Launched ELP product line in fiscal year of 2009 and its revenue segment amounted to $17.4 million
• Completed the reverse acquisition of MenQ Technology Group Limited on December 15, 2009

For the fiscal year ended December 31, 2009, revenues grew 85% to $27.5 million, compared to $14.8 million in fiscal year 2008. This increase was mainly due to the introduction of our new ELP product line and ELP sales which commenced in 2009. We generated 53.7% and 35.1% of our revenue from ELP sales and development fee, respectively, during fiscal year of 2009, compared to nil and 74.1%, respectively, in the 2008 period.

Gross profit increased $4.6 million, or 53.1%, to $13.3 million in the fiscal year ended December 31, 2009, from $8.7 million in the 2008 period. Gross profit as a percentage of net revenue was 48.4% and 58.6% for the fiscal years ended December 31, 2009 and 2008, respectively. The decrease in the gross margin was primarily due to our discount in the 2009 fourth quarter of the selling price for our ELP product in order to increase the volume of products sold during the period.

Selling, general and administrative expenses increased $0.8 million, or 108.9%, to $1.6 million in the fiscal year ended December 31, 2009, from $0.8 million in 2008. This increase was mainly due to expenses incurred in connection with the establishment and initial operation of MenQ China in 2009. We expect selling, general and administrative expenses to stay within the normal range as we plan to increase the number of employees in anticipation of growing business demand.

Income from operations, excluding stock based compensation of $1.1 million, increased by $2.7 million, or 33.3%, to $10.6 million in the fiscal year ended December 31, 2009 from $8.0 million last year. The increase was mainly due to the introduction of our new ELP product line and ELP sales which commenced in 2009.

The Company's subsidiaries, MenQ Technology Limited ("MenQ China") and MenQ International Limited ("MenQ HK"), are subject to an enterprise income tax ("EIT") rate of 25% of assessable profits and income tax in Hong Kong rate of 16.5% of assessable profits respectively.

Net income, excluding stock based compensation of $1.1 million, grew 47.1%, to $10.0 million in the fiscal year ended 2009, or $0.154 per basic and diluted share, compared to $6.8 million in the year of 2008.

For 2009, cash flow from operations totaled $4.9 million. Cash used in investing activities totaled $0.3 million. Cash used in financing activities totaled $4.7 million in 2009.

Financial Condition

As of December 31, 2009, the Company had $0.35 million in cash and cash equivalents, total current assets of $13.2 million and total assets of $14.2 million. The Company's stockholders' equity is $5.2 million as a result of net income earned during the year.

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.

Outlook for 2010

The Company intends to manage its national operations from six regional offices and to continue the development and marketing of its new ELP product line and to expand into its new ICS product segments.

Mr. Ruofei Chen further remarked, "We are very pleased with the continued success of our ELP segment and are very excited with the successful launch of our innovative ICS product line. We believe that our ICS solution will be a key growth driver for the Company as we provide complete end-to-end solutions to schools with new technology at a much affordable price.  With new contracts signed up-to-date, we feel comfortable in achieving the 2010 guidance."

Fiscal Year 2010 Guidance

For the full year 2010, the Company projects $90 - $106 million in revenue growth, driven by the expansion into its new ICS product segment and continued expansion of its ELP segment.  The Company expects that net income will likely grow to $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 www.menq.com.cn.

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 a key growth driver in 2010 and beyond; 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 (http://www.sec.gov). 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--

SOURCE China Interactive Education Inc.