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1 and analysis of securities analysts’ reports and advisories concerning the Company; 2 (d) information readily obtainable on the Internet; (e) interviews of several 3 witnesses with personal knowledge of the relevant facts; (f) investigation of 4 Chinese State Administration of Industry and Commerce and local PRC State 5 Administration of Taxation filings; (g) investigation, including on-site, 6 investigation of certain of CEU’s purported subsidiaries’ purported facilities; and 7 (h) review and analysis of PRC news reports. 8 2. Plaintiffs believe that further substantial evidentiary support will exist 9 for the allegations set forth herein after a reasonable opportunity for discovery. 10 Most of the facts supporting the allegations contained herein are known only to 11 defendants or are exclusively within their control. 12 I. NATURE OF THE ACTION 13 3. This is a federal securities class action on behalf of a class consisting 14 of all persons and entities, other than defendants and their affiliates, who purchased 15 the publicly traded common stock of CEU from May 15, 2008 through December 16 7, 2010 (the “Class Period”), seeking to recover damages caused by defendants’ 17 violations of federal securities laws (the “Class”). 18 4. Defendant CEU is corporation headquartered in Harbin, China. CEU, 19 through its wholly owned principal operating subsidiary Harbin Zhong He Li Da 20 Education Technology, Inc. (“ZHLD”), purports to provide for-profit education 21 services in Northeast China. 5. At all relevant times, CEU had two business segments: online 22 education that provided education material for sale through CEU’s website; and on- 23 site tutoring and education through CEU’s training center in Harbin. 24 6. These two business segments purportedly accounted for approximately 25 89% (or $22.3 million) and 99% (or $34.3 million) of CEU’s total revenue for the 26 fiscal years ended December 31, 2008 and 2009, respectively. The online segment 27 represented 67% (or $16.7 million) and 60% (or $22.2 million) of total revenue for 28 2 Consolidated Second Amended Class Action Complaint for Violation of the Federal Securities Laws- Master File No. 2: 10-cv-09239 CAS (JCx)

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1 2008 and 2009, respectively. The training center segment represented 22% (or $5.6 2 million) and 33% (or $12.1 million) of total revenue for 2008 and 2009, 3 respectively. 4 7. During the Class Period, CEU touted record results and growth. 5 8. In truth, defendants overstated CEU’s revenue and profits by 6 exponential proportions. 7 9. CEU fraudulently maintained two sets of books: (1) An accurate set of 8 financial statements filed with Chinese regulators because CEU and the individual 9 defendants are subject to fines and serious criminal penalties in the PRC if the 10 accounts are false, and (2) a second set of false financial statements filed with the 11 SEC, an entity that has no ability to enforce violations of U.S. criminal laws over 12 the defendants who are domiciled in PRC. 13 10. According to ZHLD’s filings with the SAIC, the regulatory body in 14 the PRC that regulates and licenses PRC businesses, for the years ended December 15 31, 2008 and 2009, ZHLD (CEU’s Online Segment) reported $616,643 and 16 $700,000 in revenue, respectively. The SAIC filings of certain of CEU’s other 17 subsidiaries show zero or similarly small amounts for revenue. 18 11. ZHLD’s PRC financial records stand in stark contrast to their SEC 19 filings, which ascribed $16.7 million and $22.2 million of revenue to ZHLD for 20 those two fiscal years. 21 12. ZHLD’s PRC tax filings are consistent with its SAIC filings and similarly show that its revenue was a tiny fraction of the revenue it reported in its 22 SEC filings. 23 13. The fraud was first disclosed publicly to investors on November 29, 24 2010, when analyst firm Kerrisdale Capital published an extensive 29-page report 25 detailing its findings that CEU’s Online and Training Center business and revenue 26 were grossly overstated and a fraud. This Report also linked a number of reports 27 written by Kerrisdale’s private investigators in the PRC and linked four videos 28 3 Consolidated Second Amended Class Action Complaint for Violation of the Federal Securities Laws- Master File No. 2: 10-cv-09239 CAS (JCx)

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1 (collectively the “Kerrisdale Report” or the “Report”). The Kerrisdale Report and 2 the documents linked therein are attached hereto as Exhibit 1 and are incorporated 3 by reference herein. 4 14. The crux of the Kerrisdale Report was that CEU is “fabricating its 5 SEC financial statements,” CEU’s revenue and profits are highly overstated in its 6 SEC filings, and that CEU is “mostly a hoax.” In support, the Report notes the 7 following (among other things): 8  ZHLD’s (the Online Segment) SAIC filings for the years ended 2006, 9 2007, and 2008 show a fraction of the revenue that CEU reported in its 10 SEC filings; 11  CEU’s principal website and other websites do not work as evidenced 12 by three videos demonstrating Kerrisdale’s attempts to actually 13 purchase products from CEU’s websites; 14  CEU’s websites receive a fraction of the internet traffic when 15 compared to a competitor that is generating lower revenue and 16 margins; and 17  CEU’s Training Center segment (22%-33% of fiscal 2008 and 2009 18 revenue) is a sham, because the 36,600 square foot training center 19 facility is an empty building with no classrooms. 20 15. The Kerrisdale Report shocked the market, causing CEU’s stock price 21 to fall 33.5% to $2.93/share on November 29, 2010 and an additional 7.9% on November 30, 2010 to $2.70/share. 22 16. On December 7, 2010, CEU conducted a conference call, reading to 23 investors prepared questions and answers in an attempt to address the Kerrisdale 24 Report. Among other things: 25 a. CEU admitted that there were “severe discrepancies” between 26 the SAIC filings and CEU’s SEC filings. 27 28 4 Consolidated Second Amended Class Action Complaint for Violation of the Federal Securities Laws- Master File No. 2: 10-cv-09239 CAS (JCx)

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1 b. CEU, without citing to any authority, chalked up the 2 contradictions in its PRC and SEC filings to, among other things, unspecified 3 differences in U.S. and PRC accounting rules, that these SAIC filings are 4 unimportant, and that SAIC filings are generally inaccurate in order to 5 prevent competitors from gaining an advantage by reviewing them. 6 c. CEU added that documents filed with the State Administration 7 of Taxation (“SAT”) are more reliable than SAIC filings because SAT filings 8 are audited and filing false SAT documents result in a penalty. 9 d. CEU also claimed that the website issues observed by Kerrisdale 10 were the result of Kerrisdale’s investigators attempting to access the websites 11 through the United States, not in China. 12 e. CEU claimed that when Kerrisdale visited the training center 13 facility in Harbin, it was being “remodeled” as it was an “older” facility. 14 17. Later that day, Kerrisdale issued a response, standing by the Report 15 and stating that the website tests were in fact performed by persons in the PRC. 16 18. CEU’s exculpatory statements during the December 7, 2010 17 conference call were plainly false. 18 a. Filing false SAIC filings in PRC will result in fines and the 19 revocation of the entity’s business license. Without a business license an 20 entity cannot legally operate in the PRC nor even maintain a bank account; 21 b. In addition to the SAIC filings, Plaintiffs’ counsel’s investigators obtained ZHLD’s SAT filings and they are consistent with the 22 SAIC filings for ZHLD showing CEU fabricated its revenue and profits; 23 c. The unexplained differences between PRC and US accounting 24 rules do not explain the vast differences between the numbers reported. 25 Moreover, there is no material difference between PRC accounting principles 26 and U.S. accounting principles for recording revenue from online retail sales 27 and retail education services; and 28 5 Consolidated Second Amended Class Action Complaint for Violation of the Federal Securities Laws- Master File No. 2: 10-cv-09239 CAS (JCx)

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1 d. Plaintiffs’ counsel’s investigators conducted interviews of 2 persons at the training center facility in Harbin and inspected the training 3 center facility, and discovered: (1) CEU or ZHLD does not own the building 4 or is occupying the building; (2) the training center facility was not under 5 renovation in 2010, and (3) the facility does not contain classrooms. 6 19. The market did not believe CEU’s December 7, 2010 response either, 7 and CEU’s stock fell an additional 28% on December 7, 2010. 8 II. JURISDICTION AND VENUE 9 20. The claims asserted herein arise under and pursuant to Sections 10(b) 10 and 20(a) of the Exchange Act (15 U.S.C. § 78j(b) and 78t(a)) and Rule 10b-5 11 promulgated thereunder (17 C.F.R. § 240.10b-5). 12 21. This Court has jurisdiction over the subject matter of this action 13 pursuant to Section 27 of the Exchange Act (15 U.S.C. § 78aa) and 28 U.S.C. § 14 1331. 15 22. Venue is proper in this Judicial District pursuant to Section 27 of the 16 Exchange Act (15 U.S.C. § 78aa) and 28 U.S.C. § 1391(b) as a substantial part of 17 the conduct complained of herein occurred in this District. 18 23. In connection with the acts, conduct and other wrongs alleged herein, 19 Defendants either directly or indirectly used the means and instrumentalities of 20 interstate commerce, including but not limited to the United States mails, interstate 21 telephone communications and the facilities of the national securities exchange. III. PARTIES 22 24. Court-appointed lead plaintiffs Keith Troxler, Brian Landrum, and 23 Robert Schilling purchased CEU common stock during the Class Period and have 24 suffered damages as a result. Their PSLRA Certifications has previously been filed 25 with the Court and are incorporated herein by reference. 26 27 28 6 Consolidated Second Amended Class Action Complaint for Violation of the Federal Securities Laws- Master File No. 2: 10-cv-09239 CAS (JCx)

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1 25. Defendant Xiqun Yu (“Yu”), at all relevant times herein, was CEU’s 2 Chairman and Chief Executive Officer. Yu was Chairman and CEO since the 3 organization of CEU’s subsidiaries in 2001. 4 26. Defendant Zibing Pan (“Pan”), was CEU’s Chief Financial Officer 5 beginning on August 20, 2009 and continuing throughout the Class Period. He 6 suddenly resigned from his position as CFO on February 28, 2011. While CFO, 7 Pan was listed as the contact at CEU for CEU’s press announcements. Pan also 8 participated in the Company’s conference calls to investors. 9 27. Defendant Susan Liu (“Liu”), was the Company’s CFO during the 10 period between June 2, 2008 and August 20, 2009. While CFO, Liu was listed as 11 the contact at CEU for CEU’s press announcements. Liu also participated in the 12 Company’s conference calls to investors. 13 28. Defendant Chunqing Wang (“Wang”), was the Company’s CFO from 14 2004 until Liu’s appointment. 15 29. Defendant James Hsu (“Hsu”), at all relevant times herein, was a 16 Director of the Company and member of the Audit Committee. Hsu joined CEU as 17 Director in 2007. In addition to his role on CEU’s Audit Committee, Hsu had 18 control and material involvement in the Company’s financial and business affairs. 19 a. Hsu had extensive knowledge and involvement in CEU’s 20 operations. CEU relied on Hsu’s prior business experience and acumen to 21 advise CEU and assist in making important corporate decisions. According to a letter CEU filed with the SEC, dated June 8, 2010 (the “June 2010 22 Letter”), during at least the fiscal year ended December 31, 2009, CEU relied 23 on Hsu’s prior executive experience as president of another educational 24 company; and thus relied on Hsu to have “Extensive knowledge of the 25 [CEU]’s business.” The only other person CEU relied on to have extensive 26 knowledge of CEU’s business is defendant CEO Yu. 27 28 7 Consolidated Second Amended Class Action Complaint for Violation of the Federal Securities Laws- Master File No. 2: 10-cv-09239 CAS (JCx)

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1 b. Hsu was involved in and had knowledge of the Company’s 2 on-line business and website—the portion of the Company’s business that 3 purportedly generated the majority of CEU’s purported sales. The June 2010 4 Letter also identifies Hsu’s prior experience as a founder of an information 5 technology company, and noted that the CEU relied on this prior 6 “Marketing/Marketing related technology experience” of Hsu. The only 7 other person identified in this category is defendant CEO Yu. 8 c. CEU relied on Hsu’s prior chief executive experience. The 9 June 2010 Letter states that CEU relied on Hsu’s prior experience as a 10 founder of two companies, to advise the Company on similar executive level 11 matters. 12 d. CEU relied on Hsu’s prior PRC regulatory experience. The 13 June 2010 Letter that CEU relied on Hsu’s prior experience regulatory 14 experience in connection with founding a company which promotes cultural 15 exchange between the U.S. and PRC. 16 e. Hsu also acted as the Company’s contact with its independent 17 auditors during the Class Period, and had actual control and authority over 18 the Company’s financial accounting and reporting. For example, on 19 December 17, 2007, Hsu, on behalf of the audit committee, wrote (and 20 signed) a letter to CEU’s then auditor Murrell, Hall, McIntosh & Co. PLLP, 21 advising it that it was terminated as CEU’s auditor. 30. Defendant Lianzheng (a/k/a Liansheng)1 Zhang (“L. Zhang”), at all 22 relevant time herein, was a Director of the Company and member of the Audit 23 Committee. L. Zhang joined CEU as Director in 2007. In addition to his role on 24 CEU’s Audit Committee, L. Zhang had control and material involvement in the 25 Company’s business. According to the June 2010 Letter, CEU relied on L. Zhang’s 26 27 1 In a number of SEC filings, CEU uses both spellings of this defendant’s name in the 28 same SEC filing. 8 Consolidated Second Amended Class Action Complaint for Violation of the Federal Securities Laws- Master File No. 2: 10-cv-09239 CAS (JCx)

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1 prior expertise and experience dealing with the PRC government, in advising and 2 directing CEU’s business and affairs. A critical field of expertise, as providing 3 education services such as the services CEU purported to provide during the Class 4 Period, was subject to government oversight. 5 31. Defendant Yizhao Zhang (“Zhang”), was a Director of the Company 6 and served as Chairman of the Audit Committee. CEU’s SEC filings state that 7 Zhang is a CPA licensed in Delaware. Zhang joined the CEU as Director and 8 Chairman of the Audit Committee in June 2009. In addition to his role on CEU’s 9 Audit Committee, Zhang had control and material involvement in the Company’s 10 financial and business affairs. 11 a. CEU relied on Zhang’s purported “expertise” with other 12 Chinese companies Listed in the U.S. Zhang joined CEU with much 13 fanfare. In a June 19, 2009 announcement, CEU touted Zhang prospective 14 involvement with CEU and Zhang’s expertise in related corporate 15 governance and financial reporting: 16 We are very happy to have attracted the talent and financial experience of 17 Yizhao Zhang to our board, particularly his work with Chinese companies 18 listed on foreign exchanges. As we head into our next phase of growth, his service on the Audit Committee will prove invaluable to us; and his 19 experience and insight will help us manage our rapid growth as we work 20 to expand our product offerings and services to other provinces in China," said China Education Alliance's chief executive officer, Mr. Xiqun Yu. 21

22 Mr. Zhang brings to China Education's board an extensive background in corporate finance and governance. … 23 Interestingly, Zhang was CFO of Universal Travel Group, Inc. (“UTA”) until 24 August 16, 2010. Zhang also served as Director of China Green Agriculture, Inc 25 (“CGA”). Both companies are notorious reverse merger Chinese company frauds. 26 UTA’s stock has been halted by the NYSE AMEX since April 2011 on allegations 27 of multi-year accounting fraud. UTA is subject to formal SEC investigation. CGA 28 9 Consolidated Second Amended Class Action Complaint for Violation of the Federal Securities Laws- Master File No. 2: 10-cv-09239 CAS (JCx)

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1 likewise subject to allegations of multi-year accounting fraud. CGA is also subject 2 to SEC investigation relating to allegations of accounting fraud. 3 b. CEU identifies Zhang as its “Audit Committee Financial 4 Expert.” Concurrent with his appointment as Director, Zhang was appointed 5 and identified under SEC rules as CEU’s “Audit Committee Financial 6 Expert” in the Company’s SEC filings. 7 c. CEU relied on Zhang to “have high level of financial 8 literacy.” According to the June 2010 Letter, CEU relies on Zhang’s “over 9 13 years of experience in accounting and internal control, corporate finance, 10 and portfolio management” in connection with the Company’s financial 11 affairs and reporting. Zhang is the only person CEU relies on to “have high 12 level of financial literacy.” 13 d. CEU relied on Zhang’s chief executive/president or like 14 experience. The June 2010 Letter citing Zhang’s role as UTA’s CFO and as 15 Board member of CGA (and others), CEU relies on Zhang to advise the 16 Company on similar executive level matters. 17 32. Defendants Yu, Pan, Liu, Wang, Hsu, L. Zhang and Zhang are referred 18 to herein as the Individual Defendants. 19 33. Defendant CEU, is a North Carolina Company, headquartered in 20 Harbin, in the Heilongjiang Province in Northeast China. CEU was at all relevant times with a small centralized management and board that controlled the Company. 21 Throughout the Class Period, the Company identified in its SEC filings only two 22 senior management level positions within the Company, chief executive officer and 23 chief financial officer. During this same time the Company had a five-member 24 board of directors—generally with two executive directors. 25 A. CEU’s Structure and Operating Subsidiaries 26 34. To have its stock publicly traded in the United States, CEU employed 27 a device called a “reverse merger” in 2004. In a reverse merger, a publicly traded 28 10 Consolidated Second Amended Class Action Complaint for Violation of the Federal Securities Laws- Master File No. 2: 10-cv-09239 CAS (JCx)

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1 shell company acquires the private company seeking to go public. In exchange, the 2 shareholders of the former private company receive a controlling share of the public 3 company. 4 35. As a result of the reverse merger, CEU became a holding company that 5 operates through Harbin Zhong He Li Da Education Technology, Inc. (“ZHLD”). 6 B. Harbin Zhong He Li Da Education Technology, Inc. (ZHLD): 7 36. At all relevant times herein, ZHLD was the Company’s primary 8 operating subsidiary doing business in China. 9 37. ZHLD was engaged in the Company’s online education segment 10 (“Online Segment”) which, during the Class Period, accounted for over 60% and 11 70% of the Company’s total revenue and gross profit, respectively. 12 38. The Online Segment purports to be exam-oriented education for 13 primary, middle and high school students. Through its websites, including 14 www.edu-chn.com, the Company offers exam papers, test papers and video-on 15 demand for free and paid download by students. 16 39. According to CEU’s 10-Ks filed with the SEC during the Class Period, 17 the Online Segment accounted for a majority of the Company’s revenues and 18 profits for the fiscal years ended December 31, 2008, and 2009: FY 2008 FY 2009 19 Total Revenue $24,851,017 $36,967,483 20 Total Gross Profit $19,866,078 $29,602,544 Online Segment Revenue $16,706,917 $22,238,325 21 Online Segment Gross Profit $13,847,324 $17,653,806 Percentage of Total Revenues 67% 60% 22 Percentage of Total Gross 70% 79% 23 Profit C. Heilongjiang Zhonghe Education Training Center (“ZTEC”) 24 40. At all relevant times, ZTEC was a wholly owned subsidiary of ZHLD. 25 ZTEC was formed in 2005 in connection with CEU’s acquisition of a training 26 center of the same name to provide on-site education training located at Building 27 39, High & New Technology Developing Zone, Sidao Street, Qianshan Road, 28 11 Consolidated Second Amended Class Action Complaint for Violation of the Federal Securities Laws- Master File No. 2: 10-cv-09239 CAS (JCx)

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1 Nagang District, Harbin, China. This building is a 36,600 square foot facility. 2 Throughout the Class Period, CEU falsely claimed that it owned this building, 3 which CEU variously claimed as containing “17 modern classrooms” that can 4 accommodate 1,200 students, and described this training center as “state-of-the-art” 5 and “modern.” 6 41. According to the Company’s 10-Ks filed during the Class Period, the 7 Training Center segment accounted for substantial portion of the Company’s 8 revenue and gross profit for the fiscal years ended December 31, 2008, and 2009. 9 FY 2008 FY 2009 Total Revenue $24,851,017 $36,967,483 10 Total Gross Profit $19,866,078 $29,602,544 Training Center Revenue $5,552,969 $12,097,325 11 Training Center Gross Profit $3,630,128 $9,527,837 12 Percentage of Total Revenues 22% 33% Percentage of Total Gross 18% 32% 13 Profit 14 D. Other Subsidiaries 15 42. CEU controlled four other subsidiaries through ZHLD: 16 a. Harbin New Discovery Media Co (“New Discovery”), is a joint 17 venture created by ZHLD and Harbin Daily Newspaper Group on April 18, 18 2008. The joint venture was formed for the publication of a scientific 19 newspaper. ZHLD owns 49.02% of New Discovery. b. Beijing Hua Yu Hui Zhong Technology Development Co. Ltd. 20 (“BHYHZ”), was formed on September 30, 2006. Thereafter, 30% of 21 BHYHZ was transferred to the National Vocational Education Association of 22 China for no consideration. BHYHZ remains in the development stage. 23 ZHLD owns 70% of BHYHZ. 24 c. Zhong He Li Da (Beijing) Management Consultant Co. Ltd. 25 (“ZHLDBJ”) is a joint venture between ZHLD and Guang Li, formed on 26 January 4, 2009, as a vocational training business. ZHLD owns 85% of 27 ZHLDBJ. 28 12 Consolidated Second Amended Class Action Complaint for Violation of the Federal Securities Laws- Master File No. 2: 10-cv-09239 CAS (JCx)

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1 d. Beijing New Shifan Education & Technology Co. Ltd. (“New 2 Shifan”) was incorporated in February 2010. New Shifan published a 3 magazine and manages a nationwide contest. ZHLD owns 65% of New 4 Shifan. 5 e. In connection with an April 27, 2008 share exchange between 6 CEU and World Exchanges, Inc. (“WEI”), WEI became a 70% owned 7 subsidiary of CEU. WEI in turn owned 100% of Beijing Wei Shi Yi Tong 8 Education Technology. This acquisition was not fully completed and 9 ultimately cancelled in September 2010. According to CEU’s 2009 10-K, 10 WEI’s operations and financial position were not consolidated or presented 11 in the Company’s financial statements as of December 31, 2009 and 2008 12 and for the years then ended. 13 43. Below is an organizational chart of the Company derived from the 14 Company’s 2009 10-K. 15 16 17 18 19 20 21 22 23

24 25 E. The Audit Committee 26 44. Defendants Hsu, Zhang, and L. Zhang as members of the audit 27 committee had an affirmative duty of oversight and responsibility for the integrity 28 of CEU’s financial reporting. 13 Consolidated Second Amended Class Action Complaint for Violation of the Federal Securities Laws- Master File No. 2: 10-cv-09239 CAS (JCx)

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1 45. According the Company’s audit committee charter, uploaded on 2 CEU’s website on April 16, 2009,2 members of the audit committee have the 3 responsibility to, among other things: 4 a. “[A]ssist the Board of Directors in fulfilling its responsibilities 5 by reviewing: (i) the financial reports provided by the Corporation to the 6 Securities and Exchange Commission ("SEC"), the Corporation's 7 stockholders or to the general public, and (ii) the Corporation's internal 8 financial and accounting controls, …”; 9 b. “Review with representatives of management and 10 representatives of the independent accounting firm the Corporation's audited 11 annual financial statements prior to their filing as part of the Annual Report 12 on Form 10-K. After such review and discussion, the Committee shall 13 recommend to the Board of Directors whether such audited financial 14 statements should be published in the Corporation's Annual Report on Form 15 10-K. The Committee shall also review the Corporation's quarterly financial 16 statements prior to their inclusion in the Corporation's Quarterly Reports on 17 Form 10-Q.”; and 18 c. Review CEU’s internal control over financial reporting; 19 F. Respondeat Superior Liability 20 46. CEU is liable for the acts of the Individual Defendants and its 21 employees under the doctrine of respondeat superior and common law principles of agency as all of the wrongful acts complained of herein were carried out within the 22 scope of their employment with authorization. 23 47. The scienter of the Individual Defendants and other employees and 24 agents of the Company is similarly imputed to CEU under respondeat superior and 25 agency principles. 26 27 2 http://www.chinaeducationalliance.com/Governance.jsp. 28 14 Consolidated Second Amended Class Action Complaint for Violation of the Federal Securities Laws- Master File No. 2: 10-cv-09239 CAS (JCx)

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1

2 IV. DEFENDANTS’ OMISSIONS AND MISREPRESENTATIONS OF 3 MATERIAL FACT 4 A. CEU’s 2008 Financial Results Are Materially False and 5 Misleading 6 i. First Quarter Ended March 31, 2008 7 48. The Class period begins on May 15, 2008 when the Company filed 8 with the SEC its financial results for the first quarter on form 10-Q containing false 9 and misleading financial statements. 10 49. The false and misleading 10-Q was signed by defendant Yu and Wang. 11 Defendants Yu and Wang signed the accompanying Sarbanes-Oxley (“SOX”) 12 certifications, attesting to the accuracy of CEU’s 10-Q. 13 50. The 10-Q states in relevant part: 14 Q1 2008 15 Total Revenue $ 4,070,417 16 Total Gross Profit $ 3,245,785 Online Segment Revenue $ 3,086,785 17 Online Segment Gross Profit $ 2,661,743 Training Center Revenue $ 983,632 18 Training Center Gross Profit $ 584,042 19 51. The Online Segment was 76% of CEU’s revenue for Q1. 20 52. The revenue and gross profit reported by the Company were false and 21 misleading when made for the following reasons: 22 a. The revenue reported by CEU with the PRC State 23 Administration for Industry and Commerce (“SAIC”)3 for the entire year of 24 2008 is a substantially less than the revenue CEU reported in the Q1 10-Q. 25 3 The SAIC (State Administration for Industry and Commerce) is the Chinese 26 government body that regulates industry and commerce in China. It is primarily 27 responsible for business registration, business licenses issuing and renewing, and acts as the government supervisor of corporations. All Chinese companies are required to file 28 financial statements with the Chinese government annually or bi-annually. 15 Consolidated Second Amended Class Action Complaint for Violation of the Federal Securities Laws- Master File No. 2: 10-cv-09239 CAS (JCx)

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1 b. The SAIC filing for ZHLD, CEU’s main operating subsidiary, 2 engaged in the Online Segment, reported revenue for the entire fiscal year of 3 2008 that was a fraction of what CEU purportedly reported as revenue in its 4 Q1 10-Q: 5 (In RMB) Fiscal Year 2008 Revenue ¥ 4,254,837.60 6 Net profit ¥120,379.67 4 7 (In USD) Revenue $ 616,643 8 Net profit $17,446 9 c. Plaintiffs’ counsel’s investigators obtained copies of the SAIC 10 filings referenced throughout this Complaint from the local PRC central 11 registry where the subsidiaries are located. Notably, the SAIC filings 12 Plaintiffs’ Counsel’s obtained and referenced in this complaint corroborate 13 the amounts in the SAIC filings that the Kerrisdale Report references. 14 d. Under PRC law, penalties for filing false SAIC filings include 5 15 fines and revocation of the entity’s business license. If an entity’s business 6 16 license is revoked, the People’s Bank of China requires the bank account of 7 17 that entity be closed. Without a business license the entity cannot legally conduct business in the PRC. 18 e. ZHLD’s financial statements filed with the local State 19 Administration of Taxation (“SAT”)8 obtained by Plaintiffs’ counsel’s 20 21 22

23 4 Exchange rate of RMB 6.9 : USD 1. 5 “Measures for the Annual Inspection of Enterprises” issued in February 24, 2006, 24 Article 20. 25 6 People’s Bank of China in PRC is equivalent to the Federal Reserve in the U.S. 7 “Measures for the Administration of RMB Bank Settlement Accounts” issued in April 26 2003 ( 27 No.5 [2003]), Article 49. 8 The PRC State Administration of Taxation, is equivalent to the Internal Revenue 28 Service in the U.S. 16 Consolidated Second Amended Class Action Complaint for Violation of the Federal Securities Laws- Master File No. 2: 10-cv-09239 CAS (JCx)

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1 investigators, are substantially the same as ZHLD’s SAIC filings.9 The profit 2 statement of the tax filing provides in relevant part: 3 (unit: RMB ten (unit: USD) FY 2008 thousand) 4 主营业务收入/ Main business income 425 625,000.00 5 销售成本/ Sales cost 81 119,117.65 6 销售税金及附加/ Sales taxes and surtaxes 0 0.00 7 销售费用/ Sales expenses 253 372,058.82

8 管理费用/ Administrative expenses 85 125,000.00

9 财务费用/ Financial expenses 53 77,941.18 10 投资收益/ Income from investment 0 0.00 11 其他业务利润/ Other business profit 0 0.00 59 86,764.71 12 营业外收入/ Non-business income 营业外支出/ Non-business expenditure 0 0.00 13 利润总额/ Total profit 12 17,647.06 14 净利/ Net profit 12 17,647.06 15 f. BHYHZ’s SAIC filings state that for the entire year of 2008, it 16 had zero revenue and a net loss of (¥938,646.13) or ($136,035.67). 17 ii. Second Quarter Ended June 30, 2008 18 53. On August 14, 2008 the Company filed with the SEC its financial 19 results for the second quarter on form 10-Q containing false and misleading 20 financial statements. 21 54. The false and misleading 10-Q was signed by defendants Yu and Liu. 22 Defendants Yu and Liu signed the accompanying SOX certifications, attesting to 23 the accuracy of CEU’s 10-Q. 24 55. The 10-Q states in relevant part: 25

26 27 9 Under PRC law, filing false tax documents is a crime subject to severe criminal and civil penalties, including imprisonment. See, Article 201 of the Criminal Law of PRC; 28 Article 63 of the Law of PRC Concerning the Administration of Tax Collection. 17 Consolidated Second Amended Class Action Complaint for Violation of the Federal Securities Laws- Master File No. 2: 10-cv-09239 CAS (JCx)

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1 Q2 2008 Six Months Ended 2 Total Revenue $ 4,458,694 $8,529,111 Total Gross Profit $ 3,721,002 $6,966,787 3 Online Segment Revenue $ 3,853,942 $6,940,727 Online Segment Gross $ 3,371,117 $6,032,860 4 Profit Training Center Revenue $ 604,752 $1,588,384 5 Training Center Gross $ 349,885 $933,927 6 Profit 7 56. The Q2 10-Q was materially false and misleading for the same reasons 8 the Company’s Q1 2008 10-Q was false and misleading (¶52, above). 9 iii. Third Quarter Ended September 30, 2008 57. On November 13, 2008 the Company filed with the SEC its financial 10 results of the third quarter on form 10-Q containing false and misleading financial 11 statements. 12 58. The false and misleading 10-Q was signed by defendant Yu and Liu. 13 Defendants Yu and Liu signed the accompanying SOX certifications, attesting to 14 the accuracy of CEU’s 10-Q. 15 59. The 10-Q states in relevant part: 16

17 Q3 2008 Nine Months Ended 18 Total Revenue $ 7,146,389 $ 15,675,500 Total Gross Profit $ 5,764,328 $ 12,731,115 19 Online Segment Revenue $ 5,126,456 $ 12,067,183 Online Segment Gross $ 4,411,461 $ 10,444,321 20 Profit 21 Training Center Revenue $ 2,019,933 $ 3,608,317 Training Center Gross $ 1,352,867 $ 2,286,794 22 Profit 23 60. The Q3 10-Q was materially false and misleading for the same reasons 24 the Company’s Q1 2008 10-Q was false and misleading (¶52, above). 25 iv. Fiscal Year Ended December 31, 2008 26 61. On March 30, 2009, the Company filed with the SEC its fiscal 2008 27 annual report on form 10-K. The 10-K contains false and misleading financial 28 statements for fiscal year 2008. 18 Consolidated Second Amended Class Action Complaint for Violation of the Federal Securities Laws- Master File No. 2: 10-cv-09239 CAS (JCx)

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1 62. The false and misleading 10-K was signed by defendants Yu, Liu, Hsu 2 and L. Zhang. Defendants Yu and Liu signed the accompanying SOX 3 certifications, attesting to the accuracy of CEU’s 10-K. 4 63. The 10-K states in relevant part: 5 6 FY 2008 Total Revenue $24,851,017 7 Total Gross Profit $19,866,078 8 Online Segment Revenue $16,706,917 Online Segment Gross Profit $13,847,324 9 Training Center Revenue $5,552,969 Training Center Gross Profit $3,630,128 10 64. The 10-K was materially false and misleading for the same reasons the 11 Company’s Q1 2008 10-Q was false and misleading (¶ 52, above). Additionally, 12 the SAIC filings of New Discovery for entire year of 2008, states that it had 13 revenue of ¥232,935.00 and a net loss of (¥1,353,977.96), or $33,559 in revenue 14 and net loss of ($196,228.69) (assumes RMB 6.9: USD 1). 15 B. CEU’s 2009 Financial Results Are Materially False and 16 Misleading 17 i. First Quarter Ended March 31, 2009 18 65. On May 15, 2009, the Company filed with the SEC its financial results 19 of the first quarter on form 10-Q containing false and misleading financial 20 statements. 21 66. The false and misleading 10-Q was signed by defendants Yu and Liu. 22 Yu and Liu signed the accompanying SOX certifications, attesting to the accuracy 23 of CEU’s 10-Q. 24 67. The 10-Q states in relevant part: 25 26 27 28 19 Consolidated Second Amended Class Action Complaint for Violation of the Federal Securities Laws- Master File No. 2: 10-cv-09239 CAS (JCx)

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1

2 Q1 2009 Total Revenue $ 8,204,079 3 Total Gross Profit $ 6,085,183 4 Online Segment Revenue $ 4,829,488 Online Segment Gross Profit $ 3,630,381 5 Training Center Revenue $ 2,547,099 Training Center Gross Profit $ 1,682,449 6 68. The Online Segment was 59% of CEU’s revenue for Q1. 7 69. The revenue and gross profit reported by the Company were false and 8 misleading when made for the following reasons: 9 a. The SAIC filing for ZHLD for the entire year of 2009 reports 10 revenue that was a fraction of the revenue of what the Company had reported 11 in its 10-Q for the quarter. 12

13 (In RMB) 2009 14 Revenue ¥4,760,000.00 Net profit ¥1,460,000.00 15 (In USD)10 Revenue $ 700,000 16 Net profit $214,706 17 18 19 20 21 22 23 24 25 26 27

28 10 Exchange rate of RMB 6.8 : USD 1. 20 Consolidated Second Amended Class Action Complaint for Violation of the Federal Securities Laws- Master File No. 2: 10-cv-09239 CAS (JCx)

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1 b. Additionally, ZHLD’s profit statement filed with the SAT, 2 obtained by Plaintiffs’ counsel’s investigators, provided in relevant part: 3

4 (unit: RMB ten (unit: USD) 2009 thousand) 5 主营业务收入/ Main business income 476 700,000.00 6 销售成本/ Sales cost 80 117,647.06 7 销售税金及附加/ Sales taxes and surtaxes 0 0.00 8 销售费用/ Sales expenses 77 113,235.29

9 管理费用/ Administrative expenses 172 252,941.18

10 财务费用/ Financial expenses 2 2,941.18 11 投资收益/ Income from investment 0 0.00 12 其他业务利润/ Other business profit 0 0.00 / Non-business income 3 4,411.76 13 营业外收入 营业外支出/ Non-business expenditure 2 2,941.18 14 利润总额/ Total profit 146 214,705.88 15 净利/ Net profit 146 214,705.88 16 70. The falsity of 10-Q’s revenues and profits is further demonstrated by 17 New Discovery’s SAIC filings which state for the entire year of 2009, New 18 Discovery had revenue of ¥580,410.00 and a net loss of (¥9,367.07), or $85,354 in 19 revenue and ($1,377.51) (assumes RMB 6.8: USD 1). 20 71. Additionally, BHYHZ’s SAIC filings for the entire year of 2009, state 21 that it had zero revenue and net loss of (¥847,745.00) or ($128,638.97). 22 ii. Second Quarter Ended June 30, 2009 23 72. On August 11, 2009 the Company filed with the SEC its financial 24 results for the second quarter on form 10-Q containing false and misleading 25 financial statements. 26 27 28 21 Consolidated Second Amended Class Action Complaint for Violation of the Federal Securities Laws- Master File No. 2: 10-cv-09239 CAS (JCx)

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1 73. The false and misleading 10-Q was signed by defendant Yu and Liu. 2 Defendants Yu and Liu signed the accompanying SOX certifications, attesting to 3 the accuracy of CEU’s 10-Q. 4 74. The 10-Q states in relevant part: 5 6 Q2 2009 Six Months Ended Total Revenue $ 8,118,373 $ 16,322,452 7 Total Gross Profit $ 6,512,497 $ 12,597,680 8 Online Segment Revenue $ 5,470,628 $ 10,300,116 Online Segment Gross $ 4,436,316 $ 8,066,697 9 Profit Training Center Revenue $ 2,007,947 $ 4,555,046 10 Training Center Gross $ 1,506,158 $ 3,188,607 Profit 11 75. The Q2 10-Q was materially false and misleading for the same reasons 12 the Company’s Q1 2009 10-Q was false and misleading (¶¶ 69-71, above). 13 iii. Third Quarter Ended September 30, 2009 14 76. On November 16, 2009 the Company filed with the SEC its financial 15 results for the third quarter on form 10-Q containing false and misleading financial 16 statements. 17 77. The false and misleading10-Q was signed by defendant Yu and Pan. 18 Defendants Yu and Pan signed the accompanying SOX certifications, attesting 19 accuracy of CEU’s 10-Q. 20 78. The 10-Q states in relevant part: 21

22 Q3 2009 Nine Months Ended Total Revenue $ 10,231,678 $ 26,554,130 23 Total Gross Profit $ 8,222,988 $ 20,820,668 $ 5,768,667 24 Online Segment Revenue $ 16,068,783 Online Segment Gross $ 4,544,683 $ 12,611,380 25 Profit Training Center Revenue $ 3,853,285 $ 8,408,331 26 Training Center Gross $ 3,117,070 $ 6,305,677 Profit 27 28 22 Consolidated Second Amended Class Action Complaint for Violation of the Federal Securities Laws- Master File No. 2: 10-cv-09239 CAS (JCx)

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1 79. The Q3 10-Q was materially false and misleading for the same reasons 2 the Company’s Q1 2009 10-Q was false and misleading (¶¶ 69-71, above). 3 iv. Fiscal Year Ended December 31, 2009 4 80. On March 30, 2010, the Company filed with the SEC its fiscal 2009 5 annual report on form 10-K. The 2009 10-K contains false and misleading financial 6 statements for fiscal years 2008 and 2009. 7 81. The false and misleading 10-K was signed by defendants Yu, Pan, 8 Hsu, Zhang and L. Zhang. Defendants Yu and Pan signed the accompanying SOX, 9 certifications attesting to the accuracy of CEU’s 10-K. 10 82. The 2009 10-K states in relevant part: 11 12 FY 2009 Total Revenue $36,967,483 13 Total Gross Profit $29,602,544 Online Segment Revenue $22,238,325 14 Online Segment Gross Profit $17,653,806 15 Training Center Revenue $12,097,375 Training Center Gross Profit $ 9,527,837 16 83. The 10-K was materially false and misleading for the same reasons the 17 Company’s Q1 2009 10-Q was false and misleading (¶¶ 69-71, above). 18 84. Additionally, the 2009 10-K was false because it also materially 19 misstated revenue and profits for FY 2008. 20 C. Additional Allegations Demonstrating the Falsity of Reported 21 Revenue and Profits for CEU’s Two Main Business Segments 22 i. The Training Center Business Is A Sham 23 85. Training Center segment purportedly accounted for 22% ($5.5 million) 24 and 33% ($12 million) of CEU’s revenue for fiscal years ended 2008 and 2009, 25 respectively. 26 86. According to the Kerrisdale Report (pp. 11-20), CEU’s training center 27 facility, the Heilongjiang Zhonge Education Training Center in Harbin is essentially 28 23 Consolidated Second Amended Class Action Complaint for Violation of the Federal Securities Laws- Master File No. 2: 10-cv-09239 CAS (JCx)

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1 “a vacant, unfurnished building with, little sign of use.” (the “Training Center 2 Building”). 3 87. According to CEU, the Training Center Building variously accounted 4 for all and/or 60% of the Training Center segment revenue during the Class Period. 5 88. In the Company’s SEC filings referenced above, CEU had variously 6 claimed that it owned the Training Facility and trumpeted the impressive “state of 7 the art” and “modern” facilities. For example: 8 a. 2008 10-K: in describing the “Training Center” segment of 9 CEU’s business, CEU explained that it “provide[s] on-site teaching services 10 under the ‘Big Classroom of the Famed Instructors,’ our state-of-the-art 11 center in Harbin.” “At this center, we offer both classroom training and on- 12 on-one tutoring. The training center has approximately 36,600 square feet, 13 with 17 modern classrooms and a capacity for 1,200 students.” Elsewhere in 14 the 10-K CEU states: (“We have a 36,600 square foot training facility in 15 Harbin, Heilongjiang Province, PRC, which has 17 class rooms and can 16 accommodate 1,200 students…”). 17 b. Identical disclosures were contained in the Company’s 2009 10- 18 K and in the interim 10-Q reports filed with the SEC all throughout the Class 19 Period noted above. 20 89. The Kerrisdale Report (pp. 17-21) contained pictures of each floor 21 which revealed that each of the six floors of the building was empty and unfurnished with some space occupied by an unrelated company. 22 90. The Kerrisdale Report also linked to a video of a walk through tour of 23 the Training Center Building, http://www.youtube.com/watch?v=IacP8G3v5rw 24 (last checked April 29, 2011); further demonstrating the empty swaths of space in 25 the building and the absence of any classrooms. 26 91. In a response, on December 7, 2010 CEU conducted a conference call 27 to investors reading pre-prepared questions and answers to investors. Speaking for 28 24 Consolidated Second Amended Class Action Complaint for Violation of the Federal Securities Laws- Master File No. 2: 10-cv-09239 CAS (JCx)

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1 the Company were defendants Yu, with Pan translating. Contrary to CEU’s 2 statements of a “modern” and “state-of-the-art” facility, Yu and Pan claimed that 3 the Training Center Building was an “older” training center and that it was 4 undergoing “remodeling” when Kerrisdale visited the facility. Pan and Yu claimed 5 that the remodeling had been completed. 6 92. Plaintiffs’ counsel retained private investigators’ to corroborate 7 Kerrisdale’s observations. Plaintiffs’ counsel’s investigators visited the Training 8 Center and found that: (i) Pan and Yu’s statements were false because there was no 9 renovation at the Training Center Building; (ii) ZTEC or the Company did not even 10 own the Training Center Building; and (iii) the Training Center Building does not 11 conduct CEU or ZHLD’s Training Center business. Plaintiffs’ counsel’s 12 investigators found the following: 13 a. Investigators conducted internet searches on popular Chinese 14 search engines and located a ZTEC advertisement listing a telephone number 15 for the Training Center Building, 0451-87007386. 16 b. In early April 2011, investigators called the number for the 17 Training Center which connected the investigators to Heilongjiang Adult 18 Intermediate Trade Education School (the “Adult School”), not ZTEC or 19 CEU. Thus, the number CEU advertised for ZTEC (its Training Center) was 20 actually the phone number for an unaffiliated adult school having nothing to 21 do with CEU or its business. c. The investigators called Telephone Directory Services (114), 22 and could not locate another telephone number for ZTEC. 23 d. On April 7, 2011, investigators conducted onsite interviews at 24 the Training Center Building. Investigators interviewed the security 25 gatekeeper. The security gatekeeper stated that the owner of the Training 26 Center Building was the Adult School, not ZTEC or CEU. In fact, the 27 gatekeeper explained that the Adult School was annoyed because ZTEC had 28 25 Consolidated Second Amended Class Action Complaint for Violation of the Federal Securities Laws- Master File No. 2: 10-cv-09239 CAS (JCx)

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1 once sent a camera crew and foreigners to take photos and videos in the 2 building and that ZTEC falsely claimed it owned the building, when it did 3 not. 4 e. On April 8, 2011, investigators interviewed staff at the Adult 5 School and the Adult School staff confirmed that they owned the building. 6 Adult School staff told the investigators that floors 1, 2, and 6 are vacant and 7 available for immediate lease. Pictures taken by the investigators are 8 attached hereto as Exhibit 2, and referenced herein. 9 f. When asked about ZTEC, the Adult School staff stated that 10 ZTEC had once leased space in the building and the Adult School had a 11 cooperative relationship with ZTEC, but the lease and the relationship had 12 been terminated in 2009. 13 g. Other tenants in the building, namely the software companies on 14 the third and fourth floors, confirmed to the investigators that ZTEC did not 15 own or occupy the building. 16 h. The fifth floor is occupied by the Adult School. 17 ii. The Online Segment is a Grossly Exaggerated 18 93. During the Class Period Online Segment purportedly accounted for 19 67% or ($16.7 million) and 60% ($22.2 million) of CEU’s total revenue for fiscal 20 years ended 2008 and 2009, respectively. In the Company’s 2009 10-K CEU states 21 in relevant part:

22 Our principal business is the distribution of educational resources through the 23 internet. Our website, www.edu-chn.com, is a comprehensive education 24 network platform which is based on network video technology and large data sources of elementary education resources. We have a database comprised of 25 such resources as test papers that were used for secondary education and 26 university level courses as well as video on demand. Our data base includes more than 350,000 exams and test papers and courseware for college, 27 secondary and elementary schools. While some of these exams were given 28 in previous years, we engage instructors to develop new exams and a 26 Consolidated Second Amended Class Action Complaint for Violation of the Federal Securities Laws- Master File No. 2: 10-cv-09239 CAS (JCx)

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1 methodology for taking the exams. We market this data base under the name 2 “Famous Instructor Test Paper Store.” We also offer, though our website, video on demand, which includes tutoring of exam papers and exam 3 techniques. We compliment the past exams and test papers by providing an 4 interactive platform for students to understand the key points from the papers and exams. Although a number of the resources are available through our 5 website without charge, we charge our subscribers for such services as the 6 Famous Instructor Test Paper Store and the video on demand. Subscribers can purchase debit cards which can be used to download material from our 7 website. 8 94. The Kerrisdale Report concluded that the Company could not be 9 generating the tens of millions of the dollars of revenue from the Online Segment, 10 because, among other things, “the company’s websites do not work, despite the fact 11 that CEU is an online education provider and its websites are the company’s main 12 revenue generating assets.” See Kerrisdale Report, pp. 1, 3-4. The Kerrisdale 13 Report links three videos demonstrating these failures on Company’s main website: 14 www.edu-chn.com, and two of the Company’s other websites:. 15 www.pk1234567.com, and www.360ve.com. 16 95. The first video demonstrates the non-functioning payment systems on 17 CEU’s core website, www.edu-chn.com. The video is located at: 18 http://www.youtube.com/watch?v=pQCW-Y9L_Xg (last checked April 29, 2011), 19 and referenced herein. 96. The second video is demonstrates further website errors and compares 20 CEU’s websites to their competitors. The video is located at: 21 http://www.youtube.com/watch?v=WU3OCqluEnA&feature=related (last checked 22 April 29, 2011) and is referenced herein. 23 97. The third video demonstrates additional broken links and irrelevant 24 content. The video is located at: http://www.youtube.com/watch?v=A5Ij8Pdm0R4 25 (last checked April 29, 2011) and is referenced herein. 26 27 28 27 Consolidated Second Amended Class Action Complaint for Violation of the Federal Securities Laws- Master File No. 2: 10-cv-09239 CAS (JCx)

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1 98. The Company has stated in the SEC filings throughout the Class 2 Period that student can also purchase materials from the Company’s website 3 through pre-paid debit or learning cards. 4 99. According to the Kerrisdale Report (p. 5), Kerrisdale hired a Harbin 5 based investigator to attempt to purchase the pre-paid debit/learning card on-line, 6 but those attempts through E-Bank and the mobile-phone payment were not 7 successful. According to Kerrisdale, the investigator called the telephone numbers 8 on the Company’s website, and the people on the other lines hung up, one number 9 led to an unidentified switchboard number, and the other requested the investigator 10 to leave a telephone number for a return call—no return call made to the 11 investigator. 12 100. According to the Kerrisdale Report (p. 4), Kerrisdale also hired a 13 Harbin based investigator to visit bookstores in Harbin to determine whether the 14 learning cards were available for sale. After visiting 15 Harbin bookstores, only 15 two of the bookstores carried learning cards, but they were for CEU’s competitors. 16 None of the bookstores sold CEU’s learning cards. 17 101. The Company addressed these findings at during the December 7, 18 2010 conference call through Yu with Pan translating. According to Yu and Pan, 19 the “majority of our [learning] cards are sold by our sales people to students. We 20 have around 200 sales people located at different areas in North China, not 21 including part-time sale agents.” As to the non-functionality of the Company’s website, the Pan and Yu claimed the website problems were the result of the 22 Company’s servers being in North China and Kerrisdale had difficulty accessing 23 from outside China, and that, in any event, the Company planned to increase the 24 number of servers. 25 102. Defendants’ explanations were false. On December 7, 2010, 26 Kerrisdale posted a response to the Company’s December 7, 2010 conference call 27 28 28 Consolidated Second Amended Class Action Complaint for Violation of the Federal Securities Laws- Master File No. 2: 10-cv-09239 CAS (JCx)

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1 and noted that “we had multiple investigators examine the company’s websites 2 from inside Harbin, as opposed to only the United States.” 3 103. Moreover, Kerrisdale’s findings are corroborated by Plaintiffs’ 4 counsel’s investigators. 5 a. Contrary to Yu and Pan’s contention that the majority of the 6 learning cards are sold by sales agents to students, in early April 2011, 7 Plaintiffs’ investigator called the number listed on CEU’s website inquiring 8 about purchasing a learning card from an agent. The investigator was told by 9 the person on the phone that learning cards were only available at the 10 Company’s campuses in Harbin. Upon visiting the campuses in Harbin, the 11 investigator was told something different: that the learning cards were 12 available in grocery stores, bookstores, and stationary stores near elementary 13 schools and high schools. 14 b. Plaintiffs investigators visited shops on Yiman Street in Harbin, 15 where: (1) Jihong Elementary School—a municipal level key elementary 16 school, (2) PS3 Middles School of Harbin-a provincial level key middle 17 school, (3) and numerous training and education entities are located. 18 Plaintiffs’ counsel’s investigators visited the following: 19 i. Xingming Stationary Store, had an advertisement of 20 CEU’s learning card on the front door of the shop. The owner told the 21 investigator that the store did not offer CEU’s learning cards for sale anymore, because no customers ever purchased them, so the shop 22 returned the cards to CEU. 23 ii. Xinhai Stationary Store, which is located across the street 24 from Jihong Elementary School and Yiman Park and is close to PS3 25 Middle School, had an advertisement of CEU’s learning card on the 26 front door of the shop. The owner told the investigator that the shop 27 had very poor sales of CEU’s learning cards, as there was a lack of 28 29 Consolidated Second Amended Class Action Complaint for Violation of the Federal Securities Laws- Master File No. 2: 10-cv-09239 CAS (JCx)

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1 promotion of the card, i.e. students and teachers were not aware of 2 CEU and its products. 3 c. In early April 2011, Plaintiffs investigators also visited shops 4 near Anjing Elementary School, but could not find any stores that sold 5 CEU’s learning card. 6 d. In April 2011, our investigators were informed by Ms. Shi from 7 CEU’s marketing department, that learning cards were not available in 8 Liaoning province, a location where CEU had claimed it had sales agents. 9 Ms. Shi further stated that the Company only had sales agents in Harbin City 10 and nowhere else. 11 104. Kerrisdale also supported its conclusion that CEU’s Online Segment 12 could not generate the revenue CEU reported in its SEC filings because the 13 “company’s website receive a fraction of the visitor traffic generated by … [a 14 competitor], which reports lower revenue and lower margins than CEU despite 15 having functional website, a larger number of web assets, and operational payments 16 scheme and no broken links on their sites.” See Kerrisdale Report, pp. 5-10. 17 V. ADDITIONAL FACTS SUPPORTIVE OF FALSITY AND SCIENTER 18 105. The breadth of the false financial reporting and misstatements support 19 a strong inference of scienter. In addition to the false revenue and profit for fiscal 20 periods of 2008 and 2009, CEU’s 2007 financial results, filed with the SEC on 21 March 31, 2008, on form 10-KSB likewise overstates revenues several times over. In the 10-KSB CEU reported the following for the fiscal year: (i) total revenue of 22 $17.3 million; (ii) Online Segment revenue of $11.5 million; and (iii) Training 23 Center revenue of $3.7 million. The SAIC filing for ZHLD for that period show 24 revenue of merely $23,904 and for BHYHZ, shows zero revenue for 2007. 25 106. The Kerrisdale Report also reveals that CEU’s revenue and gross 26 profit reported to the SAIC for 2006 is merely a fraction of what CEU had reported 27 in its fiscal 2006 annual report filed with the SEC. See Kerrisdale Report, p. 24. 28 30 Consolidated Second Amended Class Action Complaint for Violation of the Federal Securities Laws- Master File No. 2: 10-cv-09239 CAS (JCx)

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1 107. In addition to the false reassurances set forth above, the Company 2 issued a number other false reassurances during the December 7, 2010 conference 3 call. 4 a. SAIC filings: Yu and Pan did not dispute the SAIC filings did 5 not match the Company’s SEC filings but merely stated that the “severe” 6 discrepancies were present because SAIC financial statements need not be 7 consolidated, differences in PRC GAAP and US GAAP, that competitors 8 may review SAIC filings to gain a competitive advantage, and suggested that 9 this was fine because essentially everyone else was doing it. Pan and Yu 10 then stated that PRC tax documents filed with State Administration of 11 Taxation (“SAT”) are “much more reliable than SAIC filings” because filing 12 false information with the SAT can result in a fine. Pan and Yu stated in 13 relevant part:

14 The SAT requires audited financial data including balance sheet, income 15 statement and cash flow statement and the tax bureaus audit those reports quite frequently themselves and fine offenders who under-report to the 16 SAT. Financial statements to the SAT are much more reliable than SAIC 17 filings. It is with the SAT numbers that our auditor verifies our earnings. Unfortunately, these reports are not readily available to the public. 18 b. These explanations are false and defy common sense and logic. 19 As noted above, filing false SAIC filings result in fines and can result in the 20 revocation of the entity’s business license, rendering the business unable to 21 maintain a bank account or even legally conduct business. The unexplained 22 differences in PRC and US GAAP do not account for the vast differences 23 between CEU’s reported revenue to the SEC and the revenue reported in the 24 Company’s SAIC filings. Consolidation is not an issue as Plaintiffs’ 25 Counsel’s investigators obtained the SAIC filings for the Company’s largest 26 operating subsidiary, ZHLD. Additionally, the explanation that a competitor 27 may obtain a competitive advantage by reviewing SAIC filings is puzzling, a 28 31 Consolidated Second Amended Class Action Complaint for Violation of the Federal Securities Laws- Master File No. 2: 10-cv-09239 CAS (JCx)

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1 competitor could merely review the Company’s SEC filings, if in fact the 2 SEC were accurate. Most importantly, Plaintiffs’ counsel’s investigators 3 obtained the SAT (tax) filings of the ZHLD which report the same (lower) 4 revenue as ZHLD’s SAIC filings. 5 108. The manner in which the Company attained U.S. listing, i.e. reverse 6 merger (“RCM”) supports an inference of scienter. 7 a. Although an RCM allows a Chinese company to trade on a U.S. 8 stock exchange and tap into the lucrative American investment market, like 9 CEU, these companies’ assets and operations are often solely located in 10 China. This limits the SEC’s ability to regulate and enforce the securities 11 laws against Chinese companies, especially given that these corporations did 12 not complete the more rigorous requirements of an initial public offering. 13 b. Shielded by the geographic distance of thousands of miles and 14 operating under a regulatory framework that is a world apart from the SEC’s 15 oversight, RCM companies have few incentives to provide complete and 16 accurate disclosures to American investors and every incentive to maximize 17 investments and profits. An August 28, 2010 article in Barron’s by Bill 18 Alpert and Leslie P. Norton entitled, “Beware This Chinese Export,” 19 discusses the enforcement problems that American regulators face when 20 dealing with Chinese companies that trade on U.S. exchanges through 21 RCMs. The article states that “[t]he SEC’s enforcement staff can’t subpoena evidence of any fraudulent activities in China, and Chinese regulators have 22 little incentive to monitor shares sold only in the U.S.” 23 c. RCMs were effective in attracting interest in small Chinese 24 companies that were purportedly poised for growth and achievement. 25 According to a CNBC.com article published on December 21, 2010 and 26 entitled “Greenberg: Dangers Lurk in Chinese Reverse Mergers,” there are 27 around 300 reverse mergers trading in the U.S. American investors have 28 32 Consolidated Second Amended Class Action Complaint for Violation of the Federal Securities Laws- Master File No. 2: 10-cv-09239 CAS (JCx)

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1 suffered losses in excess of $30 billion as a result of their investments in 2 RCMs. 3 d. U.S. regulators have finally begun to take notice of the 4 opportunities for manipulation and fraud that RCMs create. The SEC has 5 recently established a task force to investigate investors’ claims regarding the 6 impropriety and fraud of RCMs trading on the U.S. markets. SEC 7 Commissioner Luis A. Aguilar (the “Commissioner”) discussed Chinese 8 reverse mergers and the process of “backdoor registration,” stating:11 9 In the world of backdoor registrations to gain entry into the U.S. public 10 market, the use by Chinese companies has raised some unique issues, even 11 compared to mergers by U.S. companies. Two important ones are:

12  First, there appear to be systematic concerns with the quality 13 of the auditing and financial reporting; and

14  Second, even though these companies are registered here in the 15 U.S., there are limitations on the ability to enforce the securities laws, and for investors to recover their losses when disclosures are found to be 16 untrue, or even fraudulent. 17 I am worried by the systematic concerns surrounding the quality of the 18 financial reporting by these companies. In particular, according to a recent 19 report by the staff of the Public Company Accounting Oversight Board (PCAOB), U.S. auditing firms may be issuing audit opinions on the 20 financials, but not engaging in any of their own work. Instead, the U.S. firm 21 may be issuing an opinion based almost entirely on work performed by Chinese audit firms. If this is true, it could appear that the U.S. audit firms 22 are simply selling their name and PCAOB-registered status because they are 23 not engaging in independent activity to confirm that the work they are relying on is of high quality. This is significant for a lot of reasons, including that the 24 PCAOB has been prevented from inspecting audit firms in China. 25 26 27 11 Text of the entire speech is available at 28 http://sec.gov/news/speech/2011/spch040411laa.htm#P79_43025. 33 Consolidated Second Amended Class Action Complaint for Violation of the Federal Securities Laws- Master File No. 2: 10-cv-09239 CAS (JCx)

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1 109. Scienter is also supported by fact that CEU was able to conduct an 2 equity offering to take advantage of CEU stock’s artificially inflated price. On 3 September 29, 2009, CEU sold over 3.1 million shares of its stock $5.50/share 4 raising approximately $18 million; along with exercise of warrants, CEU raised an 5 additional $6.4 million. 6 110. The revolving door in CEU’s CFO position supports a strong inference 7 of scienter. During the Class Period CEU had three different CFOs, defendants 8 Wang, Liu and Pan. Additionally, on February 28, 2011, defendant Pan suddenly 9 resigned as CFO. Thus, during a three year period starting at the beginning of the 10 Class Period, the Company has had four different CFOs. 11 111. Additionally, CEU has had high turnover of auditors. Since 2004 the 12 Company has had four independent auditors—none of the auditing firms are top 13 100 accounting firms. Even after the fallout of the Kerrisdale Report and CEU’s 14 purported effort to reassure investors and its purported stellar financial results and 15 assets, CEU has failed to hire a Big Four accounting firm to audit is financial 16 statements. 17 VI. CEU’S STOCK PLUMMETED AS THE TRUTH BEGAN TO 18 EMERGE 19 112. On November 29, 2010 the Kerrisdale Report was issued revealing, 20 among other things: (a) that CEU’s SAIC filings for 2006 through 2008 showed 21 merely a fraction of the revenue and profits as compared to CEU’s SEC filings; (b) that CEU’s Online Segment which accounted for over 60% revenue could not have 22 possibly generated the tens of millions of dollars CEU claimed in its SEC filings as 23 CEU’s principal revenue generating website did not function properly and internet 24 usage sites showed very little to no traffic to the site; (c) that the Training Center 25 Building responsible for nearly a quarter of CEU’s revenue was an empty building 26 with no classrooms; and (d) that there are several other red flags of fraud, i.e. high 27 CFO turnover, and low quality auditors. 28 34 Consolidated Second Amended Class Action Complaint for Violation of the Federal Securities Laws- Master File No. 2: 10-cv-09239 CAS (JCx)

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1 113. The Kerrisdale Report shocked the market, and caused CEU’s stock to 2 fall on November 29, 2010 from a prior closing price of $4.41/share to $2.93/share, 3 or 33.5%; and caused an additional $.23/share or 7.9% drop on November 30, 2010. 4 114. On December 7, 2010, CEU through Yu, with Pan translating, held a 5 conference call with investors reading prepared questions and answers to investors. 6 CEU admitted that its SAIC filings did not match the Company’s corresponding 7 SEC filings. 8 115. While Yu and Pan provided a number of false reassurances and 9 excuses for this and the many of other findings of the Kerrisdale Report as set forth 10 above, investors were not satisfied with Yu and Pan’s questionable responses. 11 116. In fact, following the conference on call, that same day Kerrisdale 12 issued a response to CEU’s conference call and announced it stood by its findings. 13 The response states : 14 UPDATE – December 7, 2010 15 China Education Alliance hosted a conference call this morning to address 16 investor concerns. We believe that the call was essentially 45 minutes of 17 false information and misleading statements. We’ll review the call and the new information provided on the company’s websites, and determine 18 whether a response is necessary at a later date. 19 For now, we’ll make two points. First, the CFO stated at a conference 20 presentation in November that the company’s Heilongjiang Zhonghe 21 Education Training Center is fully operational, provides IT training, is highly profitable, and has been at the same location since 2005. We have video 22 footage of the CFO’s statement and will make that available if necessary. 23 This previous statement made during the November conference conflicts with the CFO’s new claim that the center is being “re-modeled” for a new 24 school for the arts. Second, we had multiple investigators examine the 25 company’s websites from inside Harbin, as opposed to only the United States. For instance, this report12 from one of our investigators was done 26 from inside Harbin. 27

28 12 The hyperlink is: http://kerrisdalecap.com/wp-content/uploads/2010/11/Debit-Cards- 35 Consolidated Second Amended Class Action Complaint for Violation of the Federal Securities Laws- Master File No. 2: 10-cv-09239 CAS (JCx)

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1 We fully stand by our report and our claim that China Education Alliance is 2 mostly a hoax.

3 117. The adverse disclosures on December 7, 2010 conference call caused 4 CEU stock to fall from prior closing price of $3.25/share to $2.34/share or 28%. 5 VII. PLAINTIFFS’ CLASS ACTION ALLEGATIONS 6 118. Plaintiffs bring this action as a class action pursuant to Federal Rules 7 of Civil Procedure 23(a) and (b)(3) on behalf of a Class consisting of all persons 8 who purchased the common stock of CEU during the Class Period and who were 9 damaged thereby. Excluded from the Class are Defendants, the present and former 10 officers and directors of CEU and any subsidiary thereof, members of their 11 immediate families and their legal representatives, heirs, successors or assigns and 12 any entity in which defendants have or had a controlling interest. 13 119. The members of the Class are so numerous that joinder of all members 14 is impracticable. Throughout the Class Period, CEU’s stock was actively traded on 15 the Bulletin Board, AMEX, or the NYSE. 16 120. While the exact number of Class members is unknown to Plaintiffs at 17 this time and can only be ascertained through appropriate discovery, Plaintiffs 18 believe that there are at least hundreds, if not thousands, of members in the 19 proposed Class. Members of the Class may be identified from records maintained 20 by CEU or its transfer agent and may be notified of the pendency of this action by 21 mail, using a form of notice customarily used in securities class actions. 121. Plaintiffs’ claims are typical of the claims of the members of the Class, 22 as all members of the Class are similarly affected by Defendants’ wrongful conduct 23 in violation of federal law that is complained of herein. 24 122. Plaintiffs will fairly and adequately protect the interests of the 25 members of the Class and has retained counsel competent and experienced in class 26 and securities litigation. 27

28 Report.pdf. 36 Consolidated Second Amended Class Action Complaint for Violation of the Federal Securities Laws- Master File No. 2: 10-cv-09239 CAS (JCx)

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1 123. Common questions of law and fact exist as to all members of the Class 2 and predominate over any questions solely affecting individual members of the 3 Class. Among the questions of law and fact common to the Class are: 4 a. whether the federal securities laws were violated by Defendants’ 5 acts as alleged herein; 6 b. whether statements made by Defendants to the investing public 7 during the Class Period misrepresented material facts about the business, and 8 financial performance of CEU; and 9 c. to what extent the members of the Class have sustained damages 10 and the proper measure of damages. 11 124. A class action is superior to all other available methods for the fair and 12 efficient adjudication of this controversy since joinder of all members is 13 impracticable. Furthermore, as the damages suffered by individual Class members 14 may be relatively small, the expense and burden of individual litigation make it 15 impossible for members of the Class to redress individually the wrongs done to 16 them. There will be no difficulty in the management of this action as a class action. 17 VIII. RELIANCE PRESUMPTION 18 125. At all relevant times, the market for CEU common stock was an 19 efficient market for the following reasons, among others: 20 a. CEU stock met the requirements for listing, and was listed and 21 actively traded on the Bulletin Board market (under ticker symbol “CEUA”) until July 20, 2009 when it was listed for trading in the AMEX (under ticker 22 symbol “CEU”). Then on July 27, 2010 CEU stock was listed on the NYSE 23 under the same ticker symbol. All three are highly efficient and automated 24 markets; 25 b. As of December 31, 2010, there were 31.2 million shares of the 26 Company’s common stock issued and outstanding. The public float (shares 27 not held by insiders/defendants) was about 18.6 million; 28 37 Consolidated Second Amended Class Action Complaint for Violation of the Federal Securities Laws- Master File No. 2: 10-cv-09239 CAS (JCx)

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1 c. During the class period, on average, 724,483 shares of CEU 2 common stock were traded on a weekly basis. Approximately 3.9% of the 3 public float, and 2.3% of all outstanding shares, were bought and sold on a 4 weekly basis, demonstrating a strong presumption of an efficient market; 5 d. As a regulated issuer CEU filed with the SEC periodic public 6 reports and was eligible (and did file) S-3 registration statements with the 7 SEC during the Class Period; 8 e. CEU regularly communicated with public investors via 9 established market communication mechanisms, including regular 10 disseminations of press releases on the national circuits of major newswire 11 services and other wide-ranging public disclosures, such as communications 12 with the financial press and other similar reporting services; 13 f. CEU was followed by several securities analysts employed by 14 major brokerage firms including Hudson Securities, and Rodman and 15 Renshaw (among others), who wrote reports that were distributed to the sales 16 force and certain customers of their respective brokerage firms during the 17 Class Period; 18 g. At least 75 NASD member firms were active market-makers in 19 CEU stock at all times during the Class Period; and 20 h. Unexpected material news about CEU was rapidly reflected in 21 and incorporated into the Company’s stock price during the Class Period. IX. FIRST CAUSE OF ACTION 22 Violation of Section 10(b) of The Exchange Act Against and Rule 10b- 23 Promulgated Thereunder Against Defendants CEU, Yu, Pan, Liu and Wang 24 126. Plaintiffs repeat and reallege each and every allegation contained 25 above as if fully set forth herein. 26 127. This cause of action is asserted against defendants CEU, Yu, Pan, Liu 27 and Wang (the “First Claim Defendants”). 28 38 Consolidated Second Amended Class Action Complaint for Violation of the Federal Securities Laws- Master File No. 2: 10-cv-09239 CAS (JCx)

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1 128. During the Class Period, First Claim Defendants carried out a plan, 2 scheme and course of conduct which was intended to, and throughout the Class 3 Period, did: (1) deceive the investing public, including Plaintiffs and other Class 4 members, as alleged herein; and (2) cause Plaintiffs and other members of the Class 5 to purchase and/or sell CEU’s securities at artificially inflated and distorted prices. 6 In furtherance of this unlawful scheme, plan and course of conduct, First Claim 7 Defendants, individually and as a group, took the actions set forth herein. 8 129. First Claim Defendants, individually and in concert, directly and 9 indirectly, by the use, means or instrumentalities of interstate commerce and/or of 10 the mails, engaged and participated in a continuous course of conduct to conceal 11 adverse material information about the business, operations and future prospects of 12 CEU as specified herein. 13 130. First Claim Defendants employed devices, schemes and artifices to 14 defraud, while in possession of material adverse non-public information and 15 engaged in acts, practices, and a course of conduct as alleged herein in an effort to 16 assure investors of CEU’s value and performance and continued substantial growth, 17 which included the making of, or the participation in the making of, untrue 18 statements of material facts and omitting to state material facts necessary in order to 19 make the statements made about CEU and its business operations and financial 20 condition in light of the circumstances under which they were made, not 21 misleading, as set forth more particularly herein, and engaged in transactions, practices and a course of business that operated as a fraud and deceit upon the 22 purchasers CEU securities during the Class Period. 23 131. Each of the First Claim Defendants’ primary liability, and controlling 24 person liability, arises from the following: (a) First Claim Defendants were high- 25 level executives, directors, and/or agents at the Company during the Class Period 26 and members of the Company’s management team or had control thereof; (b) by 27 virtue of their responsibilities and activities as senior officers and/or directors of the 28 39 Consolidated Second Amended Class Action Complaint for Violation of the Federal Securities Laws- Master File No. 2: 10-cv-09239 CAS (JCx)

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1 Company, were privy to and participated in the creation, development and reporting 2 of the Company’s internal budgets, plans, projections and/or reports; (c) First Claim 3 Defendants enjoyed significant personal contact and familiarity with the other 4 members of the Company's management team, internal reports and other data and 5 information about the Company's finances, operations, and (d) First Claim 6 Defendants were aware of the Company's dissemination of information to the 7 investing public which they knew or recklessly disregarded was materially false and 8 misleading. 9 132. First Claim Defendants had actual knowledge of the 10 misrepresentations and omissions of material facts set forth herein, or acted with 11 reckless disregard for the truth in that they failed to ascertain and to disclose such 12 facts, even though such facts were available to them. Such defendants’ material 13 misrepresentations and/or omissions were done knowingly or recklessly and for the 14 purpose and effect of concealing CEU’s financial condition from the investing 15 public and supporting the artificially inflated price of its securities. As 16 demonstrated by First Claim Defendants’ false and misleading statements during 17 the Class Period, First Claim Defendants, if they did not have actual knowledge of 18 the misrepresentations and omissions alleged, were reckless in failing to obtain 19 such knowledge by failing to take steps necessary to discover whether those 20 statements were false or misleading. 21 133. As a result of the dissemination of the materially false and misleading information and failure to disclose material facts, as set forth above, the market 22 price for CEU’s securities was artificially inflated during the Class Period. 23 134. In ignorance of the fact that market prices of CEU’s publicly-traded 24 securities were artificially inflated or distorted, and relying directly or indirectly on 25 the false and misleading statements made by First Claim Defendants, or upon the 26 integrity of the market in which the Company’s securities trade, and/or on the 27 absence of material adverse information that was known to or recklessly 28 40 Consolidated Second Amended Class Action Complaint for Violation of the Federal Securities Laws- Master File No. 2: 10-cv-09239 CAS (JCx)

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1 disregarded by First Claim Defendants but not disclosed in public statements by 2 defendants during the Class Period, Plaintiffs and the other members of the Class 3 acquired CEU’s securities during the Class Period at artificially high prices and 4 were damaged thereby. 5 135. At the time of said misrepresentations and omissions, Plaintiffs and 6 other members of the Class were ignorant of their falsity, and believed them to be 7 true. Had Plaintiffs and the other members of the Class and the marketplace known 8 the truth regarding CEU’s financial results and condition, which were not disclosed 9 by defendants, Plaintiffs and other members of the Class would not have purchased 10 or otherwise acquired CEU securities, or, if they had acquired such securities 11 during the Class Period, they would not have done so at the artificially inflated 12 prices or distorted prices at which they did. 13 136. By virtue of the foregoing, the First Claim Defendants have violated 14 Section 10(b) of the Exchange Act, and Rule 10b-5 promulgated thereunder. 15 137. As a direct and proximate result of the First Claim Defendants’ 16 wrongful conduct, Plaintiffs and the other members of the Class suffered damages 17 in connection with their respective purchases and sales of the Company’s securities 18 during the Class Period. 19 138. This action was filed within two years of discovery of the fraud and 20 within five years of Plaintiffs’ purchases of securities giving rise to the cause of 21 action.

22 X. SECOND CAUSE OF ACTION 23 Violation of Section 20(a) of The Exchange Act 24 Against the Individual Defendants 25 139. Plaintiffs repeat and reallege each and every allegation contained 26 above as if fully set forth herein. 27 28 41 Consolidated Second Amended Class Action Complaint for Violation of the Federal Securities Laws- Master File No. 2: 10-cv-09239 CAS (JCx)

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1 140. This second cause of action is asserted against each of the Individual 2 Defendants. 3 141. The Individual Defendants, acted as controlling persons of CEU within 4 the meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of 5 their high-level positions, agency, and their ownership and contractual rights, 6 participation in and/or awareness of the Company’s operations and/or intimate 7 knowledge of aspects of the Company’s revenues and earnings and dissemination 8 of information to the investing public, the Individual Defendants had the power to 9 influence and control, and did influence and control, directly or indirectly, the 10 decision-making of the Company, including the content and dissemination of the 11 various statements that Plaintiffs contend are false and misleading. The Individual 12 Defendants were provided with or had unlimited access to copies of the Company’s 13 reports, press releases, public filings and other statements alleged by Plaintiffs to be 14 misleading prior to and/or shortly after these statements were issued, and had the 15 ability to prevent the issuance of the statements or to cause the statements to be 16 corrected. 17 142. In particular, each of these Defendants had direct and supervisory 18 involvement in the day-to-day operations of the Company and, therefore, is 19 presumed to have had the power to control or influence the particular transactions 20 giving rise to the securities violations as alleged herein, and exercised the same. 21 143. As set forth above, CEU and the Individual Defendants each violated Section 10(b) and Rule 10b-5 by their acts and omissions as alleged in this 22 Complaint. 23 144. By virtue of their positions as controlling persons, the Individual 24 Defendants are liable pursuant to Section 20(a) of the Exchange Act as they 25 culpably participated in the fraud alleged herein. As a direct and proximate result of 26 Defendants’ wrongful conduct, Plaintiffs and other members of the Class suffered 27 28 42 Consolidated Second Amended Class Action Complaint for Violation of the Federal Securities Laws- Master File No. 2: 10-cv-09239 CAS (JCx)

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1 damages in connection with their purchases of the Company’s common stock 2 during the Class Period. 3 145. This action was filed within two years of discovery of the fraud and 4 within five years of Plaintiffs’ purchases of securities giving rise to the cause of 5 action. 6 XI. JURY TRIAL DEMANDED 7 Plaintiffs hereby demand a trial by jury. 8 9 WHEREFORE, Plaintiffs pray for relief and judgment, as follows: 10 a. Determining that this action is a proper class action and 11 certifying Plaintiffs as class representatives under Rule 23 of the Federal 12 Rules of Civil Procedure and Plaintiffs’ counsel as Class Counsel; 13 b. Awarding compensatory damages in favor of Plaintiffs and the 14 other Class members against all Defendants, jointly and severally, for all 15 damages sustained as a result of Defendants’ wrongdoing, in an amount to be 16 proven at trial, including interest thereon; 17 c. Awarding Plaintiffs and the Class their reasonable costs and 18 expenses incurred in this action, including counsel fees and expert fees; and 19 Such other and further relief as the Court may deem just and proper. 20 21 22 23 24 25 26 27 28 43 Consolidated Second Amended Class Action Complaint for Violation of the Federal Securities Laws- Master File No. 2: 10-cv-09239 CAS (JCx)

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1 2 Dated: December 5, 2011 Respectfully submitted, 3 4 THE ROSEN LAW FIRM, P.A. 5 6 ______7 Laurence M. Rosen, Esq. (LR 5733) 8 355 South Grand Avenue, Suite 2450 Los Angeles, CA 90071 9 Telephone: (213) 785-2610 10 Facsimile: (213) 226-4684 [email protected] 11 12 and

13 Phillip Kim (pro hac vice) 14 THE ROSEN LAW FIRM, P.A. 275 Madison Avenue, 34th Floor 15 New York, New York 10016 16 Telephone: (212) 686-1060 Facsimile: (212) 202-3827 17 [email protected] 18 Lead Counsel for Lead Plaintiffs and the 19 Class 20 21

22 23 24 25 26 27 28 44 Consolidated Second Amended Class Action Complaint for Violation of the Federal Securities Laws- Master File No. 2: 10-cv-09239 CAS (JCx)

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China Education Alliance (CEU)

Table of Contents Summary

INTRODUCTION ...... 2 In this report, we present compelling evidence that China Education Alliance (CEU) is fabricating its SEC financial statements. We believe THE COMPANY...... 2 that the company’s revenue and profit are highly overstated in its SEC WEBSITE USABILITY ...... 3 filings and that the company is mostly a hoax. Our evidence includes:

WEBSITE TRAFFIC ...... 5  The company’s websites do not work, despite the fact that CEU is THE TRAINING FACILITY ...... 11 an online education provider and its websites are the company’s main revenue-generating assets. We have recorded three videos here, here FINANCIAL COMPARISON...... 20 and here which show that the main www.edu-chn.com and THE AIC FILINGS ...... 21 www.pk1234567.com websites have non-functioning payment methods and are full of broken links and HTML errors. INTEREST INCOME...... 24  The company’s websites receive a fraction of the visitor traffic AUDITOR TURNOVER ...... 25 generated by comparable sites such as those operated by China STOCK OFFERING...... 26 Distance Education Holdings (DL), which reports lower revenue and lower margins than CEU despite having functioning websites, a larger PROMOTION SICKNESS...... 27 number of web assets, operational payment schemes and no broken CONCLUSION...... 28 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 financials are not believable when compared to publicly traded comparable companies. The company reports higher margins and revenue growth when compared to DL, CEDU and CAST, despite having a non-functioning website and an empty training center.  CEU has had 4 low quality, non-reputable auditors since going public in 2004. The company also raised capital in 2009 at an irrationally low valuation without providing a sensible rationale for why the capital was needed.

Disclaimer: As of the publication date of this report, Kerrisdale Capital and other individuals that contributed research to this report have short positions in and own options on the stock of the company covered herein (China Education Alliance, Inc.) and stand to realize gains in the event that the price of the stock declines. Following publication of the report, the authors and contributors may transact in the securities of the company covered herein. The authors of this report have obtained all information contained herein from sources they believe to be accurate and reliable. However, such information is presented “as is”, without warranty of any kind – whether express or implied. The authors of this report make no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results to be obtained from its use. All expressions of opinion are subject to change without notice, and the authors do not undertake to update or supplement this report or any of the information contained herein. Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 2 of 50 Page ID #:1691

Introduction

It seems like every week another fraud is exposed in China. Time and again, channel checks and due diligence show that certain companies that have become publicly listed in the United States through reverse mergers are worth a small fraction of their current valuations. Six months ago, there were a few analysts and research firms pounding the table to get investors’ attention, and they were criticized by long holders as conspiring to make a quick buck by destroying confidence in legitimate companies. What we’re finding today is that analysts from all corners of the market are independently drawing the same conclusions. A number of Chinese companies, brought to market through reverse mergers, are stealing funds from U.S. investors through PIPE transactions and unnecessary public offerings. They sell shares at bargain basement prices while evidence accumulates that the companies’ financial figures are highly inflated.

In this report, we examine China Education Alliance and provide strong evidence that the company is inflating its financial statements. China Education Alliance (CEU) is an online distributor of educational material with a website that fails to work and receives minimal online traffic, company facilities that are empty and unused, egregious shareholder dilution for no sensible purpose, AIC financial statements that don’t match SEC filings, a history of small no- name auditors, and suspiciously unreasonable margins.

Today, CEU trades at a market capitalization of $150 million and its shares are listed on the New York Stock Exchange. In actuality, the stock is worth little more than the $20 million of cash it raised in its 2009 secondary offering, if indeed that cash still resides in the company’s bank account.

We will provide evidence throughout this report that CEU is fabricating its SEC financial statements. Its actual revenue and net income is a small percentage of what it reports in its SEC filings.

The company is mostly a hoax.

The Company

China Education Alliance (“CEU” or the “Company”) claims to be a distributor of “online educational resources through the Internet”. Its main business is the operation of www.edu- chn.com, which it claims is “a comprehensive education network platform which is based on network video technology and large data sources of elementary education resources”. It also claims to provide on-site teaching services at a facility in Harbin and provide vocational services through the website www.360ve.com. The complete list of websites owned by CEU, as determined by their annual report and a visit to their website, are (i) www.edu-chn.com, (ii) www.360ve.com, and (iii) www.pk1234567.com.

The Company went public in December 2004 through a reverse merger with a U.S.-listed legal entity. Since 2004, the company has ostensibly grown revenue from $3.1 million in 2005 to $37.0 million in fiscal year 2009, and net income from $1.7 million in 2005 to $15.2 million in 2009.

Kerrisdale Capital Management, LLC | 20 West 55th Street, 6th Floor | New York, NY 10019 | Tel: 212.792.9148 | Fax: 212.584.8942 2 Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 3 of 50 Page ID #:1692

Below is the company’s historical revenue and operating income according to SEC filings.

$40.0 $37.0 $20.0 $16.2 $30.0 $24.9 $15.0 $10.0 $17.3 $20.0 $10.0 $6.3 $8.3 $2.7 $10.0 $3.1 $5.0 $1.7 $0.0 $0.0 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009 Revenue Operating Income

We will provide evidence that the charts above are fiction.

Website Usability

First and foremost, the website that comprises CEU’s main business is non-functional in numerous ways. An online visitor who reads Chinese can determine this relatively quickly. In this section, we will explain the various ways in which the company’s website does not work, but to better communicate the website’s non-functional aspects, we have put together the following three videos:

Video – Part 1: Core Website Has Non-Functioning Payment System Video – Part 2: Further Website Errors and Comparison with a Comparable Website Video – Part 3: More Broken Links, Irrelevant Content, and a Flaw with CEU’s Business Model

We encourage readers to view all three videos, as they provide compelling evidence that the company’s websites are not functional and merely a façade.

Our first video introduces the website and demonstrates that visitors cannot purchase products from the company’s website, despite the fact that CEU is primarily a provider of online education.

Our second video examines the company’s online educational game website www.pk1234567.com and demonstrates that it neither works nor generates revenue through online payment because the payment options for the game are non-functional. The second video also contrasts www.edu-chn.com with the properly functioning websites of China Distance Education Holdings (DL), and shows how visitors can in fact purchase products from DL’s websites, whereas they cannot from CEU’s websites.

Our third video shows numerous broken links and faulty html on the edu-chn.com website, as well as examples of inappropriate, irrelevant and outdated content. It also explores a fundamental flaw with CEU’s business model: free test papers and examination material are readily available on the web, and it is unclear why students would pay for content, if in fact the site’s payment options were to be functional.

Numerous attempts to purchase products online yielded no success. All payment methods on the company’s websites led to error messages. We had multiple investigators call the phone

Kerrisdale Capital Management, LLC | 20 West 55th Street, 6th Floor | New York, NY 10019 | Tel: 212.792.9148 | Fax: 212.584.8942 3 Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 4 of 50 Page ID #:1693

numbers on the websites to try to purchase products. The numbers either led to recorded messages during business hours or the callers were told that the cards “could only be purchased on site in Heilongjiang”. On several calls, the operators answering the phones were not able to provide any information on where these sites were located, although one operator said that cards are “sold at book stores around schools in Harbin”. The cards could not be purchased over the phone.

Click here for a report from one of our investigators who tried to purchase the company’s products online and over the phone. The investigator is a resident of Harbin.

Seeing that it’s impossible to purchase access to CEU educational materials via the Internet or by phone, we became skeptical that CEU could have a strong enough presence locally in Harbin to generate the revenue reported to the SEC. We hired an investigator to visit bookstores near schools in Harbin to search for these debit cards. Our investigator visited fifteen locations, none of which carried CEU learning cards. Of the fifteen bookstores visited, only two sold learning cards, and neither was for edu-chn.com. One was for a competitor we were not familiar with, www.taiqiedu.com, and the other one was for websites of DL. The other thirteen bookstores did not sell learning cards at all. The addresses and a picture of each visited bookstore can be seen in the PDF linked to below. Our full set of pictures of the bookstores are available at this Flickr account. As a result of our investigation, we do not believe that CEU has a strong enough presence either online or locally in Harbin to generate even a fraction of the revenue reported to the SEC.

Click here for the bookstore addresses and pictures.

To summarize, our investigators could not purchase learning cards on the Internet, over the phone, or in person. Even two independently operating investigators who live in Harbin could not purchase access to CEU course materials. The same is true for pk1234567.com.

These additional errors were encountered while trying to navigate edu-chn.com:  The “Famed Instructors Test Paper Store” and the “Famous Schools’ Test Paper Store” could not be accessed due to an error screen.  The online store (www.edu-chn.com/wssc/index.htm), which appears to sell merchandise unrelated to education, also does not work.  The “Big Classroom of Famous Instructors” did not provide access to tutoring services. After viewing a profile, there is a link providing the company’s main phone line and a QQ messaging link that doesn’t work. The phone number supplied frequently goes unanswered during normal business hours from calls originated in China.  Some free test material was available for download, but it frequently didn’t include answers to sample questions and/or was available on other sites free of formatting issues, leading us to believe that CEU is not the original creator of its free material.  The websites featured irrelevant content – in our third video, we show that the website includes a personals ad by a 52-year old female seeking a husband.  Web pages had stale content that have not been updated since late 2005.

We also question how CEU manages to generate any revenue of significance from selling test papers, given the amount of free content available on various other websites and forums that students and parents can easily access. An example was provided in the third video. For instance, http://sj.smez.net allows registered users to download and access an extensive

Kerrisdale Capital Management, LLC | 20 West 55th Street, 6th Floor | New York, NY 10019 | Tel: 212.792.9148 | Fax: 212.584.8942 4 Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 5 of 50 Page ID #:1694

database of test papers for free. Parents and students should have little incentive to pay for such test papers from CEU.

We also compared the CEU websites to sites operated by comparable companies. We looked at China Distance Education Holding’s chinaacc.com and med66.com, as well as ChinaEdu Corporation’s prcedu.com and chinaedu.com. Please see our investigator’s report on these comparable websites here. Across the board, these comparable sites did require learning cards but had smooth purchasing processes with online payment available. Phoning the company was not necessary to acquire the learning cards, and there were no error screens. Most importantly, we were able to purchase material from every comparable website without a problem, whereas we could not purchase material from any CEU website or by phone.

Additionally, the layout of every site we looked at was more intuitive to use than edu-chn.com.

Despite all of the website shortcomings we detail in this section and in our video, CEU doesn’t seem to be suffering financially, if investors are to believe the company’s SEC filings. We’re confident that those SEC filings are fiction.

In addition to the work that we did ourselves and show in our video, we hired several investigators to put together reports on China Education Alliance’s websites, as well as comparable websites. They are here:

Click here for Report on Learning Cards from Investigator 1 Click here for Website Report from Investigator 2 Click here for Comparable Websites Report from Investigator 2

Website Traffic

A variety of online services monitor visitor traffic to websites and make that information available to the general public. We examined traffic reports from the most popular of these services, Alexa.com, as well as one of the most useful traffic information resources in China, chinarank.org.cn.

Both sites demonstrated low traffic to CEU’s websites. When we compared CEU websites to websites operated by DL and CEDU, we found CEU generates a tiny fraction of its competitors’ traffic, yet reports similar revenue. This is another sign of fraud, consistent with our other findings.

The first screenshot we will show presents the Chinarank data on www.edu-chn.com. Chinarank’s page is in Chinese, but we have pasted below a screenshot of Google’s English translation of the Chinarank results:

Kerrisdale Capital Management, LLC | 20 West 55th Street, 6th Floor | New York, NY 10019 | Tel: 212.792.9148 | Fax: 212.584.8942 5 Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 6 of 50 Page ID #:1695

We see that data exists for edu-chn.com. We can also compare unique visitor data for this website to other CEU sites:

Kerrisdale Capital Management, LLC | 20 West 55th Street, 6th Floor | New York, NY 10019 | Tel: 212.792.9148 | Fax: 212.584.8942 6 Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 7 of 50 Page ID #:1696

What we see above is that edu-chn.com is either the only site that receives traffic or the only site for which data exists. This is not encouraging. While management claims that edu-chn.com is the main web property, we would expect to see some traffic from the others.

Next, we can compare edu-chn.com to some of the sites run by competitors. We’ll start with those for China Distance Education Holdings (DL):

Now things get interesting. In the above graph, we see edu-chn.com in dark blue, barely even registering on the chart. If we added all of the DL web properties together, the comparison would be even more appalling. For reference, according to SEC filings, DL generated $35 million of revenue in the last twelve months compared to $44 million for CEU, despite CEU’s websites generating less than one one-hundredth the traffic of DL’s websites. Based on these charts, we cannot understand how this is possible.

Kerrisdale Capital Management, LLC | 20 West 55th Street, 6th Floor | New York, NY 10019 | Tel: 212.792.9148 | Fax: 212.584.8942 7 Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 8 of 50 Page ID #:1697

CEU compares similarly to the multiple web properties owned by ChinaEdu Corporation (CEDU):

Again, edu-chn.com is in dark blue, and it’s barely perceptible along the bottom of the chart. CEDU generated $58 million of revenue in the last twelve months.

Data offered by Alexa is no better than that offered by chinarank.org.cn. While the data is different, the picture it paints is equally damning. For starters, we’ll look at the data provided by Alexa for the three main CEU websites. Again, we see that only edu-chn.com generates any meaningful volume.

Kerrisdale Capital Management, LLC | 20 West 55th Street, 6th Floor | New York, NY 10019 | Tel: 212.792.9148 | Fax: 212.584.8942 8 Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 9 of 50 Page ID #:1698

Pk1234567.com and 360ve.com hardly register on the chart. Also surprising is the growth pattern of edu-chn.com. In the chart, we see a large jump in traffic in the first quarter of 2010. Yet edu-chn.com was supposedly operational well before 2010. Alexa data is frequently criticized for being easily manipulated. If one believes that Alexa data is easily manipulated, this looks like an egregious example of it. It’s not as if edu-chn.com had been unranked prior to 2010, and then appeared on the chart because it was newly recognized by the database. We can see blips on the “Daily Pageviews” chart throughout 2009. Its 2009 traffic was clearly being recorded by Alexa.

We would not be surprised if CEU management began employing data manipulation practices in early 2010 after investors began inquiring about CEU’s suspiciously low web traffic figures.

Despite potential manipulation, edu-chn.com again looks like a 2nd tier property when compared to DL. The chart below demonstrates that CEU is generating far less traffic than the combined DL web properties:

Kerrisdale Capital Management, LLC | 20 West 55th Street, 6th Floor | New York, NY 10019 | Tel: 212.792.9148 | Fax: 212.584.8942 9 Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 10 of 50 Page ID #:1699

The edu-chn.com website compares more favorably against CEDU’s websites in periods after the first quarter of 2010. But again, we believe that the company’s Alexa traffic for 2010 has been artificially inflated through various traffic-inflation methods. In prior periods, CEU’s website shows far less traffic than CEDU’s sites.

Kerrisdale Capital Management, LLC | 20 West 55th Street, 6th Floor | New York, NY 10019 | Tel: 212.792.9148 | Fax: 212.584.8942 10 Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 11 of 50 Page ID #:1700

The Training Facility

The Heilongjiang Zhonghe Education Training Center is located at Building 39, High & New Technology Developing Zone, Sidao Street, Qianshan Road, Nangang District, Harbin, Postcode: 150080. This information can be found in exhibit 10.4 in the 10KSB filed in 2006.

The company has not moved its location since 2006. Here is disclosure from its 2006, 2007, 2008 and 2009 10Ks about the training center. As we can see, the company has described the training center as having “17 modern classrooms that has a capacity for 1,200 students” since its inception, and refers to it by the name “Heilongjiang Zhonghe Education Training Center”. Throughout SEC filings and in MD&A, the company consistently refers to a single training center that began operations in 2006.

According to documents filed with the SEC, in 2009 this 36,600 square foot facility generated $12.1 million of revenue at a 78.8% gross margin. Management, however, has claimed in conferences that this facility is only responsible for approximately 60% of segment revenue, with the other 40% coming from smaller satellite facilities. These claims conflict with disclosures in SEC filings, but even if we assume that only 60% of the segment’s revenue comes from the Heilongjiang Zhonghe Education Training Center, that’s gross income of $156 per square foot. Average rent for Class A office space in Manhattan is $71 per square foot per year. This amazing profitability is something we needed to understand better, so we hired an investigator to visit the school. We found that if CEU is able to generate $156 per square foot, they apparently don’t even need furniture to do it.

Our investigator took more than 45 photos, as well as video footage. What we found was a vacant, unfurnished building, with little sign of use. We have created a video that features our investigator’s photos and video footage, as well as general evidence for why the company’s training center is a façade.

Click here for our video on the training facility

The building is located inside an industrial park in Harbin. We have listed the English address above, and when translated into Chinese, it’s:

豘霁ୈ網Ⓖ ቫ඙ୈ詍芄罫ୈ艏纊竡ୈ簙萿絛ᴃᓔথ඙ୈ39ภᭈୈ䚂袚㓪ⷕ150080

A Google Maps search for “Heilongjiang Zhonghe Education Training Center” directs us to the page shown below:

Kerrisdale Capital Management, LLC | 20 West 55th Street, 6th Floor | New York, NY 10019 | Tel: 212.792.9148 | Fax: 212.584.8942 11 Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 12 of 50 Page ID #:1701

The above location is from Google Satellite. Here is a Google Maps depiction showing the relevant cross streets of the training center.

Kerrisdale Capital Management, LLC | 20 West 55th Street, 6th Floor | New York, NY 10019 | Tel: 212.792.9148 | Fax: 212.584.8942 12 Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 13 of 50 Page ID #:1702

As we can see, the location of the listed center is on Qianshan Road, matching what the company reported in its SEC filings. Note that Google Maps is providing the specific address of the building, while the SEC disclosure referred to the building’s location within the industrial park.

Below is an enlarged picture of the building’s front in Google Maps, which matches pictures taken by our investigator (but which was clearly taken at a different time):

Kerrisdale Capital Management, LLC | 20 West 55th Street, 6th Floor | New York, NY 10019 | Tel: 212.792.9148 | Fax: 212.584.8942 13 Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 14 of 50 Page ID #:1703

Compare this to the building front taken by our investigator:

It is the same building. We’re confident that we have the correct location, and would welcome the company to provide us another “Building 39, High & New Technology Developing Zone, Sidao Street, Qianshan Road, Nangang District, Harbin, Postcode 150080”.

Kerrisdale Capital Management, LLC | 20 West 55th Street, 6th Floor | New York, NY 10019 | Tel: 212.792.9148 | Fax: 212.584.8942 14 Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 15 of 50 Page ID #:1704

Here is an on-site map of the High & New Technology Developing Zone:

The title of the map is જᇨⒼ催ᮄऎफቫ䲚Ёऎᑇ䴶೒, which translates to “Layout of High & New Technology Developing Zone, Nangang District, Harbin”. We have circled building #39.

Here is a closeup of the address:

Kerrisdale Capital Management, LLC | 20 West 55th Street, 6th Floor | New York, NY 10019 | Tel: 212.792.9148 | Fax: 212.584.8942 15 Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 16 of 50 Page ID #:1705

The address sign says: જ催ᮄᓔথऎˈোὐ. In English, that translates to “Harbin High & New Technology Zone, Building No. 39”.

The building appears to be six stories, based on views of the building from the outside. The floor plans are similar for all the floors, and this is our investigator’s rendition of the layout for each floor.

Some of the space is occupied by offices, though most of the space is completely empty. In our video, you can see just how empty the building is. Our full set of pictures is available on Flickr at this link.

Kerrisdale Capital Management, LLC | 20 West 55th Street, 6th Floor | New York, NY 10019 | Tel: 212.792.9148 | Fax: 212.584.8942 16 Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 17 of 50 Page ID #:1706

Floor 1:

Floor 2:

Kerrisdale Capital Management, LLC | 20 West 55th Street, 6th Floor | New York, NY 10019 | Tel: 212.792.9148 | Fax: 212.584.8942 17 Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 18 of 50 Page ID #:1707

Floor 3:

Floor 4:

Kerrisdale Capital Management, LLC | 20 West 55th Street, 6th Floor | New York, NY 10019 | Tel: 212.792.9148 | Fax: 212.584.8942 18 Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 19 of 50 Page ID #:1708

Floor 5:

Floor 6:

Kerrisdale Capital Management, LLC | 20 West 55th Street, 6th Floor | New York, NY 10019 | Tel: 212.792.9148 | Fax: 212.584.8942 19 Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 20 of 50 Page ID #:1709

As our pictures and video demonstrate, the Heilongjiang Zhonghe Education Training Center is an empty, unfurnished and unused building. The company has not made any disclosures that it has moved into a new facility, and its most recent quarterly report implies that the training center is fully operating. In conferences and investor discussions, the chief financial officer has stated that the training center remains at the same location as the one originally set up in 2005. He has said that it is highly profitable and operating at full capacity. We believe this to be false.

Financial Comparison

Given the faulty website and the empty training facility, it remains impossible for us to understand how this business generates the same revenue, better margins, and higher earnings than its competitors with functional websites, national scopes, and utilized training facilities. We compared CEU to DL, CEDU, and ChinaCast Education Corporation (CAST). We chose not to look at New Oriental Education & Technology Group (EDU) because we believe it is a fundamentally different business with a larger scale, but we do note that it has much lower margins than CEU. We also include the numbers for the Princeton Review (REVU), a popular US test-prep company with which US investors should be familiar. Its use as a comparison company may be limited, but we will let readers weigh the evidence on their own.

We’ll start by showing readers the numbers as of June 30, 2010, and then we’ll discuss some of the differences between CEU and its competitors.

(units: $US in millions) Company CEU DL CEDU CAST REVU Revenue $ 40.1 $ 33.6 $ 54.7 $60.7 $ 186.6 Gross Margin 82.0% 53.1% 62.7% 54.5% 62.8% EBIT Margin 44.1% 4.4% 23.6% 36.8% -13.3%

CEU – Manages the websites discussed above, with a supposed regional focus in Harbin, the greater Heilongjiang area, and the surrounding provinces. The distribution of online materials accounted for $22 million of revenue in 2009 at a 79% gross margin. A 36,600 square foot facility with 17 classrooms also contributed $12 million of revenue at a 79% gross margin.

DL – Manages a total of 14 websites “each dedicated to a specific industry, profession, or subject area, and accessible from our portal website”. In 2009, DL reported 1,071,000 enrollments. This compares to the 600,000 students CEU reportedly served as per its August 2010 investor presentation. Online education courses accounted for 74.0% of revenues in 2009, with the rest coming from the sales of books and reference materials and, to a lesser extent, offline courses.

CEDU – Manages online degree programs (80% of revenue), online tutoring (6%), private schools (9%), and an international curriculum (5%). The business model revolves around partnering with universities to provide online degrees, recruitment services, and student services. The online tutoring program for K-12 students is proclaimed to be China’s largest, with 500 branches in 30 provinces, but only 50,000 paying students. The private schools include two completed facilities enrolling a combined 4,900 students. Given that CEDU’s private schools generate revenue of $4.9 million, it is difficult to understand how the Harbin training facility with 17 classrooms run by CEU could generate $12.1 million. This is particularly the case in light of our visit to the training facility, which was barren of desks and furniture.

Kerrisdale Capital Management, LLC | 20 West 55th Street, 6th Floor | New York, NY 10019 | Tel: 212.792.9148 | Fax: 212.584.8942 20 Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 21 of 50 Page ID #:1710

CAST – A post-secondary education company managing three private universities with 30,000 students and 6.5 million square feet of space generating $32 million of revenue. It also provides e-learning services to 141,000 students, a teacher training program, and a vocational network generating $29 million of revenue.

REVU – Most U.S. citizens are likely familiar with the Princeton Review. REVU also owns Penn Foster which provides online degree, diploma, and certificate programs to 207,000 students in vocational, college, and high school programs. The traditional Princeton Review is only responsible for $111 million of revenue. Knowing how popular these courses are in the U.S., and knowing how much they cost, we have a lot of trouble believing that a non-functional K-12 website targeting students in a handful of Chinese provinces could generate $22 million. We also have trouble believing the growth numbers.

The AIC Filings

CEU’s locally filed financial statements in China do not match its SEC financial statements. These local financial statements, which CEU must file with the Harbin branch of the Administration for Industry and Commerce (“AIC”), show that the online business generated revenue of less than $1 million in 2008. This corroborates our belief that CEU is mostly a hoax. We believe that the company is providing accurate financial statements to its own government, but is providing fraudulent numbers to U.S. investors and the U.S. Securities and Exchange Commission. 2008 was the most recent year for which we could access filings, as of our last inquiry on November 15.

Below are photocopies of the company’s AIC filings for 2008, 2007 and 2006 for CEU’s main operational subsidiary, Harbin Zhong He Li Da Education Technology, Inc. We provide filings in their original Chinese, as well as English translations of those filings.

AIC Reports: 2008 AIC Filings in Original Chinese 2008 AIC Filings in English Translation 2007 AIC Filings in Original Chinese 2007 AIC Filings in English Translation 2006 AIC Filings in Original Chinese 2006 AIC Filings in English Translation

For those new to the U.S.-listed Chinese reverse merger space, all Chinese companies are required to file financial statements with the Chinese government. Specifically, they must file financial statements with their local branch of the State Administration for Industry and Commerce (“SAIC”). The SAIC is the Chinese government body that regulates industry and commerce in China. Its provisions are executed by local county branches.

Information filed with AIC branches includes organizational bylaws/minutes; capital infusion/withdrawal data; the approved business description; information on business licenses; land use rights; property leases; applications to form companies, with personal information on the applying shareholders; the legal representatives; tax data; and annual financial statements.

Kerrisdale Capital Management, LLC | 20 West 55th Street, 6th Floor | New York, NY 10019 | Tel: 212.792.9148 | Fax: 212.584.8942 21 Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 22 of 50 Page ID #:1711

Below, we have pasted the organizational structure for CEU as of 12-31-09. The same organizational structure can be found in the company’s 2009 10K here, and we have rearranged it so it can be legibly shown below in our report.

China Education Alliance Legal Organizational Structure

70% China Education Alliance Inc. World Exchange Inc. Foreign PRC Harbin Zhong He Li Da Beijing Wei Shi Yi Tong Education Technology, Inc. Education Technology Co. Inc.

100% Heilongjiang Zhonghe Education Training Center

70% Beijing Hua Yu Hui Zhong Technology Development Cop. Ltd.

49% Harbin New Discovery Media Co.

85% Zhong He Li Da (Beijing) Management Consultant Co. Ltd

65% Beijing New Shifan Education & Technology Co. Ltd

Chinese GAAP does not consolidate subsidiaries, and it is therefore important for us to explain why we only use the AIC filings of Harbin Zhong He Li Da Education Technology, Inc. (“ZHLD”) to demonstrate that the company’s AIC filings show a business far smaller than what SEC financials indicate.

Harbin Zhong He Li Da Education Technology, Inc. generates more than 65% of CEU’s revenue and gross profit according to SEC filings. The Heilongjiang Zhonghe Education Training Center generates 30% of revenue and gross profit according to SEC filings. The remaining subsidiaries generate minimal revenue and can be ignored. We provide reasons below:

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Name of Subsidiaries Rationale for Why Subsidiar(ies) Are Not Material

World Exchange Inc. and These two subsidiaries have not been consolidated into 2009 Beijing Wei Shi Yi Tong SEC financial statements because the acquisition was Education Technology Co. Inc. cancelled on September 20, 2010 and 400,000 shares were returned to CEU for cancellation.

Beijing Hua Yu Hui Zhong Formed on September 30, 2006 and then transferred in part Technology Development Co., (30%) to the National Vocational Education Association of Ltd (BHYHZ). China for no consideration. It provides information regarding vocation training schools. The language in SEC filings describing this segment implies that it is not yet fully established – the company says that “we are in the process of introducing new services…” and “the core business for our vocation education will be in three main areas…”

Harbin New Discovery Media This is a joint venture entered into with the Harbin Daily Co. Newspaper Group on April 18, 2008, in which ZHLD contributed $430k and the newspaper group contributed $445k. This segment publishes a scientific newspaper. It’s likely too small to generate meaningful revenue for CEU.

Zhong He Li Da (Beijing) This is a joint venture entered into with Mr. Guang Li on Management Consultant Co., January 4, 2009, in which ZHLD contributed $62,107 and Li Ltd. contributed $10,960. According to SEC filings, this subsidiary “will be involved in the vocational training business, [and] in particular, in running the ‘Million Managers Training Program’.” It’s likely not yet a material revenue contributor.

Beijing New Shifan Education Incorporated in February 2010, this subsidiary acquired assets & Technology of another company for RMB 6 million (approx. $900k). It publishes a magazine and manages a nationwide contest.

Interestingly, the only website which we found to be reasonably functional, www.360ve.com, is admittedly not generating any earnings.

We can conclude that the main revenue-generating subsidiaries are (i) Harbin Zhong He Li Da Education Technology, Inc. and (ii) Heilongjiang Zhonghe Education Training Center. The training center presumably generates the training center-related revenue and profit, while Harbin Zhong He Li Da Education Technology, Inc. generates the remaining revenue and profit.

According to SEC filings, the “Online Education” segment generated $22.2 million at 79.4% gross margins; “Training Center” generated $12.1 million of revenue in 2009 at 78.8% gross margins; and “Advertising Revenue” accounted for $2.6 million at 92.0% gross margins. For 2008, “Online Education” generated $16.7 million at 82.9% gross margins; “Training Center” generated $5.6 million of revenue at 65.4% gross margins; and “Advertising Revenue” accounted for $2.6 million at 93.0% gross margins.

Kerrisdale Capital Management, LLC | 20 West 55th Street, 6th Floor | New York, NY 10019 | Tel: 212.792.9148 | Fax: 212.584.8942 23 Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 24 of 50 Page ID #:1713

Therefore, we should expect the 2008 AIC filings of Harbin Zhong He Li Da Education Technology, Inc. to show at least $16 million of revenue and $13 million of gross profit.

What we find is quite different. We have provided the original and translated AIC filings at the beginning of this section. A comparison of SEC and AIC financial figures is below:

A Comparison of SEC and SAIC Filings for China Education Alliance

(Units are in dollars, using average annual RMB/USD exchange rates)

From SEC Filings 2006 2007 2008 Revenue (excluding training center) $6,620,519 $13,623,707 $19,298,048 Gross Profit (excluding training center) $4,854,077 $11,229,762 $16,255,950

Total Revenue $8,324,473 $17,323,534 $24,851,017 Total Gross Profit $5,760,583 $13,782,225 $19,886,078 Total Net Income $2,624,660 $3,104,907 $9,918,536 Total Assets $9,277,646 $20,310,653 $35,741,915

From AIC Filings 2006 2007 2008 Revenue $54,500 $23,598 $612,869 Gross Profit -$7,959 -$106,712 $495,235 Income from Operations -$107,131 -$423,788 -$69,010 Net Income -$144,572 -$415,926 $17,340 Total Assets $1,447,938 $2,256,720 $4,038,409

We believe that the AIC filings, which represent the financial information that management submits annually to its own government, demonstrate the real revenue at the main operational subsidiary of China Education Alliance. This real revenue for 2008 was less than $1 million.

Interest Income

As distorted as the income statement is, the balance sheet is just as bad. It presents another red flag that emerges in many fraudulent U.S.-listed Chinese companies. Despite large purported cash balances, frauds routinely report miniscule interest income. From December 31, 2009 to June 30, 2010, CEU grew its cash balance from $65 million to $76 million. However, over the same six month period, CEU only generated interest income of $97,535. Annualized, that’s interest income of only 0.28%. Over the 12 months ended June 30, 2010, CEU had an average cash balance of $53 million, from which the company earned just $180,000, or 0.34%.

We are faced with two scenarios: management either eagerly diluted shareholders only to hold the newly raised cash in non-interest bearing accounts, or is fabricating the $76 million balance. We’re confident that the second scenario is true. The $76 million of cash reported in the company’s SEC filings is fiction.

Kerrisdale Capital Management, LLC | 20 West 55th Street, 6th Floor | New York, NY 10019 | Tel: 212.792.9148 | Fax: 212.584.8942 24 Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 25 of 50 Page ID #:1714

Comparing the CEU cash yield to comparable companies’ makes the problem a little more obvious:

Company CEU DL CEDU CAST REVU Cash & Equivalents $46.874.7 $ $49.1 $12.1 156.9 $ Interest Yield 0.2% 0.9% 1.4% 0.9% 0.1%

In the table above, we used the cash balance as of June 30, 2010 and the interest income during the twelve months ended June 30, 2010.

Low Quality Auditors & High Auditor / CFO Turnover

Low quality auditors and high auditor turnover are telltale signs of trouble. Repeated changes in auditors should be looked at with suspicion, especially considering all of the other red flags that we have identified in this report.

Here is a chart documenting the company’s history of auditors:

Date Name Comments 2009-Present: Sherb & Co. Last PCAOB audit was in 2007 and showed 6 partners, 17 staff members, and 73 issuer clients

2006-2008: Murrell, Hall, McIntosh & Co. Last PCAOB audit was in 2006 and showed 9 partners, 45 staff members, and 16 issuer clients

2005: e-Fang Accountancy Corp. Last PCAOB audit was in 2010 and showed 2 partners, 3 staff members, and no issuer clients

2004: Jimmy C.H. Cheung & Co. Last PCAOB audit was in 2009 and showed 1 partner, 26 staff members, and 8 issuer clients

None of the above auditors are considered top 100 accounting firms, and all are small, non- reputable firms. CEU’s longest auditor relationship lasted 3 years. Why would management need a new accounting firm of subpar quality every few years?

Kerrisdale Capital Management, LLC | 20 West 55th Street, 6th Floor | New York, NY 10019 | Tel: 212.792.9148 | Fax: 212.584.8942 25 Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 26 of 50 Page ID #:1715

Below is a table outlining the company’s history of chief financial officers:

Date Name Comments August 2009 - Zibing Pan Previous experience as audit manager Present: at EideBailly. Pan is a CPA and has an MBA from the University of Central Oklahoma.

June 2008 - Susan Liu Previous experience as CFO at Entech August 2009: Environmental (now SkyPeople Fruit Juice, trades at 5x earnings) for less than a year and Hendrx Corp (shares traded over $5 in 2005, now at less than $0.01) for less than a year.

2004 - June Chunqing Wang Served as CFO of Harbin Tian Run 2008: Group from 1990 through 2004. Was previously a planning department head at the Harbin Bureau of Finance. Graduate in industrial accounting from the Harbin College of Economic Carde Management.

The qualifications of the current and past chief financial officers do not give investors any further comfort. Another troubling sign is the turnover subsequent to 2008, when the first non-Harbin, or outsider, chief financial officer was hired.

Stock Offering

Fraudsters don’t perpetuate a fraud for fun – they keep the machine running to steal cash in share offerings. This is how frauds make money. At the end of 2008, CEU supposedly had $23 million of cash on its balance sheet. Despite generating $15 million of net income and $19 million operating cash flow in 2009, the company decided to raise an additional $18 million by issuing new shares and an additional $6 million from exercising warrants. The commitment was made on September 29, 2009, to sell 3,162,055 shares at $5.50 per share. The Company received $5.17 per share, after underwriting fees. Compared to earnings per share of $0.63 in 2009, this represented a P/E of 8.2x. The transaction increased the basic share count by 11.7%. On May 12, management stated “We expect 30 percent revenue growth for the full year 2010”. This means management raised capital via a secondary offering at a forward 2010 earnings multiple of 6.3x earnings.

Selling shares could be reasonable if management needed the cash to profitably grow the business. But they have neither utilized this capital nor explained how they will do so. The newly raised cash sits in a bank (supposedly), earning minimal interest. As of today, less than $1 million has been spent on a single acquisition, and $3 million has been allocated for 6 new learning centers in Beijing.

Kerrisdale Capital Management, LLC | 20 West 55th Street, 6th Floor | New York, NY 10019 | Tel: 212.792.9148 | Fax: 212.584.8942 26 Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 27 of 50 Page ID #:1716

The icing on the cake is that on October 27, 2010, CEU released an amendment to its annual report. One of the key changes was made to the “Liquidity and Capital Resources” section, which has been changed to read as follows (emphasis added):

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.

To repeat: this is how frauds steal money from foreign investors and this is why management continues to perpetuate the fraud.

Promotion Sickness

As a final point, we would like to highlight CEU’s aggressive marketing campaign in 2010, as disclosed by press releases from the company denoting conferences that CEU has attended in the past year. This is not evidence for fraud, but worth looking at for anyone who is interested in understanding how these frauds operate. Since the start of 2010, CEU has participated in the following conferences:

 November 2010 – New York - Brean Murray, Carret & Co. 2010 China Growth Conference  September 2010 – New York - Rodman & Renshaw Annual Investment Conference  July 2010 – San Francisco - Global Hunter Securities China Conference  May 2010 – New York - Piper Jaffray China Growth Conference  April 2010 – RedChip Small-Cap Equities Virtual Conference  March 2010 – California - 22nd Annual OC Growth Stock Conference  March 2010 – Beijing - Rodman & Renshaw China Investment Conference  January 2010 – New York - Cowen & Company 8th Annual Consumer Conference

With a tour like this, there can be little doubt that management is doing all they can to “get the story out”. Any institutional asset manager, hedge fund, or investor interested in this space has undoubtedly been exposed to CEU. Yet the stock still trades at less than 10x earnings. It is no coincidence that many institutional investors have decided against investing in CEU’s stock. They merely need to hire a Chinese speaker for one hour to investigate the company’s website in order to recognize that the company is a fraud.

Kerrisdale Capital Management, LLC | 20 West 55th Street, 6th Floor | New York, NY 10019 | Tel: 212.792.9148 | Fax: 212.584.8942 27 Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 28 of 50 Page ID #:1717

Conclusion

It is difficult to believe that this company is valued at $150 million. It is an even sadder state of affairs that the company is listed on the New York Stock Exchange. There are dozens of red flags, any one of which should scare investors away. To recap, here are glaring issues:

1) The company’s main revenue-generating website does not have a functioning payment system. Its online and mobile payment methods lead to error screens. One cannot purchase their products by calling them over the phone. Our investigators could not find their learning cards at any Harbin bookstores, despite visiting 15 locations.

2) The company’s sites feature a multitude of error screens, broken links, faulty HTML, irrelevant content and outdated material.

3) The website receives minimal traffic. Data sources show either little volume or suspicious traffic growth, or both.

4) Comparable online education websites in China have properly functioning payment systems, no broken links, and a cleaner and more intuitive layout. Yet investors are to believe that CEU’s faulty website with a geographic scope limited to Harbin is generating the same revenue and better margins than functioning websites with a national scope.

5) The training facility is supposedly generating outsize profits and margins, despite the fact that it is empty and unfurnished.

6) AIC financial statements filed in China for the online business (ie. excluding the training center segment) showed revenue of less than $1 million in 2008. We believe that companies report accurate financial figures to their own government, whereas they report fabricated financial figures to the U.S. government and U.S. investors.

7) The company generates suspiciously low interest income off of its ostensibly large cash balance. We believe that most of this cash does not exist.

8) 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.

9) The company raised cash at a discount to its stock price at the time of its equity offering and has done nothing with that cash. It already supposedly had $38 million of cash on its balance sheet prior to its unnecessary capital raise.

Kerrisdale Capital Management, LLC | 20 West 55th Street, 6th Floor | New York, NY 10019 | Tel: 212.792.9148 | Fax: 212.584.8942 28 Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 29 of 50 Page ID #:1718

TABLE OF LINKS CITED BY REPORT Page(s) Link 4,5 http://kerrisdalecap.com/wpcontent/uploads/2010/11/DebitCardsReport.pdf 4 http://kerrisdalecap.com/wpcontent/uploads/2010/11/BookstoreAddresses.pdf 5 http://kerrisdalecap.com/wpcontent/uploads/2010/11/CompetitorReport.pdf 5 http://kerrisdalecap.com/wpcontent/uploads/2010/11/WebsiteReport.pdf 21 AICFilings http://kerrisdalecap.com/wpcontent/uploads/2010/11/2008AnnualMaterials.pdf http://kerrisdalecap.com/wpcontent/uploads/2010/11/2008AnnualTranslation.pdf http://kerrisdalecap.com/wpcontent/uploads/2010/11/2007AnnualMaterials.pdf http://kerrisdalecap.com/wpcontent/uploads/2010/11/2007AnnualTranslation.pdf http://kerrisdalecap.com/wpcontent/uploads/2010/11/2006AnnualMaterials.pdf http://kerrisdalecap.com/wpcontent/uploads/2010/11/2006AnnualTranslation.pdf 25 http://insidepublicaccounting.com/PDF/top100_2009.pdf Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 30 of 50 Page ID #:1719

Link: http://kerrisdalecap.com/wp- content/uploads/2010/11/Debit-Cards-Report.pdf

Page(s) Cited: 4, 5 Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 31 of 50 Page ID #:1720

Note: We hired a Chinese-speaking investigator to examine the edu-chn.com website, with an emphasis on: (i) having him try to pay for products and (ii) calling the phone numbers listed on the website in order to determine where he can buy a debit card (which the company also calls “learning cards”) to purchase products. Below is our investigator’s report:

Report on the debit cards / learning cards

There is no relevant information about the learning card on the CEU website, so I’m trying to buy it online. CEU recommends the following methods:

1. E-bank - I’ve tried the e-bank payment methods and found them non-functional. As far as I can tell, this website is misleading customers and actually not providing the e-banking option. Generally, an e-bank provides customers with a plug-in that transfers customers to the bank’s website, featuring a consistent look to assure safety for online buyers in China. Moreover, an e-bank’s webpage typically reminds visitors to install its plug-in to prevent viruses and Trojan horses. However, CEU doesn’t adopt any plug-in and just provides several welcome pages instead. It guides me to enter the amount of money for my account and password. Then, I am guided to click the button “continue”. Consequently, the link leads to an error page.

2. Mobile-phone payment - I've tried to pay by mobile phone and met the same problem. During processing, I’m led to the following message when I get to the last step:

INDUSTRIAL AND COMMERCIAL BANK OF CHINA Order payment service

Error description Information code: 96111056 Message: Sorry! The system reports an error and please try again later. Record the error code and contact the bank if you fail again.

Go back

Please contact us at [email protected] All rights reserved by Industrial and Commercial Bank of China Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 32 of 50 Page ID #:1721

The URL is supposed to have the same domain name (icbc.com) as Industrial and Commercial Bank of China (ICBC). It is impossible to have an IP not from ICBC. I think the designer of this website has imitated and copied the ICBC webpage to its own website, misleading customers to believe that the problem lies at the bank, instead of at the edu-chn.com website.

3. To gain more information about the learning card, I dialed three numbers listed in this website:

87000663 - I dialed this number and heard a recorded female voice, saying it was a switchboard number and I should dial 0 and then the extension number. Three seconds after her tone was over, the call was cut off. I had no chance to enter any number. I can see that there’s only a message that left short waiting time without an extension number. It’s a sham.

82335792 - I dialed this number and heard the same voice. Unlike typical call centers, she didn’t introduce her own company or ask whether I need any service. Instead, she just said “Hello”. I asked if that was CEU, she hesitated for a while and then said she would ask someone else to answer my phone call. A few seconds later, the phone was hung up.

82335794 - I dialed this number and heard the same voice. I asked, “Is the online payment system under development or is there a problem with it? Does CEU provide any other payment method?” “This is the fax room,” she answered, “Our technical support will answer your questions.” “How should I contact your support?” I asked. Then, she asked me to leave my number and said she would call me later after consulting their technician. She neither forwarded me to someone else nor provided the technician’s number. After that, I didn’t receive any call from her. Despite being a call center, they don’t even have caller ID.

4. After the above steps, no more investigation can be done on the learning cards. The website is concealing the truth. Unfortunately, I can gain no more information about it. Nothing else can be found on the website to help me acquire learning cards.

5. Others points to note: - Besides payment, there are many other problems with the website. There is a module called Entrepreneurship on the website that is designed to help students start a business. Clicking it, I see many resumes applying for jobs on this website. But I can easily figure out that all of them are fake after reviewing them carefully. All resumes provided are consistent in form and style, and strangely enough, all of them have listed applicants’ personal websites, which is rarely seen in China. I’ve browsed these websites, and found that they are just empty blogs. - Instructional resources that can be freely downloaded from the website are available to download from other well-known websites in China. - No news published on the website is original. - The website is poorly designed with respect to content and formatting.

6. I have seen no evidence that this is a properly functioning website. Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 33 of 50 Page ID #:1722

Link: http://kerrisdalecap.com/wp- content/uploads/2010/11/Bookstore-Addresses.pdf

Page(s) Cited: 4 Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 34 of 50 Page ID #:1723

Note: We hired a Chinese-speaking investigator to visit 15 bookstores in Harbin to try to locate the company’s debit cards, which are also called “learning cards”. Our investigator called the phone numbers on the www.edu-chn.com website to ask which bookstores he could visit to locate the cards. The operator responded that the employee who knew about the bookstore locations was not available. As a result, our investigator visited 15 bookstores at random, with an emphasis on larger bookstores, in order to locate the learning cards. No learning cards for www.edu-chn.com could be found. A learning card for www.taiqiedu.com and for the websites of China Distance Online Education were located, but none for any of China Education Alliance’s websites.

Below is the list of bookstores that were visited.

1) Name: Jinghua Bookstore Address: No.29 Xuefu road, Nangang district, Harbin

Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 35 of 50 Page ID #:1724

2) Name: Harbin Xuefu Book mall Address: No.66 Xuefu road, Nangang district, Harbin

3) Name: Harbin Xizhi Bookstore Address: No. ** West strait Road, Nangang district, Harbin

Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 36 of 50 Page ID #:1725

4) Name: Huiwen Bookstore Address: Cross of Hexing Road and zhongxing road, Nangang district, Harbin

5) Name: China Post Bookstore – nangang branch Address: Cross of Guogeli street and Dongdazhi Street, Nangang district, Harbin

Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 37 of 50 Page ID #:1726

6) Name: Xinhua Bookstore – Guogeli street branch Address: No.366 Guogeli Street, Nangang district, Harbin

7) Name: Harbin central Bookstore Address: No.116 Central Street, Daoli district, Harbin

Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 38 of 50 Page ID #:1727

8) Name: Education Bookstore Address: No.120 Central Street, Daoli district, Harbin

9) Name: Huiwen Bookstore flagship shop Address: No.98 Binjiang Street, Daowai district, Harbin

Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 39 of 50 Page ID #:1728

10) Name: Nanji Bookstore Address: No.100 Binjiang Street, Daowai district, Harbin

11) Name: China Post Bookstore – Central branch Address: No.133 Xidazhi Street, Nangang district, Harbin

Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 40 of 50 Page ID #:1729

12) Name: Huiwen Bookstore - Guogeli branch Address: Cross of Guogeli street and Hegou Street, Nangang district, Harbin

13) Name: Xinhua Bookstore - head office Address: No.179 Diduan Street, Daoli district, Harbin

Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 41 of 50 Page ID #:1730

14) Name: Xinhua Bookstore - Taiping Branch Address: Cross of Nanzhi and Dongzhi Road, Daowai district, Harbin

15) Name: Linghang Bookstore Address: In the middle of Jianxing Street, Nangang district, Harbin

Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 42 of 50 Page ID #:1731

Link: http://kerrisdalecap.com/wp- content/uploads/2010/11/Competitor-Report.pdf

Page(s) Cited: 5 Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 43 of 50 Page ID #:1732

Note: We hired a Chinese-speaking investigator to examine other online education websites in competitors, with an emphasis on online education websites owned by U.S.-listed public Chinese companies. We looked at China Distance Education Holding’s chinaacc.com and med66.com, and ChinaEdu Corporation’s prcedu.com and chinaedu.com.

Legend: BLACK – Our Questions BLUE – Investigator’s Answers

CEU Competitor Analysis

The purpose of this analysis is to compare www.edu-chn.com to some of its primary competitors. We want to determine if other companies in the online education business are marketing their materials in a way that is significantly different from CEU.

Website #1 b www.chinaacc.com

This website is managed by China Distance Education Holdings, and it’s focused on accounting students.

1) Please explore the website and comment on the layout and what products appear to be offered for sale. The layout is simple and clear and thus visitors can find whatever information very easily. The site has a great number of online tutoring services and accounting coursewares for sale, learning cards sold on site and an online book store selling accounting related books. 2) Aside from the fact that this website focuses on accounting, please discuss how this website differs from CEU. Is the layout more intuitive? Are there similar advertisements? How easy or difficult is it to find valuable information? Its layout is more intuitive than www.edu-chn.com, but as intuitive as 360ve. No advertisements of other companies or schools can be found on the site. Yes, very easy. Various online tutoring courses, free exercises (to be published when the new teaching plan is released), famous instructors, latest news, as well as sales offices of learning offices in the country can be found easily. 3) Please search for any sections of the website that might contain a courseware or test material store. What sort of products are available, what are the price ranges, and is it easy to search for valuable information? http://www.chinaacc.com/wangxiao/kjgx/kjgx 01.htm is the place where the courses are located. Online tutoring services contain online courseware (video and audio), exercises, answering questions online for 24 hours, download of courseware and exercises, etc. The coursewares on the site are only concerning accounting, including Certified Public Accountants, Senior Public Accountants, Junior Economist, Intermediate Economist, Intermediate Auditor, AICPA Tutoring, ACCA Tutoring, and so on. Click http://member.chinaacc.com/selectcourse/center.shtm and you will see all the courses listed on the left. Then click a specific course, and the information about the course including prices for different locations are shown before your eyes. Prices Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 44 of 50 Page ID #:1733

vary for different courses and please see http://member.chinaacc.com/selectcourse/custom/custom kjcy.shtm?param=21. 4) Please select one or two products to purchase and purchase them. Comment on any difficulty you have in the purchase process. Were you able to make a purchase online? Did you have to call someone? Are there learning cards that need to be filled with money? Please include screenshots of any error screens. The purchase process goes smoothly. Yes, online payment is available. No, not necessary. Yes, the learning cards need to be filled with money, which can be achieved online. No errors. 5) Are the materials you purchased of high quality? How does the quality compare to the free material from CEU? Are answers included? These lessons offer listening test. Would you still like me to purchase for you? 6) Are there any other sections that offer products for sale? Are there tutoring services, books, or online games for children? If so, please work through the procedure to make a purchase and comment on your findings. In addition to online tutoring services and accounting coursewares for sale, the site also has learning cards sold on site and an online book store selling accounting related books. Please visit its online shop http://member.chinaacc.com/shop/. The payment can be made via post office, banks, online bank or Alipay or learning card, very convenient. The payment process goes smoothly. 7) Was there anything else unusual about the experience? Overall how does this website compare to CEU. Since the site is just concerning accounting, its contents are more specific, covering state and local accounting policies, latest news about main examinations, practive advisory, etc. Its learning cards can be purchased in many provinces and areas of China and its online courseware are provided with listening test. In addition, an online school survey is provided to gather feedbacks from students and learning experience of students are shown on the homepage. Discounts are given to users who buy certain amounts.

Website #2 b www.med66.com

This website is managed by China Distance Education Holdings, and it’s focused on healthcare students.

8) Please explore the website and comment on the layout and what products appear to be offered for sale. The layout is simple and clear and thus visitors can find whatever information very easily. The site has a great number of online tutoring services and medical coursewares for sale, learning cards sold on site and an online book store selling medical related books. 9) Aside from the fact that this website focuses on medicine, please discuss how this website differs from CEU. Is the layout more intuitive? Are there similar advertisements? How easy or difficult is it to find valuable information? Its layout is more intuitive than www.edu-chn.com, but as intuitive as 360ve. Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 45 of 50 Page ID #:1734

No advertisements of other companies or schools can be found on the site. Yes, very easy. Various online tutoring courses, famous instructors, latest medical news, information of examinations as well as sales offices of learning offices in the country can be found easily. 10) Please search for any sections of the website that might contain a courseware or test material store. What sort of products are available, what are the price ranges, and is it easy to search for valuable information? http://www.med66.com/asp/login/kcsq.asp is the place where the courses are located. Online tutoring services contain online courseware (video and audio), exercises, irregularly answering questions online, mock examinations, download of courseware and exercises, etc. The coursewares on the site are only concerning medicine, including Licensed Pharmacist, Clinical Pharmacist, Dentist, Public Health Pharmacist, Chinese Medicine Pharmacist, Chinese and Western Integral Medicine Pharmacist, General Physicians, Surgeon in Charge and so on. Click http://www.med66.com/asp/login/kcsq.asp and you will see all the courses listed on the left. Then click a specific course, and the information about the course including prices are shown before your eyes. Prices vary for different courses. 11) Please select one or two products to purchase and purchase them. Comment on any difficulty you have in the purchase process. Were you able to make a purchase online? Did you have to call someone? Are there learning cards that need to be filled with money? Please include screenshots of any error screens. The purchase process goes smoothly. Yes, online payment is available. No, not necessary. Yes, the learning cards need to be filled with money, which can be achieved online. No errors. 12) Are the materials you purchased of high quality? How does the quality compare to the free material from CEU? Are answers included? These lessons offer listening test. Would you still like me to purchase for you? 13) Are there any other sections that offer products for sale? Are there tutoring services, books, or online games for children? If so, please work through the procedure to make a purchase and comment on your findings. In addition to online tutoring services and medical coursewares for sale, the site also has learning cards sold on site and an online book store selling medical related books. Please visit its online shop http://www.med66.com/shop/. The payment can be made via post office, banks, online bank or Alipay, credit card, or learning card, very convenient. The payment process goes smoothly. 14) Was there anything else unusual about the experience? Overall how does this website compare to CEU. Since the site is just concerning medicine, its contents are more specific, covering interpretation of policies, latest news about main examinations, main online courses for various pharmacists, training and online multimedia courses for practical technique , etc. Its learning cards can be purchased in many provinces and areas of China and its online courseware are provided with listening test. In addition, learning experience, passage rate and past high scores of students are shown on the homepage. Discounts are given to users who buy certain amounts.

Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 46 of 50 Page ID #:1735

Website #3 b www.prcedu.com

This website is managed by ChinaEdu Corporation, and it’s focused on primary and secondary school students.

15) Please explore the website and comment on the layout and what products appear to be offered for sale. Its layout is simple and lovely. I think young students like it. In addition to some free tests, the site also offers paid services including searching and asking questions online, self-exercises, online tutoring and composition editing by famous instructors for primary, middle and high school students. 16) Please discuss how this website differs from CEU. Is the layout more intuitive? Are there similar advertisements? How easy or difficult is it to find valuable information? Its layout is more intuitive than www.edu-chn.com. No advertisements of other companies or schools can be found on the site. Yes, very easy. Basic services like Answering Center, Composition, Tests, Courses, Knowledge Points, Famous Instructors and Ranking of Hot Questions can be easily accessed to. 17) Please search for any sections of the website that might contain a courseware or test material store. What sort of products are available, what are the price ranges, and is it easy to search for valuable information? Please visit http://course.prcedu.com/, where new and hot courses are listed separately and can be searched according to subjects and grades. Please see the prices for synchronous courses and Number One Scholar courses at different locations respectively at http://www.chinaedu.com/chinaedunew/services/ser 21.asp and http://www.chinaedu.com/chinaedunew/services/ser 20.asp (presented with certain amounts of golden beans based on the total amount). Online registration and other information including prices are available on the site. Yes, very easy. 18) Please select one or two products to purchase and purchase them. Comment on any difficulty you have in the purchase process. Were you able to make a purchase online? Did you have to call someone? Are there learning cards that need to be filled with money? Please include screenshots of any error screens. The purchase process goes smoothly. Yes, online payment is available. No, not necessary. No learning cards, but golden beans are required to purchase when used up. No errors. 19) Are the materials you purchased of high quality? How does the quality compare to the free material from CEU? Are answers included? These lessons offer listening test. Would you still like me to purchase for you? Free tests are better than free materials from CEU, as it is provided with answers and explanations. 20) Are there any other sections that offer products for sale? Are there tutoring services, books, or online games for children? If so, please work through the procedure to make a purchase and comment on your findings. Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 47 of 50 Page ID #:1736

In addition to online tutoring services for sale, the site also offers the paid service of answering questions online (25 golden beans for a common question and 60 golden beans for a composition editing), doing tests (different amounts of golden beans required for different tests) and downloading materials (8 golden beans for downloading one material). RMB100 = 600 golden beans, RMB200= 1250 golden beans. The payment process goes smoothly. 21) Was there anything else unusual about the experience? Overall how does this website compare to CEU. On the whole, the site is more suitable to primary and secondary students. This is because the site is very easy for them, famous instructors are prepared to answer their questions online and tests are provided with answers and explanations.

Website #4 b www.chinaedu.com

This website is managed by China Distance Education Holdings, and it’s focused on students of all ages.

22) Please explore the website and comment on the layout and what products appear to be offered for sale. The site is simple and user-friendly. In addition to learning cards, it offers paid services including searching and asking questions online (www.chinaedu.com can be redirected to www.prcedu.com), online synchronous tutoring, Number One Scholar courses, comprehensive courses and composition courses by famous instructors for primary, middle and high school students. 23) Please discuss how this website differs from CEU. Is the layout more intuitive? Are there similar advertisements? How easy or difficult is it to find valuable information? Its layout is more intuitive than www.edu-chn.com. It also has the school alliance as CEU. Yes, very easy. Basic services like Synchronous Learning, Answering Center, School Alliance, Parent School, Yoyo Zone , Students’ Feedbacks, Branches and others can be easily accessed to. 24) Please search for any sections of the website that might contain a courseware or test material store. What sort of products are available, what are the price ranges, and is it easy to search for valuable information? Please see synchronous courses and Number One Scholar courses as well as their prices at different locations respectively at http://www.chinaedu.com/chinaedunew/services/ser 21.asp and http://www.chinaedu.com/chinaedunew/services/ser 20.asp for primary and secondary students. Besides, online courses and an online store for young parents are also provided at http://yoyo.chinaedu.com/ and http://shop.chinaedu.com/. Free listening tests (http://www.chinaedu.com/101classroom/student/c1default.htm for Grade-one students in middle schools), online registration and other information including all prices are available on the site. Yes, very easy. 25) Please select one or two products to purchase and purchase them. Comment on any difficulty you have in the purchase process. Were you able to make a purchase Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 48 of 50 Page ID #:1737

online? Did you have to call someone? Are there learning cards that need to be filled with money? Please include screenshots of any error screens. The purchase process goes smoothly. Yes, online payment is available. No, not necessary. Yes, learning cards need to be filled with money.. No errors. 26) Are the materials you purchased of high quality? How does the quality compare to the free material from CEU? Are answers included? These lessons offer listening test. Would you still like me to purchase for you?. 27) Are there any other sections that offer products for sale? Are there tutoring services, books, or online games for children? If so, please work through the procedure to make a purchase and comment on your findings. In addition to online tutoring services for sale, the site also offers the paid service of answering questions online and online tests (redirected to www.prcedu.com) and sells learning cards on site in many places of the country. The payment process goes smoothly. 28) Was there anything else unusual about the experience? Overall how does this website compare to CEU. On the whole, the site is more suitable to primary and secondary students. The courses provided with listening test are of high quality and famous instructors are prepared to answer questions online within 24 hours. Its learning cards can be purchased in many places of China. In addition, students’ feedbacks are also shown on the homepage. Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 49 of 50 Page ID #:1738

Link: http://kerrisdalecap.com/wp- content/uploads/2010/11/Website-Report.pdf

Page(s) Cited: 5 Case 2:10-cv-09239-CAS -JC Document 84-2 Filed 12/05/11 Page 50 of 50 Page ID #:1739

Note: We hired a Chinese-speaking investigator to examine the edu-chn.com website, and asked her to answer a variety of questions following her examination. Below are (i) our questions, (ii) her answers, (iii) our follow-up questions, (iv) her follow-up answers. We have color-coded the report to identify our questions and her answers.

Legend: BLACK – Our Questions BLUE – Investigator’s Answers RED – Our Followup Questions GREEN – Investigator’s Followup Answers

China Education Alliance Website Analysis

The purpose of this analysis is to determine if the three websites managed by China Education Alliance (CEU) are functional, and if so, to what degree might they be profitable. To complete this task, we have outlined a number of steps that should be taken to verify what we have observed and to further our understanding of how these businesses operate. While you’re working through these tasks, if you find anything unusual or encounter any problems, please provide links to the pages that caused the problem and/or screenshots of the pages that were dysfunctional.

Website #1 b www.edu-chn.com

According to CEU, this website markets a database of more than 350,000 exams and test papers and courseware for college, secondary and elementary schools, under the “Famed Instructors Test Paper Store”. It also provides on-site exam-oriented after-school training and tutoring services called “The Big Classroom of the Famous Instructors”.

1) Please provide us with any background familiarity you might have with this website. Have you or your friends ever heard of this website or used it? If so, please take a moment to discuss the reputation that this website has in China.

Frankly speaking, no.

2) Explore the website and take notes on anything you find interesting or unusual. Does this appear to be a user-friendly website, or are you struggling to find useful information about the products offered by CEU?

The site is very comprehensive in the online education field. It not only has exams, test papers for college, secondary and elementary schools and on-site exam-oriented after-school training and tutoring services, but also provides the information about recruitment, studying abroad, vocational accreditation, the preschool education and knowledge for the old man as well as interesting dormitory records, etc. I think the interface is user-friendly, as the information is easy to find on the site.

3) Please locate the “Famed Instructors Test Paper Store” and report on what is available for purchase and the pricing. Is there actually a store on the website? Are the prices reasonable and in-line with what you might have expected?

“Famed Instructors Test Paper Store” includes the renaissance (0.5 yuan), unit test (1 yuan), mid-term test (1 yuan), end-term test (1 yuan), college entrance practice test (5 yuan), high- school entrance practice test (5 yuan), famous instructors courseware (1 yuan), strengthened supplementary tests (0.5 yuan), daily test (0.2 yuan), weekly test (0.5 yuan), monthly test (1 Case 2:10-cv-09239-CAS -JC Document 84-3 Filed 12/05/11 Page 1 of 10 Page ID #:1740

yuan). These services are purchased through the learning card of the site or through the registration of a mobile phone.

The site has an online store http://www.edu-chn.com/wssc/index.htm, with listed items

4) Please select one or two products to purchase access to. This is the main functionality of the website, so please report on how this process works. Is there anything unusual? Are you able to able to purchase access to the database, or are you encountering an error screen? Are you able to do this over the internet, or do you have to call to make a purchase?

I can register as a free member. I am supposed to pay the membership via online banks or mobile phone. I’m given ability to purchase access to one or more services. However, I encountered problems when trying to purchase the learning card. Please see the attached screenshot 1.1. I had to call to make the purchase.

Screenshot 1.1

Did you call to make the purchase? If not, please do so. Please purchase 5 test papers or test paper related products, briefly review them, and comment on the ordering process, the quality of the materials received, the relevance to the subject, and the cost. Please do not try to purchase products not produced by CEU, and please try to purchase products advertised on the main page as well as some that have to be searched for. If you are not able to purchase products, please describe the errors you’ve encountered in detail. If you are able to make these purchases, please email them to us or capture screenshots.

For famed instructor test papers and famous schools’ test papers, I called the service staff and they told me that the learning cards could only be purchased on site in Heilongjiang and other provinces in the northeast of China instead of online, while recharging could be done via Case 2:10-cv-09239-CAS -JC Document 84-3 Filed 12/05/11 Page 2 of 10 Page ID #:1741

online bank or cellphone. Comprehensive test papers are free ones and can be downloaded for free. These test papers are well designed but most are not provided with answers.

5) If you were able to purchase any of these products, please take some time to review the material and comment on its quality. If you were preparing for a test, would you use this website’s material to help you? Also, can you find any evidence of how many exams and test papers the database might contain? Is 350,000 a reasonable estimate?

I was unable to access to these products via internet. The site has three sections of tests, comprehensive test papers (28 tests per page x 6691 pages = 187,348 tests), famed instructor test papers (not shown) and famous schools’ test papers (not shown).

Can you elaborate on this? Was there a link to “famed instructor test papers” and/or “famous schools’ test papers” that didn’t work? Does every page in the comprehensive test paper section have exactly 28 tests? Is there any conceivable way to get to 350,000 test papers?

The links to “famed instructor test papers” and “famous schools’ test papers” didn’t work. Please see the grey columns in the attached screenshot 1.3.

Screenshot 1.3

Yes, each page has 28 tests, except the last page which has only two tests. I think the quantity is reasonable. However, only by being a member can we know the exact quantity.

6) Please locate the “Big Classroom of the Famous Instructors” section of the website and attempt to access it. If you can’t find it, is there another section of the site that might provide the tutoring services indicated in the description above? Does it appear that the tutoring services are of high quality, and does the pricing seem reasonable?

In the Big Classroom of the Famous Instructors’ section, there are introductions of teachers and a great number of tests for primary school, middle school and high school students. All materials in the “Courseware” on the homepage are for free, while “Private tutor” on the homepage provide some information about and ratings of private tutors and their hourly fees are reasonable. These tutors are required to pay membership fees.

Please download some of the free material in the “courseware” section of the website. Does this seem similar in quality to the materials offered in the “Famed Instructor Test Paper Store”? Please try and find the test materials you paid to download in the Famed Instructor Test Paper Store offered for free in the Big Classroom of the Famous Instructors.

The “Courseware” section could be accessed online by a free member. See examples http://www.edu-chn.com/video/play.jsp?path1=english/chendandan.rm and http://www.edu- chn.com/video/play.jsp?path1=english/lihongyan.rm and please access to them via my free- member account: user name: daffyking, password: 123456. The courseware is not a series of courseware, and is just a selection of classes of some teachers. I feel they are used to advertise the teachers.

Though a paid membership couldn’t be obtained now, I believe the paid tests won’t appear in the free tests.

Case 2:10-cv-09239-CAS -JC Document 84-3 Filed 12/05/11 Page 3 of 10 Page ID #:1742

7) Please purchase access to the tutoring services. Are these services handled over the website, the phone, or in person? If these services are handled over the website, please attempt to utilize the services and record any comments or thoughts you might have on your experience.

In person. Tutors go to students’ houses or vice versa.

Contact 5 of the tutors advertising their services on this website. If you are able to get in touch with anyone, please ask the following questions: a) How long have you been a member? b) How much are the membership fees? c) How much business does the website generate for you? d) Where else do you advertise your tutoring services? e) How does the Big Classroom of the Famous Instructors compare to other means of advertising in terms of cost and business volume? f) Do you use the website in any other way? g) Do your students use any of the materials offered on the website? h) Have you been to or do you offer services at the training center in Harbin? i) If so, please comment on the quality of the training center and its popularity. How much does it get used?

Also, please ask any other questions which might be necessary to clarify responses or which might benefit our understanding of this service.

The phone shown on the tutors’ pages is the office phone of the site. I dialed the office phone to see if I could be a tutor, but only heard the automatic response and could not reach any person or any extension number.

8) Please comment on your general opinion of the website, what they might offer alongside the test-prep and tutoring services, and anything else you found unusual about the experience.

Information about immigration, recruitment, training and enrollment can all be found here. However, sometimes the pages do not work well. Please see the attached screenshot 1.2.

Screenshot 1.2 Case 2:10-cv-09239-CAS -JC Document 84-3 Filed 12/05/11 Page 4 of 10 Page ID #:1743

If you have any additional comments at this point, please include them here.

In terms of the way of making money, we may make the following conclusions: 1.) selling learning cards to students who want to participate in online tests and retailers or distributors; 2.) providing promotion services for private tutors and collecting member fees from them; 3.) collecting advertising fees from education agencies (photo display quotation: RMB2000/month, bidding ranking: RMB300/month, listing quotation: RMB500-200/month, single page display: RMB10000/year), enrollment platform (display quotation: RMB5000-2000), talent intersection (homepage display: RMB500/month, more display: RMB300/month), preschool education resource (homepage display: RMB500/month, more display: RMB300/month, extra RMB100 to be paid if VOD is added), education media (display quotation: RMB5000/month, 15000- 20000/month), and other advertisements including pop-up windows, moving icons, streaming media, etc.

9) If possible, try to gather whatever information you can on how popular this website is or how much traffic it gets. Please also comment on the reliability of any of the information you can find regarding traffic

Weekly traffic: about 47,400. Please visit http://alexa.chinaz.com/?domain=edu-chn.com%2F for detailed information.

Are you familiar at all with the following website: http://www.chinarank.org.cn/ If not, please take a moment to try and determine how this website determines the number of unique visitors to each page and the number of pageviews per user. Comparing the results viewed on this page to the results from alexa, please comment on the quality and reliability of the results, and which might offer a more realistic understanding of website traffic. Case 2:10-cv-09239-CAS -JC Document 84-3 Filed 12/05/11 Page 5 of 10 Page ID #:1744

I’m not familiar with this site. It mainly offers ranking based on its “CHINARANK TOOLBAR” and “overlay” (overlay is a paid software jointly introduced by CHINARANK and Nielsen- Online). Overlay can check which part of a site visitors pay more attention to, whether more traffic have been brought by key columns and whether a visitor keeps visiting the site or leaving immediately, in addition to providing an exact number of traffic.

When entering www.edu-chn.com into the search box, there is no information. I guess it hasn’t been included into http://www.chinarank.org.cn/.

Website #2 b www.pk1234567.com

According to CEU, this website features a new online educational game "Fortune Island" recommended and approved by the "National Educational Game Research Base", a division of the Chinese Ministry of Education.

10) Please provide us with any background familiarity you might have with this website. Have you or your friends ever heard of this website or used it? If so, please take a moment to discuss the reputation that this website has in China.

Frankly speaking, no.

11) Explore the website and take notes on anything you find interesting or unusual. Does this appear to be a user-friendly website, or are you struggling to find useful information about the products offered by CEU?

The purpose of conducting tests via games is a creative idea. The games cover some basic subjects and also present some awards to winners. In addition, “Hot Channel” on some pages of the site is linked to www.edu-chn.com.

Yes, I think it is.

12) Determine how to access Fortune Island, how much it costs, and what the terms of the service are. Please register and/or purchase access to Fortune Island. Are you able to do so? Did you encounter any trouble purchasing access to the game and/or playing it? Please comment on anything you found unusual about the experience.

Registration couldn’t be done via internet. When registering online, an error screen was encountered, which prevents the completion of registration. Please see attached screenshot 2.1. It is a little strange that most pages including links to games couldn’t be accessed to and some error screens turn up.

Screenshot 2.1 Case 2:10-cv-09239-CAS -JC Document 84-3 Filed 12/05/11 Page 6 of 10 Page ID #:1745

When you were unable to register online, was an alternative method to register offered? If so, please try to register by any means possible. If you are able to register, please play the game for 10-15 minutes and comment on the experience. Include screenshots and login instructions so we can log in as well.

There is no way except contacting service staff as online registration always failed. I also tried to call the service staff many times, but no one answered. I guess the site may also use learning cards as the first site.

13) Find any information you can on the National Educational Game Research Base. Is it actually a division of the Chinese Ministry of Education? If so, has it approved any games or commented on Fortune Island?

There is no evidence that can prove it is a division of the Chinese Ministry of Education.

14) Please comment on your general opinion of the website, what they might offer alongside the test-prep and tutoring services, and anything else you found unusual about the experience.

The site only offers test-prep service, but it is innovative in offering a new and interesting way to test students and especially those who do not like or even hate tests, quite different from usual test papers.

15) If possible, try to gather whatever information you can on how popular this website is or how much traffic it gets. Please also comment on the reliability of any of the information you can find regarding traffic.

Its traffic could not be obtained through sites that offer statistics of traffic.

Website #3 b www.360ve.com Case 2:10-cv-09239-CAS -JC Document 84-3 Filed 12/05/11 Page 7 of 10 Page ID #:1746

According to CEU, this website provides vocational training and vocational performance evaluation metrics services, as well as employment education through the “Millions of College Students Employment Crossroad” program by collaborating with the National Association of Vocational Education of China (NAVEC). It operates NAVEC's Education Examination Center and is able to tap the resources of 30,000 famous vocational experts and instructors who are members. In addition, it develops vocational training programs by collaborating with other educational institutions.

16) Please provide us with any background familiarity you might have with this website. Have you or your friends ever heard of this website or used it? If so, please take a moment to discuss the reputation that this website has in China.

Frankly speaking, no.

17) Explore the website and take notes on anything you find interesting or unusual. Does this appear to be a user-friendly website, or are you struggling to find useful information about the products offered by CEU?

The most noticeable on the site is the Prime Minister Wen Jiabao’s photo and remarks. In term of service, besides offering various training programs and online tutoring, the site also offers a military to civilian platform, a re-employment platform, a number of recruitment opportunities, etc.

Yeah, I think it is.

18) Explore the various vocational opportunities advertised on the website and try to register for a few (but please do not actually make a payment). Did you encounter any trouble registering? Were you actually able to register for any of these vocational programs? Please comment on anything you found unusual about the experience.

I have tried and there are no troubles in registration. Yes, I was. It worked smoothly.

Can you describe the pricing of these vocational programs? When we tried registering, we couldn’t get past the screen where we enter our personal information. When you attempted to register, how far did you go in the process? I’m assuming you didn’t actually make a payment.

It only takes several minutes to finish the registration as a free member. The registration process includes 1) confirming the term of services, 2) select a user name, 3) filling personal information, 4) registration success. Please see the screenshots 3.1.

Screenshots 3.1 Registration process for www.360ve.com:

Click “ᡧó” on the homepage

Confirm the term of services: click “ඐ༤̾”ʇ Case 2:10-cv-09239-CAS -JC Document 84-3 Filed 12/05/11 Page 8 of 10 Page ID #:1747

Select a user name: fill in a user name and click “ᐿᣊ₧බ” on the right side of the user name.

Then a separate screen appears, see below. It says that the user name hasn’t been used. Click “Úᩜ” highlighted in blue and the page will be closed. Case 2:10-cv-09239-CAS -JC Document 84-3 Filed 12/05/11 Page 9 of 10 Page ID #:1748

Now click “Śŏᛤ” at the bottom of the page of selecting a user name.

Fill in all the information required like below and click “Śŏᛤ” at the bottom of the page. Click “Śŏᛤ” at the bottom of the page.

Case 2:10-cv-09239-CAS -JC Document 84-3 Filed 12/05/11 Page 10 of 10 Page ID #:1749

Registration success

Also, is there any indication of who offers these vocational programs? I’m assuming CEU is simply listing vocational opportunities available through other institutions. How is CEU profiting off this website? Please try and call 5 of the vocational programs offering classes on this website. If you are able to contact them, please ask the following questions: a) How long has your school been advertising here? b) What are the fees? c) How much business does the website generate for you? d) Where else do you advertise your classes? e) How does 360ve compare to other means of advertising in terms of cost and business volume? f) Do you use the website in any other way?

There is no such indication. These vocational programs are published only for online registration. The prices are shown directly online, please see the prices listed on the homepage. Click “ฤʹ” (registration) on the right of the price and then a registration form will appear. See the screenshot 3.2. I believe the education agencies are required to pay advertisement fees as any information about them couldn’t be obtained.

Screenshot 3.2 Click “ʧ̮ฤʹ” and then the screenshot below appears Case 2:10-cv-09239-CAS -JC Document 84-4 Filed 12/05/11 Page 1 of 50 Page ID #:1750

Fill in personal information and click “ཏdz”

19) Find any information you can on the National Association of Vocational Education of China and the Education Examination Center. Does the NAVEC actually exist, and if so, can you find any evidence of a relationship with CEU or 360ve.com? If the Education Examination Center exists, is there a single physical location, or is there are number of education examination centers around China? Case 2:10-cv-09239-CAS -JC Document 84-4 Filed 12/05/11 Page 2 of 50 Page ID #:1751

NAVEC really exists. Its site http://www.zhzjs.org.cn is linked to www.360ve.com, and at the bottom of 360ve.com is its administration authority: NAVEC. The Education Examination Center also exists, http://www.neea.edu.cn. There is no evidence showing its relationship with NAVEC.

It has many branches in China and is the competent authority in the national education examination.

Please show me with a screenshot which link on the zhzjs.org.cn directs users to 360ve.com.

There is a link on 360ve.com linked to zhzjs.org.cn. Click “ ” on the third line of the homepage 360ve.com and then you will be directed to . There is also a link on zhzjs.org.cn linked to 360ve.com. Click the last one “żʵһũიԡπ” below “≷Úᥭ༤”. See the screenshot below.

20) Please comment on your general opinion of the website, what they might offer alongside the test-prep and tutoring services, and anything else you found unusual about the experience.

The site is a comprehensive vocational training site, which also offers a military to civilian platform, a re-employment platform, a number of recruitment opportunities, 360 recruitment bank (which shows employment indexes of an individual through credit ratings, scores, performances, etc), schoolmate records and so on.

21) If possible, try to gather whatever information you can on how popular this website is or how much traffic it gets. Please also comment on the reliability of any of the information you can find regarding traffic.

Its traffic couldn’t be obtained via internet, while its ranking is provided at http://alexa.chinaz.com/?domain=360ve.com%2F.

Case 2:10-cv-09239-CAS -JC Document 84-4 Filed 12/05/11 Page 3 of 50 Page ID #:1752

Link: http://kerrisdalecap.com/wp- content/uploads/2010/11/2008-Annual-Materials.pdf

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Link: http://kerrisdalecap.com/wp- content/uploads/2010/11/2008-Annual- Translation.pdf

Page(s) Cited: 21 Case 2:10-cv-09239-CAS -JC Document 84-4 Filed 12/05/11 Page 21 of 50 Page ID #:1770

Joint Annual Inspection of Foreign Invested Enterprise

(Year of 2008)

Declaration: It is hereby stated that the enterprise is responsible for the

authenticity of the annual report, balance sheet, income statement, and other

documents submitted for this annual inspection.

Enterprise Name: Harbin Zhonghelida Education Technology Co., Ltd Registration Number: 230199400002603 Registration Body: Administration for Industry & Commerce of Harbin Development Zone Completion Date: June 9th, 2009

Signature of legal representative: (Yu Xiqun in Pinyin) Enterprise Seal:

Prepared by State Administration for Industry & Commerce of People’s Republic of China

HTTP://WWW.SAIC.GOV.CN

Translation of page 1 of 16 Case 2:10-cv-09239-CAS -JC Document 84-4 Filed 12/05/11 Page 22 of 50 Page ID #:1771

I. Registration Details

Enterprise name Harbin Zhonghelida Education Technology Co., Ltd Registration No. 230199400002603 Zip Code 150090 Address No. 58, Hengshan Road, Nangang District, Harbin, Heilongjiang Province Name of Investor Chinese investor Foreign investor China Education Alliance,Inc. Country (Region) U.S. Technological development, service and transfer of computer system Scope of business integration and high-tech products; sales of new technological products developed by the company; consultancy of educational information Type of enterprise 5150 - Limited liability company (Wholly-owned foreign corporation) Name of legal Yu Xiqun representative CEO Yu Xiqun General manager Yu Xiqun Was there a Was there a change in change in director No record of director or No or supervisor supervisor filed

Date of From April 8th, 2005 to August 9th, 2004 Term of operation establishment April 8th, 2055

Does the scope of operation involve items that require pre-registration No administrative license

Is the pre-registration administrative license valid No

Translation of page 2 of 16 Case 2:10-cv-09239-CAS-JCDocument84-4Filed12/05/11Page23of50ID II. Statement of Capital Contribution Total Investments 4,060,400 USD Chinese subscription 0 USD Registered capital Foreign subscription 4,060,400 USD Chinese subscription 0 USD Paid-in capital Foreign subscription 4,060,400 USD Mode of capital contribution Currency Physical goods Intellectual property Land-use right Others Amount (Ten Thousand USD) 406.04

Chinese Investor Amount contributed Chinese Investor Amount that shall be contributed this year (Ten this year (Ten Thousand USD) Foreign Investor 156.41 Thousand USD) Foreign Investor 156.41 Whether or not the registered capital is completely well-placed Yes

Capital contribution by stages #:1772 Payable capital contribution (Ten Paid-in capital contribution (Ten Thousand USD) Stage Deadline Thousand USD) Chinese Foreign Chinese Foreign Investor Investor Investor Investor 1 February 20th, 2008 406.04 406.04 Reason for unpaid capital contribution No Amount to be contributed by the Chinese investor with RMB state-owned assets

Translation of page 3 of 16 Case 2:10-cv-09239-CAS-JCDocument84-4Filed12/05/11Page24of50ID III. Statement of Foreign Investment

Whether or not Investment amount Name of investment Investment a controlling Registration No. Registration body (Ten Thousand Proportion enterprise mode stake has Yuan) been taken Harbin New Discovery 230100100036887 Administration for Industry 3,000,000.00 49 Cash No Media Co., Ltd (H) & Commerce of Harbin Zhonghelida (Beijing) Administration for Industry Management 110108011556668 & Commerce of Haidian, 325,000.00 65 Cash Yes Consultant Co., Ltd Beijing Beijing Hua Yu Hui Administration for Industry Zhong Technology 1101031995632 & Commerce of 700,000.00 70 Cash Yes

Development Co., Ltd Chongwen Beijing #:1773

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IV. Statement of Branch Office

Name of branch office Registration No. Registration body Whether or not it’s filed

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V. Statement of Annual Production and Operation

Operating revenue 4,254,800 Yuan Including: Business Income 0 Yuan Domestic sales revenue 4,254,800 Yuan Including: Turnover 0 Yuan Total tax 785,700 Yuan Including: Custom 0 Yuan Total profit 120,400 Yuan Net profit 120,400 Yuan Including: Long-term Total assets 27,558,100 Yuan 4,025,000 Yuan investment Total liabilities 98,300 Yuan Including: Long-term liabilities 0 Yuan

Import and Export Conditions Country (Region) Export Amount Import Amount China Name of Audit Agency Harbin Longbo Certified Public Accountants Ltd Operation status of Preparing Opening Yes Closing enterprise Opening date August 9th, 2004 Reasons for deficit and

abnormal production Whether or not it Name of involves contract No contractor operation

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VI. Statement of Other Matters of Enterprise

Enterprise Code 76318026-5

Information transmission, computer Industry Industry system services and software G611 Code industry

Encouraged Permitted Restricted Type of enterprise Yes An advanced technological Involving exportable An investment company enterprise products Yes Yes No Including: Number of newly Number of Number of employees 33 0 added employees 3 foreign this year employees Hajinghezhengzi Date of approval April 7th, 2005 Approval No. [2005] No. 0024 National tax Financial registration 230198763180265 2301010217 registration No. certificate No. Local tax registration Customs registration 230198763180265 2301340030 No. No. Whether or not Certificate No. of annual and quarterly Foreign Exchange 00010548 Yes financial reports are Registration submitted

Translation of page 7 of 16 Case 2:10-cv-09239-CAS-JCDocument84-4Filed12/05/11Page28of50ID VII. Statement of Foreign Exchange

Including: No. of Including: No. of foreign Account No. inter-city accounts accounts Maximum limit Current Account 0 0 0 0 Capital account 0 0 0 0 Surplus reserves * foreign Capital reserves * foreign Profit * foreign Deficit * foreign Profit remitted investment proportion investment proportion investment proportion investment proportion offshore this year

0 0 0 0 0 Amount of equity transfer Amount of foreign capital and Amount of equity Accumulated amount #:1777 from Chinese shareholders foreign exchange registration transfer from foreign Accumulated amount of of foreign debt to foreign shareholders this transacted by the foreign shareholders to Chinese foreign credit this year services this year year shareholders this year shareholders 0 0 0 0 0 Accumulated amount Completed by the foreign Amount of investment Accumulated amount of Returns on investment of returns on invested enterprise only in allocated within the border investment allocated this year investment of all this field years 0 0 0 0

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VIII. Review Form of Annual Audit Body Sufficient documents are submitted in accordance with related applicable laws so it’s accepted. This is subject to your approval.

Yang Fan June 23rd, 2009

Reviewer’s opinion Agree

Signature: June 23rd, 2009

Report date June 9th, 2009 Reporter Yu Shoulong Telephone 82289115

Acceptance Process License June 9th, 2009 1 (Piece) date server copy

Receiver signature (Yu Shoulong in Pinyin) June 23rd, 2009

Translation of page 9 of 16 Case 2:10-cv-09239-CAS -JC Document 84-4 Filed 12/05/11 Page 30 of 50 Page ID #:1779

Liaison Information of Industrial and Commercial Registration

Name Yu Shoulong

Department Office

Tel: 82289115 Contact Mob: 15146633176

E-mail [email protected]

Address No. 58, Hengshan Road, Nangang District, Harbin

Zip Code 150090

Receiver of Internal Legal Documents Sent by Foreign Shareholders

(Sponsors)

Name Yu Xiqun

Address No. 58, Hengshan Road, Nangang District, Harbin, Heilongjiang Province

Zip Code 150090

Contact name Dong Xuxin

Tel: 13674682082 Contact Mob: 87000662

E-mail [email protected]

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QN-104

Certification of Enterprise Annual Audit Appointed Representative or Entrusted Agent

Name of appointed representative or entrusted agent: Yu Shoulong Contact: Tel 0451-87005489 Mob 15146633176 Commitment: submit annual audit report and other audit materials.
Receive sealed copy of business license Scope of authority: Whether or not to agree that the appointed representative or entrusted agent can make modifications to the annual audit report due to incorrect entries.

Agree
Disagree Appointed or entrusted period of validity: from May 1st, 2009 to July 1st, 2009

ID card information: Name: ǝ܇␈ (Yu ShouLong) Gender: male Nationality: Han Birthday: October 1st, 1981 Address: No. 331, Xuefu Road, Nangang District, Harbin Issue Date: March 31st, 2003 Validity: 10 years ID Card Number: 23062319811001055 Public Security Bureau of Nangang, Harbin (Seal) (Enterprise seal) June 9th, 2009 Prepared by State Administration for Industry & Commerce of People’s Republic of China HTTP://SAIC.GOV.CN HTTP://OYJ.SAIC.GOV.CN

Translation of page 11 of 16 Annual Accounting Statement for Primary Level Industrial And Commercial Enterprises (2008) Balance Sheet Chamber of Industry and Commerce Sheet 01 Prepared by: Harbin Zhonghelida Education Technology Co., Ltd December 2008 Monetary Unit: CNY Case 2:10-cv-09239-CAS-JCDocument84-4Filed12/05/11Page32of50ID Line At the Beginning of At the End of the Line At the Beginning of At the End of the Assets Liabilities and shareholders equity No. the Year Year No. the Year Year Current assets: Current liabilities: Cash 1 4,675,240.23 4,577,831.65 Short-term loans 32 Short-term investments 2 Notes payable 33 Notes receivable 3 Accounts payable 34 - - Accounts receivable 4 4,576,860.00 Advances from customers 35 - - Less : Provision for bad debts 5 Other payables 36 370,000.00 98,298.00 Net value of accounts receivable 6 - 4,576,860.00 Accrued wages 37 - - Accounts prepaid 7 - - Welfare funds payable 38 Subsidies receivable 8 Taxes payable 39 831.03 - Losses to be recovered 9 Profits payable 40 Other receivables 10 6,372,483.05 10,126,946.05 Other unpaid expenses 41 29.57 20.00 Inventories 11 83,228.25 67,928.80 Accrued expenses 42 Other business expenses to be transferred 12 Long-term liabilities due within one year 43 Unamortized expenses 13 115,000.01 115,000.05 Other current liabilities 44 Unsettled G/L on current assets 14 Total current liabilities 45 370,860.60 98,318.00 Long-term debenture investment falling due in a year 15 Long-term liabilities: #:1781 Other current assets 16 Long-term loans 46 Total current assets 17 11,245,951.54 19,464,566.55 Bonds payable 47 Short-term investments: Long-term Payables 48 Short-term investments 18 700,000.00 4,025,000.00 Other long-term liabilities 49 Fixed assets: including: Housing revolving funds 50 Fixed assets - original cost 19 5,186,015.98 5,305,015.98 Special payables 51 Less: accumulated depreciation 20 694,818.73 1,253,894.71 Total long-term liabilities 52 - - Fixed assets - net value 21 4,491,197.25 4,051,121.27 Deferred taxes: Disposal of fixed assets 22 Deferred tax credits 53 Construction in progress 23 Total liabilities 54 370,860.60 98,318.00 Unsettled G/L on fixed assets 24 Shareholders equity: Total fixed assets 25 4,491,197.25 4,051,121.27 Paid-in capital (or stock) 55 20,669,057.52 33,620,000.02 Intangible assets and deferred assets: including: Capital funds owned by the township 56 Intangible assets 26 48,416.73 17,416.77 Additional paid-in capital 57 -1,244,077.77 -2,970,318.27 Deferred assets 27 including: Supplementary current capital 58 Total intangible assets and deferred assets 28 48,416.73 17,416.77 Surplus reserves 59 164,200.08 164,200.08 Other long-term assets: including: Welfare reserves 60 54,733.36 54,733.36 Other long-term assets 29 Supplementary current capital 61 Deferred taxes: Undistributed profit 62 -3,474,474.91 -3,354,095.24 Deferred tax assets 30 Total shareholders equity 63 16,114,704.92 27,459,786.59 Total assets 31 16,485,565.52 27,558,104.59 Total liabilities and shareholders equity 64 16,485,565.52 27,558,104.59

Translation of page 12 of 16 Case 2:10-cv-09239-CAS-JCDocument84-4Filed12/05/11Page33of50ID Annual Accounting Statement for Primary Level Industrial And Commercial Enterprises (2008) Income Statement Chamber of Industry and Commerce Sheet 02 Prepared by: Harbin Zhonghelida Education Technology Co., Ltd December 2008 Monetary Unit: CNY Current month amount Current year cumulative amount Line Items Amount in the same Amount current Amount in the same Amount current No. period last year year period last year year I. Revenue of primary operations 1 - 4,254,837.60 Less: Discount & allowance 2 Net revenue of primary operations 3 - 4,254,837.60 Less: Costs of primary operations 4 49,963.64 816,670.99 Primary operation taxes and surcharges 6 - - Add: Revenue from agency activities 7 II. Gross Profits 8 -49,963.64 3,438,166.61 Add: Other operating income 9 #:1782 Less: Administrative expenses 10 79,210.16 850,292.06 Operating expenses 5 40,000.00 2,531,243.50 Financial expenses 11 -9,834.59 535,735.28 III. Operating profit 12 -159,339.21 -479,104.23 Add: Income on investment 13 Subsidy income 14 532,067.35 599,483.90 Non-operating income 15 Less: Non-operating expenses 16 Add: adjustment of loss and gain for previous 17 - - IV. Total profit 18 372,728.14 120,379.67 Less: Income tax 19 V. Net profit 20 372,728.14 120,379.67

Translation of page 13 of 16 Case 2:10-cv-09239-CAS -JC Document 84-4 Filed 12/05/11 Page 34 of 50 Page ID #:1783

Process of Joint Annual Inspection of Foreign Invested Enterprises in Harbin

Development Zone (2009) Enterprise Name: Harbin Zhonghelida Education Technology Co., Ltd Inspection Result Name of Department Rejected and Approved and signed signed

Harbin Development Zone Investment Li Kun Economic Cooperation and Promotion Promotion Council Bureau th June 16 , 2009

Harbin Industrial and

Commercial Bureau

National Tax Xu [?] Harbin National Tax Audit Administration th June 16 , 2009

Local Tax Audit Hu Hailin Harbin Local Tax Administration th June 16 , 2009

Harbin Finance Bureau

Lv Bo June 16th Harbin Statistics Bureau (Seal) [?] [?] Foreign Exchange Bureau [?]

Translation of page 14 of 16 Case 2:10-cv-09239-CAS -JC Document 84-4 Filed 12/05/11 Page 35 of 50 Page ID #:1784

6. Go to online service platform of State Administration of Foreign Exchange of China (http://www.safesvc.gov.cn) to download data registration form, instructions for filling out form, enterprise client software and operation manual; submit the electronic data of Data Registration Form of Joint Annual Inspection (Section of Foreign Exchange) for Foreign Invested Enterprises via the enterprise client software to local administration of foreign exchange. At the same time, submit to local administration of foreign exchange Data Registration Form of Joint Annual Inspection (Section of Foreign Exchange) for Foreign Invested Enterprises in written form, and ensure the said electronic data is strictly consistent with the written materials. 7. Foreign invested enterprises shall participate in an annual audit on schedule and declare authentic annual audit data. For the foreign invested enterprises that fail to participate in an annual audit of foreign exchange and declare annual audit as per applicable regulations, the foreign exchange administration may impose punishment on such enterprises and their persons responsible, according to Article 48 in Regulations on Exchange Control of the People's Republic of China.

The foreign invested enterprises that have registered in the Development Zone are required to provide the following materials to the authority of the Development Zone:

a) Copy of annual inspection report, on which the legal person signs his/her name and official seal is imposed; b) Duplicate Copy 2 of Certificate of Approval and its copies; c) Copy of Duplicate Copy of business license; d) Annual audit report audited by certified accounting firm’s office; A e) Copy of report on capital verification (submitted by the enterprise that actually invests in current year) A

Translation of page 15 of 16 Case 2:10-cv-09239-CAS-JCDocument84-4Filed12/05/11Page36of50ID

Business License for Enterprise as a Legal Person NO: NO0063172 Notice (Duplicate copy) 1. The Business License is the certificate for enterprise to obtain legal person qualification and Registration No. 230199400002603 legal operation. 2. The Business License includes the original and its duplicate; both of them have the same Enterprise name Harbinɴ Zhonghelida Education Technology Co., Ltd legal effect. Address No. 58, Hengshan Road, Nangang District, Harbin 3. The Business License should be placed in a conspicuous position at the company’s location. Legal representative Yu Xiqun 4. The Business License should not be forged, altered, rented or transferred.

Registered capital USD 4,060,400 5. The enterprise’s legal person shall apply for an alternate registration to the original registration office for a change of the registered items. Paid-in capital USD 4,060,400 #:1785 6. The registration authority shall conduct an annual inspection on the enterprise’s legal

Type of enterprise Limited liability company (Invested or held by natural person) person from March 1 to June 30. 7. When the Business License is revoked, the enterprise is not allowed to conduct the relevant Business scope General operation items; technological development, service business operation.

and transfer of computer system integration and high-tech 8. The Business License should be returned (including the original and its duplicates) when cancelling the registration. products; the sale of new technological products developed 9. If the Business License is lost or ruined, a statement of cancellation should be made and the enterprise should apply for another one. by the company; consultancy of educational information. Shareholder (Sponsor) China Education Alliance, Inc (U.S.) Result of Annual Audit

Registration Body (Seal) Validity of operations From October 23rd, 2006 to April 8th, 2055 Date of establishment August 9th, 2004 Registration Body (Seal)

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Link: http://kerrisdalecap.com/wp- content/uploads/2010/11/2007-Annual-Materials.pdf

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Link: http://kerrisdalecap.com/wp- content/uploads/2010/11/2007-Annual- Translation.pdf

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Joint Annual Inspection of Foreign Invested Enterprise

(Year of 2007)

Declaration: It is hereby stated that the enterprise is responsible for the

authenticity of the annual report, balance sheet, income statement, and other

documents submitted for this annual inspection.

Enterprise Name: Harbin Zhonghelida Education Technology Co., Ltd Registration Number: 230199400002603 Registration Body: Administration for Industry & Commerce of Harbin Development Zone Completion Date: June 10th, 2008

Signature of legal representative: (Yu Xiqun in Pinyin) Enterprise Seal:

Prepared by State Administration for Industry & Commerce of People’s Republic of China

HTTP：//WWW.SAIC.GOV.CN

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I. Registration Details

Enterprise name Harbin Zhonghelida Education Technology Co., Ltd Registration No. 230199400002603 Zip Code 150090 Address No. 58, Hengshan Road, Nangang District, Harbin, Heilongjiang Province Name of Investor Chinese Investor Foreign Investor China Education Alliance,Inc. Country (Region) U.S. Technological development, service and transfer of computer system Scope of business integration and high-tech products; sales of new technological products developed by the company; consultancy of educational information Type of enterprise 5150 - Limited liability company (Wholly-owned foreign corporation) Name of legal Yu Xiqun representative CEO Yu Xiqun General manager Yu Xiqun Was there a Was there a change in record change in director No No of director or or supervisor supervisor filed

Date of From October 23rd, 2006 to April August 9th, 2004 Term of operation establishment 8th, 2055

Does the scope of operation involve items that require No pre-registration administrative license

Is the pre-registration administrative license valid No

Translation of page 2 of 17 Case 2:10-cv-09239-CAS-JCDocument84-5Filed12/05/11Page8of65ID II. Statement of Capital Contribution Total Investments 4,060,400 USD Chinese subscription 0 USD Registered capital Foreign subscription USD 4,060,400 USD Chinese subscription 0 USD Paid-in capital Foreign subscription 4,060,400 USD Mode of capital contribution Currency Physical goods Intellectual property Land-use right Others Amount (Ten Thousand USD) 406.04

Chinese Investor Amount contributed Chinese Investor Amount that shall be contributed this year (Ten this year (Ten Thousand USD) Foreign Investor 113.59 Thousand USD) Foreign Investor 113.59 Whether or not the registered capital is completely well-placed Yes

Capital contribution by stages #:1807 Payable capital contribution (Ten Paid-in capital contribution (Ten Thousand USD) Stage Deadline Thousand USD) Chinese Foreign Chinese Foreign Investor Investor Investor Investor 1 May 30th, 2007 63.59 63.59 August 30th, 1 50 50 2007 Reason for unpaid capital contribution No Amount to be contributed by the Chinese investor with RMB state-owned assets

Translation of page 3 of 17 Case 2:10-cv-09239-CAS-JCDocument84-5Filed12/05/11Page9of65ID III. Statement of Foreign Investment

Whether or not Investment Name of investment Investment a controlling Registration No. Registration body amount (Ten Proportion enterprise mode stake has been Thousand Yuan) taken State Administration Beijing Hua Yu Hui for Industry & Capital Zhong Technology 1101031995632 Commerce of 70 70 contribution in Yes Development Co., Ltd People’s Republic currency of China

#:1808

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IV. Statement of Branch Office

Name of branch office Registration No. Registration body Whether or not it’s filed

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V. Statement of Annual Production and Operation

Operating revenue 179,200 Yuan Including: Business Income 7,000 Yuan Domestic sales revenue 179,200 Yuan Including: Turnover 7,000 Yuan Total tax 5,200 Yuan Including: Custom 0 Yuan Net profit -3,159,900 Total profit -3,159,900 Yuan Yuan Including: Long-term Total assets 16,485,600 Yuan 700,000 Yuan investment Including: Long-term Total liabilities 370,800 Yuan 0 Yuan liabilities

Import and Export Conditions Country (Region) Export Amount Import Amount China Name of Audit Agency Harbin Longbo Certified Public Accountants Ltd Operation status of Preparing Opening Yes Closing enterprise Opening date August 9th, 2004 Reasons for deficit and Fierce competition in the market and the emergence of many abnormal production software companies. Whether or not it Name of involves contract No contractor operation

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VI. Statement of Other Matters of Enterprise

Enterprise Code 76318026-5

Information transmission, computer Industry Industry 6200 services and software industry Code

Encouraged Permitted Restricted Type of enterprise Yes An advanced technological Involving exportable An investment company enterprise products No No No Including: Number of newly Number of Number of employees 30 0 added employees 0 foreign this year employees Hajinghezhengzi [2005] Date of approval April 7th, 2005 Approval No. No. 0024 Financial National tax 230198763180265 registration 2301010217 registration No. certificate No. Local tax registration Customs 230198763180265 2301340030 No. registration No. Whether or not Certificate No. of annual and Foreign Exchange 230000050916 quarterly financial Yes Registration reports are submitted

Translation of page 7 of 17 Case 2:10-cv-09239-CAS-JCDocument84-5Filed12/05/11Page13of65ID VII. Statement of Foreign Exchange

Including: No. of Including: No. of foreign Account No. Maximum limit inter-city accounts accounts

Current Account 0 0 0 0 Capital account 1 0 0 406.0400

Surplus reserves * foreign Capital reserves * foreign Profit * foreign Deficit * foreign Profit remitted offshore investment proportion investment proportion investment proportion investment proportion this year

16.42 -124.41 0 -315.99 0 Amount of equity transfer Amount of foreign capital and Amount of equity Accumulated amount #:1812 from Chinese foreign exchange registration transfer from foreign Accumulated amount of of foreign debt shareholders to foreign transacted by the foreign shareholders to Chinese foreign credit this year services this year shareholders this year shareholders this year shareholders 0 0 0 0 0

Completed by the Accumulated amount Amount of investment Accumulated amount of Returns on investment foreign-capital enterprise of returns on allocated within the border investment allocated this year only in this field investment of all years

0 0 0 0

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VIII. Review Form of Annual Audit Body Sufficient documents are submitted in accordance with related applicable laws so it’s accepted. This is subject to your approval.

Yang Fan June 11th, 2008

Reviewer’s opinion Agree

Signature: June 11th, 2008

Report date June 10th, 2008 Reporter Xu Yunjie Telephone 82289115

Acceptance Process License June 10th, 2008 1 (Piece) date server copy (Yang Fan in Pinyin)

Receiver signature (Xu Yunjie in Pinyin) June 11th, 2008

Translation of page 9 of 17

Case 2:10-cv-09239-CAS -JC Document 84-5 Filed 12/05/11 Page 15 of 65 Page ID #:1814

Liaison Information of Industrial and Commercial Registration

Name Xu Yunjie

Department Office

Tel: 82289115 Contact Mob: 13212913770 E-mail [email protected]

Address No. 58, Hengshan Road, Nangang District, Harbin

Zip Code 150090

Receiver of Internal Legal Documents Sent by Foreign Shareholders

(Sponsors)

Name Xu Yunjie

Address No. 58, Hengshan Road, Nangang District, Harbin, Heilongjiang Province

Zip Code 150090

Contact name Xu Yunjie

Tel: 13212913770 Contact Mob: 87005489

E-mail [email protected]

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QN-104 Certification of Enterprise Annual Audit Appointed Representative or Entrusted Agent

Name of appointed representative or entrusted agent: Harbin Zhonghelida Education Technology Co., Ltd Contact: Tel 82289115 Mob 13212913770 Commitment: Submit annual audit report and other audit materials Receive sealed copy of business license Scope of authority: Whether or not to agree that the appointed representative or entrusted agent can make modifications to the annual audit report due to incorrect entries.

Agree

□ Disagree Appointed or entrusted period of validity: from May 6th, 2008 to June 30th, 2008

The copy corresponds with the original.

ID card information: Name: Xu Yunjie (in Pinyin) Gender: female Nationality: Han Birthday: December 27th, 1981 Address: No.45, Block 2, Jiaoqu Town (North) Community, Jiamusi City, Heilongjiang Province ID Card Number: 230811198112273225 (Enterprise seal) May 6th, 2008 Prepared by State Administration for Industry & Commerce of People’s Republic of China HTTP://SAIC.GOV.CN HTTP://OYJ.SAIC.GOV.CN

Translation of page 11 of 17 Annual Accounting Statement for Primary Level Industrial And Commercial Enterprises (2007) Balance Sheet Chamber of Industry and Commerce Sheet 01 Prepared by: Harbin Zhonghelida Education Technology Co., Ltd December 2007 Monetary Unit: CNY Case 2:10-cv-09239-CAS-JCDocument84-5Filed12/05/11Page17of65ID Line At Beginning At the End of Line At Beginning At the End of Assets Liabilities and shareholders equity No. of the Year the Year No. of the Year the Year Current assets: Current liabilities: Cash 1 5,262,353.66 4,675,240.23 Short-term loans 32 Short-term investments 2 Notes payable 33 Notes receivable 3 Accounts payable 34 Accounts receivable 4 Advances from customers 35 Less: Provision for bad debts 5 Other payables 36 651,990.00 370,000.00 Net value of accounts receivable 6 Accrued wages 37 Accounts prepaid 7 Welfare funds payable 38 Subsidies receivable 8 Taxes payable 39 50,876.10 831.03 9 Profits payable 40 Other receivables 10 442,100.00 6,372,483.05 Other unpaid expenses 41 422.00 29.57 Inventories 11 56,614.99 83,228.25 Accrued expenses 42 Other business expenses 12 Long-term liabilities due within one year 43 Unamortized expenses 13 38,333.32 115,000.01 Other current liabilities 44 Unsettled G/L on current assets 14 Total current liabilities 45 703,288.10 370,860.60 Long-term debenture due in a year 15 Long-term liabilities:

Other current assets 16 Long-term loans 46 #:1816 Total current assets 17 5,799,401.97 11,245,951.54 Bonds payable 47 Short-term investments: Long-term Payables 48 Short-term investments 18 700,000.00 700,000.00 Other long-term liabilities 49 Fixed assets: including: Housing revolving funds 50 Fixed assets - original cost 19 4,749,668.98 5,186,015.98 Special payables 51 Less: accumulated depreciation 20 190,417.45 694,818.73 Total long-term liabilities 52 Fixed assets - net value 21 4,559,251.53 4,491,197.25 Deferred taxes: Disposal of fixed assets 22 Deferred tax credits 53 Construction in progress 23 Total liabilities 54 703,288.10 370,860.60 Unsettled G/L on fixed assets 24 Shareholders Equity: Total fixed assets 25 4,559,251.53 4,491,197.25 Paid-in capital (or stock) 55 11,263,751.60 20,669,057.52 Intangible assets and deferred assets: including: Capital funds owned by township 56 Intangible assets 26 251,916.69 48,416.73 Additional paid-in capital 57 -506,081.64 -1,244,077.77 Deferred assets 27 including: Supplementary current capital 58 Total intangible / deferred assets 28 251,916.69 48,416.73 Surplus reserves 59 164,200.08 164,200.08 Other long-term assets: including: Welfare reserves 60 54,733.36 54,733.36 Other long-term assets 29 Supplementary current capital 61 Deferred taxes: Undistributed profits 62 -314,587.95 -3,474,474.91 Deferred tax assets 30 Total shareholders equity 63 10,607,282.09 16,114,704.92 Total assets 31 11,310,570.19 16,485,565.52 Total liabilities and shareholders equity 64 11,310,570.19 16,485,565.52

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Annual Accounting Statement for Primary Level Industrial And Commercial Enterprises (2007) Income Statement

Chamber of Industry and Commerce Sheet 01 Prepared by: Harbin Zhonghelida Education Technology Co., Ltd December 2007 Monetary Unit: CNY Current month amount Current year cumulative amount Line Items Amount in the Amount in the No. same period last Amount current same period Amount current year year last year year I. Revenue of primary operations 1 8,179.49 179,282.05 Less: Discount & allowance 2 Net revenue of primary operations 3 8,179.49 179,282.05 Less: Costs of primary operations 4 43,677.95 763,625.19 Operating expenses 5 17,220.00 226,021.00 Primary operation taxes and surcharges 6 350.00 Add: Revenue from agency activities 7 II. Gross Profits 8 -52,718.46 -810,714.14 Add: Other operating income 9 Less: Administrative expenses 10 160,331.76 2,300,082.77 Financial expenses 11 -10,469.81 108,815.20 III. Operating profit 12 -202,580.41 -3,219,612.11 Add: Income on investment 13 Subsidy income 14 59,550.15 Non-operating income 15 375.00 Less: Non-operating expenses 16 200.00 200.00 Add: adjustment of loss and gain for previous years 17 IV. Total profit 18 -202,780.41 -3,159,886.96 Less: Income tax 19 V. Net profit 20 -202,780.41 -3,159,886.96

Translation of page 13 of 17 Case 2:10-cv-09239-CAS-JCDocument84-5Filed12/05/11Page19of65ID

CHINESE 哈尔滨众合利达教育科技有限公司 NAME OF ENTERPRISE ENGLISH Harbin Zhonghelida Education Technology company limited ADDRESS No. 58, Hengshan Road, Nangang District, Harbin TYPE OF Foreign-owned DURATION OF Fifty years BUSINESS enterprise OPERATION TOTAL USD four million sixty thousand four hundred INVESTMENT REGISTERED CERTIFICATE OF APPROVAL USD four million sixty thousand four hundred CAPITAL FOR ESTABLISHMENT OF ENTERPRISES WITH FOREING INVESTMENT IN THE PEOPLE’S REPUBLIC OF CHINA Technological development, service and transfer of #:1818 BUSINESS computer system integration and high-tech products; the APPROVAL NUMBER Foreign-Capital Enterprise SCOPE sale of new technological products developed by the Hajinghezhengzi［2005］No.0024 company; consultancy of educational information

CODE FOR IMPORT AND NAME OF INVESTORS (IN PLACE OF CAPITAL EXPORT ENTERPRISE 2301763180265 CHINESE AND ENGLISH) REGISTRATION CONTRIBUTION

DATE OF APPROVAL

DATE OF ISSUE Capital contribution China Education Alliance,inc U.S. USD 4,060,400 (Translator’s Note: the dates above are unclear because of this seal) Issue No. 2301001721 Copy 2

Translation of page 14 of 17 Case 2:10-cv-09239-CAS-JCDocument84-5Filed12/05/11Page20of65ID

Business License for Enterprise as a Legal Person NO: NO0063172 Notice

(Duplicate copy) 1. The Business License is the certificate for enterprise to obtain legal person qualification and legal operation. Registration No. 230199400002603 2. The Business License includes the original and its duplicate; both of them have the Enterprise name Harbin Zhonghelida Education Technology Co., Ltd same legal effect. 3. The Business License should be placed in a conspicuous position at the company’s Address No. 58, Hengshan Road, Nangang District, Harbin location. 4. The Business License should not be forged, altered, rented or transferred. Legal representative Yu Xiqun 5. The enterprise’s legal person shall apply for an alternate registration to the original Registered capital USD 4,060,400 registration office for a change of the registered items.

Paid-up capital USD 4,060,400 6. The registration authority shall conduct an annual inspection on the enterprise’s legal #:1819 person from March 1 to June 30. Type of enterprise Limited liability company (Invested or held by natural person) 7. When the Business License is revoked, the enterprise is not allowed to conduct the Business scope General operation items; technological development, service relevant business operation. 8. The Business License should be returned (including the original and its duplicates) and transfer of computer system integration and high-tech when cancelling the registration. products; the sale of new technological products developed 9. If the Business License is lost or ruined, a statement of cancellation should be made and the enterprise should apply for another one. by the company; consultancy of educational information.

Shareholder(Sponsor) China Education Alliance, Inc (U.S.) Result of Annual Audit

Registration Body (Seal) Validity of operations From October 23rd, 2006 to April 8th, 2055 Date of establishment August 9th, 2004 March 3rd, 2008

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Process of Joint Annual Inspection of Foreign Invested

Enterprises in Harbin Development Zone (2008) Enterprise Name: Harbin Zhonghelida Education Technology Co., Ltd Inspection Result Name of Department Rejected and Approved and signed signed

Harbin Development Zone Investment Xue Investment Promotion Bureau Promotion Chuangyou (Certificate for approval of Bureau foreign invested enterprise) th June 4 , 2008

Harbin Development Zone National Tax Ren Qiang National Tax Administration Audit (National Tax Registration) June 4th, 2008

Harbin Development Zone Local Tax Administration Local Tax Audit Xu Peng (Local Tax Registration No.) June 4th, 2008 Harbin Development Zone Finance Bureau Finance Audit Li Qing

(Financial registration June 4th, 2008 certificate)

Harbin Development Zone Statistics Audit Gao Chong Economic Development Council June 10th, 2008 (Statistics for annual audit) Provincial Administrative Bureau for Foreign Exchange

(Certificate of Registration of Foreign Exchange) Harbin Development Zone Industrial and Commercial Industrial and Yang Fan

Bureau Commercial Audit th (Business License) June 11 , 2008 Remarks June 4th, 2008

Translation of page 16 of 17 Case 2:10-cv-09239-CAS-JCDocument84-5Filed12/05/11Page22of65ID

Business License for Enterprise as a Legal Person Notice NO: NO0063172 1. The Business License is the certificate for enterprise to obtain legal person qualification (Duplicate copy) and legal operation. Registration No. 230199400002603 2. The Business License includes the original and its duplicate; both of them have the same legal effect. Enterprise name Harbin Zhonghelida Education Technology Co., Ltd 3. The Business License should be placed in a conspicuous position at the company’s Address No. 58, Hengshan Road, Nangang District, Harbin location. 4. The Business License should not be forged, altered, rented or transferred. Legal representative Yu Xiqun 5. The enterprise’s legal person shall apply for an alternate registration to the original Registered capital USD 4,060,400 registration office for a change of the registered items. 6. The registration authority shall conduct an annual inspection on the enterprise’s legal

#:1821 Paid-in capital USD 4,060,400 person from March 1 to June 30. Type of enterprise Limited liability company (Invested or held by natural person) 7. When the Business License is revoked, the enterprise is not allowed to conduct the relevant business operation. Business scope General operation items; technological development, service 8. The Business License should be returned (including the original and its duplicates)

and transfer of computer system integration and high-tech when cancelling the registration. 9. If the Business License is lost or ruined, a statement of cancellation should be made products; the sale of new technological products developed and the enterprise should apply for another one.

by the company; consultancy of educational information.

Shareholder(Sponsor) China Education Alliance, Inc (U.S.) Result of Annual Audit

Validity of operations From October 23rd, 2006 to April 8th, 2055 Date of establishment August 9th, 2004 Registration Body (Seal) 3rd, March, 2008 Translation of page 17 of 17 Case 2:10-cv-09239-CAS -JC Document 84-5 Filed 12/05/11 Page 23 of 65 Page ID #:1822

Link: http://kerrisdalecap.com/wp- content/uploads/2010/11/2006-Annual-Materials.pdf

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Joint Annual Inspection of Foreign Invested Enterprise

(Year of 2006)

Declaration: It is hereby stated that the enterprise is responsible for the authenticity of the annual report, balance sheet, income statement, and other documents submitted for this annual inspection.

Enterprise Name: Harbin Zhonghelida Education Technology Co., Ltd Registration Number: D01420 Registration Body: Administration for Industry & Commerce of Harbin Development Zone Completion Date: June 12th, 2007

Signature of legal representative: (Yu Xiqun in Pinyin) Enterprise Seal:

Prepared by State Administration for Industry & Commerce of People’s Republic of China

HTTP://WWW.SAIC.GOV.CN

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I. Registration Details

Enterprise name Harbin Zhonghelida Education Technology Co., Ltd.

Registration No. D01420 Zip Code 150090

Address No. 58, Hengshan Rd, Nangang District, Harbin, Heilongjiang Province

Name of Investor

China Education Alliance Foreign investor Country USA Inc.

Technological development, service and transfer of computer system Scope of business integration and high-tech products; sales of new technological products developed by the company; consultancy of educational information

Type of enterprise 5150- Company of limited liability (Solely owned by the foreigner)

Name of legal Yu Xiqun representative CEO Yu Xiqun General Manager Yu Xiqun

Date of From April 8, 2005 To Aug. 09, 2004 Term of operation establishment April 08, 2055

Was there a Was there a change in record of change in director No No director or supervisor filed or supervisor Does the scope of operation involve items that require No pre-registration administrative license Is the pre-registration administrative license valid No

Translation of Page 2 of 16 Case 2:10-cv-09239-CAS -JC Document 84-5 Filed 12/05/11 Page 43 of 65 Page ID #:1842

II. Statement of Capital Contribution

Total Investment 4,060,400 USD

Registered capital Chinese Part 0 USD

Foreign Part 4,060,400 USD Actual Receipt Capital Chinese Part 0 USD

Foreign Part 1,996,300 USD Forms of Currency Material Objects Intellectual Land User Others Investment Property

Amount (USD) 1,996,300 0 0 0 0

Payment to be Chinese 0 Payment Chinese 0 made this year made this Foreign 1,300,000 year Foreign 1,300,000 The registered capital No availability Payments in Installments

Installments Until

Chinese Foreign Chinese Foreign

1 Sep. 26, 2006 0 900,000 0 900,000

2 Oct 31, 2006 0 400,000 0 400,000

3 May 17, 2007 0 635,900 0 635,900

4

Reason for unpaid capital Pay in installments contribution Amount to be contributed by 0 RMB the Chinese investor with state-owned assets

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III. Statement of Foreign Investment

Whether Investment or not a Name of amount Registration Registration Investment controlling investment (Ten Proportion No. body mode stake has enterprise Thousand been Yuan) taken Beijing Hua Yu 1101031995632 Administration 0 70 Pay in No Hui Zhong for Industry & currency Technology Commerce of Development Harbin Co., Ltd Development Zone

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IV. Statement of Branch Office

Branch Name Registration Code Registration Agency Record

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V. Statement of Annual Production and Operation 434,000 RMB Including: Business 400 RMB Operating revenue Income

Domestic sales 434,000 RMB Including: Turnover 400 RMB revenue 77,000 RMB Including: custom 0 Total tax

-1,152,000 RMB Net profit -1,152,000 RMB Total profit

11,310,000 RMB Including: Long-term 700,000 RMB Total assets investment

703,000 RMB Including: Long-term 0 Total liabilities liabilities

Import and Export Conditions

Country (Region) Export Amount Import Amount

Name of Audit Agency Harbin Zhonglong Certified Public Accountants Co., Ltd.

The operation Preparation Open Yes Shutout condition Aug. 09, 2004 Opening date

Due to serious competition, there are several Reasons for deficit and abnormal other software companies that are competing in production the market Whether or not it involves contract No Name of contractor operation

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VI. Statement of Other Matters of Enterprise

Enterprise Code 0109763180265

Industry Computer service, software Industry 6200 Code

Enterprise Type Encouraged Permitted Restricted

Yes

An investment An advanced technological Involving exportable company enterprise products Yes Yes No

Nr. Of 40 Including: Nr. Of 0 Nr. Of new 0 Employees Foreigners employees Approved Date April 07, 2005 Approved License [2005]0024 Nr. State Tax 230198763180265 Financial 2301010217 Registration registration Certificate Nr. certificate Nr. Local Tax 230198763180265 Customs 999999999 Registration registration Certificate Nr. certification Nr. Foreign 230000050916 Submit the No exchange financial annual register or quarterly certificate Nr. statement

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VII. Statement of Foreign Exchange

Including: No. of Including: No. of Account No. inter-city Maximum limit foreign accounts accounts

Current 0 0 0 0 Account

Capital Account 1 0 0 406.0400

Surplus reserves * Capital reserves * Profit * foreign Deficit * foreign Profit remitted foreign foreign investment investment investment offshore this investment proportion proportion proportion year proportion 164,200.1 -506,801.6 0 314,587.9 0

Amount of Amount of equity equity transfer Amount of foreign Accumulated transfer from from Chinese capital and foreign Accumulated amount of foreign shareholders to exchange registration amount of foreign foreign debt shareholders to foreign transacted by foreign credit this year services this Chinese shareholders shareholders this year year shareholders this year 0 0 0 0 0

Completed by Accumulated Accumulated the Amount of investment Returns on amount of amount of foreign-capital allocated within the investment this returns on investment enterprise only border year investment of allocated in this field all years 0 0 0 0

Translation of Page 8 of 16 Case 2:10-cv-09239-CAS -JC Document 84-5 Filed 12/05/11 Page 49 of 65 Page ID #:1848

VIII. Review Form of Annual Audit Body

Sufficient documents are submitted in accordance with related applicable laws so it’s accepted. This is subject to your approval.

Yang Fan June 11th, 2008

Reviewer’s opinion Agree

Signature: June 12th, 2007

Report date June 08, 2007 Reporter Gu Wanchun

Phone 13313672330 Photocopy of / Business License

Acceptance date June 11, 2007 Process server

(Yang Fan) Receiver signature Date 12/06/2007

(Fu Dandan)

Translation of Page 9 of 16 Case 2:10-cv-09239-CAS-JCDocument84-5Filed12/05/11Page50of65ID

Liaison Information of Industrial and Commercial Registration

Name Fu, Dandan Department Office Landline: 82289115 Contact Mobile: 13904658895 E-mail [email protected] Address No. 58 Henshan Rd, Nangang District, Harbin City Zip Code 150090 #:1849

Receiver of Internal Legal Documents Sent by Foreign Shareholders (Sponsors)

Name Lian Haiyan Address Henshan Rd, Nangang District, Harbin City, Heilongjiang Province Zip Code 150090 Contact name Gu Wanchun Landline: 87005489 Contact Mobile: 13836175080 E-mail [email protected]

Translation of Page 10 of 16 Case 2:10-cv-09239-CAS-JCDocument84-5Filed12/05/11Page51of65ID

The Proof for Assigned Enterprise Annual Inspection Representatives or Entrusted Agent

The name for representative or Entrusted agent: Fu Dandan Contact Phone: Landline 82289115 Mobile 13904658895

Commitment: ■ Summit the Annual Check Report and other related materials ■ Fetch the stamped Business License

Scope of Power Entrusted: Do you agree the assigned representative or entrusted agent corrected the mistakes in the annual check report: #:1850 ■Agree □Not Agree

The expiry date of assignment or commitment: From April 01, 2007 to April 01, 2008

(photocopy of ID card)

April 01, 2007

State Administration for Industry & Commerce of the People’s Republic of China HTTP://WWW.SAIC.GOV.CN HTTP://QYJ.SAIC.GOV.CN

Translation of Page 11 of 16

Balance Sheet

Compiled by: Harbin Zhonghelida Education Technology Co., Ltd. 31/12/2006 Unit: RMB Case 2:10-cv-09239-CAS-JCDocument84-5Filed12/05/11Page52of65ID Row Amount at start Amount at end of Row Amount at Amount at end Assets Liabilities and shareholders equity No. of year year No. start of year of year Current assets: Current liabilities: Cash 1 1,101,441.06 5,262,353.66 Short-term loans 32 Short-term investments 2 Notes payable 33 Notes receivable 3 Accounts payable 34 Accounts receivable 4 Advances from customers 35 Less : Provision for bad debts 5 Other payables 36 2,600,000.00 651,990.00 Net value of accounts receivable 6 Accrued wages 37 0.00 Accounts prepaid 7 Welfare funds payable 38 Subsidies receivable 8 Taxes payable 39 4,723.28 50,876.10 Losses to be recovered 9 Profits payable 40 Other receivables 10 2,676.38 442,100.00 Other unpaid expenses 41 46.00 422.00 Inventories 11 22,720.00 56,614.99 Accrued expenses 42 Other business expenses to be transferred 12 Long-term liabilities due within one year 43 Unamortized expenses 13 38,333.32 Other current liabilities 44 Unsettled G/L on current assets 14 Total current liabilities 45 2,604,769.28 703,288.10

Long-term debenture due in a year 15 Long-term liabilities: #:1851 Other current assets 16 Long-term loans 46 Total current assets 17 1,126,837.44 5,799,401.97 Bonds payable 47 Short-term Investments: Long-term payables 48 Short-term Investments 18 700,000.00 Other long-term liabilities 49 Fixed assets: including: Housing revolving funds 50 Fixed assets - original cost 19 2,986,408.98 4,749,668.98 Special payables 51 Less: accumulated depreciation 20 17,214.42 190,417.45 Total long-term liabilities 52 Fixed assets - net value 21 2,969,194.56 4,559,251.53 Deferred taxes: Disposal of fixed assets 22 Deferred tax credits 53 Construction in progress 23 Total liabilities 54 2,604,769.28 703,288.10 Unsettled G/L on fixed assets 24 Shareholder’s equity: Total fixed assets 25 2,969,194.56 4,559,251.53 Paid-in capital (or stock) 55 500,000.00 11,263,751.60 Intangible assets and deferred assets: including: Capital owned by the township 56 Intangible assets 26 251,916.69 Additional paid-in capital 57 -10,253.32 -506,081.64 Deferred assets 27 including: Supplementary current capital 58 Total intangible assets and deferred assets 28 251,916.69 Surplus reserves 59 164,200.08 164,200.08 Other long-term assets: including: Welfare reserves 60 54,733.36 54,733.36 Other long-term assets 29 Supplementary current capital 61 Deferred taxes: Undistributed profits 62 837,315.96 -314,587.95 Deferred tax assets 30 Total shareholders equity 63 1,491,262.72 10,607,282.09 Total assets 31 4,096,032.00 11,310,570.19 Total liabilities and shareholders equity 64 4,096,032.00 11,310,570.19

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Income Statement Case 2:10-cv-09239-CAS-JCDocument84-5Filed12/05/11Page53of65ID

Compiled by: Harbin Zhonghelida Education Technology Co., Ltd. December 2006 Unit: RMB Row Item Current Month Current Year Cumulative Amount No. I. Revenue of primary operations 1 299,145.29 434,237.61 Less: Discount & allowance 2 53,121.93 334,913.64 Less: costs of primary operations 3 12,934.00 162,717.00 Primary operation taxes and surcharges 4 20.00 II. Gross Profits 5 233,089.36 -63,413.03 Add: Other operating income 6 Less: Administrative expenses 7 130,513.05 692,174.50 Financial expenses 8 288.00 98,001.58 III. Operating profit 9 102,288.31 -853,589.11 Add: Income on investment 10

Subsidy income 11 400.00 1,885.20 #:1852 Non-operating income 12 Less: Non-operating expenses 13 300,200.00 IV. Total profit 14 102,688.31 -1,151,903.91 Less: Income tax 15 V. Net profit 16 102,688.31 -1,151,903.91

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BUSINESS LICENSE FOR THE ENTERPRISE AS LEGAL PERSON Statement Case 2:10-cv-09239-CAS-JCDocument84-5Filed12/05/11Page54of65ID (Duplicate Copy) 1. The Business License is the certificate for enterprise to obtain Registration Number: 2301062002945(1-1) legal person qualification and legal operation. Enterprise Name: Harbin Longbo Certified Public Accountants 2. The Business License includes the original and its duplicate; Co., Ltd. both of them have the same legal effect. Address: No.026, Zhujiang Rd, Xiangfang District, Harbin City 3. The Business License should be placed in a conspicuous Legal Representative: Wang Guimin position at the company’s location. Registered Capital: 300,000 RMB 4. The Business License should not be forged, altered, rented or Paid-in Capital: 300,000 RMB transferred. Type of Enterprise: Company of limited liability 5. The enterprise’s legal person shall apply for an alternate Scope of Business: Inspect enterprise’s investment capital, registration to the original registration office for a change of the check accounting items, report forms and other accounting registered items. materials, accounting, consolidation, accounting training 6. The registration authority shall conduct an annual inspection on the enterprise’s legal person from March 1 to June 30. Term of Business: From September 22, 2006 to October 12, 7. When the Business License is revoked, the enterprise is not 2009 allowed to conduct the relevant business operation. Founding Date: March 31, 1999 8. The Business License should be returned (including the #:1853 original and its duplicates) when cancelling the registration. 9. If the Business License is lost or ruined, a statement of cancellation should be made and the enterprise should apply for another one. Certification of Practice

After evaluation, Harbin Longbo Certified Public Accountants Co., Ltd meets the requirements of Law of the People’s Republic of China on Certified Public Accountants. We hereby present this certificate as a permission to provide the professional services of certified public accountants.

Issuing Agency: The Government of Heilongjiang Province No. 23010020

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Case 2:10-cv-09239-CAS-JCDocument84-5Filed12/05/11Page55of65ID

CHINESE 哈尔滨众合利达教育科技有限公司 NAME OF ENTERPRISE Harbin Zhonghelida Education ENGLISH Technology Co., Ltd. No. 58, Hengshan Rd, Nangang District, Harbin ADDRESS City

FOREIGN DURATION CERTIFICATE OF APPROVAL TYPE OF FIFTY INVESTMENT OF BUSINESS YEARS FOR ESTABLISHMENT OF ENTERPRISES COMPANY OPERATION

WITH FOREIGN INVESTMENT IN THE TOTAL 4,060,400 USD

PEOPLE’S REPUBLIC OF CHINA INVESTMENT #:1854 REGISTERED 4,060,400 USD CAPITAL

APPROVAL NUMBER [2005] No. 0024 Technological development, service and transfer of computer system integration and SCOPE OF high-tech products; sales of new technological CODE FOR IMPORT AND BUSINESS EXPORT ENTERPRISE 2301763180265 products developed by the company; consultancy of educational information DATE OF APPROVAL 2005 NAME OF INVESTORS PLACE OF CAPITAL (in Chinese and English) REGISTRATION CONTRIBUTION DATE OF ISSUE 2006 China Education Alliance, USA 4,060,400 USD Inc. ISSUING SERIAL NUMBER 2301001721

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Case 2:10-cv-09239-CAS-JCDocument84-5Filed12/05/11Page56of65ID BUSINESS LICENSE FOR THE ENTERPRISE AS LEGAL PERSON (Duplicate Copy) Statement 1. The Business License is the certificate for enterprise to obtain Registration Number: D01420 legal person qualification and legal operation. Enterprise Name: Harbin Zhonghelida 2. The Business License includes the original and its duplicate; both of them have the same legal effect. Education Technology Co., Ltd. 3. The Business License should be placed in a conspicuous Address: No. 58, Hengshan Rd, Nangang position in the company. District, Harbin, Hei Longjiang Province 4. The Business License should not be forged, altered, rented or transferred. Legal Representative: Yu Xiqun 5. The enterprise’s legal person shall apply for an alternate Registered Capital: 4,060,400 USD registration to the original registration office for a change of the

Paid-in Capital: 1,996,291 USD registered items. #:1855 6. March 01 to June 30 every year, the operation should be Type of Enterprise: Company of limited liability inspected by the issuing unit. (Solely owned by the foreigner) 7. When the Business License is revoked, the enterprise is not Scope of Business: Technological development, allowed to conduct the relevant business operation. 8. The Business License should be returned (including the service and transfer of computer system integration and original and its duplicates) when cancelling the registration. high-tech products; sales of new technological products 9. If the Business License is lost or ruined, a statement of developed by the company; consultancy of educational cancellation should be made and the enterprise should apply for information another one. Share Holder (Initiator): China Education Alliance, Inc. (USA) Term of Business: From October 23, 2006 to Registration Authority: April 08, 2055 Record of Annual Inspection Founded Date: August 09, 2004 Yearly Inspection Date:

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Case 2:10-cv-09239-CAS -JC Document 84-5 Filed 12/05/11 Page 57 of 65 Page ID #:1856

Link:http://insidepublicaccounting.com/PDF/top100 _2009.pdf

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August 2009 THE INSIDE PUBLIC ACCOUNTING Volume 23, Number 8 2009 TOP 100 ACCOUNTING FIRMS EXCERPTED FROM THE AUGUST ’09 ISSUE

INSIDE Public Accounting is pleased to present our 19th annual report* on the nation’s Top 100 accounting firms. IPA’s rankings are one of the longest running, most accurate and up-to-date rankings of the nation’s largest accounting firms.

ABOUT THE PLATT GROUP “In The Middle Of Difficulty Lies Opportunity.” – Albert Einstein Owned by Michael Platt and Kelly Platt, (PCG) It comes as no surprise to anyone that the economic downturn has hit the provides consulting profession. But how hard? Where? When? services on practice management, marketing and leadership development For the IPA Top 100 firms, the four-year run of double-digit growth has to accounting firms, and is ended, but they still report a respectable 7.13% growth rate on average. Net the publisher of the award-winning publication, income growth, however, is flat as we moved from an almost 15% growth rate INSIDE Public Accounting. last year to not quite maintaining that level (actually a slight negative: -0.12%) this year 2008-09.

The story gains a clearer focus when we start looking regionally. Firms in the

Great Plains and the Great Lakes saw net income grow slightly this year. But firms in the Northeast, Atlantic, Southeast and the West – where there had THE IPA ALL-STARS been substantial growth in the past few years – all saw a decline in net SPECIAL EDITION IS income. COMING IN SEPTEMBER AND THE COVETED IPA Two years ago, in August 2007, IPA spotlighted firms in the West and referred BEST OF THE BEST IS DUE to “the good life,” with growth rates sizzling above 30% and net income up a OUT IN OCTOBER! whopping 38%. Twenty-four months later, Western firms are still growing at DON’T MISS THESE 6.8%, but net income is down 3% over last year. SPECIAL ISSUES Profit margins for the Top 100 as a group dipped below Subscribe today and 30% for the first time during this decade, with average net save. Go to page 8 income for the Top 100 at 29% of net fees. Also indicative

of the downturn – percentage billable by partners (45%) –

settled in at a new low for the decade. INSIDE PUBLIC ACCOUNTING A publication of

The Platt Group (For the complete list of the IPA Top 100, see pages 2-5.) www.insidepublicaccounting.com *IPA provides both the fiscal month and year-end data for all IPA Top 100 firms and ranks [email protected] firms by net revenue, unless otherwise stated.

IT IS A VIOLATION OF FEDERAL COPYRIGHT LAW TO REPRODUCE ALL OR PART OF THIS PUBLICATION WITHOUT PUBLISHER’S CONSENT. COPYRIGHT © 2009, THE PLATT GROUP Case 2:10-cv-09239-CAS -JC Document 84-5 Filed 12/05/11 Page 59 of 65 Page ID #:1858 INSIDE PUBLIC ACCOUNTING / 2 August 2009

INSIDE PUBLIC ACCOUNTING IPA’S 2009 TOP 100 FIRMS THE LARGEST ACCOUNTING FIRMS IN THE U.S. RANKED BY U.S. NET REVENUE

RANK FIRM / CHIEF NO. OF YEAR NET % 09 08 HEADQUARTERS EXECUTIVE OFFICES END REVENUE CHG.

1 1 Deloitte LLP / New York Barry Salzberg 102 5/09 $10,694,000,000 -2.6% 2 2 Ernst & Young / New York James Turley 86 6/08 $8,074,000,000 6.8 3 3 PricewaterhouseCoopers / New York Robert Moritz 74 6/08 $7,578,000,000 1.5 4 4 KPMG LLP1 / New York Timothy P. Flynn 88 9/08 $5,679,000,000 6.0 RSM McGladrey Inc. / McGladrey & Pullen 2 / C. E. Andrews 5 5 93 4/09 $1,460,715,000 -0.5 Minneapolis David Scudder 6 6 Grant Thornton / Chicago Edward E. Nusbaum 51 12/08 $1,210,341,000 6.5 7 7 BDO Seidman / Chicago Jack Weisbaum 37 6/09 $620,000,000 -5.9 CBIZ / Mayer Hoffman McCann3 Dave Sibits 8 8 144/38 12/08 $553,110,000 10.5 Cleveland / Leawood, Kan. Bill Hancock 9 9 Crowe Horwath4, Oak Brook Terrace, Ill. Charles M. Allen 25 3/09 $507,815,000 3.1 10 10 BKD, LLP / Springfield, Mo. Neal D. Spencer 32 5/09 $391,174,693 3.6 11 11 Moss Adams / Seattle Rick Anderson 18 12/08 $336,000,000 6.6 12 12 Plante & Moran / Southfield, Mich. Gordon E. Krater 19 6/09 $302,000,000 3.8 13 13 Reznick Group / Bethesda, Md. Kenneth Baggett 10 5/09 $257,853,096 -6.4 14 14 Clifton Gunderson / Milwaukee Krista M. McMasters 47 5/09 $253,127,386 2.4 15 16 J.H. Cohn / Roseland, N.J. Thomas J. Marino 11 1/09 $246,440,000 2.0 Anthony Frabotta 16 15 UHY Advisors5 / Chicago 19 12/08 $245,648,200 0.2 Rick Stein 17 17 Baker Tilly Virchow Krause6 / Madison, Wis. Timothy Christen 10 5/09 $207,200,000 -4.1 18 18 Dixon Hughes / High Point, N.C. Ken Hughes 22 5/09 $203,780,000 2.0 19 19 LarsonAllen LLP / Minneapolis Gordon A. Viere 17 10/08 $201,109,000 14.2 20 23 Marcum & Kliegman / Melville, N.Y. Jeffrey M. Weiner 10 12/08 $182,557,946 14.0 Steven Kass 21 20 Rothstein Kass / Roseland, N.J. 8 12/08 $168,487,000 27.4 Howard Altman 22 24 Eide Bailly / Fargo, N.D. Jerry A. Topp 19 4/09 $142,303,556 11.6 23 22 Eisner LLP / New York Charles Weinstein 3 1/09 $133,254,000 9.3 24 21 Weiser LLP / New York Douglas A. Phillips 4 12/08 $130,000,000 4.0 25 27 Amper, Politziner & Mattia / Edison, N.J. Howard Cohen 8 3/09 $119,939,000 9.2 Editor’s Note: Most, but not all firms provide Net Revenue for the IPA ranking. If firms provided Gross Revenue, it is noted. For ranking purposes, net revenue includes revenue from mergers. Percentage change excludes merger revenue and reflects organic growth only. 1 Gross revenue reported. 2 RSM McGladrey Inc. and McGladrey & Pullen have an alternative practice structure. RSM McGladrey is not a licensed CPA firm. 3 CBIZ and Mayer Hoffman McCann have an alternative practice structure. The two companies are separate and independent legal entities. 4 Name change from Crowe Group. 5 UHY Advisors and UHY LLP are affiliated through an alternative practice structure. 6 Name change from Virchow Krause. Source: The Platt Group / INSIDE Public Accounting

IT IS A VIOLATION OF FEDERAL COPYRIGHT LAW TO REPRODUCE ALL OR PART OF THIS PUBLICATION WITHOUT PUBLISHER’S CONSENT. COPYRIGHT © 2009, THE PLATT GROUP Case 2:10-cv-09239-CAS -JC Document 84-5 Filed 12/05/11 Page 60 of 65 Page ID #:1859 INSIDE PUBLIC ACCOUNTING / 3 August 2009

INSIDE PUBLIC ACCOUNTING IPA’S 2009 TOP 100 FIRMS THE LARGEST ACCOUNTING FIRMS IN THE U.S. RANKED BY U.S. NET REVENUE

RANK FIRM / CHIEF NO. OF YEAR NET % 09 08 HEADQUARTERS EXECUTIVE OFFICES END REVENUE CHG.

26 26 Wipfli LLP / Milwaukee Rick Dreher 15 5/09 $114,000,000 7.1

27 25 SMART Business Advisory and Consulting7 / Devon, Pa. Steve Samek 13 12/08 $98,889,000 -10.7 28 32 Cherry, Bekaert & Holland / Richmond, Va. Howard Kies 14 4/09 $98,577,189 7.0 29 30 Anchin, Block & Anchin / New York Frank A. Schettino 1 9/08 $96,600,000 6.0 30 31 Berdon LLP / New York Stanley H. Freundlich 2 12/08 $95,000,000 11.8 Arthur E. Cannata 31 33 Marks Paneth & Shron / New York 4 12/08 $89,876,000 15.5 Mark Levenfus 32 29 Goodman & Company / Virginia Beach, Va. Thomas Wilson 10 6/09 $88,450,000 2.4 33 34 Citrin Cooperman & Company / New York Joel A. Cooperman 5 12/08 $82,000,000 9.0 34 37 Carr, Riggs & Ingram / Enterprise, Ala. William H. Carr 12 9/08 $77,684,257 9.7 35 39 Beard Miller Company (bmc) / Reading, Pa. Lamar R. Stoltzfus 15 12/08 $75,233,643 8.6 36 36 Parente Randolph / Philadelphia Robert J. Ciaruffoli 12 10/08 $74,287,000 12.4 37 38 Armanino McKenna / San Ramon, Calif. Andy Armanino 3 12/08 $73,269,032 11.1 38 35 WithumSmith+Brown / Princeton, N.J. Ivan C. Brown 11 6/09 $72,103,000 2.7 39 28 The Siegfried Group8 / Wilmington, Del. Robert L. Siegfried Jr. 17 12/08 $70,934,764 -17.6 40 42 Caturano and Company9 / Boston Richard Caturano 1 6/09 $67,100,000 2.0 41 40 Rehmann10 / Saginaw, Mich. Steven D. Kelly 11 12/08 $66,557,930 3.7 42 43 Schenck Business Solutions / Appleton, Wis. William D. Goodman 9 9/08 $62,285,673 6.3 43 44 Beers + Cutler / Vienna, Va. Ed Offterdinger 1 12/08 $60,839,297 7.1 44 53 Friedman LLP / New York Bruce A. Madnick 3 12/08 $59,122,496 14.0

45 45 Morrison, Brown, Argiz & Farra / Miami Antonio L. Argiz 6 12/08 $59,115,000 6.9 46 65 Habif Arogeti & Wynne / Atlanta Joseph D. Simms 1 12/08 $59,078,000 5.0 47 50 Holthouse Carlin & Van Trigt / Santa Monica, Calif. Philip J. Holthouse 6 12/08 $58,922,684 11.9 48 48 Horne LLP / Jackson, Miss. Hugh J. Parker 13 12/08 $58,903,938 9.2 49 46 Aronson & Company / Rockville, Md. Lisa J. Cines 1 5/09 $58,700,000 5.3 50 54 Weaver and Tidwell / Fort Worth, Texas Tommy D. Lawler 4 5/09 $58,132,887 5.7 Editor’s Note: Most, but not all firms provide Net Revenue for the IPA ranking. If firms provided Gross Revenue, it is noted. For ranking purposes, net revenue includes revenue from mergers. Percentage change excludes merger revenue and reflects organic growth only. 7 Firm divested a service practice line in 2008. 8 Firm consolidated two offices in 2008. 9 Name change from Vitale Caturano & Company. 10 Name change from The Rehmann Group. Source: The Platt Group / INSIDE Public Accounting

IT IS A VIOLATION OF FEDERAL COPYRIGHT LAW TO REPRODUCE ALL OR PART OF THIS PUBLICATION WITHOUT PUBLISHER’S CONSENT. COPYRIGHT © 2009, THE PLATT GROUP Case 2:10-cv-09239-CAS -JC Document 84-5 Filed 12/05/11 Page 61 of 65 Page ID #:1860 INSIDE PUBLIC ACCOUNTING / 4 August 2009

INSIDE PUBLIC ACCOUNTING IPA’S 2009 TOP 100 FIRMS THE LARGEST ACCOUNTING FIRMS IN THE U.S. RANKED BY U.S. NET REVENUE

RANK FIRM / CHIEF NO. OF YEAR NET % 09 08 HEADQUARTERS EXECUTIVE OFFICES END REVENUE CHG.

51 58 SS&G Financial Services / Cleveland Gary Shamis 8 12/08 $57,666,545 18.1 David Morgan 52 47 Lattimore Black Morgan & Cain / Brentwood, Tenn. 3 5/09 $57,136,181 5.0 R. Michael Cain 53 59 Burr Pilger Mayer / San Francisco Stephen D. Mayer 6 12/08 $56,627,920 17.1 54 57 Novogradac & Company / San Francisco Michael J. Novogradac 12 12/08 $55,010,929 12.5 55 60 Elliott Davis / Greenville, S.C. Richard E. Davis 10 6/09 $53,722,255 11.4 James Castellano 56 51 RubinBrown LLP / St. Louis 2 5/09 $53,673,000 2.5 John F. Herber Jr. 57 61 Blackman Kallick11 / Chicago Steve Schneider 1 12/08 $53,125,340 12.7 58 49 Schneider Downs & Co. / Pittsburgh Raymond W. Buehler Jr. 2 6/09 $53,000,000 0.0 59 64 Ehrhardt Keefe Steiner & Hottman / Denver Bob Hottman 3 9/08 $52,811,953 15.0 60 55 Hein & Associates / Denver Larry Unruh 4 12/08 $51,396,279 3.4 61 67 SC&H Group / Sparks, Md. Thomas E. Stout 3 12/08 $50,985,591 22.0 62 62 Suby, Von Haden & Associates / Madison, Wis. Jack Cotton 5 5/09 $48,871,784 3.5 63 97 Kearney & Company / Alexandria, Va. Ed Kearney 3 12/08 $48,383,658 58.6 64 56 Kaufman Rossin Group12 / Miami James R. Kaufman 5 5/09 $47,000,000 -4.0 65 63 Frank, Rimerman & Co. / Palo Alto, Calif. Bryan C. Polster 4 5/09 $46,700,000 -0.7 Kevin J. Keane 66 66 O’Connor Davies Munns & Dobbins / New York 5 12/08 $45,500,000 8.3 Thomas P. Dobbins 67 71 Katz, Sapper & Miller / Indianapolis David Resnick 2 12/08 $44,454,000 2.8 68 74 Sikich LLP / Aurora, Ill. James A. Sikich 7 12/08 $43,919,113 8.0 69 68 Clark, Schaefer, Hackett & Co. / Middletown, Ohio Carl R. Coburn 6 6/09 $43,586,160 3.2 70 70 Hill, Barth & King / Boardman, Ohio Chris Allegretti 15 8/08 $43,000,000 4.8 71 68 Margolin, Winer & Evens1 / Garden City, N.Y. Teddy Selinger 2 12/08 $42,500,000 1.9 72 80 Blum, Shapiro & Co. / West Hartford, Conn. Carl R. Johnson 3 12/08 $41,502,659 13.8 73 86 Rosen Seymour Shapss Martin & Co. / New York Martin Greenberg 2 12/08 $41,150,000 7.0 74 94 Argy, Wiltse & Robinson / McLean, Va. Paul J. Argy 4 12/08 $41,000,327 25.1 75 75 Watkins Meegan LLC13 / Bethesda, Md. Michael R. Micholas 4 12/08 $41,000,000 6.0 Editor’s Note: Most, but not all firms provide Net Revenue for the IPA ranking. If firms provided Gross Revenue, it is noted. For ranking purposes, net revenue includes revenue from mergers. Percentage change excludes merger revenue and reflects organic growth only. 1 Gross revenue reported. 11 Name change from Blackman Kallick Bartelstein. 12 Name change from Kaufman, Rossin & Co. 13 Name change from Watkins, Meegan, Drury & Company. Source: The Platt Group / INSIDE Public Accounting

IT IS A VIOLATION OF FEDERAL COPYRIGHT LAW TO REPRODUCE ALL OR PART OF THIS PUBLICATION WITHOUT PUBLISHER’S CONSENT. COPYRIGHT © 2009, THE PLATT GROUP Case 2:10-cv-09239-CAS -JC Document 84-5 Filed 12/05/11 Page 62 of 65 Page ID #:1861 INSIDE PUBLIC ACCOUNTING / 5 August 2009

INSIDE PUBLIC ACCOUNTING IPA’S 2009 TOP 100 FIRMS THE LARGEST ACCOUNTING FIRMS IN THE U.S. RANKED BY U.S. NET REVENUE

RANK FIRM / CHIEF NO. OF YEAR NET % 09 08 HEADQUARTERS EXECUTIVE OFFICES END REVENUE CHG.

76 79 LeMaster & Daniels / Spokane, Wash. Scott J. Dietzen 11 5/09 $40,754,120 11.0 77 82 Joseph Decosimo and Company / Chattanooga, Tenn. Nick Decosimo 8 12/08 $40,000,000 12.6

78 83 Warren Averett Kimbrough & Marino / Birmingham, Ala. James A. Warren 3 6/09 $38,838,006 6.0 79 87 Holtz Rubenstein Reminick / Melville, N.Y. Francis J. Candia 2 9/08 $38,253,156 15.4 80 72 Lurie Besikof Lapidus & Company / Minneapolis Beth Kieffer Leonard 1 4/09 $37,500,000 -4.0 81 90 Blue & Co. / Carmel, Ind. Douglas M. Hasler 6 12/08 $37,312,311 15.2 Squar, Milner, Peterson, Miranda & Williamson / 82 78 Stephen P. Milner 4 12/08 $37,217,410 -9.0 Newport Beach, Calif. 83 84 Mohler Nixon & Williams / Campbell, Calif. Leinani Nakamura 3 4/09 $36,919,150 5.5 84 73 SingerLewak / Los Angeles David Krajanowski 6 12/08 $36,848,788 -5.4 85 98 The Bonadio Group / Pittsford, N.Y. Thomas Bonadio 6 4/09 $36,703,000 6.0 86 89 Postlethwaite & Netterville / Baton Rouge, La. Bill Balhoff 10 4/09 $35,757,232 9.5 87 76 Doeren Mayhew14 / Troy, Mich. Mark A. Crawford 1 9/08 $35,550,000 -7.3 88 92 Alpern Rosenthal / Pittsburgh Emanuel DiNatale 2 12/08 $32,710,296 1.7

89 NR Vavrinek, Trine, Day & Co.15 / Rancho Cucamonga, Calif. Ronald S. White 5 12/08 $32,563,146 14.0 90 NR Whitley Penn / Fort Worth, Texas Larry G. Autrey 2 12/08 $32,531,820 19.7 91 100 Seiler LLP16 / Redwood City, Calif. James DeMartini III 2 12/08 $32,500,000 10.0 92 96 Kemper CPA Group / Greenfield, Ind. Ronald J. Dezelan 24 4/09 $32,459,961 3.0 93 100 Frazier & Deeter16 / Atlanta David A. Deeter 2 12/08 $32,313,000 9.4 94 91 CCR LLP / Westborough, Mass. David A. Platt 4 12/08 $32,300,000 0.0 95 NR Freed Maxick & Battaglia15 / Buffalo, N.Y. Robert M. Glaser 3 4/09 $32,239,960 10.2 96 88 Stonefield Josephson / Los Angeles Jeff Garrison 6 12/08 $32,225,795 -1.8 97 NR Rea & Associates15 / New Philadelphia, Ohio Lee Beall 13 10/08 $32,200,000 9.3 98 95 Mauldin & Jenkins / Atlanta Elton Wolf 4 5/09 $32,177,843 2.1 99 NR Raffa, P.C. / Washington, D.C. Thomas J. Raffa 2 12/08 $31,668,504 18.0 100 85 Berkowitz Dick Pollack & Brant / Miami Richard A. Berkowitz 2 12/08 $30,846,396 -10.7 Editor’s Note: Most, but not all firms provide Net Revenue for the IPA ranking. If firms provided Gross Revenue, it is noted. For ranking purposes, net revenue includes revenue from mergers. Percentage change excludes merger revenue and reflects organic growth only. 14 Firm discontinued Doeren Mayhew Financial Services Group. 15 Firms returned to the IPA Top 100 rankings after an absence. 16 Tie for No. 100 in 2008. Source: The Platt Group / INSIDE Public Accounting

IT IS A VIOLATION OF FEDERAL COPYRIGHT LAW TO REPRODUCE ALL OR PART OF THIS PUBLICATION WITHOUT PUBLISHER’S CONSENT. COPYRIGHT © 2009, THE PLATT GROUP Case 2:10-cv-09239-CAS -JC Document 84-5 Filed 12/05/11 Page 63 of 65 Page ID #:1862 INSIDE PUBLIC ACCOUNTING / 6 August 2009

The IPA Top 100 Firms Growth By Region

The streak of double-digit growth for the IPA Top 100 has ended, but fee growth continues in postive territory. Income growth, however, all depends on location, with firms on the coasts struggling to continue to grow net income from the feverish pace

of recent years. „IPA

Top 100 Firms (Growth Rate) By Region - 2009

Fees 7.1% Income -1.4%

Fees 6.8% Fees 5.4% Income 4.5% Income -3.2% Fees 6.6% Income 4.5%

Fees 9.1% Income -0.7%

Source: INSIDE Public Accounting www.insidepublicaccounting.com

IT IS A VIOLATION OF FEDERAL COPYRIGHT LAW TO REPRODUCE ALL OR PART OF THIS PUBLICATION WITHOUT PUBLISHER’S CONSENT. COPYRIGHT © 2009, THE PLATT GROUP Case 2:10-cv-09239-CAS -JC Document 84-5 Filed 12/05/11 Page 64 of 65 Page ID #:1863 INSIDE PUBLIC ACCOUNTING / 7 August 2009

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