CHINA EDUCATION ALLIANCE INC.

Based on extensive market research and professional field study, at the beginning of 2012, the Company, through ZHLD, started to design and build a web-based information platform for its online education program - “China Education Cloud Platform” (the “Platform”). One of the main objectives and functions of this Platform is to provide a stable long distance education network for schools, teachers, students, and parents including video/audio courses, cloud-based network service and an online educational administration services system. This Platform is also intended to serve as a comprehensive cloud-based resource/space for educational institutions and individual teachers to store and share resources, market and sell their courses and services, including course management, video releases, examination system, courseware, study cards management system, etc. We launched this platform in early October 2014 and are currently offering free access to teachers, students, schools and educational institutions to develop our user base. After the initial promotion period, we will share with educational institutions and teachers the platform usage, maintenance and service fees paid by the students. Our original plan was to contract up to one thousand schools and reputational teachers by the end of 2015. As of the date of this report, we signed up approximately 100 schools and educational institutions. Since we did not achieve our initial target, we decided to extend the free trial period for additional six months in order to retain existing schools and further promote our Platform. However, there can be no assurance that we will be able to sign up educational institutions and teachers as planned within the extended period and if we fail, our revenue will be adversely affected.

The decline in revenue for the quarter ended September 30, 2015 was a result of decline in revenue across all of our business due to continuously weakening brand recognition in the main targeted market and increased competition from new competitors. One of our tutoring schools, Tianlang, continues to be affected by the policy of Harbin local government prohibiting teachers of public schools from engaging in any tutoring/training activities outside of public schools as it had to cut its class offerings dramatically as a result of these policies since the last quarter of 2014 and has not been able to locate and hire qualified non-public school teachers to restore its operations to the prior scale.

Despite our belief in the opportunities presented by the rise of the online education industry in China and our continuous efforts on the development and promotion of our online education Platform launched in October 2014, we have not been successful in turning over our online education business. Since the launch of the Platform to the date of this report, we have been offering free access to the Platform to teachers and students aiming to quickly develop the user base and achieve a leading position within the industry. However, we did not achieve our original plan. As such we decided to extend the free trial period for additional six months in order to retain the existing schools and further market and promote our Platform. However, there can be no assurance that we will be able to attract enough educational institutions and teachers as planned during the extended period and if we fail, our revenue will be adversely affected.

Administrative expenses decreased by $5,143,034 or 53%, to $4,599,770 for the September 30, 2015 Quarter, from $9,742,804 for the September 30, 2014 Quarter. We completed and launched the Platform in the fourth quarter of 2014 and therefore the research and development expenses for the Platform dropped significantly. In addition, the decrease in labor costs for the onsite education also contributed to the decrease in administrative expenses for the September 30, 2015 Quarter as compared to the same quarter in 2014.

Our net cash used in operating activities was $18,941,829 for the nine months ended September 30, 2015, a decrease of $4,833,700 or 20% from $23,775,529 for the nine months ended September 30, 2014 which mainly resulted from: 1) the decrease in business operating loss of $6,036,308, or 22% from loss of $28,012,541 for the nine months ended September 30, 2014 to loss of $21,976,233 for the nine months ended September 30, 2015; 2) depreciation and amortization outflow of $2,149,641 for nine months ended September 30, 2015, a decrease of $915,453, or 30% as compared to outflow of $3,065,094 for the same period of 2014.