Commitments and Contingencies
are presently involved in two putative class action lawsuits filed
in the U.S. District Court for the Central District of
California. The first action, Apicella v. China
Education Alliance, Inc., et al., No. 10-cv-09239 (CAS)(JCx), was
filed on December 2, 2010; the second action, Clemens v. China
Education Alliance, Inc., et al., No. 10-cv-09987 (JFW)(AGRx), was
filed on December 28, 2010. On March 2, 2011, both
actions were consolidated in In re China Education Alliance, Inc.
Securities Litigation, No. 10-cv-09239 (CAS) (JCx)(C.D.
Cal.). The Consolidated Amended Complaint alleges that
we and the other defendants are liable under Section 10(b) of the
Securities Exchange Act of 1934 and SEC Rule 10b-5 for allegedly
false and misleading statements and omissions in our public filings
between 2008 and 2010 and in an investor conference call in
December 2010. The Consolidated Amended Complaint also
asserts claims under Section 20(a) of the Securities Exchange Act
of 1934 against the individual defendants. The Court
denied the company's motion to dismiss the Consolidated Amended
Complaint on October 11, 2011. In addition, on October
28, 2011, a derivative lawsuit was filed on behalf of the company
in the U.S. District Court for the Central District of California
against the individuals named as defendants in the securities class
action lawsuit for alleged breaches of fiduciary duties based on
similar facts as alleged in the class action. The
derivative lawsuit is Padnos v. Yu, et al., No. 11-cv-8973 (C.D.
Cal.). If we were to be subsequently involved in more
litigation proceedings, and/or we are unable to settle these
lawsuits or any other similar lawsuits on terms favorable to us
and/or if adverse judgments were to be levied against us, our
profitability could be severely impacted. Also, these
lawsuits could result in substantial costs, potential liabilities
and the diversion of management’s attention and resources and
result in a material adverse effect on our financial condition and
results of operations.
Company and its subsidiaries are self-insured, and they do not
carry any property insurance, general liability insurance, or any
other insurance that covers the risks of their business operations.
As a result any material loss or damage to its properties or other
assets, or personal injuries arising from its business operations
would have a material adverse effect on the Company’s
financial condition and operations.
a loss should occur, or if management deems that a loss is
probable, relating to our Company's product or performance of our
services, an accrual for such loss or losses would be recognized at
such time of occurrence or determination. The Company has not
accrued any losses as of September 30, 2011.