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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 20-F





(Mark One)

| ̈ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------------

OR



|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended September 30, 2009

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

OR



| ̈ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | -------------------------------------------------------------------------------------------

Date of event requiring this shell company report

For the transition period from  to

Commission file number: 001-34122





China Distance Education Holdings Limited

(Exact
name of Registrant as specified in its charter)

Not applicable

(Translation of Registrants name into English)





Cayman Islands

(Jurisdiction of incorporation or
organization)

18th Floor, Xueyuan International Tower

1 Zhichun Road, Haidian District

Beijing 100083,
Peoples Republic of China

(Address of principal executive offices)





Securities registered or to be registered pursuant to Section 12(b) of the Act.





|                                                                                                |  |                                          
|----------------------------------------------------------------------------------------------- |  | -----------------------------------------
|Title of each class                                                                             |  | Name of each exchange on which registered
|American Depositary Shares, each representing four ordinary shares, par value $0.0001 per share |  | New York Stock Exchange, Inc.            





Securities
registered or to be registered pursuant to Section 12(g) of the Act.

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None





Indicate the
number of outstanding shares of each of the issuers classes of capital or common stock as of the close of the period covered by the annual report: 138,765,685 ordinary shares

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.    Yes   ̈    No  x

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes   ̈    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days.    Yes  x    No   ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition
of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act (check one):



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated filer         |  | x
|                        |  |                                                  | 
|Non-accelerated filer   |  |  ̈  (Do not check if a smaller reporting company) |  | Smaller reporting company |  |  ̈

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:



|               |  |                                        |  |           
|-------------- |  | -------------------------------------- |  | ----------
|U.S. GAAP    x |  | International Financial Reporting     ̈ |  | Other     ̈
|               |  | Standards as issued by the             |  |           
|               |  | International Accounting               |  |           
|               |  | Standards Board     ̈                   |  |           

If Other has been checked in response to the previous question, indicate by check mark
which financial statement item the registrant has elected to follow:

Item 17      ̈        Item 18     ̈

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    Yes   ̈    No  x









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Table of Contents

TABLE OF CONTENTS



|                                                                                      |  |     
|------------------------------------------------------------------------------------- |  | ----
|                                                                                      |  | Page
|INTRODUCTION                                                                          |  | 1   
|                                                                                      | 
|PART I                                                                                |  | 2   
|                                                                                      | 
|ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS                         |  | 2   
|                                                                                      | 
|ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE                                       |  | 2   
|                                                                                      | 
|ITEM 3. KEY INFORMATION                                                               |  | 2   
|                                                                                      | 
|ITEM 4. INFORMATION ON THE COMPANY                                                    |  | 28  
|                                                                                      | 
|ITEM 4A. UNRESOLVED STAFF COMMENTS                                                    |  | 52  
|                                                                                      | 
|ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                  |  | 52  
|                                                                                      | 
|ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                    |  | 76  
|                                                                                      | 
|ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                             |  | 89  
|                                                                                      | 
|ITEM 8. FINANCIAL INFORMATION                                                         |  | 90  
|                                                                                      | 
|ITEM 9. THE OFFER AND LISTING                                                         |  | 92  
|                                                                                      | 
|ITEM 10. ADDITIONAL INFORMATION                                                       |  | 92  
|                                                                                      | 
|ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   |  | 99  
|                                                                                      | 
|ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                       |  | 99  
|                                                                                      | 
|PART II                                                                               |  | 100 
|                                                                                      | 
|ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                              |  | 100 
|                                                                                      | 
|ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS |  | 100 
|                                                                                      | 
|ITEM 15. CONTROLS AND PROCEDURES                                                      |  | 100 
|                                                                                      | 
|ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT                                            |  | 102 
|                                                                                      | 
|ITEM 16B. CODE OF ETHICS                                                              |  | 102 
|                                                                                      | 
|ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES                                      |  | 103 
|                                                                                      | 
|ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                  |  | 103 
|                                                                                      | 
|ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS      |  | 103 
|                                                                                      | 
|ITEM 16F. CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT                                |  | 104 
|                                                                                      | 
|ITEM 16G. CORPORATE GOVERNANCE                                                        |  | 104 
|                                                                                      | 
|PART III                                                                              |  | 105 
|                                                                                      | 
|ITEM 17. FINANCIAL STATEMENTS                                                         |  | 105 
|                                                                                      | 
|ITEM 18. FINANCIAL STATEMENTS                                                         |  | 105 
|                                                                                      | 
|ITEM 19. EXHIBITS                                                                     |  | 105 



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INTRODUCTION

Except where the context otherwise requires and for purposes of this annual report only:



| |  |  | all references to years are to the calendar year from January 1 to December 31 and references to our fiscal year or years are to the fiscal
year or years ended September 30;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we, us, our company, our, and CDEL refer to China Distance Education Holdings Limited and
its subsidiaries and PRC affiliated entity, Beijing Champion Hi-Tech Co., Ltd., or Beijing Champion and its subsidiaries, as the context requires;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | China, Chinese and PRC refers to the Peoples Republic of China, excluding, for purposes of this annual report
only, Taiwan and the Special Administrative Regions of Hong Kong and Macau;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | all references to Renminbi or RMB are to the legal currency of China, and all references to U.S. dollars,
dollars, $ or US$ are to the legal currency of the United States;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | U.S. GAAP refers to generally accepted accounting principles in the United States; and
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | PRC GAAP refers to generally accepted accounting principles in the Peoples Republic of China.
| | - |  | ------------------------------------------------------------------------------------------------

This annual report on Form 20-F includes our audited consolidated statements of operation data for the years ended September 30, 2007,
2008 and 2009 and audited consolidated balance sheet data as of September 30, 2008 and 2009.

We completed our initial
public offering of 8,750,000 ADSs, each representing four ordinary shares, on August 4, 2008. Our ADSs were initially listed on NYSE Arca under the symbol DL. On February 4, 2009, we transferred the listing and trading of our
ADSs from NYSE Arca to the New York Stock Exchange, Inc., or the NYSE, under the same symbol DL.

FORWARD-LOOKING STATEMENTS

This annual report on Form 20-F contains forward-looking statements that are based
on our current expectations, assumptions, estimates and projections about us and our industry. All statements other than statements of historical fact in this annual report are forward-looking statements. In some cases, these forward-looking
statements can be identified by words and phrases such as may, should, intend, predict, potential, continue, will, expect, anticipate,
estimate, plan, believe, is /are likely to or the negative form of these words and phrases or other comparable expressions. The forward-looking statements included in this annual report relate to,
among others:



| |  |  | our goals and growth strategies;
| | - |  | --------------------------------



| |  |  | our future prospects and market acceptance of our online courses and other products and services;
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | our future business development and results of operations;
| | - |  | ----------------------------------------------------------



| |  |  | projected revenues, profits, earnings and other estimated financial information;
| | - |  | --------------------------------------------------------------------------------



| |  |  | projected enrollment numbers;
| | - |  | -----------------------------



| |  |  | our plans to expand and enhance our online courses and other products and services;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | competition in the online education and test preparation markets; and
| | - |  | ---------------------------------------------------------------------



| |  |  | Chinese laws, regulations and policies, including those applicable to the Internet, Internet content providers, the education and telecommunications
industries, mergers and acquisitions, taxation and foreign exchange.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

These forward-looking statements
involve various risks, assumptions and uncertainties. Although we believe that our expectations expressed in these forward-looking statements are reasonable, our expectations may turn out to be incorrect. Our actual results could be materially
different from or worse than our expectations. Important risks and other factors that could cause our actual results to be materially different from our expectations are generally set forth in Item 3.D. Key Information  Risk
Factors, Item 5.A. Operating and Financial Review and Prospects  Operating Results  General Factors Affecting Our Results of Operations, Item 5.A. Operating and Financial Review and Prospects  Operating
Results  Specific Factors Affecting Our Results of Operations, Item 11. Quantitative and Qualitative Disclosures About Market Risk, and elsewhere in this annual report.

The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are
made in this annual report. All forward-looking statements included herein attributable to us or other parties or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this
section. We undertake no obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, after the date of this annual report or to reflect the occurrence of unanticipated events.



1



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Market Data and Forecasts

This annual report also contains data related to Chinas education, online education, professional education, test preparation and
self-education markets that include projections based on a number of assumptions. These markets may not grow at the rates projected by market data, or at all. The failure of these markets to grow at the projected rates may have a material adverse
effect on our business prospects, results of operations and the market price of our ADSs. In addition, the relatively new and rapidly changing nature of these markets subjects any projections or estimates relating to the growth prospects or future
condition of these markets to significant uncertainties. If any one or more of the assumptions underlying the market data turns out to be incorrect, actual results may differ from the projections based on these assumptions. You should not place
undue reliance on these forward-looking statements.

This annual report contains information and statistics relating to
Chinas economy and the industries in which we operate derived from various publications issued by PRC governmental entities which have not been independently verified by us. The information in such official sources may not be consistent with
other information compiled in or outside China.

PART I



|ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
|------- | -----------------------------------------------------

Not applicable.



|ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE
|------- | ---------------------------------------

Not applicable.



|ITEM 3. | KEY INFORMATION
|------- | ---------------

A.
Selected Consolidated Financial Data

The following selected consolidated statements of operations data for the fiscal
years ended September 30, 2007, 2008 and 2009 (other than ADS data), and the selected consolidated balance sheets data as of September 30, 2008 and 2009, are derived from our audited consolidated financial statements included elsewhere in
this annual report and should be read in conjunction with, and are qualified in their entirety by reference to, these consolidated financial statements and related notes. Our selected consolidated statements of operations data for the years ended
September 30, 2005 and 2006 and the selected consolidated balance sheets data as of September 30, 2006 and 2007 are derived from our audited consolidated financial statements, which are not included in this annual report. Our selected
consolidated balance sheet data as of September 30, 2005 is derived from our unaudited consolidated financial statements, which are not included in this annual report. The following information should also be read in conjunction with Item
5. Operating and Financial Review and Prospects. Our audited consolidated financial statements are prepared in accordance with U.S. GAAP. We have prepared our unaudited consolidated financial information on the same basis as our audited
consolidated financial statements. The unaudited financial information includes all adjustments, consisting only of normal and recurring adjustments, that we consider necessary for a fair presentation of our financial position and operating results
for the periods presented. Our historical results for any prior period are not necessarily indicative of results to be expected for any future period.



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|                                                                                                                                                                                                                |  |                                                               |   |  |             |    |  |            |   |  |             |   |  |             |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------- | - |  | ----------- | -- |  | ---------- | - |  | ----------- | - |  | ----------- | -
|                                                                                                                                                                                                                |  | For the Year Ended September 30,                              |  
|                                                                                                                                                                                                                |  | 2005                                                          |   |  | 2006        |    |  | 2007       |   |  | 2008        |   |  | 2009        |  
|                                                                                                                                                                                                                |  | (In thousands of $, except share, per share and per ADS data) |  
|Selected Consolidated Statement of Operations Data:                                                                                                                                                             |  |                                                               |   |  |             |    |  |            |   |  |             |   |  |             |  
|Net revenues:                                                                                                                                                                                                   |  |                                                               |   |  |             |    |  |            |   |  |             |   |  |             |  
|Online education services                                                                                                                                                                                       |  | 3,630                                                         |   |  | 5,371       |    |  | 10,637     |   |  | 13,900      |   |  | 22,279      |  
|Books and reference materials                                                                                                                                                                                   |  | 154                                                           |   |  | 174         |    |  | 484        |   |  | 1,616       |   |  | 2,709       |  
|Others                                                                                                                                                                                                          |  | 55                                                            |   |  | 122         |    |  | 725        |   |  | 2,058       |   |  | 5,133       |  
|                                                                                                                                                                                                                |  |                                                               |   |  |             |    |  |            |   |  |             |   |  |             |  
|Total net revenues                                                                                                                                                                                              |  | 3,839                                                         |   |  | 5,667       |    |  | 11,846     |   |  | 17,574      |   |  | 30,121      |  
|                                                                                                                                                                                                                |  |                                                               |   |  |             |    |  |            |   |  |             |   |  |             |  
|Cost of sales:                                                                                                                                                                                                  |  |                                                               |   |  |             |    |  |            |   |  |             |   |  |             |  
|Cost of services                                                                                                                                                                                                |  | (1,531                                                        | ) |  | (2,566      | )  |  | (3,553     | ) |  | (5,981      | ) |  | (12,834     | )
|Cost of tangible goods sold                                                                                                                                                                                     |  | (117                                                          | ) |  | (147        | )  |  | (354       | ) |  | (818        | ) |  | (1,577      | )
|                                                                                                                                                                                                                |  |                                                               |   |  |             |    |  |            |   |  |             |   |  |             |  
|Total cost of sales                                                                                                                                                                                             |  | (1,648                                                        | ) |  | (2,713      | )  |  | (3,907     | ) |  | (6,799      | ) |  | (14,411     | )
|                                                                                                                                                                                                                |  |                                                               |   |  |             |    |  |            |   |  |             |   |  |             |  
|Gross profit                                                                                                                                                                                                    |  | 2,191                                                         |   |  | 2,954       |    |  | 7,939      |   |  | 10,775      |   |  | 15,710      |  
|Operating expenses:                                                                                                                                                                                             |  |                                                               |   |  |             |    |  |            |   |  |             |   |  |             |  
|Selling expenses                                                                                                                                                                                                |  | (339                                                          | ) |  | (1,676      | )  |  | (1,285     | ) |  | (2,448      | ) |  | (6,722      | )
|General and administrative expenses                                                                                                                                                                             |  | (1,541                                                        | ) |  | (1,400      | )  |  | (1,638     | ) |  | (3,906      | ) |  | (7,432      | )
|                                                                                                                                                                                                                |  |                                                               |   |  |             |    |  |            |   |  |             |   |  |             |  
|Total operating expenses                                                                                                                                                                                        |  | (1,880                                                        | ) |  | (3,076      | )  |  | (2,923     | ) |  | (6,354      | ) |  | (14,154     | )
|Other operating income                                                                                                                                                                                          |  |                                                              |   |  |            |    |  | 131        |   |  | 209         |   |  | 292         |  
|Other expense                                                                                                                                                                                                   |  |                                                              |   |  |            |    |  |           |   |  | (144        | ) |  |            |  
|                                                                                                                                                                                                                |  |                                                               |   |  |             |    |  |            |   |  |             |   |  |             |  
|Operating income (loss)                                                                                                                                                                                         |  | 311                                                           |   |  | (122        | )  |  | 5,147      |   |  | 4,486       |   |  | 1,848       |  
|Interest income (expense), net                                                                                                                                                                                  |  | (28                                                           | ) |  | (27         | )  |  | (5         | ) |  | 176         |   |  | 742         |  
|Exchange loss                                                                                                                                                                                                   |  |                                                              |   |  |            |    |  |           |   |  | (75         | ) |  | (6          | )
|Equity in loss of an affiliated company                                                                                                                                                                         |  |                                                              |   |  |            |    |  |           |   |  | (64         | ) |  |            |  
|                                                                                                                                                                                                                |  |                                                               |   |  |             |    |  |            |   |  |             |   |  |             |  
|Income (loss) before income taxes                                                                                                                                                                               |  | 283                                                           |   |  | (149        | )  |  | 5,142      |   |  | 4,523       |   |  | 2,584       |  
|                                                                                                                                                                                                                |  |                                                               |   |  |             |    |  |            |   |  |             |   |  |             |  
|Income tax (expense) benefit                                                                                                                                                                                    |  | 22                                                            |   |  | 198         |    |  | 307        |   |  | (526        | ) |  | (1,478      | )
|Minority interest, net of taxes                                                                                                                                                                                 |  |                                                              |   |  |            |    |  |           |   |  |            |   |  | 82          |  
|                                                                                                                                                                                                                |  |                                                               |   |  |             |    |  |            |   |  |             |   |  |             |  
|Net Income                                                                                                                                                                                                      |  | 305                                                           |   |  | 49          |    |  | 5,449      |   |  | 3,997       |   |  | 1,188       |  
|Accretion of Series A convertible contingently redeemable preferred shares to redemption amount and accretion to beneficial
conversion feature of Series A convertible contingently redeemable preferred shares |  |                                                              |   |  |            |    |  | (903       | ) |  | (9,332      | ) |  |            |  
|                                                                                                                                                                                                                |  |                                                               |   |  |             |    |  |            |   |  |             |   |  |             |  
|Net income (loss) attributable to ordinary shareholders                                                                                                                                                         |  | 305                                                           |   |  | 49          |    |  | 4,546      |   |  | (5,335      | ) |  | 1,188       |  
|                                                                                                                                                                                                                |  |                                                               |   |  |             |    |  |            |   |  |             |   |  |             |  
|Net income (loss) per share:                                                                                                                                                                                    |  |                                                               |   |  |             |    |  |            |   |  |             |   |  |             |  
|Basic                                                                                                                                                                                                           |  | Nil                                                           |   |  | Nil         |    |  | 0.04       |   |  | (0.05       | ) |  | 0.01        |  
|Diluted                                                                                                                                                                                                         |  | Nil                                                           |   |  | Nil         |    |  | 0.04       |   |  | (0.05       | ) |  | 0.01        |  
|Weighted average number of ordinary shares outstanding:                                                                                                                                                         |  |                                                               |   |  |             |    |  |            |   |  |             |   |  |             |  
|Basic                                                                                                                                                                                                           |  | 100,000,000                                                   |   |  | 100,000,000 |    |  | 95,415,512 |   |  | 100,373,673 |   |  | 140,260,811 |  
|Diluted                                                                                                                                                                                                         |  | 100,000,000                                                   |   |  | 100,000,000 |    |  | 95,415,512 |   |  | 100,373,673 |   |  | 140,475,941 |  
|Net income (loss) per ADS:(1)                                                                                                                                                                                   |  |                                                               |   |  |             |    |  |            |   |  |             |   |  |             |  
|Basic                                                                                                                                                                                                           |  | 0.01                                                          |   |  | Nil         |    |  | 0.16       |   |  | (0.20       | ) |  | 0.03        |  
|Diluted                                                                                                                                                                                                         |  | 0.01                                                          |   |  | Nil         |    |  | 0.16       |   |  | (0.20       | ) |  | 0.03        |  
|Share-based compensation expenses:                                                                                                                                                                              |  |                                                               |   |  |             |    |  |           |   |  |             |   |  |             |  
|Cost of services                                                                                                                                                                                                |  |                                                              |   |  |            |    |  |           |   |  | 689         |   |  | 1,854       |  
|Selling expenses                                                                                                                                                                                                |  |                                                              |   |  |            |    |  |           |   |  | 161         |   |  | 454         |  
|General and administrative expenses                                                                                                                                                                             |  |                                                              |   |  |            |    |  |           |   |  | 629         |   |  | 1,612       |  
|                                                                                                                                                                                                                |  |                                                               |   |  |             |    |  |            |   |  |             |   |  |             |  
|                                                                                                                                                                                                                |  |                                                              |   |  |            |    |  |           |   |  | 1,479       |   |  | 3,920       |  
|                                                                                                                                                                                                                |  |                                                               |   |  |             |    |  |            |   |  |             |   |  |             |  
|Other Consolidated Financial Data:                                                                                                                                                                              |  |                                                               |   |  |             |    |  |            |   |  |             |   |  |             |  
|Gross Margin(2)                                                                                                                                                                                                 |  | 57.1                                                          | % |  | 52.1        | %  |  | 67.0       | % |  | 61.3        | % |  | 52.2        | %
|Operating Margin(3)                                                                                                                                                                                             |  | 8.1                                                           | % |  | (2.2        | )% |  | 43.5       | % |  | 25.5        | % |  | 6.1         | %
|Net Margin(4)                                                                                                                                                                                                   |  | 7.9                                                           | % |  | 0.9         | %  |  | 46.0       | % |  | 22.7        | % |  | 3.9         | %



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|(1) | One ADS represents four ordinary shares.
|--- | ----------------------------------------

|(2) | Gross margin represents gross profit as a percentage of net revenues.
|--- | ---------------------------------------------------------------------

|(3) | Operating margin represents income (loss) from operations as a percentage of net revenues.
|--- | ------------------------------------------------------------------------------------------

|(4) | Net margin represents net income as a percentage of net revenues.
|--- | -----------------------------------------------------------------



|                                                                                |  |                     |  |       |  |        |  |        |  |       
|------------------------------------------------------------------------------- |  | ------------------- |  | ----- |  | ------ |  | ------ |  | ------
|                                                                                |  | As of September 30,
|                                                                                |  | 2005                |  | 2006  |  | 2007   |  | 2008   |  | 2009  
|                                                                                |  | (In thousands of $)
|Consolidated Balance Sheet Data:                                                |  |                     |  |       |  |        |  |        |  |       
|Cash and cash equivalents                                                       |  | 1,115               |  | 690   |  | 7,106  |  | 66,223 |  | 21,437
|Total assets                                                                    |  | 3,267               |  | 3,988 |  | 19,928 |  | 85,326 |  | 92,533
|Deferred revenue                                                                |  | 935                 |  | 1,784 |  | 2,524  |  | 3,891  |  | 7,643 
|Refundable fees                                                                 |  | 23                  |  | 53    |  | 1,907  |  | 4,688  |  | 1,781 
|Total liabilities                                                               |  | 2,619               |  | 3,267 |  | 6,241  |  | 12,576 |  | 15,661
|Series A convertible contingently redeemable preferred shares                   |  |                    |  |      |  | 903    |  |       |  |      
|Total shareholders equity                                                      |  | 648                 |  | 721   |  | 12,784 |  | 72,750 |  | 73,909
|Total liabilities, preferred shares, minority interest and shareholders equity |  | 3,267               |  | 3,988 |  | 19,928 |  | 85,326 |  | 92,533

Exchange Rate
Information

We use U.S. dollars as our reporting currency in our financial statements and in this annual report. When
reporting the operating results and financial position of our PRC subsidiaries and affiliated entities, we use the monthly average exchange rate for the year and the exchange rate at the balance sheet date, respectively, as published by the
Peoples Bank of China. In other parts of this annual report, any Renminbi denominated amounts are accompanied by translations. With respect to amounts not recorded in our consolidated financial statements included elsewhere in this annual
report, all translations from Renminbi to U.S. dollars were made at the noon buying rate in the City of New York for cable transfers in Renminbi per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York. Unless
otherwise noted, all translations from Renminbi to U.S. dollars have been made at RMB 6.8262 to $1.00, the noon buying rate in effect as of September 30, 2009. We make no representation that the Renminbi or U.S. dollar amounts referred to in
this annual report could have been or could be converted into U.S. dollars or Renminbi, as the case may be, at any particular rate or at all. The PRC government restricts or prohibits the conversion of Renminbi into foreign currency and foreign
currency into Renminbi for certain types of transactions. On March 26, 2010, the noon buying rate was RMB 6.8269 to $1.00.

The following table sets forth information concerning exchange rates between the Renminbi and the U.S. dollar for the periods indicated. These rates are provided solely for your convenience and are not necessarily the exchange rates
that we used in this annual report or will use in the preparation of any other information to be provided to you.



|                                     |  |                                            |  |        |  |        |  |          
|------------------------------------ |  | ------------------------------------------ |  | ------ |  | ------ |  | ---------
|                                     |  | Renminbi per U.S. dollars Noon Buying Rate
|                                     |  | Average(1)                                 |  | Low    |  | High   |  | PeriodEnd
|Fiscal year ended September 30, 2005 |  | 8.2322                                     |  | 8.2768 |  | 8.0871 |  | 8.0920   
|Fiscal year ended September 30, 2006 |  | 8.0178                                     |  | 8.0924 |  | 7.8965 |  | 7.9040   
|Fiscal year ended September 30, 2007 |  | 7.6947                                     |  | 7.9168 |  | 7.4928 |  | 7.4928   
|Fiscal year ended September 30, 2008 |  | 7.0936                                     |  | 7.5158 |  | 6.7800 |  | 6.7899   
|Fiscal year ended September 30, 2009 |  | 6.8302                                     |  | 6.8842 |  | 6.8171 |  | 6.8262   
|Most recent six months:              |  |                                            |  |        |  |        |  |          
|September 2009                       |  | 6.8277                                     |  | 6.8303 |  | 6.8247 |  | 6.8262   
|October 2009                         |  | 6.8267                                     |  | 6.8292 |  | 6.8248 |  | 6.8264   
|November 2009                        |  | 6.8271                                     |  | 6.8300 |  | 6.8255 |  | 6.8265   
|December 2009                        |  | 6.8275                                     |  | 6.8299 |  | 6.8244 |  | 6.8259   
|January 2010                         |  | 6.8269                                     |  | 6.8258 |  | 6.8295 |  | 6.8268   
|February 2010                        |  | 6.8285                                     |  | 6.8258 |  | 6.8330 |  | 6.8258   
|March 2010 (through March 26, 2010)  |  | 6.8262                                     |  | 6.8270 |  | 6.8254 |  | 6.8269   

Source: Federal Reserve Bank of
New York and U.S. Federal Reserve



|(1) | Annual averages are calculated using the exchange rates for the last day of each month during the fiscal year. Monthly averages are calculated using daily exchange
rates during the month.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

Risks
Relating to Our Business

If we are unable to continue to attract course participants to enroll in our courses, or to charge our
course participants competitive but profitable fees, our revenues may decline and we may not be able to maintain profitability.

The success of our business depends primarily on the number of enrollments in our courses and the amount of course fees that we can charge. Therefore, our ability to continue to attract course
participants to enroll in our courses and charge our course participants competitive but commercially profitable fees is critical to the continued success and growth of our business. This in turn will depend on several factors, including our ability
to develop new courses and enhance existing courses to respond to changes in market trends and demands of course participants, to effectively market our courses to a broader base of prospective course participants, to train and retain qualified
lecturers and tutors, to develop or acquire additional high-quality educational content and to respond to competitive pressures. In addition, the expansion of our courses, services and products in terms of the types of offerings may not succeed due
to competition, our failure to effectively market our new courses, services and products or maintain their quality and consistency, or other factors. Furthermore, we may not be able to develop and offer additional content on commercially reasonable
terms and in a timely manner, or at all, to keep pace with changes in market requirements. If we are unable to continue to attract course participants to enroll in our courses, increase enrollments in our relatively new courses, or charge our course
participants competitive but profitable fees, our revenues may decline and we may be unable to achieve revenue growth or maintain our profitability.

If we fail to develop and introduce new courses, services and products that meet our target customers expectations, or adopt new technologies important to our business, our competitive position and ability to generate revenues
may be materially and adversely affected.

Historically, our core business centered on the provision of online
professional education and test preparation courses for accounting professionals. We have since expanded our course offerings to target course participants in the legal, healthcare, construction engineering, information technology and other
industries, as well as participants of online courses for self-taught learners seeking higher education and other forms of online education. In addition to regular classes, we have also introduced, in the past couple of years, elite
classes, premium classes within some of our most popular course offerings to better serve the needs of high-end customers. The profitability of the elite classes may be subject to risks given that the course participants enjoy refund
privileges if certain pre-agreed conditions are met. The profitability of the premium classes may also be subject to risks given that course participants enjoy a 50% discount off the fee of the same courses they may enroll in for the following year
if certain pre-agreed conditions are met. In the fiscal year ended September 30, 2009, we have also expanded our course offerings to target university students, job seekers and individuals interested in learning to start a business. The
profitability of our business start-up training courses may be subject to risks given that the subsidy we are entitled to receive from government authorities in certain provinces and cities may be reduced if certain stipulated conditions in the
government authorities subsidy policies are not met. We intend to continue developing new courses, services and products. The timing of the introduction of new courses, services and products is subject to risks and uncertainties.

Unexpected technical, operational, logistical, regulatory or other problems could delay or prevent the introduction of one or more of new
courses, services or products. Moreover, we cannot assure you that any of these courses, products and services will match the quality or popularity of those developed by our competitors, achieve widespread market acceptance or generate the desired
level of income.

The technology used in Internet and value-added telecommunications services and products in general, and in
online education services in particular, and the related technology standards may evolve and change over time. If we fail to anticipate and adapt to such technological changes, our market share and our business development could suffer, which in
turn would have a material and adverse effect on our financial condition and results of operations. If we are unsuccessful in addressing any of the risks relating to such new courses, services and products, our business may be materially and
adversely affected.



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We may lose market share and our profitability may be materially and adversely affected, if we fail to
compete effectively with our present and future competitors or to adjust effectively to changing market conditions and trends.

We face competition from providers of traditional offline education, training and test preparation services, and expect to face increasing competition from existing competitors and new market entrants in the online professional education
and test preparation market. The provision of professional education and test preparation courses over the Internet is a relatively recent concept. Although online education is increasingly perceived as an acceptable means of receiving training and
instruction, traditional classroom instruction is still generally viewed as a more accepted method. We therefore compete with traditional in-person educational institutions and training centers in the various subject areas for which we offer
courses. As most of our courses are conducted solely online, if the perception persists or increases that traditional forms of education and training are preferred, we may not be able to compete effectively with competitors engaging in traditional
forms of education and training. In addition, due to low barriers to entry for Internet-based businesses, we expect to face increasing competition from both existing domestic competitors and new entrants to the online education market. We may face
increased competition from international competitors that cooperate with local businesses to provide services based on the foreign partners technology and experience developed in their home markets.

Our present and future competitors may have longer operating histories, larger student enrollments, larger teams of professional staff and
greater financial, technical, marketing and other resources. They may be able to devote more resources to the development and promotion of their courses and services, and may be able to react more quickly to changing customer requirements and
demands, deliver competitive services at lower prices or respond to new Internet technologies, trends or user preferences more effectively than we can. They may be able to offer services and products with better performance and prices than ours with
the result that their services and products may gain greater market acceptance than ours. They may also offer free promotional services and products in connection with their marketing campaigns or significantly lower the prices for their services
and products in order to attract students and capture additional market share.

Following the expansion of our course
offerings to offline primary and secondary school supplementary courses, information technology courses and business start-up training courses in the fiscal year ended September 30, 2009, we also face competition from providers of traditional
offline education in these areas.

There is no assurance that we will be able to compete effectively with such present and
future competitors or to adjust effectively to changing market conditions and trends. Our failure to compete effectively could erode our market share, result in a fall in the number of our course participants, or lead to price reductions or
increased spending for marketing and promotion of our courses, any of which may materially and adversely affect our profitability.

Our
business depends on the continued success of our key brand Chinaacc and the further enhancement of our newer brands, and if we fail to maintain and enhance recognition of our brands, we may face difficulty in obtaining new business
partners and customers, and our business reputation and operating results may be harmed.

We believe that market
awareness of our key brand Chinaacc has contributed significantly to the success of our business. Maintaining and enhancing this key brand, further improving our brands in the legal, healthcare and other areas and introducing new brands
are critical to our efforts to grow our customer base and obtain additional business partners. However, our main competitors are continuing to take steps to increase their brand recognition. Failure to maintain and enhance our brand recognition
could also have a material and adverse effect on our business, operating results and financial condition.

We have initiated
brand promotion efforts in recent years, but we cannot assure you that our marketing efforts will be successful in further promoting our brands. If we are unable to further enhance our brand recognition and increase awareness of our courses,
services and products, or if we incur excessive marketing and promotion expenses, our business and results of operations may be materially and adversely affected.

Our business could be adversely affected by changes in the perceived difficulty, requirements or formats of professional examinations and continuing education in China.

We provide online professional education and test preparation courses relating to the accounting, legal, healthcare, construction
engineering, information technology and other industries. In addition, we also provide online professional continuing education courses relating to the accounting and construction engineering industries. If there is any material change to the
perceived difficulty, requirements or formats of examinations and continuing education in these subject areas, and we are unable to modify or supplement our courses or training materials to address these changes in a timely manner, the demand for,
and relevance of, our courses and training materials may be adversely affected, which could have an adverse impact on our financial condition and results of operations.



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Our business could be adversely affected by changes in the perceived difficulty, requirements or
formats of business start-up training courses, or changes in the government authorities subsidy policy.

We
provide business start-up training courses to university students and other job seekers using materials prepared in accordance with requirements of the relevant government authorities in various provinces and cities. Our net revenue generated from
such courses is conditioned on our ability to meet the government stipulated conditions under the subsidy policies. Such policies are established by relevant government authorities in various provinces and cities. When determining our entitlement to
the subsidy, the government authorities consider the pass rate of our course participants business proposals as evaluated by such authorities, as well as the business start-up rate and employment rate of our course participants. If there is
any material change to the perceived difficulty, requirements or formats of the courses or the government subsidy policy in relevant provinces and cities, and we are unable to modify or supplement our courses or training materials to address these
changes in a timely manner, or to meet the stipulated conditions of the government subsidy policy, the demand for our courses and training materials may decrease and our revenue generated from this course offering may be adversely affected, which
could have an adverse impact on our financial condition and results of operations.

Our business is dependent on our lecturers comprised
primarily of academics and experienced practitioners within their respective industries who are typically engaged on a part-time contractual basis, and some of whom are not bound by exclusivity restrictions.

Most of our courses are conducted by lecturers, comprised primarily of academics from post-secondary educational institutions and
experienced practitioners within their respective industries in China. The popularity and effectiveness of our courses depend on the teaching ability of these lecturers and their reputation as skilled lecturers. Our lecturers are typically engaged
on a part-time contractual basis for periods ranging from one to three years, except for some more experienced lecturers for whom the contract periods are typically four to five years. Some lecturers are not bound by exclusivity restrictions. If our
lecturers fail to deliver quality lectures as a result of inadequate devotion of their time and energy to our courses or for other reasons, our business may be adversely affected. In addition, as the online education industry grows and matures, we
may face increasing competition from our competitors for lecturers with good reputations and effective teaching skills, and on whom we rely for the delivery of quality services and to maintain and promote our leading market position. Any failure to
attract qualified lecturers or to maintain or improve the quality of our lectures could adversely affect our reputation and operating results.

Failure to attract and retain qualified personnel and experienced senior management could disrupt our operations and adversely affect our business and competitiveness.

Our continuing success is dependent, to a large extent, on our ability to attract and retain qualified personnel and experienced senior
management. If one or more of our senior management team members are unable or unwilling to continue to work for us, we may not be able to replace them within a reasonable period of time or at all, and our business may be severely disrupted, our
financial condition and results of operations may be materially and adversely affected and we may incur additional expenses in recruiting and training additional personnel. Although our senior management are subject to certain non-competition
restrictions during, and for a period of two years after termination of their employment, we cannot assure you that such non-competition restrictions will be effective or enforceable under PRC law. If any of our senior management joins a competitor
or forms a competing business, our business may be severely disrupted. We have no key man insurance with respect to our key personnel that would provide insurance coverage payable to us for loss of their employment due to death or otherwise.

Zhengdong Zhu, our chairman, chief executive officer and co-founder of our business, has played an important role in the growth and
development of our business since its inception, and a loss of his services in the future could severely disrupt our business and negatively affect investor confidence in us, which may also cause the market price of our ADSs to go down.

Zhengdong Zhu, our chairman, chief executive officer and co-founder of our business, has played an important role in the
growth and development of our business since its inception. To date, we have relied heavily on Mr. Zhus expertise in, and familiarity with, our business operations, his relationships with our employees, and his reputation in the online
education industry. In addition, Mr. Zhu continues to be primarily responsible for formulating our overall business strategies and spearheading the growth of our operations. If Mr. Zhu were unable or unwilling to continue in his present
positions, we may not be able to easily replace him and may incur additional expenses to identify and train his successor. In addition, if Mr. Zhu were to join a competitor or form a competing business, it could severely disrupt our business
and negatively affect our financial condition and results of operations. Although Mr. Zhu is subject to certain non-competition restrictions during, and for a period of two years after termination of, his employment with us, we cannot assure
you that such non-competition restrictions will be effective or enforceable under PRC law. Moreover, even if the departure of Mr. Zhu from our company would not have any actual impact on our operations and the growth of our business, it could
create the perception among investors or the marketplace that his departure could severely damage our business and operations and could negatively affect investor confidence in us, which may cause the market price of our ADS to go down. We do not
maintain key man insurance on Mr. Zhu.



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Mr. Zhengdong Zhu, our chairman and chief executive officer, beneficially owns a significant
percentage of our outstanding ordinary shares and, as a result, he has significantly greater influence over us and our corporate actions relative to our public shareholders and his interests may not be aligned with the interests of other
shareholders.

As of the date of this annual report, our co-founder and chief executive officer, Mr. Zhu,
beneficially owned 68,609,306 ordinary shares or approximately 49.5% of our outstanding ordinary shares. Mr. Zhu is an affiliate as defined in Rule 144 under the Securities Act of 1933, as amended, or the Securities Act, due to the large
size of his shareholding in us and his positions with us as our chairman and chief executive officer. Rule 144 defines an affiliate of a company as a person that, directly or indirectly, through one or more intermediaries, controls or is controlled
by, or is under common control with, our company. Mr. Zhu has, and may continue to have, significant influence in determining the outcome of any corporate transactions or other matters submitted to our shareholders for approval, including
mergers, consolidations and the sale of all or substantially all of our assets, election of directors and other significant corporate actions. He may not act in the best interests of our minority shareholders. In addition, without the consent of
Mr. Zhu, we could be prevented from entering into transactions that could be beneficial to us. This concentration of ownership may also discourage, delay or prevent a change in control of our company, which could deprive our shareholders of an
opportunity to receive a premium for their shares as part of a sale of our company and might reduce the price of our ADSs. These actions may be taken even if they are opposed by our other shareholders. Furthermore, we engaged in related party
transactions with Mr. Zhu and entities controlled by Mr. Zhu in the past. For example, we rented our office premises located at Xueyuan International Tower in Beijing from Mr. Zhu from 2004 to 2007, and purchased such office premises
from Mr. Zhu in 2007 at mutually agreed prices. However, we cannot assure you that such transactions have always been conducted on an arms length basis or on terms that are most favorable to us and our shareholders.

Our business is subject to seasonal fluctuations, which may cause our operating results to fluctuate from quarter to quarter. This may result in
volatility in and adversely affect the price of our ADSs.

We have experienced seasonality and expect in the future to
continue to experience seasonality in revenues related to the provision of our online education courses primarily due to seasonal changes in course enrollments and the timing of various exams. We typically open new courses to enrollment
approximately six months before the relevant exam date. With respect to our non-refundable courses, we typically recognize revenues on a straight line basis over the subscription period from a course participants enrollment date to the
examination date when we close access to the relevant online course materials. As a result, for non-refundable courses, we typically recognize higher revenues during the three months immediately prior to the examination dates. As the majority of our
course participants take non-refundable courses relating to the main professional accounting exams, which are typically held in May and September, we historically have experienced higher revenues during the quarters ending June 30 and
September 30 of each fiscal year. By contrast, we have historically experienced lower revenues in the quarters ended December 31 and March 31 due to the lower number of exams held during those periods. With respect to our refundable
courses, we typically recognize revenues 15 days after the relevant exam score release dates when the participants refund privileges expire. As a result, for refundable courses, we typically recognize higher revenues during the month when the
15-day period elapses. This seasonality factor may change in future periods if the timing of exams is moved to different times of a year. In addition, as the mix of types of exams and course subjects changes over time, we expect to experience
seasonality based on the timing of various types of exams held in different times of the year in different subject areas. We expect quarterly fluctuations in our revenues and results of operations to continue. These fluctuations could result in
volatility and adversely affect the price of our ADSs. As our revenues grow, these seasonal fluctuations may become more pronounced.

Our failure to protect our intellectual property rights may undermine our competitive position, and litigation to protect our intellectual property rights or defend against third party allegations of infringement may be costly and
ineffective.

We believe that our copyrights, trademarks and other intellectual property are instrumental to our
success. We depend to a large extent on our ability to develop and maintain the proprietary aspects of our technology and products. We have devoted considerable time and energy to the development and improvement of our websites, our online training
platform and our training courses and materials.



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We rely primarily on copyrights, trademarks, trade secrets, unpatented proprietary
technologies, processes and know-how and other contractual restrictions to protect our intellectual property. Nevertheless, these provide only limited protection and the actions we take to protect our intellectual property rights may not be
adequate. Our trade secrets may become known or be independently discovered by our competitors. Third parties may infringe upon or misappropriate our proprietary technologies or other intellectual property rights, which could have a material adverse
effect on our business, financial condition or operating results. Policing the unauthorized use of proprietary technology can be difficult and expensive. Also, litigation may be necessary to enforce our intellectual property rights, protect our
trade secrets or determine the validity and scope of the proprietary rights of others. The outcome of such potential litigation may not be in our favor and any success in litigation may not be able to adequately protect our rights. Such litigation
may be costly and divert managements attention away from our business. An adverse determination in any such litigation would impair our intellectual property rights and may harm our business, prospects and reputation. Enforcement of judgments
in China is uncertain, and even if we are successful in litigation, it may not provide us with an effective remedy. In addition, we have no insurance coverage against litigation costs and would have to bear all costs arising from such litigation to
the extent we are unable to recover them from other parties. The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.

In 2005, we filed a lawsuit against two individuals in Jiangsu Province for their infringement of our copyrights by illegally transmitting
our online accounting courses through a website open to its registered members. We have also in the past delivered cease and desist letters to third parties that have attempted to misappropriate our trademarks or brand names. These cases were
eventually settled in our favor. However, implementation of intellectual property-related laws has historically been ineffective in China, primarily because of difficulties in enforcement and ambiguities in PRC laws and, therefore, we may not be
successful in preventing or limiting future infringing activities.

We may be exposed to infringement claims by third parties or held
liable for defamation or negligence to third parties for information displayed on, retrieved from or linked to our websites, based on the content of the books and reference materials or marketing materials that we or our lecturers author or
distribute or for information delivered or shared through our services, which could disrupt our business and cause us to incur substantial legal costs, or damage our reputation.

We cannot assure you that our services and products do not or will not infringe any intellectual property rights held by third parties. We
have in the past, in the ordinary course of business, experienced claims for intellectual property infringement, none of which has had a material effect on our business. We cannot assure you that in the future we would not receive claims of
infringement of third parties proprietary rights or claims for indemnification resulting from infringement arising from our services or products. We may also become subject to claims that content on our websites or in the books and reference
materials or marketing materials that we or our lecturers author or distribute is in fact protected by third parties copyright ownership rights or trademark.

In addition, as a provider of Internet content and other value-added telecommunications services, we may face liability for defamation, negligence and other claims based on the nature and contents of the
materials that are displayed on our websites or delivered or shared through our services. We could also be subject to claims based upon content that is accessible on our websites or through our networks, such as content and materials posted by
visitors on message boards, online communities, email or chat rooms offered on our websites. By providing hypertext links to third-party websites, we may be held liable for copyright or trademark violations by those third-party websites. Third
parties could assert claims against us for losses incurred in reliance on any erroneous information distributed by us.

Royalty
or licensing agreements, if required, may not be available on acceptable terms, if at all. A successful claim of infringement against us and our failure or inability to obtain a license to use the infringed or similar technology or content on
commercially acceptable terms, or at all, could prevent us from producing and offering our services or products or cause us to incur great expense and delay in developing non-infringing services or products. Any of the above events could in turn
have a material and adverse impact on our financial condition and results of operations. Any defamation or negligence claims against us, even if they do not result in liability to us, could cause us to incur significant costs in investigating and
defending against these claims. We do not have general liability insurance to cover all potential claims to which we are exposed, and our insurance coverage may not be adequate to indemnify us from all liability that may be imposed.

Concerns about the security of our transaction systems and confidentiality of information on the Internet may reduce use of our services and impede our
growth.

Public concerns over the security and privacy of electronic settlement, online transmittal and communications
have significantly constrained the rapid development and expansion of online transactions. If these concerns are not adequately addressed, they will restrict the growth of value-added telecommunications services generally, and in particular the use
of the Internet as a means of conducting commercial transactions. If a well-publicized breach of security were to occur, general usage of telecommunications value-added services could decline, which could reduce our visitor traffic and the number of
course participants, and impede our growth. We cannot assure you that our current security measures will be adequate or sufficient to prevent any theft or misuse of personal data of our course participants. Further, security breaches could expose us
to litigation and possible liability for failing to secure confidential customer information, and could harm our reputation and ability to attract or retain course participants.



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The successful operation of our business depends upon the performance and reliability of the Internet
infrastructure and telecommunications networks in China.

Our business depends on the performance and reliability of
the Internet infrastructure in China. Almost all access to the Internet is maintained through state-controlled telecommunications operators. In addition, the national networks in China are connected to the Internet through international gateways
controlled by the PRC government. These international gateways are generally the only channels through which a domestic user can connect to the Internet. We cannot assure you that a more sophisticated Internet infrastructure will be developed in
China. We may not have access to alternative networks in the event of disruptions, failures or other problems with Chinas Internet infrastructure. In addition, the Internet infrastructure in China may not support the demands associated with
continued growth in Internet usage.

We also rely on China Telecommunications Corporation, or China Telecom, China Netcom
Corporation Ltd., or China Netcom, and China Education and Research Network, or Cernet, to provide us with data communications capacity primarily through local telecommunications lines and Internet data centers to host our servers. We do not have
access to alternative services in the event of disruptions, failures or other problems with the telecommunications networks of China Telecom, China Netcom and Cernet or if they otherwise fail to provide such services. Any unscheduled service
interruption could disrupt our operations, damage our reputation and result in a decrease in our revenues.

Furthermore, we
have no control over the costs of services provided by China Telecom, China Netcom and Cernet. If the prices that we pay for telecommunications and Internet services rise significantly, our gross profit and net income could be adversely affected. In
addition, if Internet access fees or other charges to Internet users increase, our visitor traffic may decrease, which in turn may harm our revenues.

Unexpected network interruptions, security breaches or computer virus attacks and system failures could have a material adverse effect on our business, financial condition and results of operations.

Any failure to maintain satisfactory performance, reliability, security or availability of our network infrastructure may cause significant
damage to our reputation and our ability to attract and maintain course participants. Major risks involving our network infrastructure include:



| |  |  | breakdowns or system failures resulting in a prolonged shutdown of our servers, including failures attributable to power shutdowns, or attempts to gain
unauthorized access to our systems, which may cause loss or corruption of data or malfunctions of software or hardware;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | disruption or failure in the national backbone network, which would make it impossible for visitors and course participants to log on to our websites;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | damage from fire, flood, power loss and telecommunications failures; and
| | - |  | ------------------------------------------------------------------------



| |  |  | any infection by or spread of computer virus.
| | - |  | ---------------------------------------------

Any network interruption or inadequacy that causes interruptions in the availability of our websites or deterioration in the quality of access to our websites could reduce customer satisfaction and result
in a reduction in the number of course participants using our services. If sustained or repeated, these performance issues could reduce the attractiveness of our websites and course offerings. In addition, any security breach caused by hackings,
which involve attempts to gain unauthorized access to information or systems, or to cause intentional malfunctions or loss or corruption of data, software, hardware or other computer equipment, could cause a disruption in our services. Inadvertent
transmission of computer viruses could expose us to a material risk of loss of our course files or litigation and possible liability, as well as damage to our reputation.

Furthermore, increases in the volume of traffic on our websites could also strain the capacity of our existing computer systems, which could lead to slower response times or system failures. This would
cause a disruption or suspension in our course offerings, which would hurt our brand and reputation, and thus negatively affect our revenue growth. We may need to incur additional costs to upgrade our computer systems in order to accommodate
increased demand if we anticipate that our systems cannot handle higher volumes of traffic in the future.

All of our servers
and routers, including backup servers, are currently hosted by third-party service providers in multiple cities in China. We do not maintain any backup servers outside of these cities. To improve the performance and to prevent disruption of our
services, we may have to make substantial investments to deploy additional servers or one or more copies of our websites to mirror our online resources.



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Our anticipated fast business growth and rapidly changing operating environment may strain our
existing resources.

We anticipate fast expansion of our business as we seek to grow our customer base, expand our
service and product offerings and pursue new market opportunities. Our operational, administrative and financial resources may be inadequate to sustain the growth we plan to achieve. As the number of our course participants increases or their
demands and needs change or as our business activities expand, we will need to increase our investment in network infrastructure, facilities and other areas of operations, and we will be required to improve existing, and implement new, operational,
technological and financial systems, procedures and controls, and to expand, train and manage our growing employee base. Furthermore, our management will be required to maintain and expand our relationships with our regional and online agents and
other third parties necessary for the success of our business. If we are unable to manage our growth and expansion effectively, the quality of our services could deteriorate and our business may suffer and our results of operations may be materially
and adversely affected.

We may continue to grant share options and/or restricted shares under our current or future share incentive
plans, or modify the terms of existing share options, which may continue to materially impact our future results of operations or result in dilution to our shareholders.

We adopted our Share Incentive Plan in April 2008, under which we have to date granted options for the purchase of a total of 11,045,500
ordinary shares to selected officers, employees, and lecturers. We adopted in July 2008, and amended and restated in February 2009, our 2008 Performance Incentive Plan, or the New Plan, under which we reserved a maximum number of 8,511,007 ordinary
shares as of September 30, 2009, plus an automatic annual adjustment. Pursuant to the New Plan, we agreed to issue a certain number of restricted shares to an independent director upon the completion of our initial public offering in connection
with her becoming our independent director. In addition, pursuant to the New Plan, we granted options for the purchase of a total of 400,000 ordinary shares to five non-executive directors in December 2008 and options to purchase 1,361,900 ordinary
shares to other employees in November 2009. See Item 6.B. Directors, Senior Management and Employees  Compensation  Share Options, Restricted Shares and Share Incentive Plan. In connection with the share options we granted
and restricted shares we issued, we incurred $1.5 million and $3.9 million of share-based compensation expenses in the fiscal years ended September 30, 2008 and 2009, respectively, see Item 5.A. Operating and Financial Review and
Prospects  Operating Results  Share-based Compensation Expenses. The expenses associated with options granted and restricted shares issued under the share incentive plans may continue to materially impact our future results of
operations. In addition, if we grant additional options, restricted shares and other equity incentives in the future under our current or future share incentive plans, or modify the terms of existing share options, we could further incur significant
share-based compensation expenses, or experience a reduction in our net income. Such actions could also result in dilution to our shareholders.

We may need additional capital but may not be able to obtain it on acceptable terms or at all.

We
believe that our current cash and cash equivalents and anticipated cash flows from operations will be sufficient to meet our anticipated working capital requirements and capital expenditures for 18 months following the date of this annual report. We
do not anticipate that our current expansion plans will require significant capital commitments due to the scalability of our business model. We do, however, expect to spend money on the further development of our Chinaacc brand and
other brands in the disciplines for which we offer courses. We do not expect our short-term and long-term cash requirements to be materially different.

Nevertheless, we may require additional sources of liquidity in the event of changes in business conditions or other future developments. Factors affecting our sources of liquidity include, for example,
mergers and acquisitions, our sales performance, ability to control costs and expenses, and choice of financing arrangements. Any changes in the significant factors affecting our revenues from education services may cause material fluctuations in
our cash generated from operations. See Item 5.A. Operating and Financial Review and Prospects  Operating Results  Overview  Specific Factors Affecting Our Results of Operations for a description of these significant
factors. Changes in working capital, including any significant shortening or lengthening of our accounts receivable cycle or client prepayment cycles, may also cause fluctuations in our cash generated from operations. If our sources of liquidity are
insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities to meet our cash needs. The sale of convertible debt securities or additional equity securities could result in dilution to our shareholders. The
incurrence of indebtedness would result in debt service obligations and could result in operating and financial covenants that restrict our operations. Our ability to obtain additional capital on acceptable terms is subject to a variety of
uncertainties, including:



| |  |  | investors perception of, and demand for, securities of companies mainly providing online professional education and test preparation courses;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | conditions of the U.S. and other capital markets in which we may seek to raise funds;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | our future results of operations, financial condition and cash flows;
| | - |  | ---------------------------------------------------------------------



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| |  |  | PRC governmental regulation of foreign investment in Internet, educational services and professional training services companies;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | economic, political and other conditions in China; and
| | - |  | ------------------------------------------------------



| |  |  | PRC governmental policies relating to foreign currency borrowings.
| | - |  | ------------------------------------------------------------------

We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise
additional funds on terms favorable to us, or at all, could have a material adverse effect on our business, financial condition and results of operations.

We may not be able to effectively manage the expansion of our operations through new acquisitions or joint ventures or to successfully realize the anticipated benefits of any such acquisition or
joint venture.

We have historically complemented our organic growth through the selective acquisition of
complementary businesses, assets, products or technology, or the formation of joint ventures, and we may continue to do so in the future. The identification of suitable acquisition targets or joint venture candidates can be difficult, time consuming
and costly, and we may not be able to successfully capitalize on identified opportunities. Consummation of acquisitions and the subsequent integration of new assets and businesses into our own could also be costly and require significant attention
from our management and could result in a diversion of resources from our existing business, which in turn could have an adverse effect on our business operations. Acquired assets or businesses may not generate the financial results we expect and
may even result in our suffering losses. For example, with respect to our acquisition of Yinglun Yucais business start-up training business, we are currently seeking through arbitration to require the vendors, among other things, to compensate
Zhengbao Yucai in the amount of RMB 2.8 million ($0.4 million) for the operating loss incurred in the fiscal year 2009. For more information regarding the arbitration, please see Item 8. Financial InformationLegal Proceedings.
Moreover, completions of acquisitions are typically subject to various approval processes. In addition to possible shareholders approval, we may also have to obtain approvals and licenses from the relevant government authorities in the PRC for
the acquisitions and to comply with any applicable PRC laws and regulations, which could result in increased costs and delay. Furthermore, acquisitions or joint ventures could result in the use of substantial amounts of cash, potentially dilutive
issuances of equity or equity-linked securities or the incurrence of debt, the occurrence of significant goodwill impairment charges, amortization expenses for other intangible assets and exposure to potential unknown liabilities of the acquired
business, or other charges, any of which could have a material adverse effect on our business, financial condition and results of operations.

Slowdown in the Chinese economy may adversely affect our business, results of operations and financial condition.

The global financial markets have experienced significant disruptions since 2008, and most of the worlds major economies have entered into recession. Due to the deteriorated global economic and
financial conditions and Chinas own political and economic factors, the Chinese economy also experienced a significant slow-down beginning in the second half of 2008. Subsequently, due to the various measures adopted by the PRC government to
forestall the economic downturn, the Chinese economy has been gradually recovering. It is uncertain, however, for how long the trend will continue. Since we derive substantially all of our revenues in China, any persistent slowdown in the Chinese
economy may have a negative impact on our business, operating results and financial condition in a number of ways. In addition, further disruption in the financial markets may significantly restrict our ability to obtain financing in the capital
markets or from financial institutions on terms acceptable to us.

Our operations could be disrupted by an outbreak of fire or other
calamities and we have limited insurance coverage.

We store books and audio and visual products at our premises to
support our online courses. As such, there is a risk that these products and our premises may be damaged or destroyed by fire and other natural calamities. Any disruption of electricity supply or any outbreak of fire or similar calamities at our
premises may result in the breakdown of our facilities and disruption to our business. In addition, any fire or other calamity at the facilities of our third-party service providers that host our servers could severely disrupt our ability to deliver
our courses and other services over our websites.

At present, insurance companies in the PRC offer limited coverage for
business related risks. As such, we only have a very limited form of insurance for our property covering loss of property arising from theft, fire, lightning, explosives and damage caused by aerial objects. We do not have any business liability or
disruption insurance coverage for our operations, and our coverage may not be adequate to compensate for all losses that may occur, particularly with respect to loss of business and reputation. Any business disruption, litigation or natural disaster
could expose us to substantial costs and losses.



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Our financial performance and prospects could be affected by natural calamities or health epidemics.

Our business could be materially and adversely affected by natural calamities or health epidemics such as influenza,
severe acute respiratory syndrome or other epidemics. On May 12, 2008, a major earthquake struck Chinas populous Sichuan province and was felt across much of the country, causing great loss of life, numerous injuries, property loss and
disruption to the local economy. The earthquake had an immediate impact on our business as a result of an announcement by the Ministry of Finance to postpone the administration of the Elementary Level and Intermediate Level Accounting Professional
Qualification Exams across China as a direct result of the earthquake, which exams were originally scheduled to be held on the third weekend of May 2008. On July 2, 2008, the Ministry of Finance announced that these exams will be held on
September 6 and 7, 2008. As a result of the exam dates being rescheduled from May 2008 to September 2008, deferred revenue generated from our test preparation courses relating to the two major accounting exams was not fully recognized as
revenue by May 2008, but were recognized over a longer period of time through September 2008. In addition, refundable fees relating to these two exams were not recognized as revenue in the fiscal fourth quarter of 2008 and were instead recognized in
the fiscal first quarter of 2009 when the exam results were released. For a more detailed discussion of how we recognize revenues, see Item 5.A. Operating and Financial Review and Prospects  Operating Results  Critical Accounting
Policies  Revenue Recognition. In addition, in recent years, there were reports regarding the occurrences of various forms of influenza in different parts of China, including cases resulting in deaths. Any occurrences of natural
calamities or epidemics may result in the postponement or rescheduling of examinations for which we provide courses, which may in turn have an adverse impact on our revenues and performance. In addition, if our employees are affected by natural
calamities or contagious or virulent diseases, we may fail to provide our courses, materials and services in a timely manner, which will have an adverse impact on our financial performance. We have not adopted any written preventive measures or
contingency plans to combat any future natural calamities or outbreak of epidemics. Any natural calamities or prolonged recurrence of adverse public health developments in China may have a material and adverse effect on our business operations,
financial performance and prospects.

We may be exposed to liability for our course content, information or advice we provide to our
course participants or customers of our other services.

We may be subject to legal claims from our course
participants or customers of our other services for losses they suffer if such losses arise from their reliance on content, information or advice that we provide to them. Such claims, with or without merit, may be expensive to defend and may have an
adverse impact on our reputation. Further, if such claims are successful, we may be held liable to pay compensation which may in turn adversely affect our financial condition and results of operations.

Failure to maintain effective internal control over financial reporting could have a material and adverse effect on the trading price of our ADSs.

We are subject to the reporting obligations under the U.S. securities laws. The Securities and Exchange Commission,
or the SEC, as required under Section 404 of the Sarbanes-Oxley Act, has adopted rules requiring every public company to include a report of management on the effectiveness of such companies internal control over financial reporting in
its annual report, which contains managements assessment of the effectiveness of the companys internal control over financial reporting. In addition, an independent registered public accounting firm must issue an attestation report on
the effectiveness of the companys internal control over financial reporting. These requirements apply to our annual report on Form 20-F for the fiscal year ended September 30, 2009.

Our management has concluded that our internal control over financial reporting was effective as of September 30, 2009. Our independent
registered public accounting firm has issued an attestation report, which has concluded that we maintained, in all material aspects, effective internal control over financial reporting as of September 30, 2009. See Item 15. Controls and
Procedures. However, if we fail to maintain effective internal control over financial reporting in the future, our management and our independent registered public accounting firm may not be able to conclude that we have effective internal
control over financial reporting at a reasonable assurance level. This could negatively affect the reliability of our financial information and result in the loss of investors confidence in our reported financial information, which in turn
could negatively impact the trading price of our ADSs. Furthermore, we have incurred and anticipate that we will continue to incur considerable costs, management time and other resources in an effort to comply with Section 404 and other
requirements of the Sarbanes-Oxley Act.



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Compliance with rules and requirements applicable to public companies has caused and will continue to
cause us to incur increased costs, which may negatively affect our results of operations.

As a U.S. public company,
we incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act, as well as rules subsequently implemented by the SEC and the NYSE, have required changes in corporate
governance practices of U.S. public companies. We expect these rules and regulations to increase our legal, accounting and financial compliance costs and to make certain corporate activities more time-consuming and costly. For example, to meet the
deadline for compliance with the Section 404 requirements of the Sarbanes-Oxley Act, we have taken and will continue to take measures to remediate the control deficiencies that we have identified. These remedial measures, including hiring
consultants and additional qualified personnel and upgrading our financial accounting infrastructure and information systems, are costly. Furthermore, we will incur additional costs associated with our public company reporting requirements. We are
currently evaluating and monitoring developments with respect to these new rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

Risks Relating to Our Corporate Structure and Restrictions on Our Industry

Substantial uncertainties and restrictions exist with respect to the interpretation and application of PRC laws and regulations relating to the distribution of Internet content in China. If the PRC
government finds that the structure we have adopted for our business operations does not comply with PRC laws and regulations, we could be subject to severe penalties, including the shutting down of our websites.

Foreign ownership of Internet-based businesses is subject to significant restrictions under current PRC laws and regulations. The PRC
government regulates Internet access, the distribution of online information and the conduct of online commerce through strict business licensing requirements and other government regulations. These laws and regulations also include limitations on
foreign ownership in PRC companies that provide Internet content distribution services. Specifically, foreign investors are not allowed to own more than 50% equity interests in any entity conducting Internet content distribution business.

Because we are a Cayman Islands company and we hold the equity interests of our PRC subsidiaries indirectly through China
Distance Education Limited, a Hong Kong company, or CDEL Hong Kong, our PRC subsidiaries are treated as foreign invested enterprises under PRC laws and regulations. To comply with PRC laws and regulations, we conduct our operations in China through
a series of contractual arrangements entered into among CDEL Hong Kong, our two PRC subsidiaries, Beijing Champion Distance Education Technology Co., Ltd., or Champion Technology and Beijing Champion Education Technology Co., Ltd. or Champion
Education Technology, our affiliated PRC entity, Beijing Champion and its shareholders. Beijing Champion is a PRC limited liability company 79% owned by Zhengdong Zhu, our chairman and chief executive officer and a major shareholder, and 21% owned
by Baohong Yin, our co-founder and deputy chairman, both of whom are PRC citizens. Beijing Champion holds a Telecommunications and Information Services Operating License, or ICP license, issued by the Beijing Telecommunications Administration
Bureau, a local branch of Chinas Ministry of Industry and Information, or MII, which allows Beijing Champion to provide Internet content distribution services. Each of Caikaowang and Beijing Champion Wangge Education Technology Co., Ltd., or
Champion Wangge, both are subsidiaries of Beijing Champion, also holds an ICP license issued by the Beijing Telecommunications Administration Bureau. Beijing Champion and its subsidiaries have also received approvals issued by the Beijing
Telecommunications Administration Bureau to provide online bulletin board services on eight of our 16 websites where we currently provide such services. In addition, Beijing Champion holds a Permit of Internet Cultural Activities issued by the
Ministry of Culture, which permits Beijing Champion to engage in production and dissemination of cultural products through the Internet. The ICP licenses and other approvals held by Beijing Champion and its subsidiaries are essential to the
operation of our business.

As a result of these contractual arrangements, we control Beijing Champion and its subsidiaries
and, accordingly, under U.S. GAAP, we consolidate its operating results in our financial statements. For a description of these contractual arrangements, see Item 4.C. Information on the Company  Organizational Structure.

The relevant PRC regulatory authorities have broad discretion in determining whether a particular contractual structure is in
violation of law. For example, on July 26, 2006, MII issued the Notice on Intensifying the Administration of Foreign Investment in Value-added Telecommunications Services, or the MII Notice. The MII Notice prohibits a domestic
telecommunications service provider from leasing, transferring or selling telecommunications business operating licenses to any foreign investor in any form, or providing any resources, sites or facilities to any foreign investor for its illegal
operation of a telecommunications business in China. According to the MII Notice, either the holder of a value-added telecommunications service license or its shareholders must directly own the domain names and trademarks used by such license holder
in its provision of value-added telecommunications services. The MII Notice also requires each license holder to have the necessary facilities, including servers, for its approved business operations and to maintain such facilities in the regions
covered by its license. In order to comply with the MII Notice, we have transferred all domain names and trademarks that are primarily used in connection with our online business activities from Champion Technology to Beijing Champion.



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Furthermore, if our ownership structure, contractual arrangements and businesses of our
company, our PRC subsidiaries and Beijing Champion or its subsidiaries are found to be in violation of any existing or future PRC laws or regulations, the relevant regulatory authorities would have broad discretion in dealing with such violations,
including:



| |  |  | revoking the business and operating licenses of our PRC subsidiaries or Beijing Champion or its subsidiaries, which business and operating licenses are
essential to the operation of our business;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | levying fines;
| | - |  | --------------



| |  |  | confiscating our income or the income of our PRC subsidiaries or Beijing Champion or its subsidiaries;
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | shutting down our servers or blocking our websites;
| | - |  | ---------------------------------------------------



| |  |  | discontinuing or restricting our operations or the operations of our PRC subsidiaries or Beijing Champion or its subsidiaries;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | imposing conditions or requirements with which we, our PRC subsidiaries or Beijing Champion or its subsidiaries may not be able to comply;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | requiring us, our PRC subsidiaries or Beijing Champion or its subsidiaries to restructure our relevant ownership structure, operations or contractual
arrangements; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | taking other regulatory or enforcement actions that could be harmful to our business.
| | - |  | -------------------------------------------------------------------------------------

If the regulatory authorities take any of the above-mentioned measures against us, we may have to cease our business operations and our
reputation will be severely damaged, which in turn will materially and negatively affect our financial condition and results of operations.

If any of our affiliated entities fails to obtain and maintain the requisite licenses and approvals held by it under the complex regulatory environment for Internet-based businesses in China, our business, financial condition and
results of operations may be materially and adversely affected.

The Internet industry in China is highly regulated by
the PRC government. Various regulatory authorities of the central PRC government, such as the State Council, MII, the State Administration of Industry and Commerce, the State Press and Publication Administration, the State Administration of Radio,
Film and Television, or SARFT, and the Ministry of Public Security, are empowered to issue and implement regulations governing various aspects of the Internet industry.

Each of our affiliated entities including Beijing Champion, Caikaowang and Champion Wangge is required to obtain and maintain applicable licenses or approvals from different regulatory authorities in
order to provide its current services. Our affiliated entities have obtained primary approvals including an ICP license for our 16 websites and an approval for operating electronic bulletin board services on eight websites where we currently provide
such services. These licenses are essential to the operation of our business and are generally subject to annual review by the relevant governmental authorities. Our affiliated entities, however, may be required to obtain additional licenses, such
as an Internet Publishing License for engaging in Internet publishing and an Internet News Information Services Provision Approval for engaging in distribution of news through the Internet. If any of our affiliated entities fails to obtain or
maintain any of the required licenses or approvals, its continued business operations in the Internet industry may subject it to various penalties, such as confiscation of illegal revenues, fines and the discontinuation or restriction of its
operations. Any such disruption in the business operations of our affiliated entities will materially and adversely affect our business, financial condition and results of operations.

Uncertainties exist with respect to the interpretation and application of the Administrative Measures Regarding Internet Audio-Video Program Services, or the Internet Audio-Video Program Measures,
promulgated in 2007. If the governmental authorities decide that our provision of online education services fall within the Internet Audio-Video Program Measures and we are unable to re-register or obtain the necessary license timely, or at all, our
equity ownership structure may require significant restructuring, or we may become subject to significant penalties, fines, legal sanctions or an order to suspend our use of audio-video content.



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On December 20, 2007, SARFT and MII issued the Internet Audio-Video Program Measures,
which became effective on January 31, 2008. Among other things, the Internet Audio-Video Program Measures stipulate that no entities or individuals may provide Internet audio-video program services without a License for Disseminating
Audio-Video Programs through Information Network issued by SARFT or its local counterparts or completing the relevant registration with SARFT or its local counterparts and only entities wholly owned or controlled by the PRC government may engage in
the production, editing, integration or consolidation, and transfer to the public through the Internet, of audio-video programs, and the provision of audio-video program uploading and transmission services. On February 3, 2008, SARFT and MII
jointly held a press conference in response to inquiries related to the Internet Audio-Video Program Measures, during which SARFT and MII officials indicated that providers of audio-video program services established prior to the promulgation date
of the Internet Audio-Video Program Measures that do not have any regulatory non-compliance records can re-register with the relevant government authorities to continue their current business operations. After the conference, the two authorities
published a press release that confirms the above guidelines. On September 15, 2009, SARFT promulgated a notice regarding the issues of management of Internet Audio-Video Program Services License, which provide that the application for
re-registration of the Internet Audio-Video Program Services License shall be closed on December 20, 2009.

Based on the
advice of our PRC legal counsel, Jingtian & Gongcheng, we do not believe that we are required to apply for a License for Disseminating Audio-Video Programs through Information Network as an enterprise providing online education and test
preparation courses. As an online education services provider, we transmit our audio-video educational courses and programs through the Internet only to enrolled course participants, not to the general public. The limited scope of our audience
distinguishes us from general online audio-video broadcasting companies, such as companies operating user-generated content websites. In addition, we do not provide audio-video program uploading and transmission services. As a result, we believe
that we are not one of those providers of audio-video program services covered under the Internet Audio-Video Program Measures. However, there is no further official or publicly-available interpretation of these definitions, especially the scope of
Internet Audio-Video Program. If the governmental authorities decide that our provision of online education services falls within the Internet Audio-Video Program Measures and we are unable to re-register or obtain the necessary license
timely, or at all, due to reasons beyond our control, our equity ownership structure may require significant restructuring, or we may become subject to significant penalties, fines, legal sanctions or an order to suspend our use of audio-video
content, any of which could have a material adverse effect on our business, financial condition, results of operations, and prospects, as well as the trading price of our ADSs.

Regulation and censorship of information distribution over the Internet in China may adversely affect our business, and we may be liable for information displayed on, retrieved from or linked to our
websites.

China has enacted laws and regulations governing Internet access and the distribution of news, information,
audio-video programs or other contents, as well as products and services, through the Internet. In the past, the PRC government has prohibited the distribution of information through the Internet that it deems in violation of PRC laws and
regulations. Under regulations promulgated by the State Council, MII, the State Press and Publication Administration and the Ministry of Culture, Internet content providers and Internet publishers are prohibited from posting or displaying over the
Internet content that, among other things:



| |  |  | opposes the fundamental principles of the PRC constitution;
| | - |  | -----------------------------------------------------------



| |  |  | compromises state security, divulges state secrets, subverts state power or damages national unity;
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| |  |  | harms the dignity or interests of the state;
| | - |  | --------------------------------------------



| |  |  | incites ethnic hatred or racial discrimination or damages inter-ethnic unity;
| | - |  | -----------------------------------------------------------------------------



| |  |  | sabotages Chinas religious policy or propagates heretical teachings or feudal superstition;
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| |  |  | disseminates rumors, disturbs social order or disrupts social stability;
| | - |  | ------------------------------------------------------------------------



| |  |  | propagates obscenity, pornography, gambling, violence, murder, fear or abets the commission of crimes;
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | insults or slanders a third party or infringes upon the lawful rights of a third party; and
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | includes other content prohibited by laws or regulations.
| | - |  | ---------------------------------------------------------

If any of our Internet content were deemed by the PRC government to violate any of the above content restrictions, we would not be able to
continue to display such content and could become subject to penalties, including confiscation of income, fines, suspension of business and revocation of required licenses, which could materially and adversely affect our business, financial
condition and results of operations. We may also be subject to potential liability for any unlawful actions of our clients or affiliates or for content we distribute that is deemed inappropriate. It may be difficult to determine the type of content
that may result in liability to us, and if we are found to be liable, we may be prevented from operating our websites in China.



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We may rely principally on dividends and other distributions on equity paid by our PRC subsidiaries
for our cash requirements, but such dividends and other distributions are subject to restrictions under PRC law. Limitations on the ability of our PRC subsidiaries to transfer funds to us could materially and adversely affect our ability to grow,
make investments or acquisitions, pay dividends, and otherwise fund and conduct our businesses.

Current PRC
regulations permit our PRC subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. However, our PRC subsidiaries are required under PRC laws and
regulations to allocate a portion of their annual after-tax profits, if any, to certain statutory reserves and funds prior to declaring and remitting dividends. For example, our PRC subsidiaries are required to allocate at least 10% of their
after-tax profits to statutory reserves until such reserves reach 50% of their respective registered capital. Allocations to these statutory reserves and funds can be used only for specific purposes and are not transferable to us in the form of
loans, advances or cash dividends. As a result, our PRC subsidiaries are restricted in their ability to transfer a portion of their net assets to us.

We rely on contractual arrangements with our affiliated PRC entity and its shareholders for our China operations, which may not be as effective in providing operating control as direct ownership. If any of Beijing Champion or its
shareholders fails to perform its or their obligations under these contractual arrangements, we may have to legally enforce such arrangements and our business, financial condition and results of operations may be materially and adversely affected if
these arrangements cannot be enforced.

PRC laws and regulations restrict foreign ownership in Internet-related
content distribution businesses. Because of these restrictions, we conduct our business and derive related revenues through contractual arrangements among CDEL Hong Kong, our PRC subsidiaries, Beijing Champion, and its shareholders, Zhengdong Zhu
and Baohong Yin. We have no direct ownership interest in Beijing Champion. These contractual arrangements may not be as effective in providing us with control over Beijing Champion as direct ownership. If we were the controlling shareholder of
Beijing Champion with direct ownership, we would be able to exercise our rights as shareholders to effect changes in the board of directors, which in turn could implement changes, subject to any applicable fiduciary obligations, at the management
level. However, under the current contractual arrangements, as a legal matter, if Beijing Champion fails to perform its obligations under these contractual arrangements, we may have to (i) incur substantial costs and resources to enforce such
arrangements, and (ii) rely on legal remedies under PRC law, including contract remedies, which we cannot be sure would be effective. In the event that we are unable to enforce these contractual arrangements, or if we suffer significant time
delays or other obstacles in the process of enforcing these contractual arrangements, our business, financial condition and results of operations could be materially and adversely affected.

Due to the lack of relevant interpretation and implementation of law, we may not be able to register changes to our pledge rights over the equity
interests of Beijing Champion held by its shareholders, which may result in inadequate protection of our rights and adverse impact on our contractual arrangements with Beijing Champion.

Our contractual arrangements with Beijing Champion include equity pledge agreements pursuant to which each of the shareholders of Beijing
Champion has pledged all of his or her equity interests in Beijing Champion to Champion Technology as security for the performance of Beijing Champions obligations under the technical support and consultancy services agreement. According to
the PRC Property Rights Law, which became effective on October 1, 2007, pledge rights for a pledge of equity are created at the time of registration of the pledge with the State Administration for Industry and Commerce, or SAIC, or its local
office. According to the Measures Regarding Equity Pledge Registration issued by SAIC on September 1, 2008, which became effective on October 1, 2008, any change to the number of shares pledged, the name of the pledgor or pledgee and the
name of the enterprise whose equity is pledged shall be registered with SAIC or its local office. We successfully registered the pledges created under the equity pledge agreements with the Beijing office of SAIC on January 12, 2009. However, if
any change occurs to the pledges created under the equity pledge agreements, including without limitation any change to the number of shares pledged thereunder due to any increase or transfer of the registered capital of Beijing Champion or
otherwise, we need to update our equity pledge registration with SAIC or its local office. However, due to the lack of relevant interpretation and implementation of laws, we cannot assure you that we will be able to successfully update our equity
pledge registration with SAIC or its local office in connection with any change to the pledges created under our equity pledge agreements. If we fail to update our equity pledge registration in respect of any change to the pledges created under the
equity pledge agreements, the protection of our rights under such agreements may become inadequate and our contractual arrangements with Beijing Champion may be adversely impacted.



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The shareholders of Beijing Champion may have potential conflicts of interest with us, which may
materially and adversely affect our business and financial condition.

Zhengdong Zhu and Baohong Yin are husband and
wife, and shareholders of Beijing Champion, holding equity interests of 79% and 21%, respectively. Conflicts of interest may arise between Mr. Zhus dual role as a shareholder and chief executive officer and chairman of the board of
directors of both Beijing Champion and us. Similarly, Ms. Yins dual role as a shareholder and deputy chairman of the board of directors of both Beijing Champion and us may also cause conflicts of interest. Although both of Zhengdong Zhu
and Baohong Yin have given undertakings to act in the best interests of Champion Technology, we cannot assure you that when conflicts arise, these individuals will act in our best interests or that conflicts will be resolved in our favor.

We may lose the ability to use and enjoy assets held by Beijing Champion and its subsidiaries that are important to the operation of
our business if any of such entities goes bankrupt or becomes subject to a dissolution or liquidation proceeding.

As
part of our contractual arrangements with Beijing Champion, Beijing Champion and its subsidiaries hold certain assets that are important to the operation of our business. If Beijing Champion or any of its subsidiaries goes bankrupt and all or part
of their assets become subject to liens or rights of third-party creditors, we may be unable to continue some or all of our business activities, which could materially and adversely affect our business, financial condition and results of operations.
If Beijing Champion or any of its subsidiaries undergoes a voluntary or involuntary liquidation proceeding, the unrelated third-party creditors may claim rights to some or all of these assets, thereby hindering our ability to operate our business,
which could materially and adversely affect our business, financial condition and results of operations.

Contractual arrangements we
have entered into among our subsidiaries and Beijing Champion may be subject to scrutiny by the PRC tax authorities and a finding that we or Beijing Champion owe additional taxes could substantially reduce our consolidated net income.

Under PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or
challenge by the PRC tax authorities. We could face material and adverse tax consequences if the PRC tax authorities determine that the contractual arrangements and transactions among our subsidiaries and Beijing Champion do not represent an
arms length price and adjust the income of our subsidiaries or that of Beijing Champion in the form of a transfer pricing adjustment. A transfer pricing adjustment could, among other things, result in a reduction, for PRC tax purposes, of
expense deductions recorded by Beijing Champion, which could in turn increase its respective tax liabilities. In addition, the PRC tax authorities may impose late payment fees and other penalties on our affiliated entities for underpayment of taxes.
Our consolidated net income may be materially and adversely affected if our affiliated entities tax liabilities increase or if it is found to be subject to late payment fees or other penalties.

General Risks Relating to Conducting Business in China

PRC economic, political and social conditions, as well as changes in any government policies, laws and regulations, could adversely affect the overall economy in China or the prospects of the
education market, which in turn could adversely affect our business.

Substantially all of our operations are
conducted in China, and substantially all of our revenues are derived from China. Accordingly, our business, financial condition, results of operations, prospects and certain transactions we may undertake are subject, to a significant extent, to
economic, political and legal developments in China.

The PRC economy differs from the economies of most developed countries
in many respects, including the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. While the PRC economy has experienced significant growth in the past two to three decades,
growth has been uneven, both geographically and among various sectors of the economy. Demand for our products and services depends, in large part, on economic conditions in China. Any slowdown in Chinas economic growth may cause our potential
customers to delay or cancel their plans to participate in our education courses, which in turn could reduce our net revenues.

Although the PRC economy has been transitioning from a planned economy to a more market-oriented economy since the late 1970s, the PRC government continues to play a significant role in regulating industry development by imposing industrial
policies. The PRC government also exercises significant control over Chinas economic growth through the allocation of resources, controlling the incurrence and payment of foreign currency-denominated obligations, setting monetary policy and
providing preferential treatment to particular industries or companies. Changes in any of these policies, laws and regulations could adversely affect the overall economy in China or the prospects of the education market, which could harm our
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The PRC government has implemented various measures to encourage foreign investment and
sustainable economic growth and to guide the allocation of financial and other resources. While some of these measures benefit the overall PRC economy, they may also have a negative effect on us. For example, our financial condition and results of
operations may be adversely affected by government control over capital investments or changes in tax regulations that are applicable to us. As the PRC economy is increasingly intricately linked to the global economy, it is affected in various
respects by downturns and recessions of major economies around the world, such as the recent financial services and economic crises of these economies. The various economic and policy measures the PRC government adopts to forestall economic
downturns or shore up the PRC economy may adversely affect our business. We cannot assure you that the PRC government will not repeal or alter these measures or introduce new measures that will have a negative effect on us.

Chinas social and political conditions are also not as stable as those of the United States and other developed countries. Any sudden
changes to Chinas political system or the occurrence of widespread social unrest could have negative effects on our business and results of operations. In addition, China has tumultuous relations with some of its neighbors and a significant
further deterioration in such relations could have negative effects on the PRC economy and lead to changes in governmental policies that would be adverse to our business interests.

The PRC legal system embodies uncertainties that could limit the legal protections available to you and us.

Unlike common law systems, the PRC legal system is based on written statutes and decided legal cases have little precedential value. In 1979, the PRC government began to promulgate a comprehensive system
of laws and regulations governing economic matters in general. The overall effect of legislation since then has been to significantly enhance the protections afforded to various forms of foreign investment in China. Our PRC operating subsidiaries,
Champion Technology and Champion Education Technology, are wholly foreign-owned enterprises, and both are subject to laws and regulations applicable to foreign investment in China in general and laws and regulations applicable to wholly
foreign-owned enterprises in particular. Our PRC affiliated entities, Beijing Champion, Caikaowang, Champion Wangge, Beijing Haidian District Champion Training School, or Champion Training School, Beijing Zhengbao Yucai Education Technology Co.,
Ltd., or Zhengbao Yucai, and Zhejiang Champion Xinlixiang Education Management Co., Ltd., or Champion Xinlixiang, are subject to laws and regulations governing the formation and conduct of domestic PRC companies. Relevant PRC laws, regulations and
legal requirements may change frequently, and their interpretation and enforcement involve uncertainties. For example, we may have to resort to administrative and court proceedings to enforce the legal protection that we enjoy either by law or
contract. However, since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings
and the level of legal protection we enjoy than under more developed legal systems. Such uncertainties, including the inability to enforce our contracts and intellectual property rights, could materially and adversely affect our business and
operations. Accordingly, we cannot predict the effect of future developments in the PRC legal system, particularly with respect to the education sector, including the promulgation of new laws, changes to existing laws or the interpretation or
enforcement thereof, or the preemption of local regulations by national laws. These uncertainties could limit the legal protections available to us and other foreign investors.

Fluctuations in exchange rates could result in foreign currency exchange losses.

We report our financial results in U.S. dollars, and appreciation or depreciation in the value of the Renminbi (which is the currency in which substantially all of our revenues and expenditures are
denominated) relative to the U.S. dollar would affect our financial results reported in U.S. dollars terms without giving effect to any underlying change in our business or results of operations. Fluctuations in the exchange rate will also affect
the relative value of any dividend we issue that will be exchanged into U.S. dollars and earnings from and the value of any U.S. dollar-denominated investments we make in the future.

Since July 2005, the Renminbi has no longer been pegged to the U.S. dollar. Although currently the Renminbi exchange rate versus the U.S.
dollar is restricted to a rise or fall of no more than 0.5% per day and the Peoples Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, the Renminbi may
appreciate or depreciate significantly in value against the U.S. dollar in the medium- to long-term. Moreover, it is possible that in the future, PRC authorities may lift restrictions on fluctuations in the Renminbi exchange rate and lessen
intervention in the foreign exchange market.

Very limited hedging transactions are available in China to reduce our exposure
to exchange rate fluctuations. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability
and effectiveness of these hedging transactions may be limited and we may not be able to successfully hedge our exposure at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability
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The discontinuation of any of the preferential tax treatments currently available to our PRC
subsidiary, Champion Technology, and affiliated entity, Beijing Champion, could materially increase our tax liabilities.

Prior to January 1, 2008, under applicable PRC tax laws, companies established in China were generally subject to an enterprise income tax, or EIT, at the statutory rate of 33%. However, certain types of foreign-invested enterprises
and high and new technology enterprises located in certain specified high-tech zones were entitled to preferential tax treatments. Under the then applicable PRC tax laws, each of our two PRC subsidiaries, Champion Technology and Champion Education
Technology, had been granted preferential EIT treatment based on their status as foreign-invested enterprises and their status as high and new technology enterprises operating in Beijing Zhongguancun Science Park. Our PRC affiliated entity, Beijing
Champion had been granted preferential EIT treatment based on its status as a high and new technology enterprise operating in the Zhongguancun Science Park.

In March 2007, the National Peoples Congress enacted the Enterprise Income Tax Law, or the New EIT Law, and in December 2007, the State Council promulgated the implementing rules of the New EIT Law,
both of which became effective on January 1, 2008. The New EIT Law significantly curtails tax incentives granted to foreign-invested enterprises under the previous tax law. The New EIT Law, however, (i) reduces the statutory rate of
enterprise income tax from 33% to 25%, (ii) permits companies to continue to enjoy their existing tax incentives, subject to certain transitional phase-out rules, and (iii) introduces new tax incentives, subject to various qualification
criteria. Under the phase-out rules, enterprises established before the promulgation date of the New EIT Law and which were granted preferential EIT treatment under the then effective tax laws or regulations may continue to enjoy their preferential
tax treatments until their expiration. Accordingly, Champion Technology, an enterprise established before the promulgation date of the New EIT Law, will continue to enjoy its preferential treatment under the phase-out rules, whereas Champion
Education Technology, established after the promulgation date, was no longer entitled to its preferential treatment as of January 1, 2008. The New EIT Law and its implementing rules permit qualified high and new technology
enterprises to enjoy a reduced 15% EIT rate. The qualification criteria are significantly higher than those prescribed by the old tax rules under which we had been granted preferential treatment. Champion Education Technology is no longer
entitled to the 15% reduced tax rate and became subject to the statutory 25% EIT rate as of January 1, 2008 because it does not qualify under the new criteria. Beijing Champion and Champion Technology obtained the qualification certificates of
high and new technology enterprises under the New EIT Law on December 24, 2008 with a valid period of three years starting from calendar year 2008 to 2010. As a result, Beijing Champion is subject to the tax rate of 15% from 2008 through 2010.
Champion Technology is subject to the tax rate of 7.5% for 2008 through 2009 and 15% for 2010. However, the continued qualification of a high and new technology enterprise for calendar year of 2010 will be subject to annual evaluation by the
relevant government authority in China. In addition, Beijing Champion and Champion Technology will need to apply for an additional three year extension upon the expiration of the current qualification certificates by the end of 2010 if they desire
to continue to enjoy the 15% reduced rate and the companys business operations continue to qualify for such status. In calculating deferred tax assets and liabilities, we have assumed that Beijing Champion and Champion Technology will continue
to renew their high and new technology enterprise status at the conclusion of the initial three tax year period and Champion Technology is entitled to its preferential treatment under the phase-out rules. We cannot assure you, however, that Beijing
Champion and Champion Technology will continue to qualify as high and new technology enterprises under the New EIT Law or enjoy the preferential treatments under the phase-out rules, or that the local tax authorities will not, in the future, change
their position and revoke any of our past preferential tax treatments. The discontinuation of any of our preferential tax treatments could materially increase our tax obligations.

Any increase in the enterprise income tax rate applicable to us or discontinuation or reduction of any of the preferential tax treatments or
financial incentives currently enjoyed by our PRC subsidiary, Champion Technology, and affiliated entity, Beijing Champion, could adversely affect our business, operating results and financial condition.

Under Chinas New EIT Law, we may be classified as a resident enterprise of China. Such classification could result in unfavorable
tax consequences to us and our non-PRC shareholders.

Under the New EIT Law, an enterprise established outside of
China with de facto management bodies within China is considered a resident enterprise, meaning that it can be treated in a manner similar to a Chinese enterprise for enterprise income tax purposes, although the dividends
paid to one resident enterprise from another may qualify as tax-exempt income. The implementing rules of the New EIT Law define de facto management as substantial and overall management and control over the production and
operations, personnel, accounting, and properties of the enterprise. A circular issued by the State Administration of Taxation on April 22, 2009 provides that a foreign enterprise controlled by a PRC company or a PRC company group will be
classified as a resident enterprise with its de facto management bodies located within China if the following requirements are satisfied: (i) the senior management and core management departments in charge of its daily
operations function are mainly in the PRC; (ii) its financial and human resources decisions are subject to determination or approval by persons or bodies in the PRC; (iii) its major assets, accounting books, company seals, and minutes and
files of its board and shareholders meetings are located or kept in the PRC; and (iv) at least half of the enterprises directors with voting right or senior management reside in the PRC.



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Our management is currently based in China and expected to remain in China. Although CDEL
Cayman as our holding company is not controlled by a PRC company or company group, we cannot assure you that CDEL Cayman will not be deemed to a resident enterprise under the EIT law and its implementation rules. The resident
enterprise rule could be applied to CDEL Hong Kong as our intermediate holding company with similar consequences. If the PRC tax authorities determine that CDEL Cayman and CDEL Hong Kong are resident enterprises for PRC enterprise
income tax purposes, a number of unfavorable PRC tax consequences could follow. First, we may be subject to enterprise income tax at a rate of 25% on our worldwide taxable income, as well as PRC enterprise income tax reporting obligations. Second,
although under the New EIT Law and its implementing rules, a dividend income between qualified resident enterprises is a tax-exempt income, we cannot guarantee that dividends paid to CDEL Cayman from our PRC subsidiaries through CDEL
Hong Kong would qualify as tax-exempt income and will not be subject to withholding tax, as the PRC foreign exchange control authorities, which enforce the withholding tax, have not yet issued guidance with respect to the processing of
outbound remittances to entities that are treated as resident enterprises for PRC enterprise income tax purposes. Finally, the new resident enterprise classification could result in a situation in which a 10% withholding tax
is imposed on dividends we pay to our non-PRC enterprise shareholders and with respect to gains derived by our non-PRC enterprise shareholders from transferring our shares or ADSs, if such income is considered PRC-sourced income by the relevant PRC
authorities. This could have the effect of increasing our and our shareholders effective income tax rates and could also have an adverse effect on our net income and results of operations, and may require us to deduct withholding tax amounts
from any dividends we pay to our non-PRC shareholders.

In addition to the uncertainty in how the new resident
enterprise classification could apply, it is also possible that the rules may change in the future, possibly with retroactive effect. We are actively monitoring the possibility of resident enterprise treatment for the 2010 tax year
and are evaluating appropriate organizational changes to avoid this treatment, to the extent possible.

If the China Securities
Regulatory Commission, or CSRC, or another PRC regulatory agency determines that its approval was required in connection with our initial public offering, we may become subject to penalties.

On August 8, 2006, six PRC regulatory agencies, including the CSRC, promulgated the Regulation on Mergers and Acquisitions of Domestic
Companies by Foreign Investors, or the M&A Rule, which became effective on September 8, 2006, and was amended on June 22, 2009. The M&A Rule, among other things, has certain provisions that require offshore special purpose
vehicles, or SPVs, formed for the purpose of acquiring PRC domestic companies and controlled by PRC individuals, to obtain the approval of the CSRC prior to listing their securities on an overseas stock exchange. We believe, based on the opinion of
our PRC legal counsel, Jingtian & Gongcheng, that while the CSRC generally has jurisdiction over overseas listings of SPVs like us, CSRCs approval was not required for our initial public offering given the fact that our current
corporate structure was established before the new regulation became effective. However, there remains some uncertainty as to how this regulation will be interpreted or implemented in the context of an overseas offering. If the CSRC or another PRC
regulatory agency subsequently determines that its approval was required for our initial public offering, we may face sanctions by the CSRC or another PRC regulatory agency. If this happens, these regulatory agencies may impose fines and penalties
on our operations in the PRC, limit our operating privileges in the PRC, delay or restrict the injection of the proceeds from our initial public offering into our PRC subsidiaries, restrict or prohibit payment or remittance of dividends by our PRC
subsidiaries to us or take other actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our ordinary shares.

The M&A Rule establishes more complex procedures for some acquisitions of PRC companies by foreign entities, which could make it more difficult
for us to pursue growth through acquisitions in China.

The M&A Rule establishes additional procedures and
requirements that could make some acquisitions of PRC companies by foreign entities, such as ours, more time-consuming and complex, including requirements in some instances that the Ministry of Commerce be notified in advance of any
change-of-control transaction in which a foreign entity takes control of a PRC domestic enterprise. In the future, we may grow our business in part by acquiring complementary businesses. Complying with the requirements of the M&A Rule to
complete such transactions could be time-consuming, and any required approval processes, including obtaining approval from the Ministry of Commerce, may delay or inhibit our ability to complete such transactions, which could affect our ability to
expand our business or maintain our market share.

PRC regulation of loans and direct investment by offshore holding companies to PRC
entities may restrict our ability to make loans to our PRC subsidiaries and PRC affiliated entities or to make additional capital contributions to our PRC subsidiaries, which could materially and adversely affect our liquidity and our ability to
fund and expand our business.

We are an offshore holding company conducting our operations in China through our PRC
subsidiaries and our PRC affiliated entities, Beijing Champion, Caikaowang, Champion Wangge, Champion Training School, Zhengbao Yucai and Champion Xinlixiang. From time to time, we plan to make loans to our PRC subsidiaries, whether currently in
existence or to be formed in the future, and to our PRC affiliated entities, whether currently in existence or to be formed in the future, or make additional capital contributions to our PRC subsidiaries.



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Any loans we make to our PRC subsidiaries cannot exceed statutory limits and must be
registered with the State Administration of Foreign Exchange, or SAFE, or its local counterparts. Under applicable PRC law, the government authorities must approve a foreign-invested enterprises registered capital amount, which represents the
total amount of capital contributions made by the shareholders that have been registered with the registration authorities. In addition, the authorities must also approve the foreign-invested enterprises total investment, which represents the
total statutory capitalization of the company, equal to the companys registered capital plus the amount of loans it is permitted to borrow under the law. The ratio of registered capital to total investment cannot be lower than the minimum
statutory requirement and the excess of the total investment over the registered capital represents the maximum amount of borrowings that a foreign invested enterprise is permitted to have under PRC law. If we were to make loans to our PRC
subsidiaries, we would have to apply to the relevant government authorities for an increase in their permitted total investment amounts. The various applications could be time-consuming and their outcomes may be uncertain. Furthermore, even if we
make loans to our PRC subsidiaries that do not exceed their current maximum amount of borrowings, we will have to register each loan with SAFE or its local counterpart for the issuance of a registration certificate of foreign debts. In practice, it
could be time-consuming to complete such SAFE registration process. Concurrently with the loans, we might have to make capital contributions to these subsidiaries to maintain the statutory minimum registered capital and total investment ratio, and
such capital contributions involve uncertainties of their own. Further, SAFE promulgated another circular (known as Circular 142) in August 2008 with respect to the administration of conversion of foreign exchange capital contributions of a foreign
invested enterprise. The circular clarifies that Renminbi converted from foreign exchange capital contributions can only be used for the activities within the approved business scope of such foreign invested enterprise and cannot be used for
domestic equity investments unless otherwise permitted.

Because our PRC affiliated entities are domestic PRC entities, we are
not likely to finance their activities by means of direct capital contributions due to regulatory issues relating to foreign investment in the online education industry, as well as the licensing and other regulatory issues discussed in Item
4.B. Information on the Company  Business Overview  Regulations. Any loans we make to any of our PRC affiliated entities, which is treated as a PRC domestic company rather than a foreign-invested enterprise under PRC law, are also
subject to various PRC regulations and approvals. Under applicable PRC regulations, international commercial loans to PRC domestic companies are subject to various government approvals.

We cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals on
a timely basis, if at all, with respect to future loans by us to our PRC subsidiaries or PRC affiliated entities or with respect to future capital contributions by us to our PRC subsidiaries. If we fail to complete such registrations or obtain such
approvals, our ability to capitalize or otherwise fund our PRC operations may be negatively affected, which could adversely and materially affect our liquidity and our ability to fund and expand our business.

A failure by our shareholders or beneficial owners who are PRC citizens or residents to comply with certain PRC foreign exchange regulations could
restrict our ability to distribute profits, restrict our overseas and cross-border investment activities or subject us to liability under PRC laws, which could adversely affect our business and financial condition.

In October 2005, SAFE issued the Notice on Issues Relating to the Administration of Foreign Exchange in Fund-Raising and Return Investment
Activities of Domestic Residents Conducted via Offshore Special Purpose Companies, or SAFE Circular 75. According to SAFE Circular 75, prior to establishing or assuming control of an offshore enterprise for the purpose of financing that offshore
enterprise with assets or equity interests in an onshore enterprise in the PRC, each PRC resident, whether a natural or legal person, must complete certain overseas investment foreign exchange registration procedures with the relevant local SAFE
branch. An amendment to the registration with the local SAFE branch is required to be filed by any PRC resident that directly or indirectly holds interests in that offshore enterprise upon either (i) the injection of equity interests or assets
of an onshore enterprise to the offshore enterprise or (ii) any overseas fund-raising by such offshore enterprise after such injection. An amendment to the registration with the local SAFE branch is also required to be filed by such PRC
resident when there is any material change involving a change in the capital of the offshore enterprise, such as (i) an increase or decrease in its capital, (ii) a transfer or swap of shares, (iii) a merger or division, (iv) a
long-term equity or debt investment or (v) the creation of any security interests. To further clarify the implementation of SAFE Circular 75, SAFE issued SAFE Circular 106 on May 29, 2007. Under SAFE Circular 106, PRC subsidiaries of an
offshore enterprise governed by SAFE Circular 75 are required to coordinate and supervise the filing of SAFE registrations in a timely manner by the offshore holding companys shareholders who are PRC residents. If these shareholders fail to
comply, the PRC subsidiaries are required to report to the local SAFE authorities. If our shareholders who are PRC citizens or residents do not complete their registration with the local SAFE authorities, our PRC subsidiaries will be prohibited from
distributing their profits and proceeds from any reduction in capital, share transfer or liquidation to us, and we may be restricted in our ability to contribute additional capital to our PRC subsidiaries.



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We are committed to complying, and to ensuring that our shareholders, who are PRC citizens
or residents, comply with the SAFE Circular 75 requirements. However, we may not at all times be fully aware or informed of the identities of all our beneficial owners who are PRC citizens or residents, and we may not always be able to compel our
beneficial owners to comply with the SAFE Circular 75 requirements. As a result, we cannot assure you that all of our shareholders or beneficial owners who are PRC citizens or residents will at all times comply with, or in the future make or obtain
any applicable registrations or approvals required by, SAFE Circular 75 or other related regulations. Failure by any such shareholders or beneficial owners to comply with SAFE Circular 75 could subject us to fines or legal sanctions, restrict our
overseas or cross-border investment activities, limit our subsidiaries ability to make distributions or pay dividends or affect our ownership structure, which could adversely affect our business and prospects.

We may be subject to fines and legal sanctions imposed by SAFE or other Chinese government authorities if we or our Chinese employees fail to comply
with Chinese regulations relating to employee share options granted by offshore listed companies to Chinese citizens.

On March 28, 2007, SAFE issued the Application Procedure of Foreign Exchange Administration for Domestic Individuals Participating in Employee Share Holding Plan or Share Option Plan of Overseas Listed Company, or the Share Option
Rule. Under the Share Option Rule, Chinese citizens who are granted share options by an offshore listed company are required, through a Chinese agent or Chinese subsidiary of the offshore listed company, to register with the SAFE and complete
certain other procedures, including applications for foreign exchange purchase quotas and opening special bank accounts. We and our Chinese employees who have been granted share options are subject to the Share Option Rule. If we or our Chinese
employees fail to comply with these regulations, we or our Chinese employees may be subject to fines and legal sanctions imposed by the SAFE or other Chinese government authorities, which may prevent us from further granting options under our share
incentive plans to our employees. Such events could adversely affect our business operations. See Item 4.B. Information on the Company  Business overview  Regulations  SAFE Regulations on Employee Share Options.

Restrictions on currency exchange may limit our ability to utilize our revenues effectively and the ability of our PRC subsidiaries to
obtain financing.

Substantially all of our revenues and operating expenses are denominated in Renminbi. Restrictions
on currency exchange imposed by the PRC government may limit our ability to utilize revenues generated in Renminbi to fund our business activities outside China, if any, or expenditures denominated in foreign currencies. Under current PRC
regulations, Renminbi may be freely converted into foreign currency for payments relating to current account transactions, which include among other things dividend payments and payments for the import of goods and services, by complying
with certain procedural requirements. Our PRC subsidiaries may also retain foreign exchange in their respective current account bank accounts, subject to a cap set by SAFE or its local counterpart, for use in payment of international current account
transactions.

However, conversion of Renminbi into foreign currencies, and of foreign currencies into Renminbi, for payments
relating to capital account transactions, which principally includes investments and loans, generally requires the approval of SAFE and other relevant PRC governmental authorities. Restrictions on the convertibility of the Renminbi for
capital account transactions could affect the ability of our PRC subsidiaries to make investments overseas or to obtain foreign exchange through debt or equity financing, including by means of loans or capital contributions from us.

Any existing and future restrictions on currency exchange may affect the ability of our PRC subsidiaries or affiliated entities to obtain
foreign currencies, limit our ability to utilize revenues generated in Renminbi to fund our business activities outside China that are denominated in foreign currencies, or otherwise materially and adversely affect our business.

You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing original actions in China based on
United States or other foreign laws against us or our management.

We conduct substantially all of our operations in
China and substantially all of our assets other than cash and cash equivalents and term deposits are located in China. In addition, most of our directors and executive officers reside outside the United States. As a result, it may be difficult to
effect service of process upon us or our directors or executive officers. In addition, you may find it difficult or impossible to bring an action against us or our directors or executive officers in a PRC court if you believe your rights have been
infringed under the U.S. federal securities law or otherwise. Moreover, our PRC counsel has advised us that China does not have treaties with the United States or many other countries providing for the reciprocal recognition and enforcement of court
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Recent changes in the PRC labor law restrict our ability to reduce our workforce in the PRC in the
event of an economic downturn and may increase our labor costs.

In June 2007, the National Peoples Congress of
the PRC enacted the Labor Contract Law, which became effective on January 1, 2008. To clarify certain details in connection with the implementation of the Labor Contract Law, the State Council promulgated the Implementing Rules for the Labor
Contract Law, or the Implementing Rules, on September 18, 2008 which came into effect immediately. The Labor Contract Law provides various rules regarding employment contracts that will likely have a substantial impact on employment practices
in China. The Labor Contract Law imposes severe penalties on employers that fail to timely enter into employment contracts with employees. The employer is required to pay a double salary to the employee if it does not enter into a written contract
with the employee within one month of the employment, and a non-fixed-term contract is assumed if a written contract is not executed after one year of the employment. Additionally, the Labor Contract Law sets a limit of two fixed-term contracts
regardless of the length of each term, after which the contract must be renewed on a non-fixed-term basis should the parties agree to a further renewal unless otherwise required by the respective employee. This requirement curtails the common
practice of continuously renewing short-term employment contracts. The Implementing Rules appear to further tighten this rule by suggesting that an employee has the right to demand a non-fixed-term contract upon the completion of the second fixed
term regardless of whether the employer agrees to a contract renewal. A non-fixed-term contract does not have a termination date and it is generally difficult to terminate such a contract because termination must be based on limited statutory
grounds. The employer can no longer supplement such statutory grounds through an agreement with the employee. In addition, the Labor Contract Law requires the payment of statutory severance upon the termination of an employment contract in most
circumstances, including the expiration of a fixed-term employment contract.

Under the Labor Contract Law, employers can only
impose a post-termination non-competition provision on employees who have access to their confidential information for a maximum period of two years. If an employer intends to maintain the enforceability of a post-termination non-competition
provision, the employer has to pay the employee compensation on a monthly basis post-termination of the employment. Under the Labor Contract Law, a mass layoff is defined as termination of more than 20 employees or more than 10% of the
workforce. The Labor Contract Law expands the circumstances under which a mass layoff can be conducted, such as when the company undertakes a restructuring pursuant to the PRC Enterprise Bankruptcy Law, suffers serious difficulties in business
operations, changes its line of business, performs significant technology improvements, changes operating methods, or where there has been a material change in the objective economic circumstances relied upon by the parties at the time of the
conclusion of the employment contract, thereby making the performance of such employment contract impractical. The employer must follow specific procedures in conducting a mass layoff. There is little guidance on what penalties an employer will
suffer if it fails to follow the procedural requirements in conducting the mass layoff. Finally, the Labor Contract Law requires that the employer discuss the companys internal rules and regulations that directly affect the employees
material interests (such as employees salary, work hours, leave, benefits, and training, etc.) with all employees or employee representative assemblies and consult with the trade union or employee representatives on such matters before making
a final decision.

All of our employees based exclusively within the PRC are covered by the new laws. As there has been little
guidance and precedents as to how the Labor Contract Law and its Implementing Rules will be enforced by the relevant PRC authorities, there remains uncertainty as to their potential impact on our business and results of operations. The
implementation of the Labor Contract Law and its Implementing Rules may increase our operating expenses, in particular our personnel expenses and labor service expenses. If we want to maintain the enforceability of any of our employees
post-termination non-competition provisions, the compensation and procedures required under the Labor Contract Law may add substantial costs and cause logistical burdens to us. Prior to the new law such compensation was often structured as part of
the employees salary during employment, and was not an additional compensation cost. In the event that we decide to terminate employees or otherwise change our employment or labor practices, the Labor Contract Law and its Implementing Rules
may also limit our ability to effect these changes in a manner that we believe to be cost-effective or desirable, which could adversely affect our business and results of operations. In particular, our ability to adjust the size of our operations
when necessary in periods of recession or less severe economic downturns such as the recent financial turmoil may be affected. In addition, during periods of economic decline when mass layoffs become more common, local regulations may tighten the
procedures by, among other things, requiring the employer to obtain approval from the relevant local authority before conducting any mass layoff. Such regulations can be expected to exacerbate the adverse effect of the economic environment on our
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Risks Relating to Our ADSs

Stock prices of companies with business operations primarily in China have fluctuated widely in recent years, and the trading prices of our ADSs are likely to be volatile, which could result in
substantial losses to investors.

The trading prices of our ADSs are likely to be volatile and could fluctuate widely
in response to factors beyond our control. For example, if one or more of the industry analysts or ratings agencies who cover us downgrades us or our ADSs, the price of our ADSs may decline. If one or more of these analysts or agencies cease to
cover our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause the price of our ADSs or trading volume to decline. In addition, the performance and fluctuation of the market prices
of other technology companies with business operations mainly in China that have listed their securities in the United States may affect the volatility in the price of and trading volumes for our ADSs. In recent years, a number of PRC companies have
listed their securities, or are in the process of preparing for listing their securities, on U.S. stock markets. Some of these companies have experienced significant volatility, including significant price declines following their initial public
offerings. The trading performances of these PRC companies securities at the time of or after their offerings may affect the overall investor sentiment towards PRC companies listed in the United States and consequently may impact the trading
performance of our ADSs. These broad market and industry factors may significantly affect the market price and volatility of our ADSs, regardless of our actual operating performance.

In addition to market and industry factors, the price and trading volume for our ADSs may be highly volatile for specific business reasons.
Factors such as variations in our revenues, earnings and cash flow, announcements of new investments, cooperation arrangements or acquisitions, and fluctuations in market prices for our services could cause the market price for our ADSs to change
substantially. Any of these factors may result in large and sudden changes in the volume and price at which our ADSs will trade. We cannot give any assurance that these factors will not occur in the future. In the past, following periods of
volatility in the market price of a companys securities, shareholders have often instituted securities class action litigation against that company. If we were involved in a class action lawsuit, it could divert the attention of senior
management, and, if adversely determined, could have a material adverse effect on our business, financial condition and results of operations.

The sale or availability for sale of substantial amounts of our ADSs could adversely affect their market price.

Sales of substantial amounts of our ADSs in the public market, or the perception that these sales could occur, could adversely affect the market price of our ADSs and could materially impair our future ability to raise capital through
offerings of our ADSs. As of September 30, 2009, there were 138,765,685 ordinary shares outstanding. All of our ADSs are freely tradable without restriction or further registration under the Securities Act unless held by our
affiliates as that term is defined in Rule 144 under the Securities Act. Subject to the applicable restrictions and limitations under Rule 144 of the Securities Act, all of our shares outstanding are eligible for sale in the public
market. In addition, as of September 30, 2009, there were 10,836,708 outstanding options to purchase ordinary shares out of which 2,579,368 outstanding options has vested under their current terms. If these additional shares are sold, or if it
is perceived that they will be sold in the public market, the trading price of our ordinary shares could decline.

Anti-takeover
provisions in our organizational documents may discourage our acquisition by a third party, which could limit your opportunity to sell your shares at a premium.

Our second amended and restated memorandum of association and articles of association include provisions that could limit the ability of others to acquire control of us, modify our structure or cause us
to engage in change of control transactions, including, among other things, the following:



| |  |  | provisions that restrict the ability of our shareholders to call meetings and to propose special matters for consideration at shareholder meetings;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | provisions that authorize our board of directors, without action by our shareholders, to issue preferred shares and to issue additional ordinary
shares, including ordinary shares represented by ADSs; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | provisions that provide for a staggered board, whereby our board will be divided into three classes of directors, with directors in each class serving
staggered three-year terms. With a staggered board, at least two annual shareholders meetings, instead of one, would generally be required to effect a change in a majority of the board. A staggered board tends to discourage proxy contests for
the election of directors and purchases of a substantial block of shares because a staggered board operates to prevent a third party from obtaining control of our board in a relatively short period of time. See Item 6.C. Directors, Senior
Management and Employees  Board Practices.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

These provisions could have the effect of depriving
you of an opportunity to sell your ADSs at a premium over prevailing market prices by discouraging third parties from seeking to acquire control of us in a tender offer or similar transactions.



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The voting rights of holders of ADSs must be exercised in accordance with the terms of the deposit
agreement, and the procedures established by the depositary. The process of voting through the depositary may involve delays that limit the time available to you to consider proposed shareholders actions and also may restrict your ability to
subsequently revise your voting instructions.

A holder of ADSs may exercise its voting rights with respect to the
underlying ordinary shares only in accordance with the provisions of the deposit agreement. When the depositary receives from us notice of any shareholders meeting, it will distribute the information in the meeting notice and any proxy solicitation
materials to you. The depositary will determine the record date for distributing these materials, and only ADS holders registered with the depositary on that record date will, subject to applicable laws, be entitled to instruct the depositary to
vote the underlying ordinary shares. The depositary will also determine and inform you of the manner for you to give your voting instructions, including instructions to give discretionary proxies to a person designated by us. Upon receipt of voting
instructions of a holder of ADSs, the depositary will endeavor to vote the underlying ordinary shares in accordance with these instructions. You may not receive sufficient notice of a shareholders meeting for you to withdraw your ordinary
shares and cast your vote with respect to any proposed resolution, as a holder of our ordinary shares. In addition, the depositary and its agents may not be able to send materials relating to the meeting and voting instruction forms to you, or to
carry out your voting instructions, in a timely manner. We cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your shares. The additional time required for the depositary to
receive from us and distribute to you meeting notices and materials, and for you to give voting instructions to the depositary with respect to the underlying ordinary shares, will result in your having less time to consider meeting notices and
materials than holders of ordinary shares who receive such notices and materials directly from us and who vote their ordinary shares directly. If you have given your voting instructions to the depositary and subsequently decide to change those
instructions, you may not be able to do so in time for the depositary to vote in accordance with your revised instructions. The depositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner
in which any vote is cast or for the effect of any such vote. In the event that voting on any resolution or matter is conducted on a show of hands basis in accordance with our second amended and restated memorandum of association and articles of
association, the depositary will refrain from voting and the voting instructions (or the deemed voting instructions, as set out in the deposit agreement) received by the depositary from you will lapse. The depositary will have no obligation to
demand voting on a poll basis with respect to any resolution and will have no liability to any holder of ADS for not having demanded voting on a poll basis. In addition, the depositary will, if so requested in writing by us, represent all the
ordinary shares (whether or not voting instructions have been received in respect of such ordinary shares from you as of the record date) for the purpose of establishing quorum at a meeting of shareholders.

Except in limited circumstances, the depositary for our ADSs will give us a discretionary proxy to vote our ordinary shares underlying your ADSs if
you do not vote at shareholders meetings, which could adversely affect your interests.

Under the deposit
agreement for the ADSs, the depositary will give us a discretionary proxy to vote our ordinary shares underlying your ADSs at shareholders meetings if you do not vote, do not timely vote, or voting instructions received fail to specify the
manner in which the depositary is to vote ordinary shares underlying your ADSs unless we notify the depositary that:



| |  |  | we do not wish to receive a discretionary proxy;
| | - |  | ------------------------------------------------



| |  |  | we think there is substantial shareholder opposition to the particular question; or
| | - |  | -----------------------------------------------------------------------------------



| |  |  | we think the subject of the particular question would have a material adverse impact on our shareholders.
| | - |  | ---------------------------------------------------------------------------------------------------------

The effect of this discretionary proxy is that, absent the situations described above, you cannot prevent our ordinary shares underlying
your ADSs from being voted and it may make it more difficult for shareholders to influence the management of our company. Holders of our ordinary shares are not subject to this discretionary proxy.

We may be classified as a passive foreign investment company, which could result in adverse U.S. federal income tax consequences to U.S. holders of
our ADSs or ordinary shares.

Depending upon the value of our ADSs or ordinary shares and the nature of our assets and
income over time, we could be classified as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes. We will be classified as a PFIC in any taxable year if either (a) the average quarterly value of our gross assets
that produce passive income or are held for the production of passive income is at least 50% of the average quarterly value of our total gross assets or (b) 75% or more of our gross income for the taxable year is passive income. According to
these technical rules, we would likely become a PFIC for a given taxable year if our market capitalization were to decrease significantly while we hold substantial cash and cash equivalents in that year.



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Based in part on our estimate of the composition of our income and our estimates of the
value of our assets, we do not expect to be a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for our current taxable year or in the foreseeable future. However, the application of the PFIC rules is subject to
ambiguity in several respects, and, in addition, PFIC status is tested each taxable year and will depend on the composition of our assets and income and the value of our assets (including, among others, goodwill and equity investments in less than
25% owned entities) from time to time. Because we currently hold, and expect to continue to hold, a substantial amount of cash and other passive assets and, because the value of our assets is likely to be determined in large part by reference to the
market prices of our ADSs and ordinary shares, which is likely to fluctuate, we may be a PFIC for any taxable year. If we are treated as a PFIC for any taxable year during which a U.S. investor held our ADSs or ordinary shares, certain adverse U.S.
federal income tax consequences would apply to the U.S. investor. For more information on the U.S. tax consequences to you that would result from our classification as a PFIC, please see Item 10.E. Additional Information  Taxation 
United States Federal Income Taxation  Passive Foreign Investment Company.

Your right to participate in any future rights
offerings may be limited, which may cause dilution to your holdings.

We may from time to time distribute rights to
our shareholders, including rights to acquire our securities. However, we cannot make rights available to you in the United States unless we register the rights and the securities to which the rights relate under the Securities Act or an exemption
from the registration requirements is available. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective. Moreover, we
may not be able to establish an exemption from registration under the Securities Act. Accordingly, you may be unable to participate in our rights offerings and may experience dilution in your holdings.

You may not receive distributions on our ordinary shares or any value for them if such distribution is illegal or if any required government approval
cannot be obtained in order to make such distribution available to you.

The depositary of our ADSs has agreed to pay
holders of our ADSs the cash dividends or other distributions it or the custodian for our ADSs receives on our ordinary shares or other deposited securities after deducting its fees and expenses. Holder of our ADSs will receive these distributions
in proportion to the number of our ordinary shares such holders ADSs represent. However, the depositary is not responsible to make a distribution available to any holders of ADSs if it decides that it is unlawful to make such distribution. For
example, it would be unlawful to make a distribution to a holder of ADSs if it consisted of securities that required registration under the Securities Act but that were not properly registered or distributed pursuant to an applicable exemption from
registration. The depositary is not responsible for making a distribution available to any holders of ADSs if any government approval or registration required for such distribution cannot be obtained after reasonable efforts made by the depositary.
We have no obligation to take any other action to permit the distribution of our ADSs, ordinary shares, rights or anything else to holders of our ADSs. This means that holders of our ADSs may not receive the distributions we make on our ordinary
shares or any value for them if it is unlawful or unreasonable from a regulatory perspective for us to make them available to such holders. These restrictions may have a material adverse effect on the value of our ADSs.

Holders of our ADSs may be subject to limitations on transfer of ADSs.

ADSs are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it
deems expedient in connection with the performance of its duties. The depositary may close its books from time to time for a number of reasons, including in connection with corporate events such as a rights offering, during which time the depositary
needs to maintain an exact number of ADS holders on its books for a specified period. The depositary may also close its books in emergencies, and on weekends and public holidays. The depositary may refuse to deliver, transfer or register transfers
of our ADSs generally when the books of the depositary are closed, or at any time if we or the depositary thinks it is necessary or advisable to do so because of any requirement of law or any government or government body, or under any provision of
the deposit agreement, or for any other reason.



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We are a Cayman Islands company and, because judicial precedent regarding the rights of shareholders
is more limited under Cayman Islands law than under U.S. federal or state laws, holders of ADSs may have less protection of shareholder rights than they would under U.S. federal or state laws.

Our corporate affairs are governed by our second amended and restated memorandum of association and articles of association, the Cayman
Islands Companies Law (as amended) and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman
Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, which
has persuasive, but not binding, authority on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes
or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities law than the United States. In addition, some jurisdictions, such as Delaware, have more fully developed and
judicially interpreted bodies of corporate law than the Cayman Islands. As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of
directors or controlling shareholders than they would as public shareholders of a U.S. company, and Cayman Islands companies may not have standing to initiate a shareholder derivative action before the federal courts of the United States.

Certain judgments obtained against us by our shareholders may not be enforceable.

We are a Cayman Islands company and substantially all of our assets are located outside of the United States. Nearly all of our current
operations are conducted in China. In addition, most of our directors and officers are nationals and residents of countries other than the United States. A substantial portion of the assets of these persons are located outside the United States. As
a result, it may be difficult to effect service of process within the United States upon these persons. It may also be difficult to enforce in U.S. court judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal
securities laws against us and our officers and directors, most of whom are residents of countries other than the United States and the substantial majority of whose assets are located outside of the United States. In addition, there is uncertainty
as to whether the courts of the Cayman Islands or China would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state. In
addition, there is uncertainty as to whether such Cayman Islands or PRC courts would be competent to hear original actions brought in the Cayman Islands or China against us or such persons predicated upon the securities laws of the United States or
any state.



|ITEM 4. | INFORMATION ON THE COMPANY
|------- | --------------------------

A. History and Development of the Company

Beijing Champion Hi-Tech Co., Ltd., or Beijing Champion, a PRC
limited liability company, commenced operations in July 2000 and became our consolidated operating company in June 2003.

In
March 2003, we incorporated China Distance Education Limited, or CDEL Hong Kong, in Hong Kong. We then took the following steps to reorganize our corporate structure and have CDEL Hong Kong become our offshore holding company:



| |  |  | In June 2003, following a shareholder restructuring, Zhengdong Zhu, our co-founder, chairman and chief executive officer and his wife, Baohong Yin, our
co-founder and deputy chairman became the 80% controlling shareholders of Beijing Champion. In May 2004, Mr. Zhu and Ms. Yin acquired the remaining 20% equity interests in Beijing Champion, and consequently, own 79% and 21%, respectively,
of equity interests in Beijing Champion.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In January 2004, CDEL Hong Kong established a wholly owned PRC subsidiary, Beijing Champion Distance Education Technology Co., Ltd., or Champion
Technology, which acquired from Beijing Champion various assets, including the online education software platform and course creation and production technologies, computer servers, other computer hardware and video equipment.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In May 2004, CDEL Hong Kong and Champion Technology entered into a series of contractual arrangements with Beijing Champion and its shareholders to
acquire effective control over Beijing Champion.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In April 2007, CDEL Hong Kong established in China another wholly owned subsidiary, Beijing Champion Education Technology Co., Ltd., or Champion
Education Technology, which also became a party to certain of the contractual arrangements.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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We incorporated China Distance Education Holdings Limited, or CDEL Cayman, in the Cayman
Islands in January 2008 as our listing vehicle. CDEL Cayman became our ultimate holding company in March 2008 when it issued shares to the existing shareholders of CDEL Hong Kong in exchange for all of the outstanding shares of CDEL Hong Kong at a
rate of 1,000 shares in CDEL Cayman in return for each share in CDEL Hong Kong.

In September 2007, Beijing Champion and
Beijing 100 Online Education Information Consulting Co., Ltd., or 100 Online, a third-party entity unaffiliated with us or our affiliates, entered into an agreement to set up a joint venture named Caikaowang Company Limited, or Caikaowang, to
operate www.ck100.com, an online platform offering accounting training courses that supplement our existing online accounting training course offerings. In November 2007, based on the agreement, Beijing Champion contributed RMB0.4 million
($54,000), or 40% of the joint ventures total registered capital. In June 2008, Beijing Champion acquired the remaining 60% equity interest in Caikaowang from 100 Online at a consideration of RMB4.0 million ($0.6 million). As a result,
Caikaowang became a 100% owned subsidiary of Beijing Champion.

In June 2008, Beijing Champion invested RMB30.0 million ($4.4
million) and formed a wholly owned subsidiary named Beijing Champion Wangge Education Technology Co., Ltd., or Champion Wangge. Champion Wangge provides courses covering primary and secondary education subjects.

In December 2008, our board of directors approved the establishment of Beijing Haidian District Champion Training School, or Champion
Training School, by Beijing Champion, with a proposed registered capital of RMB10 million ($1.5 million), to expand our offline information technology application training business. We have obtained a Private School Operating License for Champion
Training School from the Education Commission of Beijing Haidian District.

On March 10, 2009, we acquired the business
start-up training business from Beijing Yinglun Yucai Education Consulting Co., Ltd., or Yinglun Yucai, a company previously owned by Mr. Liang Ma, a third-party individual. The acquired business is now operated by Zhengbao Yucai, an entity
established by Beijing Champion. Upon the completion of the acquisition, Mr. Liang Ma became the beneficial owner of a 40% equity interest of Zhengbao Yucai. The initial consideration for this acquisition was RMB 36 million ($5.3 million).
In addition, the investment agreement provides for further contingent consideration to be paid or received by Beijing Champion. For more recent developments with respect to this acquisition, please see Item 8. Financial InformationLegal
Proceedings.

On September 30, 2009, we acquired the Gaokao re-take business from Mr. Junnan Ye and
Mr. Xiujie Hu, two third-party individuals. The acquired business is now operated by Champion Xinlixiang, an entity established by Champion Wangge. Upon the completion of the acquisition, Mr. Junnan Ye and Mr. Xiujie Hu became the
beneficial owners of a 40% equity interest of Champion Xinlixiang. The initial consideration for this acquisition was RMB 16 million ($2.4 million). In addition, the purchase agreement provides for further contingent consideration to be paid or
received by Champion Wangge.

In the fiscal year ended September 30, 2009, we made capital expenditures of $5.5 million,
primarily related to our purchase of the business of Zhengbao Yucai and Champion Xinlixiang as well as expenditures on property, plant and equipment. These capital expenditures were funded from our operating cash flow. For additional information on
our capital expenditures, see Item 5.B. Operating and Financial Review and Prospects  Liquidity and Capital Resources  Capital Expenditures.

For additional information on our organizational structure, see Item 4.C. Information on the Company  Organizational Structure.

Our principal executive offices are located at 18th Floor, Xueyuan International Tower, 1 Zhichun Road, Haidian District, Beijing 100083,
the Peoples Republic of China. Our telephone number at this address is +86-10-8231-9999 and our fax number is +86-10-8233-7887. Our main website is www.cdeledu.com. The information contained on this website and our other websites is not part
of this annual report.

On August 4, 2008, we completed our initial public offering, which involved the sale by us of
8,750,000 of our ADSs, representing 35,000,000 of our ordinary shares. Our ADSs were initially listed on NYSE Arca under the symbol DL. On February 4, 2009, we transferred the listing and trading of our ADSs from NYSE Arca to the
NYSE, under the same symbol DL. Our agent for service of process in the United States is CT Corporation System, located at 111 Eighth Avenue, New York, New York 10011.



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B. Business overview

Overview

We
offer a wide range of online education and test preparation courses and other related services and products. Our courses are designed to help professionals and other course participants obtain and maintain the skills, licenses and certifications
necessary to pursue careers in China in the areas of accounting, law, healthcare, construction engineering, information technology and other industries. We believe we are the largest provider of online education in China focusing on professional
education, as measured by total number of course enrollments. We also offer online test preparation courses to self-taught learners pursuing higher education diplomas or degrees and to secondary school and college students preparing for various
academic and entrance exams. In addition, we offer online foreign language courses. Our courses feature audio-video lectures delivered through the Internet using streaming media and other Internet-based technologies, and are supplemented by our
proprietary textbooks, tutoring, online assignments and exercises, mock examinations and other forms of course-related support. Course participants are able to access our courses through the Internet at times and places most convenient for them and
to easily interact with a broad online community of course participants, professionals, lecturers and tutors.

To comply with
PRC law, we have adopted a corporate structure whereby we operate our business through a series of contractual arrangements with Beijing Champion, a PRC entity owned by Zhengdong Zhu, our co-founder, chairman and chief executive officer, and his
wife, Baohong Yin, our co-founder and deputy chairman. As a result, we do not enjoy direct equity ownership of Beijing Champion, our primary consolidated operating company. However, through these contractual arrangements, we effectively control
Beijing Champion and its subsidiaries and consolidate its financial results in our consolidated financial statements, and thus references to we, us, our company and our refer not only to CDEL Cayman
and its subsidiaries, but also to Beijing Champion and its subsidiaries, as the context requires. Beijing Champion, which became our consolidated operating company in June 2003, launched our first online education course in March 2001 through our
www.chinaacc.com website to offer online accounting courses designed to help course participants prepare for Chinas Intermediate Level Accounting Professional Qualification Examination. Our online accounting education business has
experienced substantial growth since then. We believe our Chinaacc brand has now become widely recognized in China as a leading source for online training, test preparation and continuing education within Chinas accounting
industry. We have also expanded our course offerings into other areas. In June 2003, we launched a website to provide preparatory courses for Chinas primary legal exam, the National Judicial Examination. In January 2005, we launched a website
to provide training and licensure exam courses for various healthcare professionals, including doctors, nurses and pharmacists. As of September 30, 2009, we operated 16 websites, including our main website www.cdeledu.com and 15 other
websites, each dedicated to a specific industry, profession or subject area.

In addition to our online education courses,
which accounted for 89.8%, 79.1% and 74.0% of our net revenues in the fiscal years ended September 30, 2007, 2008 and 2009, respectively, we also sell books and reference materials through third-party bookstores and distributors across China,
and, to a lesser extent, through our online bookstore and our offices in Beijing. In the fiscal year ended September 30, 2009, we also further expanded our course offerings into offline areas, including information technology courses, primary
and secondary school supplementary courses, and business start-up training courses. We also, from time to time, provide course production services, platform production services and magazine content production services, for certain customers at their
request, and provide in-person professional training for accounting firms.

We have experienced significant growth in our
business in recent years. Our net revenues were $11.8 million, $17.6 million and $30.1 million in the fiscal years ended September 30, 2007, 2008 and 2009, respectively. Our net income was $5.4 million, $4.0 million and $1.2 million in the
fiscal years ended September 30, 2007, 2008 and 2009, respectively. Our lower net income during the fiscal year ended September 30, 2008 compared to the fiscal year ended September 30, 2007 resulted mainly from share-based
compensation expenses arising from our share options granted and restricted shares issued in the third and fourth quarters of the fiscal year ended September 30, 2008, the delayed Accounting Professional Qualification Examinations due to the
May 2008 Sichuan earthquake, and additional expenses associated with being a U.S. public company in that period. Our lower net income during the fiscal year ended September 30, 2009 compared to the fiscal year ended September 30, 2008
resulted mainly from share-based compensation expenses arising from our share options granted and restricted shares issued in the fiscal year ended September 30, 2008, our share options granted to five non-executive directors in the first
quarter of the fiscal year ended September 30, 2009, repricing of our share options granted in the fiscal year ended September 30, 2008 in the first quarter of the fiscal year ended September 30, 2009, and additional expenses
associated with being a U.S. public company in that period. Our total course enrollments increased from approximately 504,000 for the fiscal year ended September 30, 2007 to over 743,000 and 1,134,000 for the fiscal years ended
September 30, 2008 and 2009, respectively.



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Our Online Education Services

We offer online courses through our websites designed to help course participants obtain and maintain the skills, licenses and certifications
necessary to pursue their careers and professions in China. Our online professional education courses cover a wide range of industries, including accounting, law, healthcare, construction engineering, information technology and others. We also offer
online test preparation courses to self-taught learners pursuing higher education diplomas or degrees and to secondary school and college students for various academic and entrance exams. Additionally, we offer online foreign language courses.

The following table provides data regarding our current online course offerings and classes as of September 30, 2009.
Each course typically represents a major examination or continuing education program within an industry or academic field. Our course offerings are comprised of multiple courses and different types of classes within each course.



|                                          |  |                     |  |                          |  |                 
|----------------------------------------- |  | ------------------- |  | ------------------------ |  | ----------------
|Subject Area                              |  | Website             |  | Number ofCourseOfferings |  | Number ofClasses
|Accounting                                |  | www.chinaacc.com    |  | 17                       |  | 448             
|                                          |  | www.ck100.com       |  | 4                        |  | 81              
|Law                                       |  | www.chinalawedu.com |  | 4                        |  | 152             
|Healthcare                                |  | www.med66.com       |  | 28                       |  | 559             
|Construction Engineering                  |  | www.jianshe99.com   |  | 11                       |  | 156             
|Information Technology                    |  | www.itatedu.com     |  | 17                       |  | 40              
|Occupational Skills Exams                 |  | www.chinatat.com    |  | 6                        |  | 61              
|Higher Education for Self-Taught Learners |  | www.zikao365.com    |  | 56                       |  | 353             
|Adult Higher Education                    |  | www.chengkao365.com |  | 2                        |  | 22              
|Graduate School Entrance Exams            |  | www.cnedu.cn        |  | 4                        |  | 25              
|Foreign Languages                         |  | www.for68.com       |  | 11                       |  | 78              
|Primary and Secondary Schools             |  | www.ehappystudy.com |  | 16                       |  | 247             
|                                          |  |                     |  |                          |  |                 
|Total                                     |  |                     |  | 176                      |  | 2,222           
|                                          |  |                     |  |                          |  |                 

All of our courses feature audio-video lectures by
experienced lecturers or practitioners within their respective fields delivered through a multimedia and interactive web interface using streaming media and other Internet-based technologies. Our online lectures are supplemented by our proprietary
textbooks, tutoring, online assignments, exercises, mock examinations and other forms of course-related support.

Visitors to
our websites can set up their own registered accounts free of charge. Once they enroll in our courses, course participants may access and view the lectures as often as they choose, which enables them to learn and review the materials at their own
pace. Typically, course participants are able to choose among several different lecturers within each course.

To begin each
class, course participants log into their online registered accounts to access the course lectures. For each lecture, the web page is divided into separate windows, including the video window, the hyperlink window, and the lecture script window.
Through the video screen, typically located on the upper-left corner of the web page, course participants can view the video image of the lecturer and hear his or her voice, helping to replicate a classroom-like experience. From time to time during
the lecture, the video screen displays the lecturers handwritten notes, helping to simulate a blackboard effect.

The
lower-left part of the web page provides hyperlinks allowing course participants to access other useful functions during the lecture. For example, course participants may pause the video at any time to post a question on the question and answer
board, to perform an exercise or practice a real exam question and receive a score instantaneously, or to access the bulletin board or other useful links such as a calculator, chat room, reference materials or help information. The lecture script
area is where course scripts are displayed, including main exam points, sample questions, explanations, handwritten notes, links to historical exam questions and answers to sample questions posted by course participants.

We also provide our course lectures in the form of downloadable media files that allow course participants to save copies of the lectures
onto their own personal computers and to play them offline. We utilize digital rights management, or DRM, technology to restrict the transfer and viewing of our downloaded media files. To accommodate different levels of Internet access and bandwidth
available to course participants across China, we provide our course lectures in a number of formats.



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To further enhance the learning experience, we maintain a staff of tutors knowledgeable
about specific course topics and exams. Course participants can post questions online through our websites and receive replies to their specific questions from our team of tutors, usually within 24 hours after a question is submitted. We provide
tutorial sessions, which allow course participants to interact with their lecturers and other course participants using their personal computers. We also host numerous bulletin board discussions within some of our websites that allow course
participants to discuss their course work and share feedback with their peers in an interactive online format. Our online bulletin boards also provide us with a valuable means of tracking feedback about our courses, lecturers and services, allowing
us to make adjustments and quickly react to concerns and complaints of our course participants.

Our Professional Course
Offerings

Accounting Courses

PRC laws and regulations require persons engaging in accounting and related activities to obtain various qualifications and licenses, and to meet continuing education requirements. These qualifications
and licenses are primarily obtained by passing exams administered by various governmental agencies. Continuing education requirements can be fulfilled by taking courses covering certain continuing education subjects. Through our
www.chinaacc.com website launched in 2001, we provide a comprehensive body of online preparatory courses designed to prepare course participants primarily for the following professional accounting examinations or to meet certain continuing
education requirements.



| |  |  | Accounting Professional Qualification Examination. Persons who are engaged in performing PRC accounting work in any organization in China are
required to hold a certificate of accounting professional and to register with the relevant regional bureaus of the Ministry of Finance, or the MOF. This is the basic qualification requirement for accounting professionals in China.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Elementary, Intermediate and Advanced Level Accounting Professional Qualification Examinations. The skill level and technical competence of
accounting professionals in China are further measured by achieving certification at various levels within the profession. These levels are determined by the ability of accounting professionals to pass elementary, intermediate and advanced level
accounting professional qualification examinations. Candidates who pass the exam are issued an accounting qualification certificate for their respective level from the MOF and the Ministry of Human Resources and Social Security, or the MOP jointly.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | CPA Qualification Examination. Passing Chinas CPA Qualification Examination is required for persons to act as certified public accountants
in China. This exam is open to all candidates who hold at least an associate diploma or an intermediate level of accounting-related professional qualification certificate.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Registered Tax Agent Qualification Examination. Under PRC regulations, only registered tax agents are qualified to carry out tax agency
services, issue tax audit reports and handle tax procedures such as applications for tax registration with relevant authorities on behalf of business entities. Persons wishing to qualify as registered tax agents must pass the Registered Tax Agent
Qualification Examination.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Certified Asset Appraiser Examination. Under PRC regulations, only certified asset appraisers are qualified to carry out legally required
valuations of state-owned assets, valuations of non-state-owned assets and valuation consultancy and other valuation-related services. Persons wishing to qualify as certified asset appraisers must pass the Certified Asset Appraiser Examination.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Continuing Education for Accounting Personnel. PRC regulations require persons holding Certificates of Accounting Professional and Certificates
of Accounting Specialty and Technical Qualifications to meet the requirements of receiving a minimum number of 24 hours of continuing education training each year. Failure to comply with these continuing education requirements can result in the
suspension or cancellation of such certificate holders certifications.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In November 2009, we entered
into an agreement with Becker Professional Education, a subsidiary of DeVry Inc. and a global leader in professional education, under which agreement we obtained exclusive rights to distribute Becker Professional Educations CPA Review and CPA
Final Review courses and related materials, for both online and in-person courses, in China.



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Legal Courses

In June 2003, we launched our www.chinalawedu.com website to provide preparatory courses for legal examinations in China. Currently,
we offer courses relating to Chinas most important nationwide legal examination, the National Judicial Examination, which was introduced in 2002 and is administered annually in September by the PRC Ministry of Justice. Persons seeking to
become judges, procurators and lawyers in China are required to pass the exam to obtain the legal practitioner qualification certificate. Approximately 294,000, 370,000 and 410,000 candidates sat for the exams in 2007, 2008 and 2009, respectively.
We also offer courses for the Enterprise Legal Counsel Examination held annually by the MOP in October for persons wishing to obtain a qualification certificate for in-house legal counsel positions.

Healthcare Courses

In January 2005, we launched our www.med66.com website to provide preparatory courses for a wide variety of healthcare professional exams. Currently, we offer courses mainly relating to three major nationwide healthcare exams:
(i) the National Practicing Medical Doctor Qualification Examination, which is organized and administered annually by the Ministry of Health with approximately 840,000 candidates taking the exam in 2009, (ii) the Healthcare Professional
Technical Qualification Examination which is jointly administered by the Ministry of Health and the MOP with about 1,228,000 candidates taking the exam in 2009 and (iii) the National Pharmacist Qualification Examination, which is administered
by the MOP and the State Administration of Drug Supervision with about 218,000 candidates sitting for the exam in 2009.

Construction Engineering Courses

In June 2005, we launched our www.jianshe99.com website to provide
test preparatory courses for construction engineering professionals in China. Currently we offer courses mainly relating to the following exams: Associate Constructor and Constructor Qualification Examinations, Construction Supervisor Qualification
Examination, Construction Pricing Engineer Qualification Examination and Certified Safety Engineer Qualification Examination. These examinations are jointly administered by the Ministry of Housing and Urban-Rural Development and MOP. Approximately
1.3 million candidates have taken these exams each year over the past several years.

In addition, we also offer online
continuing education courses to construction engineering professionals to help them meet government requirements and maintain their qualifications. During the third fiscal quarter of 2009, we entered into contracts with China Engineering Cost
Association and China Association of Plant Engineering Consultants, respectively, to provide accredited continuous education courses to their certified members. We were also appointed by various provincial and regional divisions of the China
Institute of Real Estate Appraisers and Agents to provide accredited continuous education courses to their certified members.

Online Information Technology Courses

In May 2006, we launched our www.itatedu.com website in
cooperation with the Education Administration Information Center of the Ministry of Education, or the MOE, to provide information technology application training to persons wishing to obtain an information technology application training, or ITAT,
certificate issued by the Education Administration Information Center. The ITAT certificate evidences the holders proficiency in operating Windows, Word, Excel, PowerPoint, Access, WPS Office, AutoCAD and other applications. Since the launch
of the examination in May 2000, approximately 2 million candidates have participated in the MOE training.

Other
Professional Education Courses

In addition, we also provide professional education courses in the areas of securities and
various civil service positions. Each of these offerings follows a similar course creation and online delivery model. We plan to continue to leverage our core online course creation and delivery expertise to create and deliver new courses for
additional professions and industries.



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Our Higher Education for Self-Taught Learners

Through our website www.zikao365.com, which we acquired in 2005, we offer courses targeted at self-taught learners pursuing associate
diplomas or bachelors degrees in various academic areas. They complete their self study and obtain government accredited diplomas or degrees by passing the Higher Education Examination for Self-Taught Learners administered by the MOE without
having to enroll in and physically attend a traditional college or university. Statistics published by the MOE show that there are approximately 10 million exam takers of Higher Education Examination for Self-Taught Learners each year.
Historically, our courses have mainly been test preparatory courses helping self-taught learners pass the requisite exams. In March 2008, we entered into a multi-year cooperative arrangement with a designated administrator of study process
monitoring programs for self-taught learners in Tianjin to jointly provide study process monitoring programs in Tianjin. In December 2008, we entered into a multi-year cooperative arrangement with the Education Training Center of Beijing City
University, a designated administrator of study process monitoring programs for self-taught learners in Beijing, to jointly offer study process monitoring programs in Beijing. In December 2009 and January 2010, we entered into multiple-year
cooperative arrangements with the respective designated administrator of study process monitoring programs for self-taught learners in Jiangsu province and Yunnan province to jointly provide study process monitoring programs in Jiangsu province and
Yunnan province, respectively.

Our Academic Exam Preparation and Foreign Language Courses Study Courses

Through our www.cnedu.cn website launched in September 2004, we offer test preparation courses targeted at
university students intending to take nationwide graduate school entrance exams in various disciplines administered by the MOE. Over the past three years, approximately 1.4 million people each year have taken such exams.

We also operate websites focused on the secondary and college education market, foreign language study and other subjects. Chinas
educational system places heavy emphasis on attending good secondary schools as a way to improve course participants chances of attending more prestigious universities in China. Scoring well on exams at each stage of a secondary school
students educational career is important to improve his or her chances of attending a better university. Our secondary education courses are designed to provide an online resource for secondary school course participants to prepare for these
exams.

Other Products and Services

Books and Reference Materials

We sell books and reference materials relating to various professional courses and exam subjects. To promote the use of our online courses, we also sell proprietary books and reference materials related
to our courses such as the Elementary Level and Intermediate Level Accounting Professional Qualification Examination courses, the CPA Qualification Examination course, the Chinese Accounting Standards course and the Registered Tax Agent Examination
courses. As we expand our course offerings, we may sell other books and reference materials on a standalone basis or together with our study cards. Our proprietary guidebooks are authored by lecturers teaching the relevant online courses. In
substantially all cases, we own the copyright to these books pursuant to agreements with the lecturers. We engage third-party publishers to publish our reference books. We distribute these books and materials through third-party bookstores and
distributors across China, as well as through our online bookstore and our offices in Beijing.

Offline Information
Technology Courses

In September 2008, we launched offline information technology application training courses for persons
wishing to obtain an information technology application training, or ITAT, certificate issued by the Education Administration Information Center of MOE. The ITAT certificate evidences the holders proficiency in operating Java Web Development,
Network Security, Network Integration and other applications. Since the launch of the examination in May 2000, approximately 1.2 million candidates have participated in the ITAT training.

Business Start-up Training Courses

In March 2009, we acquired the business start-up training business from Yinglun Yucai which was previously owned by Mr. Liang Ma. The training offering targets university students, job seekers and
individuals who are interested in learning to found new businesses. The provision of such practical training is strongly encouraged by the Chinese government to promote employment opportunities in the country. For this course offering, we prepare
training materials in accordance with requirements of the relevant government authorities in various provinces and cities. We do not charge the course participants fees. Instead, we receive subsidies from the relevant government authorities in
various provinces and cities, which are conditioned on our ability to meet government stipulated conditions under the subsidy policies. When determining our entitlement to the subsidy, the government authorities consider the pass rate of our course
participants business proposals as evaluated by such authorities, as well as the business start-up rate and employment rate of our course participants.



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Primary and Secondary School Supplementary Courses

In September, 2009, we acquired the business of Gaokao (nationwide college entrance exam) retake preparation and high-school supplementary
tutoring courses previously established and operated by Mr. Junnan Ye and Mr. Xiujie Hu. Through such acquisition, we gained immediate access to the large and growing Gaokao retake and primary and secondary school supplementary education
markets, a strategic expansion of our services which will allow us to provide comprehensive lifelong learning programs for our customers.

Course Production Services

From time to time, we also provide course
production services to certain customers on a contractual basis. We typically create and produce course packages in digital format based on the content requirements of our offline educational institute or company customers.

Magazine Content Production Services

From time to time, we also provide accounting magazine content production services to certain customers on a contractual basis.

Platform Production Services

From time to time, we develop online platforms for our customers and provide them with technical support and maintenance services on a contractual basis. In addition, we also entered into an arrangement
with a certain customer to provide multiple services such as developing customized online platform for our customer, allowing our customer to sell products through our website via the customized online platform and providing after sale technical
support and maintenance services.

Professional Training for Accounting Firms

From time to time, we also provide in-person professional training for accounting firms.

Our Regular, Premium and Elite Classes

We offer regular, premium and elite classes. Our regular, premium and elite classes are comprised of the following four types:



| |  |  | Foundation Classes: Our foundation classes contain detailed instructions and content to provide course participants with a broad and
comprehensive knowledge base relating to a specific subject area.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Intensified Focus Classes: Our intensified focus classes are designed to provide more intensive instructions focused on important topics in a
specific subject area at a more advanced pace to course participants who already have basic knowledge of the subject area.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Exam Questions Analysis Classes: Our exam questions analysis classes contain materials and instructions tailored specifically to preparation for
the actual exams and the types of questions and topics that come up on each exam.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Crash-Course Classes: Our crash-course classes are designed to provide a quick review of critical topic areas for specific exam subjects to
enable course participants to make final preparations in the weeks prior to an exam.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In November 2006, we
introduced elite classes for some of our most popular accounting courses, such as courses for the Elementary Level and Intermediate Level Accounting Professional Qualification Examination, the CPA Qualification Examination and the Registered Tax
Agent Qualification Examination. We also offer elite classes to legal practitioners, self-taught learners pursuing higher education diplomas or degrees, and professionals in the healthcare, construction engineering and other industries. With our
elite classes, course participants pay substantially higher course fees for more personal and tailored course-related services. After completing an elite class, if a participant fails to pass the exam subject that the course prepares him or her for,
and certain pre-agreed conditions are met, the course participant is entitled to a refund of the applicable course fees paid or the course participant can choose to use such amounts to register and pay for future courses provided by us.



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The introduction of our elite classes represents an important step we have taken to explore
the distinct strengths of online education. In exchange for higher course fees, our elite class participants enjoy high-quality elite course-related support services. Leveraging the technological features available to online course delivery, elite
classes allow substantially more interactive and multi-faceted course participation. For example, during a lecture, when reaching a key knowledge point, the lecture automatically pauses and a quiz question relating to the point will pop up on the
screen. The lecture will not proceed to the next topic until the course participant has correctly responded to the question. This feature ensures that course participants do not miss any of the important knowledge points that may be tested on exams.
We believe these types of interactive features, made possible by the flexibility of the online format, offer distinct advantages over traditional classroom course delivery as well as traditional online teaching methods.

Elite class participants also enjoy personalized support and services provided by our course support service staff. Some of our most
experienced tutors work closely with elite class participants and provide them with more individually tailored support and services. For example, questions raised by elite class participants are responded to by tutors on a priority and expedited
basis. In addition, a regular study monitoring report is generated by our course support service staff for each elite class participant to ensure that he or she is making satisfactory progress in the course.

Our premium classes represent another course model we introduced in August 2008 for some of our most popular courses, such as courses for
the accounting, legal and healthcare industries. To date, we also offer premium classes to self-taught learners pursuing higher education diplomas or degrees, and professionals in the construction engineering and other industries. Our premium class
participants enjoy high-quality premium course-related support services similar to the elite class participants. However, premium course participants do not enjoy refund privileges. Instead, if a participant fails to pass the course examination and
certain pre-agreed conditions are met, the course participant can retake the same premium course and pay only 50% of the course fees. The participant is given this 50% discount only once, and therefore, if he or she fails the relevant course
examination again and wishes to retake the premium course for the third time, there is no discount provided at that time.

Course Fees and Payment Methods

We charge course fees on a per-class basis. Course participants may choose to
take some or all the classes for each subject offered in each course according to their individual needs. Special package pricing is offered if a participant chooses to take more than one class for a subject in a course. To promote the use of our
online courses, we also offer course discounts to eligible course participants who are frequent users of our services. The discounts offered typically range from 20% to 40% off the stated course fees.

Payment for the course fees can be made through any one of the following methods:



| |  |  | use of our pre-paid study cards;
| | - |  | --------------------------------



| |  |  | remittance through a bank or post office;
| | - |  | -----------------------------------------



| |  |  | online payment using credit or debit cards via external payment networks; or
| | - |  | ----------------------------------------------------------------------------



| |  |  | cash payment made at our offices.
| | - |  | ---------------------------------

Our study cards are pre-paid scratch cards sold through our regional sales agents at points of sale throughout China. The pre-paid study cards come with credit values ranging from RMB10 ($1.5) to RMB500
($73.6). Course participants may purchase and use these study cards to register and pay for our courses. We first introduced pre-paid study cards in January 2003. These study cards were sold with expiration dates, typically two years from the print
dates. In 2006, we began selling a One Card Pass, which can be used for multiple courses. This new card eliminates the need for our regional sales agents to purchase multiple types of cards and also provides an opportunity to cross-sell
our course offerings. In addition to the One Card Pass, we have another type of pre-paid study cards, which can be used solely for our accounting continuing education courses and have expiration dates, typically two years from the print
dates.

With regards to offline primary and secondary school supplementary courses, course participants may choose the second
and fourth payment methods, in the second and fourth bullet points as described above. With regards to business start-up training courses, course participants are able to attend free of charge. Instead, we receive subsidy from government authorities
if certain stipulated conditions under the government subsidy policy are met.



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Online Course Creation

We place great emphasis on the quality of our courses and learning materials, both in terms of substance and production quality to enhance
course participants learning experience. Working together with our lecturers in each subject, we internally develop and produce the online lectures for most of our courses. We employ a variety of measures including substantive content review
and content approval at various stages of the course development process by our experienced in-house personnel to create high-quality courses.

We believe superior delivery of our courses and learning materials over the Internet is also important to attracting and retaining course participants. We record, digitize and edit most of the audio-video
lectures used in our courses on our own premises. We maintain 17 fully-equipped recording rooms to ensure the high-quality of the audio-video content and any graphics used in the lectures. Our editing department uses advanced digital audio-video
editing software and equipment to eliminate breaks, pauses and unwanted noises from each lecture tape to further enhance the viewing and listening experience. All lectures are properly formatted to facilitate smooth transmission through our websites
using streaming media and other Internet-based technologies. Our customer service team regularly seeks feedback on the quality of our courses from our course participants.

Community-oriented Services on Our Websites

In addition to using our websites to access our courses, course participants and visitors to our websites are also able to access a wide variety of other content and information, and to communicate and
interact with each other. The breadth and depth of our website content has attracted a large number of visitors and has contributed to the fast growth in the awareness of our brands.

Visitors to our websites have free access to comprehensive and timely information about exam times and locations, test preparation guidance,
regulations and policies relevant to each industry, career planning and advancement and industry and market trends. We also offer free trial courses on our websites to prospective course participants who wish to try our courses before making the
enrollment decision.

We offer free e-mail accounts to course participants. We also provide electronic bulletin board service
forums and access to online chat-rooms. Many of our websites feature a blog page that allows course participants and other visitors to our websites to communicate and share ideas and thoughts about topics of common interest. On any blog we provide,
people can write and post articles, create and participate in discussions and gain information and insights on topics of interest within the relevant industry or subject matter.

Through our community-oriented websites, we create virtual communities for course participants and visitors that share a common interest in
the topics relating to the various professions and subject areas for which we offer our online courses and related services. We believe our community-oriented websites are a valuable means for creating brand awareness and customer loyalty.

Our Lecturers

Our online course lecturers include academics from renowned higher education institutions in China and experienced practitioners within their respective fields. Our online lecturers work with us to
prepare the course content and lectures, while also serving as faculty members of various colleges and universities across China or working in their respective fields. They are not our employees and are typically engaged for a one-to-three year
period, except for some more experienced lecturers for whom the contract periods are relatively longer and some of them are obligated to conduct online lectures exclusively for us. The number of online lecturers actively producing online courses for
us was 249, 273 and 629 in the fiscal years ended September 30, 2007, 2008 and 2009, respectively.

To ensure the quality
of our online lecturers, we have established stringent selection and retention criteria and have implemented ongoing monitoring and evaluation procedures. We seek to engage online lecturers who have a strong command of the respective subject areas
and good communication skills. In particular, we seek online lecturers capable of, and preferably experienced in, delivering effective instruction through the audio-video format. Our internal quality control personnel regularly monitor the teaching
quality of each online lecturer. We also collect feedback on the online lecturers from our course participants on a regular basis through multiple channels, including calls received by our customer service call center, our online course comment
book, our online question and answer board and bulletin board service forum. We provide ongoing training for online lecturers and help them improve their online presentation skills based on this feedback.



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Our online lecturers are attracted to our online platform where tens of thousands of course
participants across China can listen to and view their lectures. Our innovative lecture delivery model helps our online lecturers further expand and enhance their national reputation in their relevant fields. We pay our lecturers fees in either of
two ways: the first and most common way is to pay them based on the number of hours of lectures they deliver, and the second and less common way is a course fee sharing arrangement primarily for some of our newer courses.

Although our online lecturers participate in the creation and development of the course materials, in almost all cases, we own all
copyrights to our courses and course materials pursuant to contracts with our online lecturers.

Course-Related Support and
Services

We employ a service-oriented approach and devote significant resources to developing course-related support and
services for our course participants. We maintain a well-trained pool of tutors, numbering 224 as of September 30, 2009, of which 91 are part-time employees. Our tutors are knowledgeable in the relevant fields and experienced with various types
of exams or subject matters. They are able to provide timely, usually within 24 hours after a question is submitted, and accurate responses through our online question and answer board to various course-related questions raised by our course
participants. To ensure the accuracy of responses, we introduced the second reviewer policy that all responses have to be reviewed by a senior tutor before they are delivered to our students. To ensure that our tutors are suitably qualified to
support our courses, we have established stringent selection criteria and make hiring decisions based on academic qualifications, tutorial experience and knowledge of various exams and subject matters. We require our tutors to possess, at a minimum,
a college degree in the relevant academic area or a certification in the relevant industry, as well as familiarity with the actual exam and related subject matter.

We believe that our high-quality tutorial and learning support service is critical to enhancing the learning experience of our course participants. Additionally, it helps us generate customer loyalty and
attract potential course participants through recommendations from our existing course participants.

General Customer
Service and Support

We have a dedicated general customer service team composed of 211 individuals as of September 30,
2009 that our customers can contact by email, our online customer service system or phone through our dedicated call center, 24 hours a day, seven days a week. Our customer support team members provide potential and existing course participants with
comprehensive information and counseling regarding our courses and services, recommend suitable courses based on individual needs, assist in course enrollment, accept course fee payments, conduct regular telephone interviews seeking customer
feedback on course participation experience and provide additional technical and other support on how to use and get the most out of our courses. We recruit our customer service personnel from candidates who have good communication skills and are
committed to providing quality service to our customers. We provide on-the-job training for our new recruits, which includes pairing new recruits with experienced team members as mentors to train them in taking calls from customers. On an ongoing
basis, we also evaluate the performance of our customer service staff, and provide training to improve their skills and inform them on new developments in our business.

Sales and Marketing

We rely on a combination of regional and online sales
agents, as well as referrals and cross-selling to market our services and products.

Regional Sales Agents

We use regional sales agents to sell our pre-paid study cards, which represent the primary method for us to sell and
receive payment for our courses. Our regional sales agents are comprised mostly of stores and other points of sale selling books, learning materials and other supplies to our target industries and professions. These agents sell our study cards and
are responsible for promotion and advertising of our services in the regions where they operate. They also provide market feedback, which helps us in planning our marketing strategy and sales activities. As of September 30, 2009, we had
approximately 2,500 regional sales agents throughout China.

When selecting regional sales agents, we consider various
criteria, such as whether the candidates have relevant experience, and whether they are familiar with or have established relationships with local professionals, professional associations and organizations related to our target industries and
professions. Generally, we provide various discounts to our regional sales agents based on the volume purchased and method of payment. Most of our regional sales agents are appointed on a non-exclusive basis.



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Online Agents

Our online agents are typically Internet companies and website operators in China that market our course offerings and other services on
their websites. We pay our online agents a commission for each new course participant registered through their website. As of September 30, 2009, we had approximately 2,700 online agents marketing our online courses through their websites.

Referrals and Cross-Selling

Many of our customers learn about our services and courses through word-of-mouth referrals. As a result, many of our customers contact us directly about enrolling in our courses. Accordingly, a
significant portion of our sales are made through our customer service team. We believe that combining the customer service and sales function in one department contributes both to the quality of our customer services and the effectiveness of our
direct sales. Based on their knowledge of our courses and relevant feedback they gain from addressing the questions and comments of existing or past course participants, our customer service personnel are able to recommend the most suitable courses
for new customers. Combining these two functions also allows our customer service team members to cross-sell new or additional courses, learning tools and materials, as appropriate, when they are addressing questions from existing course
participants.

Other Advertising and Marketing Efforts

We place advertisements on high-traffic Chinese Internet portals, in newspapers, magazines, journals and on buses in many cities across
China. We also promote our courses, services and products at examination registration centers, and education and career fairs. To raise our profile and promote our online courses, regional sales agents normally assist with our promotional activities
in their respective regions.

Our sales and marketing team participates in and conducts information sessions at various
educational trade fairs, and distributes promotional materials to potential course participants at various examination registration centers. We further promote our courses by handing out complimentary study cards together with reference books and
study materials that we sell at these examination registration centers. We have also established a number of scholarships totaling over RMB0.4 million ($59,000) each fiscal year since 2006 and granted awards to course participants who have achieved
outstanding performances in various exams. We have also sponsored an annual IT contest held by the Education Administration Information Center. These activities help to improve our profile and enhance our public image.

Online Platform and Technology Infrastructure

Building a reliable, scalable and secure technology infrastructure is crucial to our ability to support the online courses and services we provide to our customers. We manage our online course creation
and delivery system using a combination of commercially available software, hardware systems and proprietary technology. Over the years, we have established a comprehensive and powerful online platform that supports the ability for tens of thousands
of course participants to simultaneously attend our courses and participate in other programs and activities online. We have also built a robust online community platform that helps build a strong sense of community among our course participants,
which contributes to the brand loyalty of our customers.

We maintain multiple servers, which access the Internet backbone via
a 2600 Mbps broadband line. These servers are separately located in multiple hosting facilities in several cities across China to mitigate any downtime arising from individual server failure. For reliability, availability and serviceability, we have
created an environment in which each server can function independently. We regularly back up our databases. Based on cluster technology, our system can identify errors and isolate failed servers automatically so that our customers can access our
services at any time. When a malfunction arises in a server or at a point of presence, the load balancing technology is able to automatically direct visitors to access the same contents through another server or another point of presence. Our
network administration department regularly monitors the performance of our websites and infrastructure to enable us to respond quickly to potential problems. We have not experienced a material disruption to our business or websites.

We utilize streaming media technology as the primary delivery method for our online lectures. Using streaming media technology, an end-user
can continuously view the file as it is being delivered. To accommodate different levels of Internet access and bandwidth available to course participants across China, we also allow our course participants to download our audio-video lectures. We
utilize DRM technology to restrict the transfer and viewing of our files being downloaded.



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Competition

We face competition from providers of traditional offline education and test preparation services in China, and expect to face increasing
competition from existing competitors and new market entrants in the online education and test preparation market.

The
provision of professional education and test preparation courses over the Internet is a relatively new concept in China. Although it is increasingly perceived as an acceptable means of receiving training and instruction, traditional classroom
instruction is still generally perceived as a more accepted method. We therefore compete with traditional in-person educational institutions and training centers in the various areas for which we offer courses.

In addition, due to low barriers to entry for Internet-based businesses, we expect to face increasing competition from existing domestic
competitors and new entrants to the online education market. We may face increased competition from international competitors that cooperate with local businesses to provide services based on the foreign partners technology and experience
developed in their home markets. Currently, our online competitors include general information websites that have branches providing online training courses, traditional schools that provide online offerings and newly established online training and
test preparation businesses.

With the expansion of our course offerings to offline primary and secondary school supplementary
courses, information technology courses and business start-up training courses in the fiscal year ended September 30, 2009, we face competition from providers of both traditional offline education and online education in these areas.

We believe that the key competitive factors in our industry include the professional competence of lecturers and tutors,
price, quality, market recognition and brand name, customer service and the performance of the technological platform. Some of our present and future competitors may have longer operating histories, larger teams of professional staff and greater
financial, technical, marketing and other resources. For a discussion of risks relating to competition, see Item 3.D. Key Information  Risk Factors  Risks Relating to Our Business  We may lose market share and our
profitability may be materially and adversely affected, if we fail to compete effectively with our present and future competitors or to adjust effectively to changing market conditions and trends.

Intellectual Property

Our trademarks, copyrights, domain names, trade secrets and other intellectual property rights distinguish our products and services from those of our competitors and contribute to our ability to compete
in our target markets. We rely on a combination of copyright and trademark law, trade secret protection and confidentiality agreements with our employees, lecturers, business partners and others, to protect our intellectual property rights. In
addition, we require our employees to enter into agreements with us under which they acknowledge that all inventions, trade secrets, works of authorship, developments and other processes made by them during their employment are our property and they
should assign the same to us if we so require. We also maintain a dedicated team that regularly monitors any infringement or misappropriation of our intellectual property rights.

We have registered 20 software copyright for our proprietary online course delivery platform, customer service system, DRM encryption
system, streaming media load balancing system, online course creation management system and certain other aspects of our online education platform with the National Copyright Administration of the PRC. We have also registered 37 trademarks with the
China Trademark Office and an additional 323 trademark applications are currently pending. We, however, cannot assure you that all of our trademark applications will be successful.

As of September 30, 2009, we have registered 223 domain names relating to our business with the Internet Corporation for Assigned Names
Numbers and China Internet Network Information Center, including those of all our 16 operating websites.

Our intellectual
property is subject to risks of theft and other unauthorized use, and our ability to protect our intellectual property from unauthorized use is limited. In addition, we may be subject to claims that we have infringed the intellectual property rights
of others. See Item 3.D. Key Information  Risk Factors  Risks Relating to Our Business  Our failure to protect our intellectual property rights may undermine our competitive position, and litigation to protect our
intellectual property rights or defend against third-party allegations of infringement may be costly and ineffective.



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Seasonality

We have experienced seasonality and expect in the future to continue to experience seasonality in revenues related to the provision of our
education courses primarily due to seasonal changes in course enrollments and the timing of various exams. We typically open new courses to enrollment approximately six months before the relevant exam date. With respect to our non-refundable
courses, we typically recognize revenues on a straight line basis over the subscription period from a course participants enrollment date to the examination completion date when we close access to the relevant online course materials. As a
result, for non-refundable courses, we typically recognize higher revenues during the three months immediately prior to the examination dates. As the majority of our course participants take non-refundable courses relating to the main professional
accounting exams, which are typically held in May and September, we historically have experienced higher revenues during the quarters ending June 30 and September 30 of each fiscal year. By contrast, we have historically experienced lower
revenues in the quarters ending December 31 and March 31 due to the lower number of exams held during those periods. With respect to our refundable courses, we typically recognize revenues 15 days after the release of the relevant exam
results when the participants applicable refund privileges expire. As a result, for refundable courses, we typically recognize higher revenues during the month when the 15-day period elapses. This seasonality factor may change in future
periods if the timing of exams changes. In addition, as the mix of types of exams and course subjects changes over time, we expect to continue experiencing seasonality based on the timing of various exams. We expect quarterly fluctuation in our
revenues and results of operations to continue.

Regulations

The provision of our online and offline professional education services is subject to PRC laws and regulations relating to the
telecommunications industry and the education services industry. This section sets forth a summary of the principal laws and regulations that affect our business activities in China, the industries in which we operate, and our shareholders
right to receive dividends and other distributions from us.

Restrictions on Telecommunications Industry

The telecommunications industry, including the Internet sector, is highly regulated by the PRC government. Laws and
regulations issued or implemented by the State Council, Ministry of Industry and Information, or MII, and other relevant government authorities cover virtually every aspect of telecommunications network operations, including entry into the
telecommunications industry, the scope of permissible business activities, interconnection and transmission line arrangements, tariff policy and foreign investment. The principal regulations governing the telecommunications industry and the Internet
include:



| |  |  | The Telecommunications Regulations (2000);
| | - |  | ------------------------------------------



| |  |  | The Administrative Measures for Telecommunications Business Operating Licenses (2009); and
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | The Internet Information Services Administrative Measures (2000).
| | - |  | -----------------------------------------------------------------

These regulations categorize all telecommunications businesses in China as either basic telecommunications businesses or
value-added telecommunications businesses.

In addition to the regulations promulgated by the PRC central
government, some local governments have also promulgated local rules applicable to Internet companies operating within their respective jurisdictions.

Foreign Ownership Restrictions on Internet Content Provision Businesses

The State Council promulgated the Administrative Rules on Foreign-Invested Telecommunications Enterprises in December 2001, as amended on September 10, 2008, or the FITE Rules. The FITE Rules set forth detailed requirements with
respect to capitalization, investor qualifications and application procedures in connection with the establishment of a foreign-invested telecommunications enterprise. Pursuant to the FITE Rules, the ultimate capital contribution ratio of the
foreign investor or investors in a foreign-funded telecommunications enterprise that provides value-added telecommunications services shall not exceed 50%. In addition, pursuant to the FITE Rules permitted foreign investment ratio of value-added
telecommunications services is no more than 50%.

In addition, for a foreign investor to acquire any equity interest in a
value-added telecommunications business in China, it must satisfy a number of stringent performance and operational experience requirements, including demonstrating a track record and experience in operating value-added telecommunications business
overseas. Moreover, foreign investors that meet these requirements must obtain approvals from MII and the Ministry of Commerce or their authorized local counterparts, which retain considerable discretion in granting approvals.



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On July 26, 2006, MII publicly released the Notice on Strengthening the Administration
of Foreign Investment in Operating Value-added Telecommunications Business, dated July 13, 2006, or the MII Notice, which reiterates certain provisions under the FITE Rules. According to the MII Notice, if any foreign investor intends to invest
in a Chinese telecommunications business, a foreign-invested telecommunications enterprise shall be established and such enterprise shall apply for the relevant telecommunications business licenses. The MII Notice prohibits domestic
telecommunication services providers from leasing, transferring or selling telecommunications business operating licenses to any foreign investor in any form, or providing any resources, sites or facilities to any foreign investor for their illegal
operation of a telecommunications business in China. According to the MII Notice, either the holder of a value-added telecommunication service license or its shareholders must directly own the domain names and trademarks used by such license holders
in their provision of value-added telecommunication services. The MII Notice also requires each license holder to have the necessary facilities, including servers, for its approved business operations and to maintain such facilities in the regions
covered its license. In order to comply with the MII Notice, we have transferred all domain names and trademarks that are used primarily in connection with our online business activities from Champion Technology to Beijing Champion.

As a result of current PRC laws and regulations that impose substantial restrictions on foreign investment in Internet businesses in China,
we conduct our online education and test preparation business in China through a series of contractual arrangements entered into among our two PRC subsidiaries, Champion Technology and Champion Education Technology, and our affiliated PRC entity,
Beijing Champion, which is a domestic PRC company incorporated in the PRC and owned by Zhengdong Zhu, our chairman and chief executive officer, and Baohong Yin, our co-founder and deputy chairman, both of whom are PRC citizens. These contractual
arrangements enable us to exercise effective control over and to receive a substantial portion of the economic benefits from Beijing Champion. Beijing Champion has obtained the licenses and approvals that are required to operate our online education
and test preparation business. We do not have any direct ownership interests or direct voting rights in Beijing Champion.

Our
contractual arrangements with Beijing Champion include a technical support and consultancy services agreement pursuant to which Champion Technology is entitled to receive service fees from Beijing Champion. In addition, Champion Technology has
entered into equity pledge agreements (as amended and restated) with each of the shareholders of Beijing Champion, pursuant to which each shareholder has pledged all of his or her interest in Beijing Champion to Champion Technology as security for
the performance of Beijing Champions obligations under the technical support and consultancy services agreement. Pursuant to an exclusive purchase rights agreement with Beijing Champion and its shareholders, CDEL Hong Kong or any third-party
designated by CDEL Hong Kong has the right to acquire, in whole or in part, the equity interest of Beijing Champion, when permitted by applicable PRC laws and regulations. There are also certain other agreements and letters of undertaking under the
contractual arrangements. For a detailed discussion of these contractual arrangements, see Item 4.C. Information on the Company  Organizational Structure.

In the opinion of Jingtian & Gongcheng, our PRC legal counsel:



| |  |  | the ownership structures of Beijing Champion and its subsidiaries and our wholly owned subsidiaries in China are in compliance with existing published
PRC laws and regulations; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our contractual arrangements among our wholly owned subsidiaries in China and Beijing Champion and its shareholders, are valid and binding, will not
result in any violation of published PRC laws or regulations currently in effect, and are enforceable in accordance with their terms and conditions.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

However, there are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including the laws and regulations governing the enforcement and performance of our
contractual arrangements in the event of imposition of statutory liens, bankruptcy and criminal proceedings. Accordingly, we cannot assure you that the PRC regulatory authorities will not ultimately take a contrary view. If the PRC government finds
that the agreements that establish the structure of our operations in China do not comply with PRC government restrictions on foreign investment in our industry, we could be subject to severe penalties. In addition, for a detailed description of the
risks associated with our corporate structure and these contractual arrangements that support our corporate structure, see Item 3.D. Key Information  Risk Factors  Risks Relating to Our Corporate Structure and Restrictions on Our
Industry.

Regulations on Value-added Telecommunications Services and Internet Content

Under PRC laws and regulations, Internet content provision services are classified as value-added telecommunications businesses, and a
commercial operator must obtain a Telecommunications and Information Services Operating License, or ICP license, from the appropriate telecommunications authority in order to carry out commercial Internet content provision operations in China. These
regulations also provide that if the Internet information services are provided in more than one province, then an inter-provincial ICP license must be obtained from MII, while if only one province is involved, the license can be obtained from the
relevant provincial telecommunications administration. In addition, the regulations further provide that operators involved in Internet content provision that operate in sensitive and strategic sectors, including news, publishing and education, must
obtain additional approvals from the relevant authorities in charge of those sectors.



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Each of Beijing Champion, Caikaowang and Champion Wangge holds (i) an ICP license
issued by the Beijing Telecommunications Administration Bureau, a local branch of the MII, which allows Beijing Champion, Caikaowang and Champion Wangge to provide Internet content distribution services through 16 websites owned by Beijing Champion
and its subsidiaries, and (ii) an approval from the Beijing Telecommunications Administration Bureau to provide an online bulletin board in eight of the 16 websites owned by Beijing Champion and its subsidiaries. The ICP license held by Beijing
Champion is valid through August 25, 2013, the ICP license held by Caikaowang is valid through July 10, 2013, and the ICP license held by Champion Wangge is valid through November 9, 2014. These licenses and approvals are essential to
the operation of our online professional education and test preparation services business.

The MII Notice requires that a
value-added telecommunications business operator, or its shareholders, should own any domain names and trademarks used by it to engage in the value-added telecommunications business, and have premises and facilities appropriate for such business. To
comply with the MII Notice, we have completed the transfer of all our domain names and trademarks that are primarily used in connection with our online business activities from Champion Technology to Beijing Champion.

Regulation of Internet Content

The PRC government has promulgated measures relating to Internet content through a number of ministries and agencies, including MII, the Ministry of Culture, the Press Office of the State Council and the
State Press and Publications Administration. These measures specifically prohibit Internet activities that result in the publication of any content that is found to, among other things, propagate obscenity, gambling or violence, instigate crimes,
undermine public morality or the cultural traditions of China or compromise state security or secrets. If an ICP license holder violates these measures, the PRC government may revoke its ICP license and shut down its websites. Under these measures,
ICP license holders are required to monitor their websites, including chat rooms and electronic bulletin boards, for prohibited content and remove any such content that they discover on their websites.

The posting of news on websites and the distribution of news over the Internet are highly regulated and can only be engaged in by ICP
license holders that have been specifically approved to do so. The Provisional Administrative Measures Regarding Internet Websites Carrying on the News Posting Business issued by the Press Office of the State Council and MII in November 2000 provide
that only websites that are established by government-authorized news agencies may operate online news posting businesses and post news reported by news agencies. Other general websites not established by news agencies may apply to the State Council
News Office for approval to post on their websites news supplied contractually by approved news providers. A copy of the relevant news supply contract must be filed with the applicable provincial information offices where such other websites are
located. These regulations also provide specific requirements with respect to facilities and level of experience of personnel that must be met by applicants for approval to post news on their websites. According to the Administration of Internet
News Information Services Provisions promulgated by the Press Office of the State Council and MII on September 25, 2005 and effective as of such date, the term news information in these provisions means news information about
current affairs, including reports and commentaries on social and public affairs such as political, economic, military and foreign affairs, as well as reports and commentaries on sudden social events. The term Internet news information
services, means publication of news information, provision of electronic bulletin board services for current affairs and distribution of information of current affairs to the public through the Internet. The Press Office of the State Council
is in charge of nationwide supervision and regulation of Internet news information services. The press office of each province, autonomous region and municipality directly under the central government is in charge of regulating the Internet news
information services within its administrative region. If any information we provide through our websites is deemed current affairs, we may be subject to the above regulations.

Regulation of Broadcasting Audio-Video Programs through the Internet or Other Information Network

The State Administration of Radio, Film and Television, or SARFT, promulgated the Rules for Administration of Broadcasting of Audio-Video
Programs through the Internet and Other Information Networks, or the Broadcasting Rules, in 2004, which became effective on October 11, 2004. The Broadcasting Rules apply to the activities of broadcasting, integrating, transmitting and
downloading of audio-video programs with computers, televisions or mobile phones and through various types of information networks. Pursuant to the Broadcasting Rules, a Permit for Broadcasting Audio-Video Programs via Information Network is
required to engage in these Internet broadcasting activities. On April 13, 2005, the State Council announced a policy on private investments in businesses in China relating to cultural matters that prohibits private investments in businesses
relating to the dissemination of audio-video programs through information networks.



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On December 20, 2007, SARFT and MII issued the Internet Audio-Video Program Measures,
which became effective on January 31, 2008. Among other things, the Internet Audio-Video Program Measures stipulate that no entities or individuals may provide Internet audio-video program services without a License for Disseminating
Audio-Video Programs through Information Network issued by SARFT or its local counterparts or completing the relevant registration with SARFT or its local counterparts and only entities wholly owned or controlled by the PRC government may engage in
the production, editing, integration or consolidation, and transfer to the public through the Internet, of audio-video programs, and the provision of audio-video program uploading and transmission services. On February 3, 2008, SARFT and MII
jointly held a press conference in response to inquiries related to the Internet Audio-Video Program Measures, during which SARFT and MII officials indicated that providers of audio-video program services established prior to the promulgation date
of the Internet Audio-Video Program Measures that do not have any regulatory non-compliance records can re-register with the relevant government authorities to continue their current business operations. After the conference, the two authorities
published a press release that confirms the above guidelines. On September 15, 2009, SARFT promulgated a notice regarding the issues of the management of Internet Audio-Video Program Services License, pursuant to which, the closing date of the
application for re-registration of the Internet Audio-Video Program Services License was December 20, 2009.

Based on the
advice of our PRC legal counsel, Jingtian & Gongcheng, we do not believe that we are required to apply for a License for Disseminating Audio-Video Programs through Information Network as an enterprise providing online education and test
preparation courses. As an online education services provider, we transmit our audio-video educational courses and programs through the Internet only to enrolled course participants, not to the general public. The limited scope of our audience
distinguishes us from general online audio-video broadcasting companies, such as companies operating user-generated content websites. In addition, we do not provide audio-video program uploading and transmission services. As a result, we believe
that we are not one of those providers of audio-video program services covered under the Internet Audio-Video Program Measures. However, there is no further official or publicly-available interpretation of these definitions, especially the scope of
Internet Audio-Video Program. If the governmental authorities decide that our provision of online education services fall within the Internet Audio-Video Program Measures and we are unable to re-register or obtain the necessary license
timely, or at all, due to reasons beyond our control, our equity ownership structure may require significant restructuring, or we may become subject to significant penalties, fines, legal sanctions or an order to suspend our use of audio-video
content.

Regulation of Information Security

Internet content in China is also regulated and restricted by the PRC government to protect state security. The National Peoples
Congress has enacted a law that may subject to criminal punishment in China any person who: (i) gains improper entry into a computer or system of strategic importance; (ii) disseminates politically disruptive information; (iii) leaks
state secrets; (iv) spreads false commercial information; or (v) infringes intellectual property rights.

The
Ministry of Public Security has promulgated measures that prohibit use of the Internet in ways that, among other things, result in a leakage of state secrets or a spread of socially destabilizing content. The Ministry of Public Security has
supervision and inspection rights in this regard, and we are subject to the jurisdiction of the local security bureaus. If an ICP license holder violates these measures, the PRC government may revoke its ICP license and shut down its websites. We
believe we are in compliance with these regulations.

Regulation of Domain Names and Website Names

PRC law requires owners of Internet domain names to register their domain names with qualified domain name registration agencies approved
by MII and obtain registration certificates from such registration agencies. A registered domain name owner has an exclusive use right over its domain name. Unregistered domain names may not receive proper legal protections and may be
misappropriated by unauthorized third parties. We have registered 223 domain names relating to our websites, with the Internet Corporation for Assigned Names and Numbers and the China Internet Network Information Center.

PRC law requires entities operating commercial websites to register their website names with the State Administration of Industry and
Commerce or its local offices and obtain commercial website name registration certificates. If any entity operates a commercial website without obtaining such a certificate, it may be charged a fine or imposed other penalties by SAIC or its local
offices. We have registered 14 website names used in connection with our online education business with Beijing Municipal Bureau of Industry and Commerce and the registration of one additional website name is now in progress.

Regulation of Bulletin Board Services

Under the Administrative Measures on Internet Information Services and the Administrative Measures on Internet Bulletin Board Services adopted by MII on October 8, 2000, an Internet information
services provider must obtain prior approval if it wishes to provide Internet bulletin board services. We have obtained approvals to provide Internet bulletin board services on eight of our websites where we currently provide such services.



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Regulation of Internet Publishing

In June 2002, the State Press and Publications Administration and MII issued the Interim Provisions on Internet Publishing, or the Internet
Publishing Regulations. The Internet Publishing Regulations require that all entities engaging in Internet publishing obtain approval from the State Press and Publications Administration before they can conduct any Internet publishing business.
Internet publishing is broadly defined in the Internet Publishing Regulations as an act of online dissemination of works created by ICP license holders or others that such ICP license holders select, edit and process and subsequently
post on the Internet or transmit to users via the Internet for browsing, reading, use or downloading by the public. These works include contents from books, newspapers, periodicals, audio-video products, electronic publications that have already
been formally published or works that have been made public in other media or from the browsed and processed works relating to literature, art, nature science, social science, engineering technology and other aspects. The Internet Publishing
Regulations include a requirement for Internet publishing organizations to have professional editorial personnel examine the contents being published to ensure that they comply with applicable laws. We believe we currently operate our business in a
manner that complies with this regulation.

Regulation of Privacy Protection

PRC law does not prohibit Internet content providers from collecting and analyzing personal information from their users. PRC law prohibits
Internet content providers from disclosing to any third parties any information transmitted by users through their networks unless otherwise permitted by law. If an Internet content provider violates these regulations, MII or its local offices may
impose penalties and the Internet content provider may be liable for damages caused to its users. We believe we are in compliance with these regulations.

Regulations on Protection of the Right of Dissemination through Information Networks

On May 18, 2006, the State Council promulgated the Regulations on Protection of the Right of Dissemination through Information Networks, or the Dissemination Protection Regulations, which became
effective on July 1, 2006. The Dissemination Protection Regulations require that every organization or individual who disseminates a third-partys work, performance, audio or visual recording products to the public through information
networks shall obtain permission from, and pay compensation to, the copyright owner of such products, unless otherwise provided under relevant laws and regulations. The copyright owner may take technical measures to protect his or her right of
dissemination through information networks and any organization or individual shall not intentionally evade, circumvent or otherwise assist others in evading such protective measures unless permissible under law. The Dissemination Protection
Regulations also provide that permission from the copyright owners and compensation for the copyright-protected works is not required in the event of limited dissemination to teaching or research staff for the purpose of school teaching or
scientific research only. We hold copyrights for all of the course materials on our websites.

Regulation of Online
Cultural Activities

The Ministry of Culture promulgated the Interim Provisions on Internet Culture, or the Internet
Culture Provisions, in May 2003, which became effective on July1, 2003 and was amended on July 1, 2004. The Internet Culture Provisions apply to all ICPs that carry out Internet cultural activities which involve the production and dissemination
of cultural products via the Internet. Internet cultural activities is defined in the Internet Culture Provisions as an act of provision of Internet cultural products and related services, which includes (i) production, duplication,
importation, wholesale, retail, lease and broadcasting of the Internet cultural products; (ii) online dissemination whereby cultural products are posted on the Internet or transmitted via Internet to end-users, such as computers, fixed line
telephones, mobile phones, radios, television sets and games machines, for online users browsing, reading, use or downloading; and (iii) exhibition and comparison of the Internet cultural products. In addition, Internet cultural
products is defined in the Internet Culture Provisions as cultural products produced, broadcasted and disseminated via the Internet, which include audio-video products, game products, performance programs, works of art, cartoons and other
cultural products. All entities engaging in commercial Internet cultural activities, or Internet Cultural Entities, must be approved by the Ministry of Culture in addition to the approval of MII. The Internet Culture Provisions state that applicants
must also comply with the quantitative, structural and administrative plans for Internet Cultural Entities. Beijing Champion holds a Permit of Internet Cultural Activities issued by the Ministry of Culture in November 2008.



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Regulation of Online and Distance Education

Pursuant to the Administrative Regulations on Educational Websites and Online and Distance Education Schools issued by MOE in 2000, or the
Online Education Regulation, educational websites and online education schools may provide education services in relation to higher education, elementary education, pre-school education, teacher education, occupational education, adult education and
other educational services. Under the Online Education Regulations, Educational websites refers to education websites providing education or education-related information services to website visitors by means of a database or an online
education platform connected via the Internet or an educational television station through an Internet service provider, or ISP. Under the Online Education Regulations, Online education schools refer to organizations providing academic
education services or training services with the issuance of various certificates.

Under the Online Education Regulations,
setting up educational websites and online education schools is subject to approval from relevant education authorities, depending on the specific types of education provided. Under the Online Education Regulations, any educational website and
online education school shall, upon receipt of approval, indicate on its website such approval information as well as the approval date and file number.

According to the Administrative License Law promulgated by the National Peoples Congress on August 27, 2003 and effective as of July 1, 2004, only laws promulgated by the National
Peoples Congress and regulations and decisions promulgated by the State Council may establish administrative license requirements. On June 29, 2004, the State Council promulgated the Decision on Cutting Down Administrative Licenses for
the Administrative Examination and Approval Items Really Necessary to be Retained, in which the administrative license for online education schools was retained, while the administrative license for educational websites was
not retained.

We believe, based on the opinion of our PRC legal counsel, Jingtian & Gongcheng that:



| |  |  | None of Beijing Champion, Caikaowang and Champion Wangge is required to obtain a license to operate educational websites from the MOE under
the current PRC laws or regulations;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | None of Beijing Champion, Caikaowang and Champion Wangge is required to obtain a license to operate online education schools because it
does not offer through its website education services or training programs that directly offer government accredited academic degrees or other government accreditation certifications.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Regulation of Book Wholesaling and Retailing

Under the Administrative Measures for the Publication Market, or Administrative Measures, which was promulgated by the State Press and Publication Administration and became effective on September 1,
2003 and amended on June 16, 2004, any enterprise or individual wishing to engage in book wholesaling must obtain permission from the press and publication agency at the provincial level. If permission is granted, a Publication Business Permit
will be issued by such provincial agency. An enterprise that has obtained a Publication Business Permit does not need to get special permission if it decides to utilize the Internet and other information networks to conduct the book wholesaling
business. Under the Administrative Measures, any enterprise or individual wishing to engage in book retailing shall first get permission from the press and publication agency at the county level. If permission is granted, a Publication Business
Permit will be issued by such county agency. Beijing Champion holds a Publication Business Permit for book wholesaling issued by Beijing Press and Publication Bureau in February 2008 under which Beijing Champion is allowed to conduct book
wholesaling and retailing businesses. This permit is valid through December 31, 2011.

Regulation of Audio-Video
Product Wholesale, Retail and Rental

Under the Administrative Measures for the Wholesale, Retail and Rental of
Audio-Video Products which was adopted by the Ministry of Culture and became effective on December 1, 2006, any enterprise or individual wishing to engage in the wholesale, retail or rental of audio-video products shall first get permission
from the local government agency of culture. If an enterprise wishes to engage in the wholesale of audio-video products, it must obtain the Audio-Video Product Business Permit from the governmental agency of culture at the provincial level. If it
wishes to engage in the retail or rental of audio-video products, then it shall get the Audio-Video Product Business Permit from the governmental agency of culture at the county level. Beijing Champion holds an Audio-Video Product Business Permit
issued by the Cultural Commission of Haidian District, Beijing on April 25, 2007. This permit is valid through June 30, 2010.



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Regulations on Private Education

The principal regulations governing private education in China consist of the Education Law of the PRC, the Law for Promoting Private
Education (2003) and the Implementation Rules for the Law for Promoting Private Education (2004). These regulations are summarized below.

On March 18, 1995, the National Peoples Congress promulgated the Education Law of the PRC, which became effective on September 1, 1995, or the Education Law. The Education Law stipulates
that enterprises, social organizations and individuals are encouraged to operate schools and other types of educational organizations in accordance with the PRC laws and regulations. Meanwhile, no organization or individual may establish or operate
a school or any other institution of education for profit-making purposes. However, private schools may be operated for reasonable returns as described in more detail below.

The Law for Promoting Private Education (2003) became effective on September 1, 2003, and the Implementation Rules for the Law for
Promoting Private Education (2004) became effective on April 1, 2004. Under these regulations, private schools are defined as schools established by social organizations or individuals using non-government funds. In addition,
private schools providing certifications, pre-school education, education for self-study aid and other academic education shall be subject to approval by the education authorities, while private schools engaging in occupational qualification
training and occupational skill training shall be subject to approvals from the authorities in charge of labor and social welfare. A duly approved private school will be granted a Permit for Operating a Private School, and shall be registered with
the Ministry of Civil Affairs of the PRC, or MCA or its local counterparts as a privately run non-enterprise institution.

Under the above regulations, private schools have the same status as public schools, though private schools are prohibited from providing military, police, political and other kinds of education which are of a special nature. In addition,
the operation of private schools is highly regulated. For example, the types and amounts of fees charged by private schools offering certifications must be approved by the relevant governmental authority and be publicly disclosed, and the types and
amounts of fees charged by private schools that do not offer certifications need only be filed with the relevant governmental authority and be publicly disclosed.

Private education is treated as a public welfare undertaking under the regulations. Nonetheless, investors in a private school may choose to require reasonable returns from the annual net
balance of the school after deduction of costs, donations received, government subsidies, if any, the reserved development fund and other expenses as required by the regulations.

The election to establish a private school requiring reasonable returns shall be provided in the articles of association of the school. The
percentage of the schools annual net balance that can be distributed as reasonable returns shall be determined by the schools board of directors, taking into consideration the following factors: (i) the schools tuition and
other fees, (ii) the ratio of the schools expenses used for educational activities and improving the educational conditions to the total fees collected; and (iii) the schools admission standards and educational quality.
Information relating to the above factors shall be publicly disclosed before the schools board determines the percentage of the schools annual net balance that can be distributed as reasonable returns. This disclosed information and the
decision to distribute reasonable returns shall also be filed with the approval authorities within 15 days from the decision made by the board. However, none of the current PRC laws and regulations provides a formula or guidelines for determining
reasonable returns. In addition, none of the current PRC laws and regulations sets forth different requirements or restrictions on a private schools ability to operate its education business based on such schools status as a
school that requires reasonable returns or a school that dose not require reasonable returns.

At the end of each fiscal year,
private schools are required to allocate a certain amount to their development fund for the construction and maintenance of the school and the procurement and upgrade of educational equipment. In the case of private schools that require reasonable
returns, this amount shall be no less than 25% of the annual net income or the annual increase in the net assets of the school, while in the case of private schools that do not require reasonable returns, this amount shall be no less than 25% of the
annual increase in the net assets of the school, if any. Private schools that do not require reasonable returns shall be entitled to the same preferential tax treatment as public schools. The regulations require that preferential tax treatment
policies applicable to private schools requiring reasonable returns to be formulated by the finance authority, taxation authority and other authorities under the State Council, but to date no such regulations have been promulgated by the relevant
authorities.



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Regulation of Foreign Exchange

The PRC government imposes restrictions on the convertibility of the Renminbi and on the collection and use of foreign currency by PRC
entities. Under current regulations, the Renminbi is convertible for current account transactions, which include dividend distributions, interest payments, and the import and export of goods and services. Conversion of Renminbi into foreign currency
and foreign currency into Renminbi for capital account transactions, such as direct investment, portfolio investment and loans, however, is still generally subject to the prior approval of SAFE.

Under current PRC regulations, foreign-invested enterprises such as our PRC subsidiaries are required to apply to SAFE for a Foreign
Exchange Registration Certificate for Foreign-Invested Enterprise. With such a certificate (which is subject to review and renewal by SAFE on an annual basis), a foreign-invested enterprise may open foreign exchange bank accounts at banks authorized
to conduct foreign exchange business by SAFE and may buy, sell and remit foreign exchange through such banks, subject to documentation and approval requirements. Foreign-invested enterprises are required to open and maintain separate foreign
exchange accounts for capital account transactions and current account transactions. In addition, there are restrictions on the amount of foreign currency that foreign-invested enterprises may retain in such accounts.

Further, SAFE promulgated a new circular (known as Circular 142) in August 2008 with respect to the administration of conversion of foreign
exchange capital contributions of a foreign invested enterprise. The circular clarifies that Renminbi converted from foreign exchange capital contributions can only be used for the activities within the approved business scope of such foreign
invested enterprise and cannot be used for domestic equity investments unless otherwise permitted.

Regulation of
Foreign Exchange in Certain Onshore and Offshore Transactions

In October 2005, SAFE issued the Notice on Issues
Relating to the Administration of Foreign Exchange in Fund-Raising and Return Investment Activities of Domestic Residents Conducted via Offshore Special Purpose Companies, or SAFE Circular 75, which became effective as of November 1, 2005.
According to SAFE Circular 75, prior to establishing or assuming control of an offshore enterprise for the purpose of financing that offshore enterprise with assets or equity interests in an onshore enterprise in the PRC, each PRC resident, whether
a natural or legal person, must complete certain overseas investment foreign exchange registration procedures with the relevant local SAFE branch. An amendment to the registration with the local SAFE branch is required to be filed by any PRC
resident that directly or indirectly holds interests in that offshore enterprise upon either (i) the injection of equity interests or assets of an onshore enterprise to the offshore enterprise or (ii) any overseas fund-raising by such
offshore enterprise after such injection. An amendment to the registration with the local SAFE branch is also required to be filed by such PRC resident when there is any material change involving a change in the capital of the offshore enterprise,
such as (i) an increase or decrease in its capital, (ii) a transfer or swap of shares, (iii) a merger or division, (iv) a long-term equity or debt investment or (v) the creation of any security interests.

SAFE Circular 75 applies retroactively. As a result, PRC residents who established or acquired control of offshore companies that made
onshore investments in the PRC in the past were required to complete the relevant overseas investment foreign exchange registration procedures by March 31, 2006. Under SAFE Circular 75, failure to comply with the registration procedures may
result in restrictions on the relevant onshore entity, including restrictions on the payment of dividends and other distributions to its offshore parent or affiliate and restrictions on the capital inflow from the offshore entity, and may also
subject relevant PRC residents to penalties under the PRC foreign exchange administration regulations.

As a Cayman Islands
company, we are considered a foreign entity in China. If we purchase the assets or equity interests of a PRC company owned by PRC residents in exchange for our equity interests, such PRC residents will be subject to the registration procedures
described in SAFE Circular 75. Moreover, PRC residents who are beneficial holders of our shares are required to register with SAFE in connection with their investment in us.

To further clarify the implementation of SAFE Circular 75, SAFE issued SAFE Circular 106 in May 29, 2007. Under SAFE Circular 106, PRC
subsidiaries of an offshore enterprise governed by SAFE Circular 75 are required to coordinate and supervise the filing of SAFE registrations in a timely manner by the offshore holding companys shareholders who are PRC residents. If these
shareholders fail to comply, the PRC subsidiaries are required to report to the local SAFE authorities. If the PRC resident shareholders do not complete their registration with the local SAFE authorities, the related PRC subsidiaries will be
prohibited from distributing their profits and proceeds from any reduction in capital, share transfer or liquidation to their offshore parent company and the offshore parent company may be restricted in its ability to contribute additional capital
to its PRC subsidiaries.



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Regulation of Overseas Listings

On August 8, 2006, six PRC regulatory agencies, including the CSRC, promulgated the Regulation on Mergers and Acquisitions of Domestic
Companies by Foreign Investors, which became effective on September 8, 2006 and was amended on June 22, 2009, or the M&A Rule. This M&A Rule, among other things, has certain provisions that require offshore special purpose
vehicles, or SPVs, formed for the purpose of acquiring PRC domestic companies and controlled by PRC individuals, to obtain the approval of the CSRC prior to listing their securities on an overseas stock exchange. On September 21, 2006, the CSRC
published on its official website a notice specifying the documents and materials that are required to be submitted for obtaining CSRC approval.

We believe, based on the opinion of our PRC legal counsel, Jingtian & Gongcheng, that while the CSRC generally has jurisdiction over overseas listings of SPVs like us, CSRCs approval was
not required for our initial public offering given the fact that our current corporate structure was established before the M&A Rule became effective. There remains some uncertainty as to how the M&A Rule will be interpreted or implemented
in the context of an overseas offering. If the CSRC or another PRC regulatory agency subsequently determines that approval was required for our initial public offering, we may face sanctions by the CSRC or another PRC regulatory agency. If this
happens, these regulatory agencies may impose fines and penalties on our operations in the PRC, limit out operating privileges in the PRC, restrict or prohibit payment or remittance of dividends by our PRC subsidiaries to us or take other actions
that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our ordinary shares. See Item 3.D. Key Information  Risk Factors 
General Risks Relating to Conducting Business in China  If the China Securities Regulatory Commission, or CSRC, or another PRC regulatory agency determines that its approval was required in connection with our initial public offering, we may
become subject to penalties.

SAFE Regulations on Employee Share Options

On March 28, 2007, SAFE promulgated the Application Procedure of Foreign Exchange Administration for Domestic Individuals Participating
in Employee Share Holding Plan or Share Option Plan of Overseas Listed Company, or the Share Option Rule. The purpose of the Share Option Rule is to regulate foreign exchange administration of PRC domestic individuals who participate in employee
share holding plans and share option plans of overseas listed companies. According to the Share Option Rule, if a PRC domestic individual participates in any employee share holding plan or share option plan of an overseas listed company, a PRC
domestic agent or the PRC subsidiary of such overseas listed company shall, among others things, file, on behalf of such individual, an application with SAFE to obtain approval for an annual quota with respect to the purchase of foreign exchange in
connection with share holding or share option exercises as PRC domestic individuals may not directly use overseas funds to purchase shares or exercise share options. Concurrent with the filing of such application with SAFE, the PRC domestic agent or
the PRC subsidiary shall obtain approval from SAFE to open a special foreign exchange account at a PRC domestic bank to hold the funds required in connection with the share purchase or option exercise, any returned principal or profits from sales of
shares, any dividends issued on the shares and any other income or expenditures approved by SAFE. The PRC domestic agent is also required to obtain approval from SAFE to open an overseas special foreign exchange account at an overseas bank to hold
overseas funds used in connection with any share purchase or option exercise.

All proceeds obtained by PRC domestic
individuals from sales of shares shall be remitted back to China after relevant overseas expenses are deducted. The foreign exchange proceeds from these sales can be converted into Renminbi or transferred to such individuals foreign exchange
savings account after the proceeds have been remitted back to the special foreign exchange account opened at the PRC domestic bank. If the share option is exercised in a cashless exercise, the PRC domestic individuals are required to remit the
proceeds to the special foreign exchange account.

Although further clarification is required as to how the Stock Option Rule
will be interpreted or implemented, we believe that we and our PRC employees who have been granted share options are subject to the Share Option Rule. If we or our PRC employees fail to comply with the Share Option Rule, we and/or our PRC employees
may face sanctions imposed by foreign exchange authority or any other PRC government authorities.

In addition, the State
Administration of Taxation has issued a few circulars concerning employee share options. Under these circulars, our employees working in China who exercise share options will be subject to PRC individual income tax. Our PRC subsidiaries have
obligations to file documents relating to employee share options with relevant tax authorities and withhold individual income taxes of those employees who exercise their share options. If our employees fail to pay and we fail to withhold their
income taxes, we may face sanctions imposed by tax authorities or other PRC government authorities.



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C. Organizational Structure

Due to PRC legal restrictions on foreign ownership and investment in the Internet content distribution industry in China, we operate our
online education business through Beijing Champion, a domestic Chinese company owned by Zhengdong Zhu and Baohong Yin, both of whom are PRC citizens. CDEL Hong Kong, Champion Technology and Champion Education Technology, all of which are our wholly
owned subsidiaries, have entered into a series of contractual arrangements with Beijing Champion and its shareholders, including a technical support and consultancy services agreement, an exclusive purchase rights agreement, a courseware license
agreement, a software license agreement, a courseware production entrustment agreement, a letter of undertaking from Beijing Champions two shareholders to Champion Technology, a letter from Champion Technology to Beijing Champion, declaration
letters, power of attorneys, acknowledgement letters to us and acknowledgement letters to Champion Technology from each of Beijing Champions shareholders, and a notice to Beijing Champion and its shareholders from Champion Technology. These
contractual arrangements also include equity pledge agreements (as amended and restated) entered into with each of the shareholders of Beijing Champion. As a result of these contractual arrangements, we control Beijing Champion, and accordingly,
under U.S. GAAP, we consolidate Beijing Champions operating results in our consolidated financial statements.

The
following diagram illustrates our corporate and share ownership structure as of the date of this annual report.

LOGO

For additional information on our subsidiaries and PRC affiliated entities, see Item 4.A. Information
on the Company  History and Development of the Company.

The following is a summary of the material provisions of
these agreements. For more complete information you should read these agreements in their entirety. Directions on how to obtain copies of these agreements are provided in this annual report under Item 10.H. Additional Information 
Documents on Display.

Technical Support and Consultancy Services Agreement, dated May 1, 2004. Under this
agreement, Champion Technology provides Beijing Champion with exclusive technical support and consultancy services relating to Beijing Champions online education business. The services rendered by Champion Technology mainly include assisting
in course creation and production, undertaking pre-paid study card production, advising on website design and maintenance, providing general technology support and technical personnel training, assisting in strategic planning and business
development and establishing and implementing a customer service system. In return, Beijing Champion pays Champion Technology a monthly service fee, which is equal to Beijing Champions revenues less its cost of sales and operating and other
expenses as approved by Champion Technology. In addition, Beijing Champion undertook not to approve its annual budget, or engage in any transactions that could materially affect Beijing Champions capital structure, assets, liabilities, rights
or operations, without the prior written consent of Champion Technology. Champion Technology undertook to provide financial support at Beijing Champions request in a manner permitted by law. This agreement will automatically terminate on the
date Beijing Champion ceases its operations.



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Equity Pledge Agreements, entered into on May 1, 2004 and amended and restated
on December 31, 2008. To secure the payment obligations of Beijing Champion under the technical support and consultancy services agreement described above, each of Beijing Champions shareholders, Mr. Zhu and Ms. Yin, pledged to
Champion Technology his or her entire equity ownership interests in Beijing Champion pursuant to an Equity Pledge Agreement entered into on May 1, 2004, or the May 2004 Equity Pledge Agreement. In May 2008, Mr. Zhu and Ms. Yin
contributed an additional RMB16.8 million ($2.5 million) to Beijing Champion as increased registered capital. In connection with such capital contribution to Beijing Champion, each of Mr. Zhu and

Ms. Yin amended and restated his or her May 2004 Equity Pledge Agreement on December 31, 2008, or the Amended and Restated Equity Pledge Agreement.
Each of the Amended and Restated Equity Pledge Agreements could only become effective, and replace the respective May 2004 Equity Pledge Agreement, after the pledge created thereunder is registered with SAIC or its local office. We successfully
registered the pledge created under each of the Amended and Restated Equity Pledge Agreements with the Beijing office of SAIC on January 12, 2009. Upon the occurrence of certain events of default specified in the Amended and Restated Equity
Pledge Agreements, the pledgee may exercise its rights and foreclose on the pledged equity interest. Under such agreements, the pledgor may not transfer the pledged equity interests without the pledgees prior written consent. The agreements
will also be binding upon successors of the pledgors and transferees of the pledged equity interests. The agreements may be terminated upon the discharge of Beijing Champions contractual obligations under the technical support and consultancy
services agreement as described above.

Exclusive Purchase Rights Agreement, dated May 9, 2004. Pursuant to the
exclusive purchase rights agreement entered into among CDEL Hong Kong, Beijing Champion and its shareholders, CDEL Hong Kong or any third-party designated by it has the right to acquire, in whole or in part, the respective equity interests in
Beijing Champion of its shareholders when permitted by applicable PRC laws and regulations.

Courseware License
Agreement, dated August 1, 2004. Pursuant to this agreement, Beijing Champion granted Champion Technology an exclusive license to use specific distance education and training courseware owned by Beijing Champion free of charge. Under this
agreement, Champion Technology is granted the rights to use the courseware for the duration of its operating period.

Software License Agreement, dated May 20, 2007. Pursuant to this agreement, Champion Education Technology granted Beijing Champion a non-exclusive license to use the online course delivery platform for the duration of its
operating period. In return, Beijing Champion pays Champion Education Technology a license fee equal to 30% of the total revenues generated from the use of the platform.

Courseware Production Entrustment Agreement, dated May 20, 2007. Pursuant to this agreement, Champion Education Technology provides Beijing Champion with services of editing, production,
compilation, updating and maintenance of courseware. As consideration, Beijing Champion pays Champion Education Technology a fee calculated based on an hourly rate.

Letter of Undertaking from Beijing Champions Shareholders to Champion Technology, dated February 13, 2008. Pursuant to this letter addressed to Champion Technology, the shareholders of
Beijing Champion undertook to, unless restricted by laws, regulations or legal procedures, (i) remit all dividends, interests, other distributions or remnant assets after liquidation, if any, they receive from Beijing Champion to Champion
Technology without compensation, after paying the corresponding tax and any other required expenses, (ii) transfer all or part of their equity interests to CDEL Hong Kong at a nominal or minimal purchase price, in the event CDEL Hong Kong
exercises its exclusive purchase right to acquire any or all of the equity interests in Beijing Champion, (iii) remit to Champion Technology all considerations they may receive from CDEL Hong Kongs acquisition of any equity interests in
Beijing Champion, without compensation, after paying the corresponding tax and any other required expenses and (iv) act in the best interest of Champion Technology.

Letter of Undertaking from Champion Technology to Beijing Champion, dated February 13, 2008. Pursuant to this letter, Champion Technology confirmed its obligation to provide financial support
to Beijing Champion if Beijing Champion suffers any financial loss.

Declaration Letters, dated March 24, 2008.
Pursuant to these letters, the shareholders of Beijing Champion acknowledged that the distribution of dividends in March 2005 in the amount of $0.7 million was a one-time distribution of all dividends accrued prior to the execution of the technical
support and consultancy services agreement described above. The shareholders of Beijing Champion undertook that after the aforesaid one-time dividend distribution, they will, unless restricted by law, remit all dividends they may receive from
Beijing Champion to Champion Technology after paying applicable tax and other required expenses.



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Powers of Attorney, dated March 25, 2008. Pursuant to these powers of attorney,
each shareholder of Beijing Champion authorized Champion Technology or any person it designates to (i) exercise all voting powers that such shareholder enjoys under the laws and the articles of association of Beijing Champion, including the
sale, transfer or pledge, in whole or in part, of such shareholders equity interests in Beijing Champion; (ii) nominate and appoint, on behalf of such shareholder, the legal representative, directors, supervisors, general manager, and
other senior management of Beijing Champion; (iii) execute the share transfer agreement as contemplated by the exclusive purchase rights agreement described above, and perform the equity pledge agreement and the exclusive purchase rights
agreement described above; and (iv) authorize any third party to carry out any of the above actions. In addition, the shareholders undertook to refrain from exercising any of the above-mentioned rights.

Notice to Beijing Champion and its Shareholders, dated March 25, 2008. Pursuant to this notice, Champion Technology authorized
Zhengdong Zhu to exercise all rights and powers granted by the powers of attorney described above.

Acknowledgement Letter
to Champion Technology, dated March 25, 2008. Pursuant to this acknowledgement letter, the shareholders of Beijing Champion acknowledged that their contribution of RMB3.2 million ($0.5 million) to the registered capital of Beijing Champion
prior to May 1, 2004 is subject to the equity pledge agreements described above.

Acknowledgement Letter to CDEL
Cayman, dated March 25, 2008. Pursuant to this acknowledgement letter, the shareholders of Beijing Champion acknowledged their contribution of $0.5 million (equivalent to RMB3.2 million) to CDEL Hong Kong in May 2004.

For risks associated with our contractual arrangements with Beijing Champion and its shareholders, see Item 3.D. Key Information
 Risk Factors  Risks Relating to Our Corporate Structure and Restrictions on Our Industry.

D. Property,
Plant and Equipment

Our principal executive offices are located in approximately 2,495 square meters
of office space on the 18thfloor, Xueyuan International
Tower, No. 1 Zhichun Road, Haidian District, Beijing, 100083, China. We also lease approximately 3,955 square meters at the Xueyuan International Tower and 8,043 square meters at different locations of Beijing, 100083, China. We believe that
our existing facilities are adequate for our current requirements and that additional space can be obtained on commercially reasonable terms to meet our future requirements.



|ITEM 4A. | UNRESOLVED STAFF COMMENTS
|-------- | -------------------------

Not applicable.



|ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS
|------- | --------------------------------------------

The following discussion of our financial condition and results of operations is based upon and should be read in conjunction with our consolidated financial statements and their related notes included in
this annual report on Form 20-F. This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. See Introduction  Forward
Looking Statements. In evaluating our business, you should carefully consider the information provided under Item 3.D. Key Information  Risk Factors. We caution you that our business and financial performance are subject
to substantial risks and uncertainties.

A. Operating Results

Overview

We
offer a wide range of online education and test preparation courses and other related services and products. Our courses are designed to help professionals and other course participants obtain and maintain the skills, licenses and certifications
necessary to pursue careers in China in the areas of accounting, law, healthcare, construction engineering, information technology and other industries. We also offer test preparation courses to self-taught learners pursuing higher education
diplomas or degrees and to secondary school and college students preparing for various academic and entrance exams. We further offer online foreign language courses. Our online education courses, accounted for 89.8%, 79.1% and 74.0% of our net
revenues in the fiscal years ended September 30, 2007, 2008 and 2009, respectively. In the fiscal year ended September 30, 2009, we also further expanded our course offerings into offline areas, including information technology courses,
primary and secondary school supplementary courses and business start-up training courses. In addition, we sell books and reference materials through third-party bookstores and distributors across China and, to a lesser extent, through our online
bookstore and our offices in Beijing. We also, from time to time, provide course production services, platform production services and magazine content production services for certain customers at their request, and provide in-person professional
training for accounting firms.



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To comply with PRC law, we have adopted a corporate structure whereby we operate our
business through a series of contractual arrangements with Beijing Champion, a PRC entity owned by Zhengdong Zhu, our co-founder, chairman and chief executive officer, and his wife, Baohong Yin, our co-founder and deputy chairman. As a result, we do
not enjoy direct equity ownership of Beijing Champion, our primary consolidated operating company. However, through these contractual arrangements, we effectively control Beijing Champion and its subsidiaries and consolidate its financial results in
our consolidated financial statements, and thus references to we, us, our company and our refer not only to China Distance Education Holdings Limited and its subsidiaries, but also to Beijing Champion
and its subsidiaries as the context requires. For a more detailed discussion of these contractual arrangements, see Item 4.C. Information on the Company  Organizational Structure, and for a detailed description of the regulatory
environment for Internet-based businesses in China that necessitates our adoption of this structure, see Item 4.B. Information on the Company  Business Overview  Regulations. In addition, for a detailed description of the
risks associated with our corporate structure and these contractual arrangements that support our corporate structure, see Item 3.D. Key Information  Risk Factors  Risks Relating to Our Corporate Structure and Restrictions on Our
Industry.

To complement our organic growth, in the fiscal year ended September 30, 2009, we have selectively
acquired businesses to expand our course offerings. In March 2009, we acquired Yinglun Yucai's business start-up training business which was previously owned by Mr. Liang Ma, a third-party individual. With an initial consideration of RMB36
million ($5.3 million), we are now entitled to 60% of the beneficial ownership interest of a new company, Zhengbao Yucai, which was established to operate such business. For more recent developments with respect to this acquisition, please see
Item 8. Financial InformationLegal Proceedings. In September 2009, we acquired the business of Gaokao retake preparation and high-school supplementary tutoring courses from Mr. Junnan Ye and Mr. Xiujie Hu, two third-party
individuals. With an initial consideration of RMB16 million ($2.4 million), we are now entitled to 60% of the beneficial ownership interest of a new company Champion Xinlixiang, which was established to operate such business.

We have experienced significant growth in our business in recent years. Our net revenues were $11.8 million, $17.6 million and $30.1 million
in the fiscal years ended September 30, 2007, 2008 and 2009, respectively. Our net income was $5.4 million, $4.0 million and $1.2 million in the fiscal years ended September 30, 2007, 2008 and 2009, respectively. Our lower net income
during the fiscal year ended September 30, 2008 compared to the fiscal year ended September 30, 2007 resulted mainly from the $1.5 million share-based compensation expenses arising from our share options granted and restricted shares
issued in the fiscal year of 2008 to motivate, retain and reward certain officers, employees, directors and lecturers, the delayed Accounting Professional Qualification Examinations, which were rescheduled from the third quarter to fourth quarter of
the fiscal year ended September 30, 2008 as a result of the May 2008 Sichuan earthquake, and additional expenses associated with being a U.S. public company in that period. Our lower net income during the fiscal year ended September 30,
2009 compared to the fiscal year ended September 30, 2008 resulted mainly from share-based compensation expenses of $3.9 million arising from our share options granted and restricted shares issued in the fiscal year ended September 30,
2008, our share options granted to five non-executive directors in the first quarter of the fiscal year ended September 30, 2009, repricing of our share options granted in the fiscal year ended September 30, 2008 in the first quarter of
the fiscal year ended September 30, 2009, and additional expenses associated with being a U.S. public company in that period. Our total course enrollments increased from approximately 504,000 for the fiscal year ended September 30, 2007 to
over 743,000 and 1,134,000 for the fiscal years ended September 30, 2008 and 2009, respectively.

General Factors
Affecting Our Results of Operations

We have benefited significantly from overall economic growth, the expansion of the
education market and the increasing Internet and broadband penetration rate in China. Economic growth and increasing consumer consumption in China have contributed to a significant increase in spending on education. Furthermore, Chinas
integration into the global economy and growth in Chinas professional services sector are driving demand for qualified talent in China, particularly in the areas of accounting, law, healthcare, construction engineering, information technology
and financial services. We have also benefited from increasing Internet and broadband penetration rates in China, which have increased the acceptance of online education and training courses as an effective and convenient way for people to meet
their educational and career development needs. However, any adverse changes in the economic conditions or regulatory environment in China may have a material adverse effect on the Internet services industry and the education industry in China,
which in turn may adversely affect our results of operations.



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Our results of operations may also be affected by other factors such as changes to the
license, qualification, knowledge and skill requirements applicable to the various disciplines and professions covered by our online courses, and changes in the timing, content and difficulty, or perceived difficulty, of exams covered by our
courses, changes in the continuing education requirements, and changes in the government subsidy policy applicable to our business start-up training courses. Exams covered by our courses may also, from time to time, be discontinued or postponed for
reasons beyond our control, which may impact our revenues in certain periods. See Item 3.D. Key Information  Risk Factors  Risks Relating to Our Business  Our business could be adversely affected by changes in the perceived
difficulty, requirements or formats of professional examinations and continuing education in China, Item 3.D. Key Information  Risk Factors  Risks Relating to Our Business  Our business could be adversely affected by
changes in the perceived difficulty, requirements or formats of business start-up training courses, or changes in the government authorities subsidy policy and Item 3.D. Key Information  Risk Factors  Risks Relating to
Our Business  Our financial performance and prospects could be affected by natural calamities or health epidemics. We also typically experience lower revenues in the quarters ending December 31 and March 31 than in the quarters
ending June 30 and September 30 due to the timing of exams covered by our courses. See Net Revenues  Online Education Services below and Item 3.D. Key Information  Risk Factors  Risks Relating to Our
Business  Our business is subject to seasonal fluctuations, which may cause our operating results to fluctuate from quarter to quarter. This may result in volatility in and adversely affect the price of our ADSs. Our results of
operations could also be impacted by fluctuations in exchange rates. See Item 3.D. Key Information  Risk Factors  General Risks Relating to Conducting Business in China  Fluctuations in exchange rates could result in foreign
currency exchange losses. In addition, our results of operations could be impacted by share-based compensation granted under our share incentive plans. See Item 3.D. Key Information  Risk Factors  Risks Relating to Our
Business  We may continue to grant share options and/or restricted shares under our current or future share incentive plans, or modify the terms of existing share options, which may continue to materially impact our future results of
operations or result in dilution to our shareholders.

Specific Factors Affecting Our Results of Operations

Our results of operations in any given period are also directly affected by company-specific factors, including:



| |  |  | Number of enrollments in our courses. Our ability to generate and grow our net revenues is primarily affected by our ability to increase the
number of course enrollments. This in turn is driven by several factors, including governmental and industrial requirements for education and training in various professions and industries, recognition of our brand and services, Internet and
broadband penetration rate, and the perceived effectiveness of online education and training courses as compared to traditional offline classroom programs. Government regulations requiring increased number of licensure and certification exams
provide us with new market opportunities to develop new courses and to attract potential exam participants as our customers. Changes in exam content and knowledge requirements in certain industries and professions, and the increased difficulty, or
perceived difficulty of certain exams covered by our courses, may also contribute to growth in our course enrollments as more exam takers feel a stronger need to take exam preparation courses. Government policies encouraging business start-up
training provide us with new market opportunities to develop new courses and to attract potential course participants to take our courses. Benefiting from the above driving factors, our total course enrollments increased from approximately 504,000
for the fiscal year ended September 30, 2007 to over 743,000 and 1,134,000 for the fiscal years ended September 30, 2008 and 2009, respectively. However, we may also, from time to time, experience a decrease in course enrollments in
certain subject areas if there is a perception within those industries or professions that certain exams have become less difficult, or the content more routine and familiar, and as a result these exam takers may be less inclined to spend additional
money on test preparation courses. For example, our Accounting Professional Qualification Examination course enrollments decreased from approximately 209,000 for the fiscal year ended September 30, 2007 to approximately 197,000 for the fiscal
year ended September 30, 2008. This decrease occurred primarily because we experienced a significant increase in enrollments in these accounting courses during the fiscal year ended September 30, 2007 due to the fact that the relevant
accounting exams covered by these courses at the time were undergoing changes in content and requirements, and many exam takers determined that enrolling in our online courses was important to their exam preparation efforts. In the subsequent
period, as exam takers became more familiar with and less concerned about the new exam content and requirements, many exam takers opted not to take our courses, which resulted in a decrease in course enrollments of these courses. In addition, we
have also experienced a decrease in the overall enrollment of our elite classes for our accounting, healthcare, higher-education for self-taught learners and legal courses as an increasing number of course participants choose to register for our
corresponding premium classes which they consider more suitable to their needs. For example, course participants enrolled in our CPA Qualification Examination and Intermediate Level Accounting Professional Qualification Examination elite classes
decreased from approximately 3,800 and 5,500 in the fiscal year ended September 30, 2007 to approximately 3,400 and 3,000 in the fiscal year ended September 30, 2008, and to approximately 1,600 and 1,500 in the fiscal year ended
September 30, 2009, respectively. In the mean time, the course enrollments in our premium classes which were introduced in August 2008 experienced steady increases. However, we expect overall demand for our courses to continue to increase,
including for our accounting courses and especially for accounting continuing education, due to an increasing number of individuals seeking to enter or obtain various qualifications applicable to the professions and industries covered by our courses
and those seeking to fulfill regulatory requirements. Finally, any government decisions to scale back, postpone or cancel certain exams, combine exams or adopt measures that might reduce the number of exam participants may adversely impact our
revenues.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  |  | Fees for our courses. Our net revenues are also affected by the amount of fees we charge for our online courses, which depends on the overall
demand, the prices and availability of competing courses, perception of the quality and effectiveness of our courses and the income levels that our course participants expect to achieve upon passing the related licensure and certification exams. We
may also experience pricing pressure as we expand our course offerings into new areas, or new segments and exams within existing areas that we cover, to attract new customers. In addition, our net revenue generated from our business start-up
training course is affected by our entitlement to government subsidy payments conditioned on our ability to meet government stipulated conditions under their subsidy policies. Such stipulated conditions include the pass rate of our course
participants business proposals as evaluated by the relevant government authorities, the business start-up rate and the employment rate of our business start-up course participants.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our ability to expand the range of courses and other services. Our ability to address market needs in new areas, or in new segments and exams
within existing areas we cover by expanding the range of our course offerings and other services, has a direct impact on our ability to maintain rapid growth in our course enrollments. Diversifying our sources of revenues also helps protect us from
possible down-turns in certain industries or professions. To date, our accounting courses remain the largest and most important of all our course offerings in terms of revenues and numbers of course enrollments. Although we expect the accounting
profession to remain a stable source of customers for our services due to the large and increasing number of industry participants and the existence of various qualifications exams and professional requirements in the industry, we have expanded and
plan to continue to expand our course offerings to further grow our revenues, expand our brand and reputation into other areas, and provide a buffer against over-reliance on any one particular area. Over the past several years, we have developed our
legal and healthcare course offerings and further enhanced the reputation of our other course offerings in the areas of construction engineering and information technology. We have recently further expanded our course offerings into primary and
secondary school supplementary courses and business start-up training courses.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Net Revenues

We derive net revenues from the sale of online education services, books and reference materials, and other related
products and services such as course production services, platform production services, magazine content production services, in-person professional training to accounting firms, offline information technology courses and related services, primary
and secondary school supplementary courses, business start-up training courses, and accounting and tax consulting services. Our net revenues are presented net of PRC business tax and related surcharges, as well as value-added taxes. The following
table sets forth a breakdown of our total net revenues for the periods indicated:



|                              |  |                                        |  |                  |      |  |        |      |                  |   |  |        |  |                  |  
|----------------------------- |  | -------------------------------------- |  | ---------------- | ---- |  | ------ | ---- | ---------------- | - |  | ------ |  | ---------------- | -
|                              |  | Year Ended September 30,               | 
|                              |  | 2007                                   |  |                  | 2008 |  |        | 2009 |                 
|                              |  | $                                      |  | % of netrevenues |      |  | $      |      | % of netrevenues |   |  | $      |  | % of netrevenues |  
|                              |  | (In thousands, except for percentages) | 
|Net Revenues                  |  |                                        |  |                  |      |  |        |      |                  |   |  |        |  |                  |  
|Online education services     |  | 10,637                                 |  | 89.8             | %    |  | 13,900 |      | 79.1             | % |  | 22,279 |  | 74.0             | %
|Books and reference materials |  | 484                                    |  | 4.1              | %    |  | 1,616  |      | 9.2              | % |  | 2,709  |  | 9.0              | %
|Others                        |  | 725                                    |  | 6.1              | %    |  | 2,058  |      | 11.7             | % |  | 5,133  |  | 17.0             | %
|                              |  |                                        |  |                  |      |  |        |      |                  |   |  |        |  |                  |  
|Total net revenues            |  | 11,846                                 |  | 100.0            | %    |  | 17,574 |      | 100.0            | % |  | 30,121 |  | 100.0            | %

Online
Education Services

We derive most of our revenues from the provision of online education services. Our online
education services consist of online professional education and test preparation courses, test preparation courses for self-taught learners pursuing higher education diplomas or degrees and secondary school and college students preparing for various
academic and entrance exams, continuing education courses for professionals fulfilling regulatory requirements, and language courses. Our professional training courses cover a wide range of industries, including accounting, law, healthcare,
construction engineering, information technology and others.

We earn revenues from course fees paid by course participants
enrolled in our online education courses. We recognize course fee payments as revenues pursuant to one of two types of revenue recognition models, the non-refundable course model and the refundable course model. The non-refundable course model
represents our original revenue recognition model used for our courses since the start of our business, including for the three fiscal years ended September 30, 2007, 2008 and 2009. This revenue recognition model still applies to most of our
current courses. For online courses with exams using the non-refundable course model, we recognize revenues on a straight line basis over the subscription period from the date on which the course participants enroll in the courses to the completion
date of the relevant exam when we close access to the relevant online course materials. With respect to courses without exams using the non-refundable course model, we recognize revenues on a straight line basis over the subscription period during
which the courses are delivered to the participants.



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We adopted the refundable course model in the fiscal year ended September 30, 2007 to
recognize revenues generated from our new elite classes, which were first introduced in November 2006. With our elite classes, course participants pay substantially higher course fees for more personal and tailored course-related
services. After completing an elite class, if a participant fails to pass the exam subject that the course prepares him or her for, and certain pre-agreed conditions are met, the course participant is then entitled to a refund of the applicable
course fee paid, which amount the course participant can choose to claim in the form of a cash refund or apply to future courses provided by us. For courses using the refundable course model, the proceeds from the refundable course model are
initially recorded as refundable fees, and thereafter we recognize revenues upon the expiration of the course participants right to receive a refund or the right to retake the course.

Our premium classes are non-refundable course model we introduced in August 2008 for some of our most successful courses, such as courses
for the accounting, legal and healthcare industries. Our premium class participants enjoy high-quality premium course-related support services similar to the elite class participants. However, premium course participants do not enjoy refund
privileges. Instead, if a participant fails to pass the course examination and certain pre-agreed conditions are met, the course participant can retake the same premium course and pay only 50% of the course fees. The participant is given this 50%
discount only once, therefore, if he or she fails the relevant course examination again and wishes to retake the premium course for the third time, there is no discount provided at that time. To promote this new course model, we offered an initial
50% discount off the course fees for all participants who registered for the premium courses during the fiscal year ended September 30, 2008.

To enroll in our courses, course participants may choose to purchase pre-paid study cards from our distributors or to pay us through bank remittance, postage, online payment using credit or debit cards
via external payment networks or cash at our offices. We provide course participants with a one-week trial period, applicable to most courses that we offer, commencing on the date course participants activate their subscription for the relevant
course. If course participants decide within the one-week trial period that they no longer want to take the course, we will refund their course fees. The amount of one-week trial period course fee refunds was insignificant in the fiscal years ended
September 30, 2007, 2008 and 2009. We begin to recognize revenues following the expiry of the one-week trial period.

To
use the face value on a pre-paid study card, course participants must activate the card by using an access code and password to transfer the face value on the card to their personal online registered accounts and register for the desired courses. We
first introduced pre-paid study cards in January 2003. Our study cards are sold with expiration dates, typically set at two years from the print date of the card. Proceeds from the expired study cards that have never been activated are recognized as
revenues upon expiration of the cards. For the fiscal years ended September 30, 2007, 2008 and 2009, we recognized revenue before business tax and related surcharges in connection with expired pre-paid study cards of approximately $0.3 million,
$43,000 and $90,000, respectively. Once course participants activate the pre-paid study cards, the face values of the cards are added to their personal registered accounts and are no longer subject to expiration. We, at times, offer volume discounts
to our distributors for purchases over a specified amount of pre-paid cards during a specified period of time, generally one year. These discounts are provided to distributors in the form of additional study cards. The after-discount prices of the
study cards paid by the distributors to us are recognized as deferred revenue. Deferred revenue is subsequently recognized as revenues upon provision of the future services according to the applicable revenue recognition policy discussed above.

We have experienced seasonality and expect in the future to continue to experience seasonality in revenues related to the
provision of our online education courses primarily due to seasonal changes in course enrollments and the timing of various exams. We typically open new courses to enrollment approximately six months before the relevant exam date. With respect to
our non-refundable courses, we typically recognize revenues on a straight line basis over the subscription period from a course participants enrollment date to the examination completion date when we close access to the relevant online course
materials. As a result, for non-refundable courses, we typically recognize higher revenues during the three months immediately prior to the examination dates. As the majority of our course participants take non-refundable courses relating to the
main professional accounting exams, which are typically held in May and September, we historically have experienced higher revenues during the quarters ending June 30 and September 30 of each fiscal year. By contrast, we have historically
experienced lower revenues in the quarters ending December 31 and March 31 due to the lower number of exams held during those periods. With respect to our refundable courses, we typically recognize revenues 15 days after the release of the
relevant exam results when the participants applicable refund privileges expire. As a result, for refundable courses, we typically recognize higher revenues during the month when the 15-day period elapses. This seasonality factor may change in
future periods if the timing of exams changes. In addition, as the mix of types of exams and course subjects changes over time, we expect to continue experiencing seasonality based on the timing of various exams. We expect quarterly fluctuation in
our revenues and results of operations to continue.



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Books and Reference Materials

We primarily sell our own proprietary learning materials relating to accounting professional courses and exams through third-party bookstores
and distributors and, to a lesser extent, directly through our online bookstore and at our offices in Beijing. We began selling books and reference materials in 2003. The sale of books and reference materials on topics related to our course subject
matter complements our online course offerings, supplements the learning experience of our course participants, and helps build brand recognition and loyalty among our customers. The books and reference materials we sell are not compulsory for
students taking the online course or the examination. In addition, our proprietary books help promote our expertise and reputation in the accounting field.

Our sales arrangements are evidenced by sales agreements with and purchase orders from distributors. We recognize revenues from the sale of books and reference materials when the four criteria as
discussed under Critical Accounting Policies  Revenue Recognition below are met. Prior to the fiscal year ended September 30, 2007, we sold books and reference materials to distributors on a consignment basis. Therefore,
revenues for such transactions were recognized only when the products were sold to the end customers by the distributors. Beginning in the fiscal year ended September 30, 2007, as our reputation and market position became more established, we
ceased to sell books and reference materials on a consignment basis. Instead, we sold such products to our major distributors and provided them with the right to return up to 5% of the unsold products. From time to time, we granted some major
distributors credit terms, typically for over one year. Since the later part of the fiscal year of 2008, the 5% right of return is no longer made available to the distributors. Due to the extended credit terms, revenue recognition for such sales is
deferred until cash is collected from such major distributors.

We may at times sell our proprietary books and reference
materials together with study cards. In the fiscal year ended September 30, 2009, we sold some of our books and reference materials together with study cards that can be used to enroll in particular online courses. We recognize revenues over
the subscription period during which the online courses are available to the course participants or upon expiration of the cards, provided that all of the four required criteria are met.

Others

We derive other net revenues from the provision of course production services, platform production services, magazine content production services, tax and accounting consultancy services, in-person professional training for accounting
firms, offline information technology courses, primary and secondary school supplementary courses, and business start-up training courses, and other products and services. Such sales arrangements, except for business start-up training courses, are
evidenced by individual sales agreements with customers. We generate course production revenues, platform production revenues and magazine content production revenues by charging businesses and educational institutions and others for our services in
the creation and production of customized courses, online platforms and magazine content, respectively. We normally recognize revenues from the delivery of course production services and platform production services when the produced course
materials and online platforms are accepted by the customers, respectively. With respect to the magazine content production services, we recognize revenues on a straight line basis over the service period during which we provide magazine content
production services to our clients. However, from time to time, we enter into arrangements to provide multiple services to our customers such as developing the customers online platform to enable it to sell products through our website and
charging an ongoing service fee. We apply Financial Accounting Standards Board, or FASB authoritative guidance regarding the revenue arrangements with multiple deliverables to assess the separability of the deliverables. Since there is a lack of
objective and reliable evidence of fair value of the deliverables, the whole transaction is accounted for as a single unit of accounting. Accordingly, the revenue from the transaction is recognized ratably over the term of the contract over the
support and maintenance services period. We generate in-person professional training revenue, offline information technology courses revenue, primary and secondary school supplementary courses revenue when the training is delivered to the trainees.
We generate business start-up training courses revenue after the training is delivered to the trainees, on the earlier of the date when cash is collected from the government authority and when the government authorities grant approvals for our
entitlement to the subsidy based on the evaluation of our course participants business proposals, their employment rate or business start-up rate.



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Cost of Sales

Our cost of sales consists of cost of services and cost of tangible goods sold. The following table shows our cost of sales, gross profit and
gross margin for the periods indicated.



|                               |  |                                             |  |                  |      |  |        |      |                  |   |  |        |  |                  |  
|------------------------------ |  | ------------------------------------------- |  | ---------------- | ---- |  | ------ | ---- | ---------------- | - |  | ------ |  | ---------------- | -
|                               |  | For the Year Ended September 30,            | 
|                               |  | 2007                                        |  |                  | 2008 |  |        | 2009 |                 
|                               |  | $                                           |  | % of netrevenues |      |  | $      |      | % of netrevenues |   |  | $      |  | % of netrevenues |  
|                               |  | (In thousands of $, except for percentages) | 
|Net Revenues                   |  | 11,846                                      |  | 100.0            | %    |  | 17,574 |      | 100.0            | % |  | 30,121 |  | 100.0            | %
|Cost of sales:                 |  |                                             |  |                  |      |  |        |      |                  |   |  |        |  |                  |  
|Cost of services               |  | 3,553                                       |  | 30.0             | %    |  | 5,981  |      | 34.0             | % |  | 12,834 |  | 42.6             | %
|Cost of tangible goods sold    |  | 354                                         |  | 3.0              | %    |  | 818    |      | 4.7              | % |  | 1,577  |  | 5.2              | %
|                               |  |                                             |  |                  |      |  |        |      |                  |   |  |        |  |                  |  
|Total cost of sales            |  | 3,907                                       |  | 33.0             | %    |  | 6,799  |      | 38.7             | % |  | 14,411 |  | 47.8             | %
|Gross profit and gross margin1 |  | 7,939                                       |  | 67.0             | %    |  | 10,775 |      | 61.3             | % |  | 15,710 |  | 52.2             | %



|1 | Gross profit is equal to net revenues less cost of sales. Gross margin is equal to gross profit divided by net revenues.
|- | ------------------------------------------------------------------------------------------------------------------------

Cost of Services

Cost of services accounted for 33.4%, 43.0% and 57.6% of our online education services revenues in the fiscal years ended September 30, 2007, 2008 and 2009, respectively. Salaries and related expenses for our tutors, course production
technicians and other employees involved in the delivery of our products and services constituted the largest component of our cost of services. Fees paid to our course lecturers to produce our courses and provide in-person courses constituted the
second largest component of our cost of services. Other important components of our total cost of services include rental and related expenses, and server management and bandwidth leasing fees paid to third-party providers. While the absolute amount
of our cost of services continued to increase as our education services revenues grew, our cost of services as a percentage of net revenues decreased significantly in the fiscal year ended September 30, 2007 as we achieved economies of scale.
Our cost of services as a percentage of net revenues increased in the fiscal year ended September 30, 2008 compared to the fiscal year ended September 30, 2007 as we incurred significant share-based compensation expenses due to our share
options granted in the third quarter of the fiscal year ended September 30, 2008, the delayed Accounting Professional Qualification Examinations due to the May 2008 Sichuan earthquake. Our cost of services as a percentage of net revenues
increased significantly in the fiscal year ended September 30, 2009 compared to the fiscal year ended September 30, 2008 as we incurred significant share-based compensation expenses due to our share options granted in the fiscal year ended
September 30, 2008, and repricing of our share options granted in the fiscal year ended September 30, 2008 in the first quarter of the fiscal year ended September 30, 2009; expenses incurred by the newly acquired business start-up
training business, higher salaries and welfare expenses as we added more personnel engaged primarily in website and technical development and tutoring services, increased rental space to accommodate our headcount growth, and increased lecturer fees
due to our expanded course offerings.

Historically, fees paid to our lecturers to produce our courses constituted a large
portion of our cost of services because we allocated significant resources to engage high-quality lecturers for our online courses and to increase the number of lecturers for our expanded course offerings. As our portfolio of courses became more
established, our lecturer costs became lower as a percentage of net revenues. The number of lecturers actively producing online courses for us was 249, 273 and 629 in the fiscal years ended September 30, 2007, 2008 and 2009, respectively. The
increase in the number of lecturers actively producing online courses for us in the fiscal year ended September 30, 2008 compared to the fiscal year ended September 30, 2007 resulted primarily from our expanded course offerings and
acquisition of Caikaowang. The increase in the number of lecturers actively producing online courses for us in the fiscal year ended September 30, 2009 compared to the fiscal year ended September 30, 2008 resulted primarily from our
expanded course offerings. Leveraging the online medium, we are also achieving greater economies of scale as we are able to continuously increase our numbers of course participants without having to increase the number of our lecturers, which is a
distinct advantage we enjoy over traditional offline schools and educational programs that are limited by traditional teacher-student classroom ratios. As a result, our fees paid to lecturers decreased as a percentage of our net revenues in the
fiscal years ended September 30, 2008 and 2009 as compared to the fiscal year ended September 30, 2007.



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Our service-oriented approach is a critical component of our online education business
model. Accordingly, our tutors and course production technicians also play an important role in our delivery of quality services. While our lecturers primarily conduct lectures through pre-recorded audio-visual media, our tutors play a more
immediate frontline role in the provision of our course services. They answer questions from course participants by email or by telephone, usually within a 24-hour time period. Delivering this level of quality service and responsiveness requires us
to continuously increase tutor headcount to keep pace with the growth in the numbers of course enrollments, and to allocate sufficient resources to retain the top performing tutors to maintain the overall high-quality of our tutoring services. The
number of our tutors increased from 131 (including 50 part-time tutors) as of September 30, 2007, to 183 (including 98 part-time tutors) as of September 30, 2008 and to 224 (including 91 part-time tutors) as of September 30, 2009. To
ensure a high quality learning experience, we also allocate resources to retain course production technicians capable of creating high quality audio-video course materials and other interactive features of our online courses.

As the number of our course enrollments increases, server management and bandwidth leasing fees will continue to increase in absolute terms
and may fluctuate as a percentage of our cost of sales in relation to the fees we are required to pay to third-party Internet and bandwidth infrastructure providers.

Cost of Tangible Goods Sold

Book sales costs comprise the cost of
purchasing from third parties books that we re-sell, as well as fees we pay to third-party book printing companies to produce our proprietary books and reference materials and other fees related to content creation for our books and reference
materials.

Operating Expenses

Our operating expenses consist of selling expenses and general and administrative expenses.

Selling Expenses

Selling expenses accounted for 10.8% 13.9% and
22.3% of our net revenues in the fiscal years ended September 30, 2007, 2008 and 2009, respectively. Our selling expenses consist primarily of advertising and promotion expenses, salaries and related expenses of our customer service staff and
sales and marketing staff, commissions paid to online agents, freight and delivery expenses related to our books and reference materials, and other selling expenses. Our selling expenses comprised 13.9% of our net revenues in the fiscal year ended
September 30, 2008 as we incurred significant share-based compensation expenses due to our share options granted in the third quarter of the fiscal year ended September 30, 2008, and significant increase in commissions paid to online
agents due to an increase in online sales of our courses. Our selling expenses comprised 22.3% of our net revenues in the fiscal year ended September 30, 2009 as we incurred significant share-based compensation expenses due to our share options
granted in the fiscal year ended September 30, 2008, and repricing of our share options granted in the fiscal year ended September 30, 2008 in the first quarter of the fiscal year ended September 30, 2009; incurred expenses relating
to the newly acquired business start-up training business; higher salaries and welfare expenses as we added more personnel engaged primarily in customer service, and sales and marketing services; significant increase in advertising and promotional
activities to promote our business and brandnames; and significant increase in commissions paid to online agents due to an increase in the online sales of our courses.

The aggregate amount of salaries paid to our customer service staff has risen significantly as we recruited additional staff commensurate with the increase in the number of course enrollments and other
customers. In the future, as we seek to reduce our reliance on sales of our pre-paid study cards through third-party sales agents, we expect to increase the number of our customer service staff to increase the portion of sales of our products and
services conducted directly through our own customer service staff.



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General and Administrative Expenses

Our general and administrative expenses accounted for 13.8%, 22.2% and 24.7% of our net revenues in the fiscal years ended September 30,
2007, 2008 and 2009, respectively. Our general and administrative expenses consist primarily of administrative staff compensation and benefits, professional fees, rental expenses, depreciation and amortization, and other miscellaneous expenses.
Staff benefits include pension, medical insurance, unemployment insurance, work-related injury insurance and housing subsidies. Other miscellaneous expenses include travel, office, communication and entertainment expenses. Our general and
administrative expenses was 22.2% of our net revenues in the fiscal year ended September 30, 2008 as we incurred significant share-based compensation expenses due to our share options granted and restricted shares issued in the third and fourth
quarter of the fiscal year ended September 30, 2008, respectively, leased additional office space for business expansion, and incurred additional expenses associated with being a U.S. public company. Our general and administrative expenses was
24.7% of our net revenues in the fiscal year ended September 30, 2009 as we incurred significant share-based compensation expenses due to our share options granted and restricted shares issued in the fiscal year ended September 30, 2008,
our share options granted to five non-executive directors in the first quarter of the fiscal year ended September 30, 2009, and repricing of our share options granted in the fiscal year ended September 30, 2008 in the first quarter of the
fiscal year ended September 30, 2009; expenses relating to the newly acquired business start-up training business; increased headcount for business expansion; and additional expenses associated with being a U.S. public company. We expect that
in connection with the expansion of our business and costs associated with being a public company, including costs necessary to enhance our internal control, our general and administrative expenses will continue to increase as we hire additional
personnel and incur additional costs.

Share-based Compensation Expenses

We adopted our Share Incentive Plan, or the Prior Plan, on April 18, 2008. We adopted on July 2, 2008, and amended and restated on
February 16, 2009, our 2008 Performance Incentive Plan, or the New Plan. An aggregate of 11,652,556 ordinary shares have been reserved for issuance under the Prior Plan. In addition, an aggregate of 8,511,007 ordinary shares have been reserved
for issuance under the 2008 Performance Incentive Plan as of September 30, 2009. See Item 6.B. Directors, Senior Management and Employees  Compensation  Share Options, Restricted Shares and Share Incentive Plans. As
of September 30, 2008 and 2009, there are outstanding options to purchase a total of 10,631,800 ordinary shares and 10,836,708 ordinary shares, and as a result, we recorded share-based compensation expenses in the fiscal years ended
September 30, 2008 and 2009, respectively, in connection with the options granted. We reduced the exercise price of all outstanding share options under the Prior Plan from US$2.995966 per share to US$0.82 per share based on the closing price of
our ADSs on NYSE Arca on December 2, 2008. In the fiscal years ended September 30, 2008 and 2009, we also recorded share-based compensation expenses in connection with restricted shares awarded to an independent director. The amounts
of these share-based compensation expenses are set forth below:



|                                                                        |  |                                   |  |       |  |      
|----------------------------------------------------------------------- |  | --------------------------------- |  | ----- |  | -----
|                                                                        |  | For the Years Ended September 30,
|                                                                        |  | 2007                              |  | 2008  |  | 2009 
|                                                                        |  | $                                 |  | $     |  | $    
|                                                                        |  | (in thousands)                   
|                                                                        |  |                                   | 
|Share-based compensation expenses:                                      |  |                                   |  |       |  |      
|Restricted shares awarded to an independent director                    |  |                                  |  | 100   |  | 16   
|Options granted to employees, non-employees and non-executive directors |  |                                  |  | 1,379 |  | 3,904

As of
September 30, 2008 and 2009, the unamortized compensation expenses in connection with our outstanding options were $10.8 million and $9.3 million, respectively.

Taxation

We are incorporated in the Cayman Islands. Under the current law
of the Cayman Islands, we are not subject to income or capital gains tax. In addition, dividend payments are not subject to withholding tax in the Cayman Islands.

CDEL Hong Kong was incorporated in Hong Kong and does not conduct any substantive operations of its own. No provision for Hong Kong profits tax has been made as CDEL Hong Kong has no assessable profits in
Hong Kong in the fiscal years ended September 30, 2007, 2008, and 2009. In addition, no Hong Kong withholding tax will be imposed on any payments of dividends by CDEL Hong Kong to us.



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Enterprise Income Tax

The current and deferred components of the income tax (expense)/benefit appearing in our consolidated statements of operations are as
follows:



|                               |  |                           |   |  |        |   |  |        |  
|------------------------------ |  | ------------------------- | - |  | ------ | - |  | ------ | -
|                               |  | Years ended September 30, |  
|                               |  | 2007                      |   |  | 2008   |   |  | 2009   |  
|                               |  | $                         |   |  | $      |   |  | $      |  
|                               |  | (in thousands)            |  
|Current tax expense            |  | (656                      | ) |  | (1,148 | ) |  | (148   | )
|Deferred tax (expense)/benefit |  | 963                       |   |  | 622    |   |  | (1,330 | )
|                               |  |                           |   |  |        |   |  |        |  
|                               |  | 307                       |   |  | (526   | ) |  | (1,478 | )
|                               |  |                           |   |  |        |   |  |        |  

Under the current laws of the Cayman Islands, our listed company, which was incorporated in the Cayman
Islands, is not subject to taxation on its income or capital gains. However, there is a risk that we may be treated as resident in the PRC for tax purposes. See Risk Factors  General Risks Relating to Conducting Business in China 
Under Chinas New EIT Law, we may be classified as a 'resident enterprise' of China. Such classification could result in unfavorable tax consequences to us and our non-PRC shareholders.

CDEL Hong Kong has not recorded tax provision for Hong Kong profits tax as the company has not had assessable profits arising in or derived
from Hong Kong.

Our PRC entities are subject to standard income tax rate of 33% for 2007 and 25% for 2008 and 2009. However,
Champion Technology and Beijing Champion obtained tax preferential treatments as high and new technology enterprises that resulted in lower tax rates. See note 15 to our audited consolidated financial statements for additional
information. Also see Risk Factors General Risks Relating to Conducting Business in China  The discontinuation of any of the preferential tax treatments currently available to our PRC subsidiary, Champion Technology, and affiliated
entity, Beijing Champion, could materially increase our tax liabilities.

Our aggregated undistributed earnings of our
subsidiaries and affiliated entities located in the PRC that are available for distribution at September 30, 2009 are considered to be retained and indefinitely reinvested and accordingly, no provision has been made for the Chinese dividend
withholding taxes that would be payable upon the distribution of those amounts to any entity within our group that is outside the PRC.

We adopted the authoritative interpretation on accounting for uncertainty in income taxes on October 1, 2007. As of September 30, 2009, we had an unrecognized tax benefit of $0.2 million relating to transfer pricing among related
parties. The potential penalty and interest related to this unrecognized tax benefit was insignificant. See note 15 to our audited consolidated financial statements for additional information.

Business Tax and Related Surcharges

We are subject to approximately 3% business tax and related surcharges on the revenues earned from provision of online education services, which are recognized net of all business tax and related
surcharges. Our other services related revenues are subject to 3% to 5% business tax and related surcharges, which are also recognized net of all business tax and related surcharges. Such business tax and related surcharges net against revenues for
the years ended September 30, 2007, 2008 and 2009 are approximately $0.4 million, $0.6 million and $1.0 million, respectively. In addition, we are subject to 5% business tax on service fee received by Champion Technology and Champion Education
Technology from Beijing Champion, which tax and surcharges are included in the cost of services.

Value Added Tax

In accordance with the relevant tax laws in the PRC, value-added tax, or VAT, is calculated based on the sales value
of books and reference materials and is payable by the purchaser. Revenues are recognized net of all VAT imposed by governmental authorities and collected from customers concurrent with revenue-producing transactions. VAT related to our books and
reference materials sales amounted to approximately $0.2 million, $0.3 million and $0.4 million for the fiscal years ended September 30, 2007, 2008 and 2009, respectively. We are required to remit the VAT we collected to the tax authority, but
may deduct the VAT we have paid on eligible purchases. To the extent that we paid more VAT than collected, the difference represents the net VAT recoverable balance at the balance sheet date. As of September 30, 2007, 2008 and 2009, there was
no such VAT recoverable balance in our consolidated financial statements.



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Critical Accounting Policies

We prepare our consolidated financial statements in conformity with U.S. GAAP, which requires us to make judgments, estimates and assumptions
that affect the reported amounts of our assets and liabilities, disclosure of contingent assets and liabilities on the date of each set of consolidated financial statements and the reported amounts of revenues and expenses during each financial
reporting period. We continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and various other assumptions that we believe to be reasonable under the circumstances. Since
the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates as a result of changes in our estimates or changes in the facts or circumstances underlying our estimates and
assumptions.

An accounting policy is considered to be critical if it requires an accounting estimate to be made based on
assumptions about matters that are highly uncertain at the time such estimate is made, and if different accounting estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur
periodically, could materially impact the consolidated financial statements. Some of our accounting policies require higher degrees of judgment than others in their application. We consider the policies discussed below to be critical to an
understanding of our consolidated financial statements as their application places the most significant demands on our judgment. When reviewing our consolidated financial statements, you should take into account:



| |  |  | our critical accounting policies discussed below;
| | - |  | -------------------------------------------------



| |  |  | the related judgments made by us and other uncertainties affecting the application of these policies;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | the sensitivity of our reported results to changes in prevailing facts and circumstances and our related estimates and assumptions; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the risks and uncertainties described under Item 3.D. Key Information  Risk Factors.
| | - |  | ---------------------------------------------------------------------------------------

See Note 2 to our audited consolidated financial statements included in this annual report for additional information regarding our
significant accounting policies.

Revenue Recognition

We recognize revenues from our services and sales of products when the following four criteria are met: (i) persuasive evidence of an
arrangement exists, (ii) the service has been rendered, (iii) the fees are fixed or determinable, and (iv) collectability is reasonably assured.

Online education services. Most of our revenues are earned through providing online education services to course participants. We have been providing online education services to our course
participants pursuant to two types of revenue models  a non-refundable course model and a refundable course model.

For
online courses with exams using the non-refundable course model, we recognize revenues on a straight line basis over the subscription period from the date on which the course participants enroll in the courses to the completion date of the relevant
exam when we close access to the relevant online course materials. With respect to courses without exams using the non-refundable course model, we recognize revenues on a straight line basis over the subscription period during which the courses are
delivered to the participants. Course participants can enroll in non-refundable courses via purchases of pre-paid study cards from our distributors. We sell to our distributors pre-paid study cards at a discount to the face value of the cards.
Therefore, deferred revenue is recorded using the after-discount selling price of the cards upon the sale of the cards to distributors. The deferred revenue is recognized as revenues over the period the online course is available to course
participants from the course participants enrollment date through the completion date of the relevant exam.

For online
courses using the refundable course model, the proceeds from the refundable course model are initially recorded as refundable fees, and thereafter we recognize revenues upon the expiration of the course participants right to receive a refund
or the right to retake the course. For our elite classes, if course participants do not pass the exam and certain pre-agreed conditions are met, they have a choice to receive a full refund of course fees or to take the course over again. If course
participants elect to take the course over again, the revenues would continue to be deferred. If course participants elect to take the refund, the related deferred revenue would then be reversed.



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We may at times offer volume discounts to our distributors for purchases over a specified
amount of pre-paid study cards over a specified period of time, generally one year. These discounts are provided to the distributors in the form of study cards with certain credit values. The amount of future rebates relating to these volume
discounts cannot be reasonably estimated, and accordingly, a deferred revenue balance is recorded for the maximum potential amount of volume discount. If the amount of purchases specified in the volume discount provisions were not reached upon the
expiry of the volume discount period, the deferred revenue relating to such volume discount is recognized as revenues over the remaining period during which the online courses are still available to the enrolled course participants. If the amount of
purchases specified in the volume discount provisions were reached, the proceeds allocated to the study cards that are provided to the distributors as volume discount and activated by enrolled course participants are recognized as revenues over the
coming period during which the online courses are available to the course participants. Proceeds allocated to the study cards that have never been activated for course enrollment are recognized as revenues upon expiration of the cards.

Books and reference materials. In the fiscal year of 2007, we sold books and reference materials to our major distributors and
provided them with the right to return up to 5% of the unsold products. In addition, from time to time, we granted our major distributors extended credit terms, typically over one year. Although we have not granted concessions under the extended
payment terms, we do not have enough history to demonstrate that we will not give concessions in the future. Therefore, revenues relating to books and reference materials sales are deferred until cash is collected from the distributors. In the
fiscal years of 2008 and 2009, we did not sign any contracts with our distributors containing the 5% return rights.

We also
sell our proprietary books and reference materials together with study cards that can be used to enroll in certain specified online courses. We have considered whether we have adequate evidence that would allow us to bifurcate the revenues
attributable to the study cards from the revenues attributable to books and reference materials. However, due to the significant variability in prices charged for on-line courses, we do not have sufficient evidence of fair value of the study cards.
Therefore, the revenues relating to such arrangement are recognized as a combined unit of accounting over the subscription period the online course is available to course participants or upon expiration of the study cards.

Others.We derive other net revenues from the provision of course production services, platform production services, magazine content
production services, tax and accounting consultancy services, in-person professional training for accounting firms, offline information technology courses, primary and secondary school supplementary courses, business start-up training courses, and
other products and services.

We recognize revenues from classroom training when the training courses are provided. For
classroom training sponsored by government authorities such as business start-up training courses, the tuition fees of the training participants are subsidized by the government. Fees to be earned are subject to the approval of government
authorities based on the evaluation of our course participants business proposals, their employment rate or business start-up rate. Therefore, revenues from such services are recognized upon cash receipt or the receipt of confirmations from
government authorities, whichever is earlier.

We recognize revenues from the delivery of course production services and
platform production services when the produced course materials and online platforms are accepted by the customers. With respect to the magazine content production services, we charge annual fees from our customers and recognize them as revenues on
a straight line basis over the service period.

We also enter into arrangements to provide multiple services to our customers
such as development of an online platform to enable our customers to sell products through our website and ongoing support and maintenance services. Since we do not have sufficient evidence of fair value of the support and maintenance services, the
entire arrangement is accounted for as a single unit of accounting. Accordingly, revenues from such transactions are recognized ratably over the support and maintenance services period.

Long-Lived Assets  Property, Plant and Equipment and Intangible Assets

Judgment is required to determine the estimated useful lives of our long-lived assets. Changes in these estimates and assumptions could
materially impact our financial position and results of operations.

We evaluate our long-lived assets or asset group
including intangibles with finite lives for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying amount of a group
of long-lived assets may not be fully recoverable. When these events occur, we evaluate the impairment by comparing the carrying amount of the assets to future undiscounted net cash flows expected to result from the use of the assets and their
eventual disposition. If the sum of the expected undiscounted cash flows is less than the carrying amount of the assets, we recognize an impairment loss based on the excess of the carrying amount of the asset group over its fair value, generally
based upon discounted cash flows. There was no such impairment charge for the periods presented. If different judgments or estimates had been utilized, material differences could have resulted in the amount and timing of any impairment charge and
the related depreciation and amortization charges.



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Income taxes

We follow the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on
the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The tax base of an asset or liability is the amount
attributed to that asset or liability for tax purposes. The effect on deferred taxes of a change in tax rates is recognized in our income statement in the period that includes the enactment date. We consider current tax laws and our interpretation
of them when we make our judgments, assumptions and estimates relative to current provision for income tax. We also assess a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more likely than-not
that some portion, or all, of the deferred tax assets will not be realized. Such evidence includes our estimates of future taxable income and tax planning strategies. Changes in relevant tax laws, and our judgments, assumptions and estimates
relative to current provision for income tax could have resulted in material differences in the amount of income taxes provided in our consolidated financial statements.

Effective October 1, 2007, we adopted the recognition and measurement methods under the authoritative interpretation regarding the accounting and disclosure for uncertainty in tax positions. The
guidance requires that we recognize the impact of a tax position in the financial statements if that position is more likely than not of being sustained upon audit by the tax authority, based on the technical merits of the position. The amount
recognized is measured as the largest amount of benefit that is more likely than not of being realized upon ultimate settlement. Based on this assessment, as of September 30, 2008 and 2009, respectively, we have recognized an approximately $0.3
million and $0.2 million accrual for unrecognized tax benefits which is included in the account of accrued expenses and other liabilities and reflected as non-deductible expenses in the tax reconciliation. The final outcome of the tax
uncertainty is dependent upon various matters including tax examinations, interpretation of tax laws or expiration of statutes of limitation. We recognize, if any, interest related to unrecognized tax benefit in interest expense and penalties in
other expenses. Changes in relevant tax laws, and our judgments, assumptions and estimates relative to current provision for income tax could have resulted in material differences in the amount of income taxes provided in our consolidated financial
statements.

Uncertainties exist with respect to how PRCs New EIT Law applies to our overall operations, and more
specifically, with regard to our tax residency status. The New EIT Law includes a provision specifying that legal entities organized outside of the PRC will be considered residents for PRC income tax purposes if their place of effective management
or control is within the PRC. The implementation rules to the New EIT Law provide that non-resident legal entities will be considered PRC residents if substantial and overall management and control over the manufacturing and business operations,
personnel, accounting, properties, among others, occur within the PRC. Despite the present uncertainties resulting from the limited PRC tax guidance on the issue, we do not believe that our legal entities organized outside of the PRC should be
treated as residents for the Enterprise Income Tax Laws purposes. If one or more of our legal entities organized outside of the PRC were characterized as PRC tax residents, the impact would adversely affect our results of operation. See
Item 3.D. Key Information  Risk Factors  General Risks Relating to Conducting Business in China Under Chinas New EIT Law, we may be classified as a resident enterprise of China. Such classification could
result in unfavorable tax consequences to us and our non-PRC shareholders.

Inventory Obsolescence

We evaluate our inventory for impairment on a quarterly or more frequent basis whenever events or changes in
circumstances  such as the levels of inventory versus customer requirements and obsolescence, the product life cycle status, and the aging analysis of the inventory  indicate that the carrying amount of inventories may not be fully
recoverable. The evaluation also involves consideration of the market prices of inventories. At each balance sheet date, we identify inventories that are worth less than cost and write them down to lower of cost or market prices and the difference
is expensed to our cost of sales for that period. Although we consider such write-down of inventories to be adequate and proper, different judgments or estimates could have resulted material differences in the amount and timing of any write-downs
and the related amount expensed to our cost of sales.

Accounting for Series A Preferred Shares

In March 2007, CDEL Hong Kong issued 12,996,000 Series A convertible redeemable preferred shares, or preferred shares, at a per share price
of $0.615553 to three investors, Orchid Asia III, L.P., Orchid Asia Co-Investment Limited and Artson Limited, for net proceeds of $7.9 million.

We classified the preferred shares as mezzanine equity as these preferred shares can be redeemed at the option of the holders on or after an agreed upon date.



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The holders of the preferred shares have the ability to convert the instrument into our
ordinary shares starting from the initial issuance date. To determine whether there was a beneficial conversion feature, with the assistance of American Appraisal China Limited, or American Appraisal, an independent valuation firm, we conducted a
retroactive valuation to determine the fair value of our ordinary shares at the issuance date of the preferred shares. We applied an equal weight for both the market approach and the income approach to arrive at the fair value for our equity value.
We concluded that the fair value of our ordinary shares was $0.612455 per share as of March 9, 2007, which was greater than the operable conversion price of preferred shares and the excess is greater than the proceeds received from the issuance
of preferred shares. Accordingly, the total proceeds were allocated to the beneficial conversion feature with a credit to additional paid-in capital upon the issuance of the preferred shares. All of the unamortized discounts remaining at the date of
conversion was immediately recognized as a reduction to net income attributable to ordinary shareholders.

Further, an
accretion charge to increase the preferred shares carrying value to their expected redemption amount over the period from issuance to earliest redemption date was recorded as a reduction to net income available to ordinary shareholders using
the effective yield method.

Upon the consummation of our initial public offering, all of the preferred shares were
automatically converted to 14,963,594 ordinary shares on July 29, 2008.

Share-based Compensation Expenses

In the fiscal year ended September 30, 2008 we granted to our employees and non-employees share-based compensation awards
subject to graded vesting under the Prior Plan. In the fiscal year ended September 30, 2009, we granted to our non-executive directors share-based compensation awards subject to graded vesting under the New Plan. In addition, we reduced the
exercise price of all outstanding share options under the Prior Plan from US$2.995966 per share to US$0.82 per share based on the closing price of our ADSs on NYSE Arca on December 2, 2008.

Share-based payment transactions with employees and non-executive directors are measured based on the grant-date fair value of the equity
instrument issued and recognized as compensation expense over the requisite service period, with a corresponding addition to paid-in capital. We recognize compensation expense over the vesting term on a straight-line basis with the amount of
compensation expense recognized at any date not less than the portion of the grant-date value of the option vested at that date.

Share-based payment transactions with non-employees are measured based on the fair value at the earlier of the commitment date or the date at which the non-employees performance is complete. For the grants in the fiscal year of 2008,
we determined the measurement date to be the performance commitment date pursuant to the employment supplemental agreements entered with the non-employees, in which the penalty for nonperformance was stipulated and represented a sufficiently large
disincentive for nonperformance. We recognize compensation expense using the graded vesting attribution method.

In addition,
the total incremental compensation expense resulting from the modifications of the exercise price of all outstanding share options under the Prior Plan is recognized over the remaining requisite service period for such employees and non-employees,
respectively.

We estimated the fair value of each option award granted to employees and non-employees using the Black-Scholes
Option Pricing Model with assistance from American Appraisal. The volatility assumption was estimated based on the price volatility of the shares of seven education companies that are publicly traded on securities markets in the United States and
selected by us as guideline companies because we did not have sufficient historical data to calculate expected volatility of the price of the underlying ordinary shares over the expected term of the options. The expected term was estimated based on
the vesting, contractual terms and our expectation of exercise behavior of the option grantees. The risk-free rate was based on the market yield of China Sovereign Bonds denominated in US$ with maturity terms equal to the expected term of the option
awards. Before we became a public company in July 2008, we estimated the fair value of our ordinary shares with the assistance of America Appraisal based on a number of factors, including our equity transactions. After we became a public company,
the closing market price of our ordinary shares on the grant date or measurement date was used as the fair value of our ordinary shares on that date.

We estimated forfeitures at the time of grant based on our historical experiences and record share-based compensation expenses only for those awards that are expected to vest. If actual forfeitures differ
from these estimates, we may need to revise those estimates used in subsequent periods.



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Goodwill

The excess of the purchase price over the fair value of net assets acquired is recorded on the consolidated balance sheet as goodwill.
Goodwill is not amortized but is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired. We perform our annual goodwill impairment test on September 30 of each fiscal year for
both of our reporting units: online education services and classroom education services. Goodwill is tested following a two-step process. The first step compares the fair value of each reporting unit to its carrying amount, including goodwill. If
the fair value of each reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and the second step will not be required. If the carrying amount of a reporting unit exceeds its fair value, the second step compares the
implied fair value of goodwill to the carrying value of a reporting units goodwill. The implied fair value of goodwill is determined in a manner similar to accounting for a business combination with the allocation of the assessed fair value
determined in the first step to the assets and liabilities of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to the assets and liabilities is the implied fair value of goodwill. An impairment loss is
recognized for any excess in the carrying value of goodwill over the implied fair value of goodwill. We did not recognize any impairment loss on goodwill for the years ended September 30, 2007 and 2008. As of September 30, 2009, the
estimated fair value substantially exceeded the carrying value for both reporting units, therefore, no impairment loss on goodwill was recognized for the year ended September 30, 2009.

Recent Accounting Pronouncements

In December 2007, the FASB issued an authoritative pronouncement regarding business combination. The new pronouncement replaces existing pronouncement to require the acquiring entity in a business
combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction; to establish the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and to require the
acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination. The new pronouncement applies prospectively to business combinations with
acquisition dates on or after the beginning of the first annual reporting period on or after December 15, 2008. Early application is prohibited. We do not expect the adoption of this pronouncement will have a significant effect on our
consolidated financial position or results of operations.

In December 2007, the FASB issued an authoritative pronouncement
regarding non-controlling interests in consolidated financial statements to improve the relevance, comparability, and transparency of financial information provided to investors by requiring all entities to report non-controlling (minority)
interests in subsidiaries in the same way as required in the consolidated financial statements. Moreover, the new pronouncement eliminates the diversity that currently exists in accounting for transactions between an entity and non-controlling
interests by requiring they be treated as equity transaction. The new pronouncement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Early application is prohibited. We will
adopt this standard in the fiscal year 2010, which will require retrospective application of the presentation and disclosure requirements of this standard for all of our minority interest.

In April 2008, the FASB issued an authoritative pronouncement regarding the determination of the useful life of intangible assets. The new
pronouncement amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under existing pronouncement. The new pronouncement is effective for fiscal
years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The guidance for determining the useful life of a recognized intangible asset in the new pronouncement shall be applied
prospectively to intangible assets acquired after the effective date. We do not expect the adoption of this pronouncement will have a significant effect on our consolidated financial position or results of operations.

In April 2009, the FASB issued an authoritative pronouncement regarding accounting for assets acquired and liabilities assumed in a business
combination that arise from contingencies. This new pronouncement amends and clarifies existing pronouncement to address application issues on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and
liabilities arising from contingencies in a business combination. The new pronouncement shall be effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is on or after the beginning of
the first annual reporting period beginning on or after December 15, 2008. We do not expect that the adoption of this pronouncement will have a significant effect on our consolidated financial position or results of operations.

In June 2009, the FASB issued an authoritative pronouncement, which changes how a company determines whether an entity should be
consolidated when such entity is insufficiently capitalized or is not controlled by the company through voting (or similar rights). The determination of whether a company is required to consolidate an entity is based on, among other things, the
entitys purpose and design and the companys ability to direct the activities of the entity that most significantly impact the entitys economic performance. The pronouncement is effective as of the beginning of an entitys
first fiscal year that begins after November 15, 2009. We do not expect that the adoption of this pronouncement will have a significant effect on our consolidated financial position or results of operations.



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In September 2009, the FASB issued an authoritative pronouncement regarding the revenue
arrangements with multiple deliverables. Although the new pronouncement retains the criteria from existing authoritative literature for when delivered items in a multiple-deliverable arrangement should be considered separate units of accounting, it
removes the previous separation criterion that objective and reliable evidence of the fair value of any undelivered items must exist for the delivered items to be considered separate units of accounting. The new pronouncement is effective for fiscal
years beginning on or after June 15, 2010. Entities can elect to apply this pronouncement (1) prospectively to new or materially modified arrangements after the pronouncements effective date or (2) retrospectively for all
periods presented. Early application is permitted; however, if the entity elects prospective application and early adopts this pronouncement after its first interim reporting period, it must also do the following in the period of adoption:
(1) retrospectively apply this pronouncement as of the beginning of that fiscal year and (2) disclose the effect of the retrospective adjustments on the prior interim periods revenue, income before taxes, net income, and earnings per
share. We are in the process of evaluating the effect of adoption of this pronouncement.

In September 2009, the FASB issued
an authoritative pronouncement regarding software revenue recognition. This new pronouncement amends existing pronouncement to exclude from their scope all tangible products containing both software and nonsoftware components that function together
to deliver the products essential functionality. That is, the entire product (including the software deliverables and nonsoftware deliverables) would be outside the scope of software revenue recognition and would be accounted for under other
accounting literature. The new pronouncement include factors that entities should consider when determining whether the software and nonsoftware components function together to deliver the products essential functionality and are thus outside
the revised scope of the authoritative literature that governs software revenue recognition. The pronouncement is effective for fiscal years beginning on or after June 15, 2010. Entities can elect to apply this pronouncement
(1) prospectively to new or materially modified arrangements after the pronouncements effective date or (2) retrospectively for all periods presented. Early application is permitted; however, if the entity elects prospective
application and early adopts this pronouncement after its first interim reporting period, it must also do the following in the period of adoption: (1) retrospectively apply this pronouncement as of the beginning of that fiscal year and
(2) disclose the effect of the retrospective adjustments on the prior interim periods revenue, income before taxes, net income, and earnings per share. We are in the process of evaluating the effect of adoption of this pronouncement.

In January 2010, the FASB issued an authoritative pronouncement on accounting for distributions to shareholders with
components of stock and cash. The objective of this new guidance is to clarify that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that
all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected prospectively in earnings per share and is not considered a stock dividend for purposes of accounting treatment of equity and earnings per share.
This new guidance is effective for interim and annual periods ending on or after December 15, 2009, and should be applied on a retrospective basis. We do not expect the adoption of this pronouncement will have a significant effect on our
consolidated financial position or results of operations.

In January 2010, the FASB issued authoritative guidance to improve
disclosures about fair value measurements. This guidance amends previous guidance on fair value measurements to add new requirements for disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales,
issuances, and settlements relating to Level 3 measurement on a gross basis rather than as a net basis as currently required. This guidance also clarifies existing fair value disclosures about the level of disaggregation and about inputs and
valuation techniques used to measure fair value. This guidance is effective for annual and interim periods beginning after December 15, 2009, except for the requirement to provide the level 3 activities of purchases, sales, issuances, and
settlements on a gross basis, which will be effective for annual and interim periods beginning after December 15, 2010. Early application is permitted and in the period of initial adoption, entities are not required to provide the amended
disclosures for any previous periods presented for comparative purposes. We do not expect the adoption of this pronouncement will have a significant effect on our consolidated financial position or results of operations.



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Results of Operations

The following table sets forth a summary, for the periods indicated, of our consolidated results of operations and each item expressed as a
percentage of our total net revenues. Our historical results presented below are not necessarily indicative of the results that may be expected for any future period.



|                                        |  |                                        |   |  |                  |    |  |        |   |  |                  |    |  |         |   |  |                  |   
|--------------------------------------- |  | -------------------------------------- | - |  | ---------------- | -- |  | ------ | - |  | ---------------- | -- |  | ------- | - |  | ---------------- | --
|                                        |  | For the Year Ended September 30,       |  
|                                        |  | 2007                                   |   |  | 2008             |    |  | 2009   |  
|                                        |  | $                                      |   |  | % of netrevenues |    |  | $      |   |  | % of netrevenues |    |  | $       |   |  | % of netrevenues |   
|                                        |  | (In thousands, except for percentages) |  
|Net Revenues                            |  |                                        |   |  |                  |    |  |        |   |  |                  |    |  |         |   |  |                  |   
|Online education services               |  | 10,637                                 |   |  | 89.8             | %  |  | 13,900 |   |  | 79.1             | %  |  | 22,279  |   |  | 74.0             | % 
|Books and reference materials           |  | 484                                    |   |  | 4.1              | %  |  | 1,616  |   |  | 9.2              | %  |  | 2,709   |   |  | 9.0              | % 
|Others                                  |  | 725                                    |   |  | 6.1              | %  |  | 2,058  |   |  | 11.7             | %  |  | 5,133   |   |  | 17.0             | % 
|                                        |  |                                        |   |  |                  |    |  |        |   |  |                  |    |  |         |   |  |                  |   
|Total net revenues                      |  | 11,846                                 |   |  | 100.0            | %  |  | 17,574 |   |  | 100.0            | %  |  | 30,121  |   |  | 100.0            | % 
|Cost of sales:                          |  |                                        |   |  |                  |    |  |        |   |  |                  |    |  |         |   |  |                  |   
|Cost of services                        |  | (3,553                                 | ) |  | (30.0            | )% |  | (5,981 | ) |  | (34.0            | )% |  | (12,834 | ) |  | (42.6            | )%
|Cost of tangible goods sold             |  | (354                                   | ) |  | (3.0             | )% |  | (818   | ) |  | (4.7             | )% |  | (1,577  | ) |  | (5.2             | )%
|                                        |  |                                        |   |  |                  |    |  |        |   |  |                  |    |  |         |   |  |                  |   
|Total cost of sales                     |  | (3,907                                 | ) |  | (33.0            | )% |  | (6,799 | ) |  | (38.7            | )% |  | (14,411 | ) |  | (47.8            | )%
|                                        |  |                                        |   |  |                  |    |  |        |   |  |                  |    |  |         |   |  |                  |   
|Gross profit                            |  | 7,939                                  |   |  | 67.0             | %  |  | 10,775 |   |  | 61.3             | %  |  | 15,710  |   |  | 52.2             | % 
|Operating expenses:                     |  |                                        |   |  |                  |    |  |        |   |  |                  |    |  |         |   |  |                  |   
|Selling expenses                        |  | (1,285                                 | ) |  | (10.8            | )% |  | (2,448 | ) |  | (13.9            | )% |  | (6,722  | ) |  | (22.3            | )%
|General and administrative expenses     |  | (1,638                                 | ) |  | (13.8            | )% |  | (3,906 | ) |  | (22.1            | )% |  | (7,432  | ) |  | (24.7            | )%
|                                        |  |                                        |   |  |                  |    |  |        |   |  |                  |    |  |         |   |  |                  |   
|Total operating expenses                |  | (2,923                                 | ) |  | (24.6            | )% |  | (6,354 | ) |  | (36.2            | )% |  | (14,154 | ) |  | (47.0            | )%
|Other operating income                  |  | 131                                    |   |  | 1.1              | %  |  | 209    |   |  | 1.2              | %  |  | 292     |   |  | 0.9              | % 
|Other expense                           |  |                                       |   |  |                 | %  |  | (144   | ) |  | (0.8             | )% |  |        |   |  |                 | % 
|                                        |  |                                        |   |  |                  |    |  |        |   |  |                  |    |  |         |   |  |                  |   
|Operating income                        |  | 5,147                                  |   |  | 43.5             | %  |  | 4,486  |   |  | 25.5             | %  |  | 1,848   |   |  | 6.1              | % 
|Interest (expense) income, net          |  | (5                                     | ) |  | (0.1             | )% |  | 176    |   |  | 1.0              | %  |  | 742     |   |  | 2.5              | % 
|Exchange loss                           |  |                                       |   |  |                 | %  |  | (75    | ) |  | (0.4             | )% |  | (6      | ) |  | (0.0             | )%
|Equity in loss of an affiliated company |  |                                       |   |  |                 | %  |  | (64    | ) |  | (0.4             | )% |  |        |   |  |                 | % 
|                                        |  |                                        |   |  |                  |    |  |        |   |  |                  |    |  |         |   |  |                  |   
|Income before income taxes              |  | 5,142                                  |   |  | 43.4             | %  |  | 4,523  |   |  | 25.7             | %  |  | 2,584   |   |  | 8.6              | % 
|Income tax (expenses) benefit           |  | 307                                    |   |  | 2.6              | %  |  | (526   | ) |  | (3.0             | )% |  | (1,478  | ) |  | (4.9             | )%
|Minority interest, net of taxes         |  |                                       |   |  |                 | %  |  |       |   |  |                 | %  |  | 82      |   |  | 0.2              | % 
|                                        |  |                                        |   |  |                  |    |  |        |   |  |                  |    |  |         |   |  |                  |   
|Net income                              |  | 5,449                                  |   |  | 46.0             | %  |  | 3,997  |   |  | 22.7             | %  |  | 1,188   |   |  | 3.9              | % 
|                                        |  |                                        |   |  |                  |    |  |        |   |  |                  |    |  |         |   |  |                  |   

Fiscal Year Ended September 30, 2009 Compared to Fiscal Year Ended September 30, 2008

Net Revenues

Our total net revenues increased by 71.4% to $30.1 million in the fiscal year ended September 30, 2009 from $17.6 million in the fiscal year ended September 30, 2008, as a result of significant
growth in sales of our online education services, books and reference materials, and other products and services.



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Online education services. Net revenues from our online education services increased
by 60.3% to $22.3 million in the fiscal year ended September 30, 2009 from $13.9 million in the fiscal year ended September 30, 2008. This increase was primarily due to overall growth in the total number of our online course enrollments to
over 1,071,000 in the fiscal year ended September 30, 2009 from over 743,000 in the fiscal year ended September 30, 2008. Our accounting courses continued to account for the majority of our course enrollments with a total enrollment of
775,000 in the fiscal year ended September 30, 2009 while enrollments in our test preparation courses for self-taught learners and our healthcare and construction engineering courses, and enrollments in our exclusive training courses for
information technology contests held by the Ministry of Education, also increased. Of this revenue increase, approximately $0.9 million was revenue recognized in the first quarter of the fiscal year ended September 30, 2009 but in fact
generated from our elite classes for certain Accounting Professional Qualification Examinations rescheduled to the fourth quarter of the fiscal year ended September 30, 2008 from an earlier date in 2008 due to the May 2008 Sichuan earthquake.
In addition, approximately $1.1 million, $2.2 million, $2.3 million and $4.7 million were generated from our exclusive training courses for information technology contests, accounting continuing education courses, healthcare courses, and regular and
premium classes for CPA Qualification Examination, respectively. Our revenue growth rate in the fiscal year ended September 30, 2009 was partially impacted by the promotional discount we offered to celebrate our initial public offering in the
United States. During the period from August 2008 to September 2008, we offered a promotional 50% IPO Discount to all participants who purchased online courses, except for those enrolling in elite classes. This promotion resulted in some of our
course participants enrolling earlier than they would have if we had not offered such IPO Discount. A substantial number of course participants who intended to take course in the fiscal year ended September 30, 2009, actually enrolled in the
fourth quarter of the fiscal year ended September 30, 2008. For example, our CPA Qualification Examination course enrollments decreased from approximately 160,000 for the fiscal year ended September 30, 2008 to approximately 131,000 for
the fiscal year ended September 30, 2009. In addition, in October and November 2008, we further extended the period of the IPO Discount for certain online course subjects to February 2009, resulting in a decrease in the average selling price
and the resulting net revenue decrease in the fiscal year ended September 30, 2009.

Books and reference
materials. Net revenues from our sales of books and reference materials increased by 67.6% to $2.7 million in the fiscal year ended September 30, 2009 from $1.6 million in the fiscal year ended September 30, 2008. The increase in our
books and reference materials revenues was due primarily to an overall increase in the volume of our sales of books and reference materials. In the fiscal year ended September 30, 2007, we sold such books and reference materials to our major
distributors and provided them with the right to return up to 5% of the unsold products. For various business reasons, we granted some major distributors credit terms, typically for over one year. In the fiscal years ended September 30, 2008
and 2009, we did not sign any contracts with our distributors containing return rights and we granted some major distributors credit terms of less than one year. Due to the extended credit terms, revenue recognition for such sales is deferred until
cash is collected from such major distributors.

Others. Our other net revenues increased to $5.1 million in the fiscal
year ended September 30, 2009 from $2.1 million in the fiscal year ended September 30, 2008, primarily due to revenues generated from our new offline information technology courses and business start-up training courses, course production
services, platform production services, and magazine content production services. By virtue of our industry expertise, we often utilize spare capacity that we may from time to time have to undertake education-related production services such as
course production services, platform production services and magazine content production services, although we do not view this as a core component of our business or growth strategy. Other revenues also included sales of our tax and accounting
related services through our www.chinaacc.com website and, to a lesser extent, other value-added services offered through our websites.

Gross Profit

Our gross profit increased by 45.8% to $15.7 million
in the fiscal year ended September 30, 2009 from $10.8 million in the fiscal year ended September 30, 2008. Our gross margin decreased to 52.2% in the fiscal year ended September 30, 2009 from 61.3% in the fiscal year ended
September 30, 2008. The decrease in gross margin was primarily driven by the $1.9 million share-based compensation expenses we incurred in the fiscal year ended September 30, 2009 due to our share options granted in the fiscal year ended
September 30, 2008, and repricing of our share options granted in the fiscal year ended September 30, 2008 in the first quarter of the fiscal year ended September 30, 2009; an increase in our product mix of the lower margin books and
reference materials revenue; lower margin in-person training revenue from the business start-up training business; and increased lecturer fees due to our expanded course offerings.

As the number of course enrollments increased, the number of our tutors increased to 224 (including 91 part-time tutors) as of
September 30, 2009 from 183 (including 98 part-time tutors) as of September 30, 2008 to provide better service to our course participants, and our server management and bandwidth leasing fees also increased to handle larger traffic and
course lecture download volume. To ensure a high quality learning experience, we also allocate resources to retain course production technicians capable of creating high quality audio-video course materials and other interactive features of our
online courses. All of the above increased our salaries and welfare expenses and rental expenses to accommodate our headcount growth.



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Operating Expenses

Our operating expenses increased by 122.8% to $14.2 million in the fiscal year ended September 30, 2009 from $6.4 million in the fiscal
year ended September 30, 2008, primarily as a result of significant share-based compensation expenses arising from our share options granted and restricted shares issued in the fiscal year ended September 30, 2008, our share options
granted to five non-executive directors in the first quarter of the fiscal year ended September 30, 2009, repricing of our share options granted in the fiscal year ended September 30, 2008 in the first quarter of the fiscal year ended
September 30, 2009; expenses incurred by the newly acquired business start-up training business; a significant increase in advertising and promotional activities; a significant increase in commissions paid to online agents; an increase in our
general and administrative expenses relating to office rents, staff salaries; and additional expenses associated with being a U.S. public company.

Selling expenses. Our selling expenses increased by 174.6% to $6.7 million in the fiscal year ended September 30, 2009 from $2.4 million in the fiscal year ended September 30, 2008. This
increase resulted primarily from the $0.5 million share-based compensation expenses we incurred in the fiscal year ended September 30, 2009; expenses incurred by the newly acquired business start-up training business; significant increase in
advertising and promotional activities to promote our business and brandnames; and the increased commissions paid to our online agents due to an increase in online sales of our courses. The aggregate amount of salary expense attributable to our
customer service staff and sales and marketing staff also rose significantly as we added more staff to provide better service to our course participants and other customers, and to promote our business.

General and administrative expenses. Our general and administrative expenses increased by 90.3% to $7.4 million in the fiscal
year ended September 30, 2009 from $3.9 million in the fiscal year ended September 30, 2008. This increase resulted primarily from the $1.6 million share-based compensation expenses we incurred in the fiscal year ended September 30,
2009; expenses incurred by the newly acquired business start-up training business; increased headcount and salaries for business expansion, and additional expenses associated with being a U.S. public company, which increased our overall expenses.
Our administrative staff salaries and related expenses increased to $2.2 million. Our professional fees increased to $1.3 million. Most of our other components of general and administrative expenses also increased due to us becoming a U.S. public
company in July 2008.

Other Operating Income

In the fiscal year ended September 30, 2009, we had other operating income of $0.3 million, which was a one time subsidy of listing
expenses we received from the Management Committee of Zhongguancun Technology Park. In the fiscal year ended September 30, 2008, we had other operating income of $0.2 million which was a one-time small and medium enterprise development fund
grant we received from a local government authority.

Income taxes

Income tax expense for the fiscal year ended September 30, 2009 was $1.5 million, compared with an income tax expense of $0.5 million in
the fiscal year ended September 30, 2008.

Net Income

As a result of the above factors, our net income decreased to $1.2 million in the fiscal year ended September 30, 2009 from $4.0 million
in the fiscal year ended September 30, 2008.

Fiscal Year Ended September 30, 2008 Compared to Fiscal Year Ended
September 30, 2007

Net Revenues

Our total net revenues increased by 48.4% to $17.6 million in the fiscal year ended September 30, 2008 from $11.8 million in the fiscal
year ended September 30, 2007, as a result of significant growth in sales of our online education services, books and reference materials, and other products and services.



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Online education services. Net revenues from our online education services increased
by 30.7% to $13.9 million in the fiscal year ended September 30, 2008 from $10.6 million in the fiscal year ended September 30, 2007. This increase was primarily due to overall growth in the total number of our course enrollments to over
743,000 in the fiscal year ended September 30, 2008 from over 504,000 in the fiscal year ended September 30, 2007. Our accounting courses continued to account for the majority of our course enrollments at 581,000 in the fiscal year ended
September 30, 2008 while enrollments in our test preparation courses for self-taught learners and our healthcare courses, and enrollments in our exclusive training courses for information technology contests held by the Ministry of Education,
also increased. In particular, this increase was primarily due to approximately $0.7 million, $0.9 million and $1.4 million of revenues generated from our new CPA Qualification Examination elite classes, accounting continuing education courses, and
healthcare courses, respectively. Our revenue growth rate in the fiscal year ended September 30, 2008 was partially impacted by rescheduled Accounting Professional Qualification Examinations caused by the May 2008 Sichuan earthquake. In
addition, our Accounting Professional Qualification Examination course enrollments decreased from approximately 209,000 for the fiscal year ended September 30, 2007 to approximately 197,000 for the fiscal year ended September 30, 2008.
This decrease occurred primarily because we experienced a significant increase in enrollments in these accounting courses during the fiscal year ended September 30, 2007 due to the fact that the relevant accounting exams covered by these
courses at the time were undergoing changes in content and requirements, and many exam takers determined that enrolling in our online courses was important to their exam preparation efforts. In the subsequent period, as exam takers became more
familiar with and less concerned about the new exam content and requirements, many exam takers opted not to take our courses, which resulted in a decrease in enrollments in these courses.

Books and reference materials. Net revenues from our sales of books and reference materials increased by 233.9% to $1.6 million in
the fiscal year ended September 30, 2008 from $0.5 million in the fiscal year ended September 30, 2007. The increase in our books and reference materials revenues was due primarily to an overall increase in the volume of our sales of books
and reference materials. In the fiscal year ended September 30, 2007, we sold such books and reference materials to our major distributors and provided them with the right to return up to 5% of the unsold products. For various business reasons,
we granted some major distributors credit terms, typically for over one year. In the fiscal year ended September 30, 2008, we did not sign any contracts with our distributors containing return rights and we granted some major distributors
credit terms of less than one year. Due to the extended credit terms, revenue recognition for such sales is deferred until cash is collected from such major distributors.

Others. Our other net revenues increased to $2.1 million in the fiscal year ended September 30, 2008 from $0.7 million in the fiscal year ended September 30, 2007, primarily due to
revenues generated from our in-person professional training for accounting firms, course production services and platform production services. By virtue of our industry expertise, we often utilize spare capacity that we may from time to time have to
undertake such education-related production services, although we do not view this as a core component of our business or growth strategy. Other revenues also included sales of our tax and accounting related services through our
www.chinaacc.com website and, to a lesser extent, other value-added services offered through our websites.

Gross
Profit

Our gross profit increased by 35.7% to $10.8 million in the fiscal year ended September 30, 2008 from $7.9
million in the fiscal year ended September 30, 2007. Our gross margin decreased to 61.3% in the fiscal year ended September 30, 2008 from 67.0% in the fiscal year ended September 30, 2007. The decrease in gross margin was primarily
driven by the $0.7 million share-based compensation expenses we incurred in the fiscal year ended September 30, 2008 arising from our share options granted in the third quarter of fiscal 2008, the delayed Accounting Professional Qualification
Examinations caused by the May 2008 Sichuan earthquake, and an increase in our product mix of the lower margin books and reference materials revenue and lower margin in-person training revenue from the accounting firms.

As the number of course enrollments increased, the number of our tutors increased to 183 (including 98 part-time tutors) as of
September 30, 2008 from 131 (including 50 part-time tutors) as of September 30, 2007 to provide better service to our course participants, and our server management and bandwidth leasing fees also increased to handle larger traffic and
course lecture download volume. We also experienced an increase in the number of tutors partially due to our acquisition of Caikaowang in the fiscal year ended September 30, 2008. To ensure a high quality learning experience, we also allocate
resources to retain course production technicians capable of creating high quality audio-video course materials and other interactive features of our online courses.



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Operating Expenses

Our operating expenses increased by 117.4% to $6.4 million in the fiscal year ended September 30, 2008 from $2.9 million in the fiscal
year ended September 30, 2007, primarily as a result of significant share-based compensation expenses arising from our share options granted and restricted shares issued in the third and fourth quarter of the fiscal year ended
September 30, 2008, respectively, the significant increase in commissions paid to online agents, an increase in our general and administrative expenses relating to office rents, staff salaries, and additional expenses associated with being a
U.S. public company.

Selling expenses. Our selling expenses increased by 90.5% to $2.4 million in the fiscal year
ended September 30, 2008 from $1.3 million in the fiscal year ended September 30, 2007. This increase resulted primarily from the $0.2 million share-based compensation expenses we incurred in the fiscal year ended September 30, 2008,
and the increased commissions paid to our online agents due to an increase in online sales of our courses. The aggregate amount of salary expense attributable to our customer service staff also rose significantly as we added more staff to provide
better service to our course participants and other customers.

General and administrative expenses. Our general and
administrative expenses increased by 138.5% to $3.9 million in the fiscal year ended September 30, 2008 from $1.6 million in the fiscal year ended September 30, 2007. The increase in our general and administrative expenses in the
fiscal year ended September 30, 2008, is partially due to $0.6 million attributable to the share-based compensation expenses we incurred in the fiscal year ended September 30, 2008 and $0.6 million attributable to the non-share-based
compensation and benefit amounts for our administrative staff incurred in the fiscal year ended September 30, 2008 primarily as a result of increased headcount and salaries, which increased our overall expenses. Our rental and utilities
expenses increased to $0.8 million in the fiscal year ended September 30, 2008 from $0.3 million in the fiscal year ended September 30, 2007 primarily as a result of the lease of additional office space as we expanded our business and
headcount. Our depreciation and amortization expense also increased to $0.4 million in the fiscal year ended September 30, 2008 from $0.2 million in the fiscal year ended September 30, 2007. Most of our other components of general and
administrative expenses also increased due to us becoming a U.S. public company.

Other Operating Income

In the fiscal year ended September 30, 2008, we had other operating income of $0.2 million from a one-time small
and medium enterprise development fund grant we received from a local government authority. The designated use of the fund is to further improve our Internet-based interactive distance education platform. The grant of the fund is not conditioned on
any ongoing restrictions, limitations or obligations on us or our shareholders, directors or officers. We did not have such income in the fiscal year ended September 30, 2007.

Other expense

In the fiscal year ended September 30, 2008, we made a $0.1 million donation to a charitable fund to assist students affected by the May 2008 Sichuan earthquake, which we recorded as an other
expense.

Income taxes

Income tax expense for the fiscal year ended September 30, 2008 was $0.5 million, compared with an income tax benefit of $0.3 million in the fiscal year ended September 30, 2007. This change
from tax benefit to tax expense was primarily due to discontinuation of preferential tax treatments of certain PRC subsidiaries and affiliated entities upon effectiveness of the new EIT law on January 1, 2008.

Net Income

As a result of the above factors, our net income decreased to $4.0 million in the fiscal year ended September 30, 2008 from $5.4 million in the fiscal year ended September 30, 2007. The decrease was primarily due to the $1.5
million share-based compensation expenses we incurred in the fiscal year ended September 30, 2008.



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B. Liquidity and Capital Resources

Historically, we have financed our operations primarily through internally generated cash and bank loans. In the fiscal year ended
September 30, 2008, we completed our initial public offering, raising net proceeds of $53.4 million (net of underwriter discount and issuance costs paid). As of September 30, 2008 and September 30, 2009, we had approximately $66.2
million and $57.4 million in cash and cash equivalents, including bank term deposits and restricted cash, respectively. As of September 30, 2009, our cash and cash equivalents of $21.4 million primarily consisted of cash on hand, bank deposits,
and AAA rated money market funds which are unrestricted as to withdrawal and use and are deposited with banks in China and Hong Kong. We intend to finance our future working capital requirements and capital expenditures from net cash generated from
operating activities and existing cash and cash equivalents.

In addition, on November 20, 2008, we announced the
adoption by our board of directors of a share repurchase program. Under the approved program, we are authorized to repurchase up to $10 million worth of our issued and outstanding ADSs from time to time in open market transactions on the NYSE (or
NYSE Arca, prior to February 4, 2009). The repurchases will be made at prevailing market prices, in negotiated transactions off the market, in block trades, pursuant to Rule 10b-18 and a 10b5-1 plan (the 10b5-1 plan allows us to repurchase our
ADSs during periods in which we may be in possession of material non-public information) or otherwise. The purchases will be made subject to restrictions relating to volume, price and timing. The timing and extent of any purchases will depend upon
market conditions, the trading price of our ADSs and other factors. We have implemented this share repurchase program over the 12 months starting from November 20, 2008, in a manner consistent with market conditions and the interest of our
shareholders. On November 17, 2009, our board decided to extend the share repurchase program for 12 months to end on November 20, 2010. During the extended period, we are authorized to repurchase up to $6 million of our issued and
outstanding ADSs, with the $6 million representing the unused portion of the $10 million previously approved by the board. The program may be suspended or discontinued at any time. Our board of directors will review the share repurchase program
periodically, and may authorize adjustment of its terms and size accordingly. As of December 31, 2009, we had repurchased an aggregate of 802,700 ADSs, representing 3,210,800 ordinary shares, on the open market for a total cash consideration of
$4.0 million. We do not expect any share repurchases carried out under the share repurchase program to have a material impact on our liquidity or capital resources.

The following table summarizes our cash flows in the fiscal years ended September 30, 2007, 2008 and 2009:



|                                                       |  |                                  |   |  |        |   |  |         |  
|------------------------------------------------------ |  | -------------------------------- | - |  | ------ | - |  | ------- | -
|                                                       |  | For the Year Ended September 30, |  
|                                                       |  | 2007                             |   |  | 2008   |   |  | 2009    |  
|                                                       |  | $                                |   |  | $      |   |  | $       |  
|                                                       |  | (In thousands)                   |  
|Net cash generated from operating activities           |  | 6,961                            |   |  | 9,064  |   |  | 1,607   |  
|Net cash used in investing activities                  |  | (3,913                           | ) |  | (3,093 | ) |  | (41,534 | )
|Net cash generated from (used in) financing activities |  | 3,232                            |   |  | 52,538 |   |  | (4,841  | )
|Exchange rate effect on cash and cash equivalents      |  | 136                              |   |  | 608    |   |  | (18     | )
|                                                       |  |                                  |   |  |        |   |  |         |  
|Net increase (decrease) in cash and cash equivalents   |  | 6,416                            |   |  | 59,117 |   |  | (44,786 | )
|Cash and cash equivalents at beginning of the year     |  | 690                              |   |  | 7,106  |   |  | 66,223  |  
|                                                       |  |                                  |   |  |        |   |  |         |  
|Cash and cash equivalents at end of the year           |  | 7,106                            |   |  | 66,223 |   |  | 21,437  |  
|                                                       |  |                                  |   |  |        |   |  |         |  

CDEL Cayman, our ultimate holding company, relies principally on dividends and other distributions on equity
paid by our PRC subsidiaries for its cash requirements, but such dividends and other distributions are subject to restrictions under PRC law. See Note 14 to our consolidated financial statements included in this annual report.

Operating activities

Net cash generated from operating activities was $1.6 million in the fiscal year ended September 30, 2009, compared to $9.1 million and $7.0 million in the fiscal years ended September 30, 2008
and 2007, respectively.

Net cash generated from operating activities in the fiscal year ended September 30, 2009 was
primarily attributable to (i) our net income of $1.2 million, (ii) an increase in accrued expenses and other liabilities of $0.8 million, and (iii) an increase in our deferred revenue of $2.1 million. The increase in operating cash
flow was partially offset by an increase in accounts receivable, deferred costs, and decrease in refundable fees of $4.3 million, $0.8 million, and $2.9 million, respectively.



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Net cash generated from operating activities in the fiscal year ended September 30,
2008 was primarily attributable to (i) our net income of $4.0 million, (ii) an increase in our deferred revenue and refundable fees of $3.4 million. The significant increase in refundable fees and deferred revenue is attributable to
rescheduled Accounting Professional Qualification Examinations caused by the May 2008 Sichuan earthquake, 50% discount off of our regular classes and new premium classes offered to celebrate our successful listing on NYSE Arca and to promote our new
premium course model which attracts more participants,and (iii) an increase in accrued expenses and other liabilities of $0.9 million. The increase in operating cash flow was partially offset by an increase in accounts receivable, and
prepayments, deposits and other assets of $0.6 million and $1.2 million, respectively.

Net cash generated from operating
activities in the fiscal year ended September 30, 2007 was primarily attributable to (i) our net income of $5.4 million and (ii) an increase in our deferred revenue and refundable fees of $2.5 million. The increase in operating cash
flow was partially offset by an increase in accounts receivable, inventories and deferred costs of $0.1 million, $0.2 million and $0.2 million, respectively.

Investing activities

Net cash used in investing activities was $41.5
million in the fiscal year ended September 30, 2009, compared to $3.1 million and $3.9 million in the fiscal years ended September 30, 2008 and 2007, respectively.

Net cash used in investing activities in the fiscal year ended September 30, 2009 was primarily attributable to (i) our
acquisition of the businesses of Zhengbao Yucai and Champion Xinlixiang with an aggregate amount of $3.2 million, (ii) the purchase of property, plant and equipment, and other equipment in the amount of $1.5 million, and (iii) an increase
in restricted cash and term deposits of $8.3 million and $27.8 million, respectively.

Net cash used in investing activities
in the fiscal year ended September 30, 2008 was primarily attributable to (i) our acquisition of Caikaowang in the amount of $0.7 million, and (ii) the purchase of property, plant and equipment, and other equipment in the amount of
$1.8 million.

Net cash used in investing activities in the fiscal year ended September 30, 2007 was primarily
attributable to (i) the purchases of the ownership rights to our offices in Beijing, electronic and office equipment, and other equipment in the amount of $3.2 million and (ii) our deposit payments for the purchase of property, plant and
equipment and domain names in the amount of $0.8 million to support our expanded operations.

Financing activities

Net cash used in financing activities was $4.8 million in the fiscal year ended September 30, 2009, compared to net cash
generated from financing activities of $52.5 million and $3.2 million in the fiscal years ended September 30, 2008 and 2007, respectively.

Net cash used in financing activities in the fiscal year ended September 30, 2009 was primarily attributable to (i) the repurchase of our ADSs from the open market in the amount of $4.0
million, and (ii) payment of deferred initial public offering expenses of $0.9 million.

Net cash generated from
financing activities in the fiscal year ended September 30, 2008 was primarily attributable to the proceeds from our initial public offering of $53.4 million (net of underwriting discount and issuance costs paid). The increase in cash flow was
partially offset by the full repayment of short-term bank borrowings and long-term bank borrowings of $0.4 million and $0.5 million, respectively.

Net cash generated from financing activities in the fiscal year ended September 30, 2007 was primarily attributable to (i) the net proceeds from the issuance of the preferred shares in the
amount of $7.9 million and (ii) the proceeds of a short-term bank borrowing of $0.4 million. The increase in cash flow was partially offset by the repurchase and cancellation of 8,123,000 ordinary shares of CDEL Hong Kong for $5.0 million.



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Capital Expenditures

We incurred capital expenditures of $3.9 million, $3.1 million and $5.5 million in the fiscal years ended September 30, 2007, 2008 and
2009, respectively. The significant amount of capital expenditures in the fiscal year ended September 30, 2009 related primarily to our purchase of the business of Zhengbao Yucai and Champion Xinlixiang as well as expenditures on property,
plant and equipment. The significant amount of capital expenditures in the fiscal year ended September 30, 2008 related primarily to our purchase of Caikaowang as well as expenditures on property, plant and equipment. From time to time, we may
evaluate and make investments, acquisitions or divestments.

We believe that our current cash and cash equivalents, term
deposits, and anticipated cash flows from operations will be sufficient to meet our anticipated working capital requirements and capital expenditures for 18 months following the date of this annual report. Our online course platform can support
significant growth in course enrollments and is easily adapted for the addition of new courses. We do, however, expect to spend money on the further development of our Chinaacc brand and other brands in the disciplines for which we offer
courses. We do not expect our short-term and long-term cash requirements to be materially different.

Nevertheless, we may
require additional sources of liquidity in the event of changes in business conditions or other future developments. Factors affecting our sources of liquidity include, for example, our sales performance, ability to control costs and expenses, and
choice of financing arrangements. Any changes in the significant factors affecting our revenues from education services may cause material fluctuations in our cash generated from operations. See Operating Results  Overview 
Specific Factors Affecting Our Results of Operations for a description of these significant factors. Changes in working capital, including any significant shortening or lengthening of our accounts receivable cycle or customer prepayment
cycles, may also cause fluctuations in our cash generated from operations. If our sources of liquidity are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities to meet our cash needs. The sale of
convertible debt securities or additional equity securities could result in dilution to our shareholders. The incurrence of indebtedness would result in debt service obligations and could result in operating and financial covenants that restrict our
operations. We cannot assure you that future financing will be available in amounts or on terms acceptable to us, if at all.

Current PRC regulations permit our PRC subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. However, our PRC subsidiaries are required
under PRC laws and regulations to allocate a portion of their annual after-tax profits, if any, to certain statutory reserves and funds prior to declaring and remitting dividends. For example, our PRC subsidiaries are required to allocate at least
10% of their after-tax profits to statutory reserves until such reserves reach 50% of their respective registered capital. Allocations to these statutory reserves and funds can be used only for specific purposes and are not transferable to us in the
form of loans, advances or cash dividends. As a result, our PRC subsidiaries are restricted in their ability to transfer a portion of their net assets to us. Such limitations on the ability of our PRC subsidiaries to transfer funds to us could
materially and adversely affect our ability to grow, make investments or acquisitions, pay dividends, and otherwise fund and conduct our businesses.

Inflation

Inflation in China has not had a material impact on our results
of operations to date. According to the National Bureau of Statistics of China, the change in Chinas Consumer Price Index was 4.8%, 5.9% and -0.7% in the years 2007, 2008 and 2009, respectively. In February 2010, the change in Chinas
Consumer Price Index was 2.7%.

C. Research and Development

Research and development does not constitute a material part of our business and we do not incur any material expenses related to research
and development.

D. Trend Information

Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the period from October 1, 2007 to September 30, 2009
that are reasonably likely to have a material adverse effect on our revenues, income, profitability, liquidity or capital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating results or
financial conditions.



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E. Off-Balance Sheet Arrangements

We do not currently have, and do not expect in the future to have, any outstanding off-balance sheet arrangements or commitments. In our
ongoing business, we do not plan to enter into transactions involving, or otherwise form relationships with, unconsolidated entities or financial partnerships established for the purpose of facilitating off-balance sheet arrangements or commitments.

F. Tabular Disclosure of Contractual Obligations

Contractual Obligations and Commercial Commitments

The following table sets forth our contractual obligations as of September 30, 2009:



|                                |  |                       |  |              |  |          |  |          |  |                  |  |       
|------------------------------- |  | --------------------- |  | ------------ |  | -------- |  | -------- |  | ---------------- |  | ------
|                                |  | Payment Due by Period
|                                |  | Total                 |  | Within 1Year |  | 1-3Years |  | 3-5Years |  | More than5 Years |  | Others
|                                |  | (In thousands of $)   |  |             
|Operating lease obligations (1) |  | 4,013                 |  | 1,592        |  | 1,671    |  | 750      |  |                 |  |      
|Others (2)                      |  | 159                   |  |             |  |         |  |         |  |                 |  | 159   
|Total                           |  | 4,172                 |  | 1,592        |  | 1,671    |  | 750      |  |                 |  | 159   



|(1) | Our operating lease obligations primarily relate to our leased office spaces in Beijing, China. These office leases expire at different times over the period from the
date of this annual report through 2014, and will become subject to renewal. We will evaluate the need to renew each office lease on a case-by-case basis prior to its expiration.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Liabilities for unrecognized tax benefits. The balance disclosed under Others represents liabilities for which reasonable estimates about the timing of the
payment cannot be made.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Indebtedness

We currently have no indebtedness, and had no indebtedness as of September 30, 2009.

G. Safe Harbor

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the Private
Securities Litigation Reform Act of 1995. See IntroductionForward-Looking Statements.



|ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
|------- | ------------------------------------------

A. Directors and Senior Management

The following table sets forth certain
information relating to our directors and executive officers as of the date of this annual report. The business address of each of our directors and executive officers is 18th Floor, Xueyuan International Tower, 1 Zhichun Road, Haidian District,
Beijing 100083, the Peoples Republic of China.



|                  |  |     |  |                                                            
|----------------- |  | --- |  | -----------------------------------------------------------
|Name              |  | Age |  | Position                                                   
|Zhengdong Zhu     |  | 41  |  | Chairman of the Board of Directors, Chief Executive Officer
|Baohong Yin       |  | 42  |  | Deputy Chairman of the Board of Directors                  
|Hongfeng Sun      |  | 43  |  | Senior Vice President, Director                            
|Xiaoshu Chen      |  | 46  |  | Independent Director                                       
|Annabelle Yu Long |  | 38  |  | Director                                                   
|Liankui Hu        |  | 59  |  | Independent Director                                       
|Carol Yu          |  | 47  |  | Independent Director                                       
|Ping Wei          |  | 38  |  | Chief Financial Officer                                    



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Zhengdong Zhu is co-founder, chairman of the board and chief executive officer of our
company and is responsible for the overall management operations and strategic direction of our company. Prior to co-founding our company in 1998, Mr. Zhu worked at the Beijing Huake Hi-Tech Co., Ltd., a communications products and computer
facilities company, as an engineer, manager of network department and vice general manager in charge of marketing and sales from 1995 to 1998. From 1989 to 1995, Mr. Zhu worked as an engineer in the area of electronic communications technology
at the research department of North China Institute of Electro-Optics Technology. Mr. Zhu graduated from the Radio Engineering Department of the Southeast University in China with a bachelors degree in radio engineering in 1989, and
obtained a graduate certificate from the management science department in Sichuan University in China in 2001. Mr. Zhu and Baohong Yin, our director and deputy chairman, are husband and wife.

Baohong Yin is co-founder, director and deputy chairman of our company. From 1989 to 2004, Ms. Yin worked as engineer, vice
director of laboratory, senior engineer, director of laboratory and vice-general engineer at Beijing Uni-Construction Dadi Concrete Building Components Co., Ltd (previously known as Beijing Residential Construction Component Manufacturer).
Ms. Yin graduated in 1989 from the Civil Engineering Department of Southeast University in China with a bachelors degree in civil engineering. She was also conferred the qualification as a senior engineer by the Beijing Advanced
Specialized Technology Committee in 1999. Baohong Yin and Zhengdong Zhu, our chairman and chief executive officer, are wife and husband.

Hongfeng Sun is co-founder and senior vice president of our company. He assists our chief executive officer in the overall management of our company and heads our sales and marketing department.
Prior to co-founding our company, he worked at Sichuan Champion Hi-Tech Co., Ltd., a company in Sichuan, China engaging in system integration. From 1991 to 1998, Mr. Sun worked as an assistant general manager in charge of market development at
Nanjing Bada Computer System Co., Ltd. From 1989 to 1991, Mr. Sun worked at Port Authority of Nanjing as a system engineer. Hongfeng Sun graduated in 1989 from the Radio Engineering Department of Southeast University in China with a
bachelors degree in radio engineering.

Xiaoshu Chen is an independent director of our company, and currently a
professor and an assistant director at the Department of Radio Engineering of Southeast University in China. From 1985 to 2001, Professor Chen worked as an assistant lecturer, lecturer and assistant professor at the same department. Professor Chen
has almost 20 years of experience in communication systems and network research. He graduated in 1985 from the Department of Radio Engineering of the Nanjing Institute of Technology in China with a bachelors degree in engineering. He obtained
his masters degree in engineering in 1990 from the same university.

Annabelle Yu Longbecame a director of our
company on November 18, 2008. She has served as Managing Director of Bertelsmann Asia Investments, or BAI, the strategic investment arm of Bertelsmann AG since 2008. BAI is an affiliate of Bertelsmann Asia Investments AG, a shareholder of the
company. From 2005 to 2007, Ms. Long was a principal of Bertelsmann Digital Media Investments. Ms. Long received her bachelors degree in science and electric engineering from the University of Electronic Science and Technology in
China in 1994, and her masters degree in business administration from Stanford Graduate School of Business in 2005.

Liankui Hu is an independent director of our company. He has also served as chairman on the boards of directors of the following technology companies since 1998, Beijing Teamsun Technology Co., Ltd., and Beijing Huasun Mingtian
Technology Co. Ltd. From 1987 to 1998, Mr. Hu had worked for the Sixth Electronics Institute of the Ministry of Information Industry as deputy president, for Beijing Shenyan System Co., Ltd. as general manager, and for Beijing Huasun Computer
Co., Ltd. as general manager. He was a lecturer in School of Economics and Management, Tsinghua University in China from 1985 to 1987. Mr. Hu received his bachelors degree in engineering from Radio Engineering Department of Tsinghua
University in 1982, and his masters degree from School of Economics and Management of Tsinghua University in 1985.

Carol Yu is an independent director of our company. Since 2004, Ms. Yu has been serving as co-president and chief financial officer of Sohu.com Inc., an Internet portal company listed on the Nasdaq Global Market. From 2000 to
2001, Ms. Yu served as vice president of Guangdong Kelon Refrigerating Company Limited, a home appliance manufacturer in China. From 1995 to 2000, Ms. Yu served as senior vice-president at the investment banking department of Donaldson
Lufkin & Jenrette Securities Corporation in Hong Kong. Prior to that, Ms. Yu also worked with Arthur Andersen Hong Kong and Beijing for ten years and was a partner of the audit division, and held the position of general manager at
Arthur Andersen-Hua Qiang, the joint venture accounting firm formed between Arthur Andersen and the Ministry of Finance in China. Ms. Yu obtained her bachelors degree in accounting from The Hong Kong Polytechnic University. Ms. Yu is
a Hong Kong Certified Public Accountant.



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Ping Wei is our chief financial officer. Ms. Wei has extensive international
finance, accounting and audit experience. From 2005 to 2008, Ms. Wei worked with New Oriental Education and Technology Group (NYSE: EDU) as its director of finance and controller. In 2004, Ms. Wei was the head for EDUs North American
operation. Prior to that, Ms. Wei worked with Lorus Therapeutics Inc., or Lorus, a Canadian biopharmaceutical company listed on both the Toronto Stock Exchange and the American Stock Exchange as its acting chief financial officer and controller
and previously as its assistant controller. Prior to working at Lorus, Ms. Wei worked as an auditor for seven years with Deloitte & Touche in Toronto and Arthur Andersen in Beijing. Ms. Wei is a Canadian Chartered Accountant and a
US CPA with the State of Illinois. Ms. Wei received her bachelors degree in international accounting from the Central University of Finance and Banking in Beijing in 1993.

B. Compensation

Compensation of Directors and Executive Officers

For the fiscal year ended September 30, 2009, we and our
subsidiaries paid aggregate cash compensation of approximately $0.4 million to our directors and executive officers as a group. We do not pay or set aside any amounts pursuant to a bonus plan or for pension, retirement or other benefits for our
officers and directors.

Share Options, Restricted Shares and Share Incentive Plans

We adopted our Share Incentive Plan, or the Prior Plan, on April 18, 2008. We adopted on July 2, 2008, and amended and restated on
February 16, 2009, our 2008 Performance Incentive Plan, or the New Plan. Our incentive plans are intended to promote our success and to increase shareholder value by providing an additional means to attract, motivate, retain and reward selected
directors, officers, employees, lecturers and other eligible persons. An aggregate of 11,652,556 ordinary shares are reserved for issuance under the Prior Plan. Subject to any amendment of the New Plan, the maximum number of ordinary shares that may
be issued pursuant to the New Plan is 8,511,007 ordinary shares as of September 30, 2009, plus an automatic annual increase on October 1 of each calendar year, by an amount equal to the lesser of (i) 1% of the total number of ordinary
shares issued and outstanding on September 30 of the same calendar year, (ii) 1,387,657 ordinary shares, or (iii) such number of ordinary shares as may be determined by our board of directors.

We have granted options under the Prior Plan for the purchase of a total of 11,045,500 ordinary shares to selected officers, employees, and
lecturers, including options to acquire a total of 10,060,600 ordinary shares granted to employees on April 18, 2008 and May 31, 2008, and options to acquire 984,900 ordinary shares granted to non-employees on April 18, 2008. These
options were granted at an exercise price of $2.995966 per share. The fair value of ordinary shares was determined by us to be approximately $2.5 on the dates of grant. With the assistance of American Appraisal, an independent valuation firm, we
estimated the total grant date fair value of the options to be approximately $12.0 million using the Black-Scholes Option Pricing Model. On December 2, 2008, we revised the exercise price of all then outstanding share options from $2.995966 per
share to $0.82 per share based on the closing price of our ADSs on NYSE Arca on December 2, 2008. We carefully considered the decision to re-price the share options and determined that taking such action was important to our ability to retain
and motivate our officers, employees and lecturers for whom these share options comprise a component of their compensations.

On November 17, 2009, we granted to certain employees options to purchase a total of 1,361,900 ordinary shares under the New Plan at the exercise price of $1.87 per share.

Options issued under our share incentive plans will generally vest over a period of four years, with 25% vesting on the first anniversary of
the vesting start date designated in the board resolution granting such options and the remaining 75% vesting in six substantially equal semi-annual installments. The first installment vests on the last day of the sixth month following the month in
which the first anniversary of the vesting start date occurs and an additional installment vests on the last day of every six months thereafter.

On December 2, 2008, we granted each of our five non-executive directors, Baohong Yin, Xiaoshu Chen, Annabelle Yu Long, Liankui Hu and Carol Yu options to purchase 80,000 ordinary shares at an
exercise price of $0.82 per share under the New Plan. Such options are subject to a special vesting schedule of two years, with the first 50% of the options vested on December 2, 2009 and the remainder vesting on December 2, 2010. We plan
to grant options to purchase 80,000 ordinary shares under similar terms and vesting schedule to each of our non-executive directors every two years during their terms.



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As of March 15, 2010, there were outstanding options to purchase 12,115,868 ordinary
shares, out of which options to purchase approximately 4 million ordinary shares have vested under their current terms. We expect to recognize additional significant share-based compensation expenses for the remaining vesting period of the
repriced share options, stemming from the modification together with the measured but unrecognized compensation cost of the original awards, which may materially impact our future results of operations. During the fiscal years of September 30,
2008 and 2009, we recognized share-based compensation expenses of $1.5 million and $3.9 million, respectively.

Options
granted under our share incentive plans generally do not vest unless the grantee remains under our employment or in service with us on the given vesting date. Generally, if the grantees employment or service with us is terminated for cause,
all such grantees options under our share incentive plans, vested and unvested, immediately terminate and become unexercisable. On the other hand, if the grantees employment or service with us is terminated for any reason other than for
cause, all such grantees vested options terminate and become unexercisable ninety days following the grantees last day of employment or service with us. In circumstances where there is a death or disability of the grantee, generally all
unvested options immediately terminate and become unexercisable while vested options terminate and become unexercisable twelve months after the last date of employment or service with us. Generally, all unvested options granted under the Plan become
fully vested immediately upon a change in the control of our company.

Our board of directors may amend, alter, suspend, or
terminate our share incentive plans at any time, provided, however, that our board of directors must first seek the approval of the participants of our share incentive plans if such amendment, alteration, suspension or termination would adversely
affect the rights of participants under any option granted prior to that date. Without further action by our board of directors, both Prior Plan and the New Plan will terminate in 2018.

The table below sets forth the option grants and restricted share issuance made to our directors and executive officers pursuant to our
share incentive plans:



|                  |  |                                     |  |                                                |  |                                 |                |   |                       |                  |                    |                                        |                    |                 
|----------------- |  | ----------------------------------- |  | ---------------------------------------------- |  | ------------------------------- | -------------- | - | --------------------- | ---------------- | ------------------ | -------------------------------------- | ------------------ | ----------------
|Name of Recipient |  | Type of IncentiveSecurities         |  | Number of OrdinaryShares Issued or to beIssued |  | Exercise Priceper OrdinaryShare |                |   | Date of Grantor Issue |                  | Vesting Start Date |                                        | Date of Expiration
|                  |  |                                     |  |                                                |  |                                
|Ping Wei          |  | options to purchase ordinary shares |  | 1,398,300                                      |  | $                               | 0.82           | * |                       | April 18, 2008   |                    | May 1, 2008                            |                    | April 17, 2018  
|                  |  |                                     |  |                                                |  |                                
|Carol Yu          |  | restricted ordinary shares          |  | 57,143ordinaryshares                           |  |                                 | not applicable |   |                       | August 4, 2008   |                    | fully vested immediately upon issuance |                    | not applicable  
|                  |  |                                     |  |                                                |  |                                
|                  |  | options to purchase ordinary shares |  | 80,000                                         |  | $                               | 0.82           |   |                       | December 2, 2008 |                    | December 2, 2008                       |                    | December 1, 2018
|                  |  |                                     |  |                                                |  |                                
|Baohong Yin       |  | options to purchase ordinary shares |  | 80,000                                         |  | $                               | 0.82           |   |                       | December 2, 2008 |                    | December 2, 2008                       |                    | December 1, 2018
|                  |  |                                     |  |                                                |  |                                
|Xiaoshu Chen      |  | options to purchase ordinary shares |  | 80,000                                         |  | $                               | 0.82           |   |                       | December 2, 2008 |                    | December 2, 2008                       |                    | December 1, 2018
|                  |  |                                     |  |                                                |  |                                
|Annabelle Yu Long |  | options to purchase ordinary shares |  | 80,000                                         |  | $                               | 0.82           |   |                       | December 2, 2008 |                    | December 2, 2008                       |                    | December 1, 2018
|                  |  |                                     |  |                                                |  |                                
|Liankui Hu        |  | options to purchase ordinary shares |  | 80,000                                         |  | $                               | 0.82           |   |                       | December 2, 2008 |                    | December 2, 2008                       |                    | December 1, 2018



|* | Those options were originally granted at an exercise price of $2.995966 per share on April 18, 2008 and re-priced to an exercise price of $0.82 per share on
December 2, 2008.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|** | On November 17, 2009, our board approved an amendment to Carol Yus restricted share award agreement. Pursuant to the amended and restated award agreement,
Carol Yu will receive, in lieu of two additional installments of restricted shares with a total value of $100,000 each as provided in the original agreement, a cash compensation of $200,000 in two equal installments for her continuous service as the
independent director and chairman of the audit committee. The first installment was granted to Carol Yu on November 17, 2009. The second installment will be granted on July 29, 2010, provided that Carol Yu agrees to continue to serve as an
independent director and chairman of the audit committee until July 29, 2011.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

C. Board Practices

Duties of Directors

Under Cayman Islands law, our directors have a statutory duty of loyalty to act honestly in good faith with a view to our best interests. Our directors also have a duty to exercise the care, diligence and
skills that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care to us, our directors must ensure compliance with our second amended and restated memorandum of association and articles of
association. A shareholder has the right to seek damages if a duty owed by our directors is breached.

The functions and
powers of our board of directors include, among others:



| |  |  | convening shareholders meetings and reporting its work to shareholders at such meetings;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | implementing shareholders resolutions;
| | - |  | ---------------------------------------



| |  |  | determining our business plans and investment proposals;
| | - |  | --------------------------------------------------------



| |  |  | formulating our profit distribution plans and loss recovery plans;
| | - |  | ------------------------------------------------------------------



| |  |  | determining our debt and finance policies and proposals for the increase or decrease in our registered capital and the issuance of debentures;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | formulating our major acquisition and disposition plans, and plans for merger, division or dissolution;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | proposing amendments to our second amended and restated memorandum of association and articles of association; and
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | exercising any other powers conferred by the shareholders meetings or under our second amended and restated memorandum of association and
articles of association.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

Terms of Directors and Executive Officers

Each of our directors holds office until a successor has been duly elected and qualified unless the director was appointed by our board of
directors, in which case such director holds office until the next annual meeting of shareholders at which time such director is eligible for reelection. All of our executive officers are appointed by and serve at the discretion of our board of
directors.

Terms of Directors

We currently have a board of seven directors divided into class A, class B and class C directors. Hongfeng Sun is the class A director. The class B directors are Baohong Yin, Annabelle Yu Long and Xiaoshu
Chen. The class C directors are Zhengdong Zhu, Carol Yu and Liankui Hu, At our first annual general meeting after our initial public offering held in April 2009, Mr. Hongfeng Sun, retired as a class A director and was re-elected as the class A
director. At the second annual general meeting after our initial public offering to be held in 2010, all class B directors will retire as class B directors and be eligible for re-election. At the third annual general meeting after our initial public
offering, all class C directors will retire as class C directors and be eligible for re-election. At each subsequent annual general meeting after the third annual general meeting after our initial public offering, one third of the directors for the
time being (or, if their number is not a multiple of three (3), the number nearest to but not greater than one third) will retire from office by rotation. A retiring director will be eligible for re-election. The directors to retire by rotation will
include (so far as necessary to ascertain the number of directors to retire by rotation) any director who wishes to retire and not to offer himself for re-election. Any further directors so to retire will be those of the other directors subject to
retirement by rotation who have been longest in office since their last re-election or appointment and so that as between persons who became or were last re-elected directors on the same day those to retire shall (unless they otherwise agree among
themselves) be determined by lot. Our chief executive officer, which currently is Zhengdong Zhu, is not, while holding office, subject to retirement or be taken into account in determining the number of directors to retire in any year. There are no
director service contracts with us or any of our subsidiaries and affiliated entities providing for benefits upon termination of employment.



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Board Practices

Our board of directors has established an audit committee, a compensation committee and a nomination committee.

Audit Committee

Our audit committee consists of Carol Yu, Liankui Hu and Xiaoshu Chen. Carol Yu is the chairman of our audit committee. Our board of directors has determined that all of our audit committee members
satisfy the independence requirements of relevant rules of the NYSE and Rule10A-3 under the Securities Exchange Act of 1934. Carol Yu meets the criteria of an audit committee financial expert as set forth under the applicable rules of
the SEC.

Our audit committee is responsible for, among other things:



| |  |  | appointing the independent auditor;
| | - |  | -----------------------------------



| |  |  | pre-approving all auditing and non-auditing services permitted to be performed by the independent auditor;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | setting clear hiring policies for employees and former employees of the independent auditor;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | reviewing with the independent auditor any audit problems or difficulties and managements responses;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | reviewing and approving all related party transactions on an ongoing basis;
| | - |  | ---------------------------------------------------------------------------



| |  |  | reviewing and discussing the annual audited financial statements with management and the independent auditor;
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | reviewing and discussing with management and the independent auditor major issues regarding accounting principles and financial statement
presentations;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | reviewing reports prepared by management relating to significant financial reporting issues and judgments;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | discussing earnings press releases with management, as well as financial information and earnings guidance provided to analysts and rating agencies;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | reviewing with management and the independent auditor the effect of regulatory and accounting initiatives, as well as off-balance sheet structures, on
our financial statements;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | discussing policies with respect to risk assessment and risk management with management, internal auditors and the independent auditor;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | timely reviewing reports from management regarding all critical accounting policies and practices to be used by our company, all alternative treatments
of financial information within U.S. GAAP that have been discussed with management and all other material written communications between the independent auditor and management;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | establishing procedures for the receipt, retention and treatment of complaints received from our employees regarding accounting, internal accounting
controls or auditing matters, and the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | annually reviewing and reassessing the adequacy of our audit committee charter;
| | - |  | -------------------------------------------------------------------------------



| |  |  | such other matters that are specifically delegated to our audit committee by our board of directors from time to time;
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | meeting separately, periodically, with management, internal auditors and the independent auditor; and
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | reporting regularly to the full board of directors.
| | - |  | ---------------------------------------------------

Compensation Committee

Our compensation committee consists of
Zhengdong Zhu, Carol Yu and Liankui Hu. Zhengdong Zhu is the chairman of our compensation committee. Under Section 303A.00 of the NYSEs Listed Company Manual, a foreign private issuer is permitted to follow home country
practice in relation to the composition of its compensation committee. In this regard, we have elected to adopt the practices of our home country, the Cayman Islands, which does not require that any of the members of a companys
compensation committee be independent directors. Our board of directors has determined that Carol Yu and Liankui Hu satisfy the independence requirements of relevant rules of the NYSE and Rule10A-3 under the Securities Exchange Act of
1934, as amended, or the Exchange Act. Our chairman and chief executive officer, Zhengdong Zhu, does not meet the definition of independence under such applicable rules.



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Our compensation committee is responsible for:



| |  |  | reviewing and approving our overall compensation policies;
| | - |  | ----------------------------------------------------------



| |  |  | reviewing and approving corporate goals and objectives relevant to the compensation of our chief executive officer, evaluating our chief executive
officers performance in light of those goals and objectives, reporting the results of such evaluation to the board of directors and determining our chief executive officers compensation level based on this evaluation;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | determining the compensation level of our other executive officers;
| | - |  | -------------------------------------------------------------------



| |  |  | making recommendations to the board of directors with respect to our incentive-compensation plan and equity-based compensation plans;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  |  | administering our equity-based compensation plans in accordance with the terms thereof; and
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | such other matters that are specifically delegated to the compensation committee by our board of directors from time to time.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------

Nomination Committee

Our nomination committee consists of Zhengdong Zhu, Liankui Hu and Xiaoshu Chen. Zhengdong Zhu is the chairman of the nomination committee.
Under the relevant NYSE rules, a foreign private issuer is permitted to follow home country practice in relation to the composition of its nomination committee. In this regard, we have elected to adopt the practices of our home country,
the Cayman Islands, which does not require that any of the members of a companys nomination committee be independent directors. Our board of directors has determined that Liankui Hu and Xiaoshu Chen satisfy the independence
requirements of the relevant rules of the NYSE and Rule10A-3 under the Exchange Act. Our chairman and chief executive officer, Zhengdong Zhu, does not meet the definition of independence under such applicable rules.

Our nomination committee is responsible for, among other things:



| |  |  | seeking and evaluating qualified individuals to become new directors as needed;
| | - |  | -------------------------------------------------------------------------------



| |  |  | reviewing and making recommendations to the board of directors regarding the independence and suitability of each board member for continued service;
and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | evaluating the nature, structure and composition of other board committees.
| | - |  | ---------------------------------------------------------------------------

Corporate Governance

Our board of directors has adopted a code of ethics, which is applicable to our senior executive and financial officers. In addition, our board of directors has adopted a code of conduct, which is
applicable to all of our directors, officers, employees and advisors. We have made our code of ethics and our code of conduct publicly available on our website. In addition, our board of directors has adopted a set of corporate governance
guidelines. The guidelines reflect certain guiding principles with respect to our boards structure, procedures and committees. The guidelines are not intended to change or interpret any law, or our second amended and restated memorandum of
association and articles of association.

Interested Transactions

A director may vote with respect to any contract or transaction in which he or she is interested, provided that the nature of the interest of
any director in such contract or transaction is disclosed by him or her at or prior to its consideration and any vote in that matter.

D. Employees

We had 290, 435 and 801 full-time employees as of September 30, 2007, 2008 and 2009,
respectively. In addition to the above full-time employees, we had approximately 121 part-time employees as of September 30, 2009, of whom 91 are tutors.



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As required by PRC regulations, our full-time employees in the PRC participate in a
government mandated employee benefits plan, pursuant to which certain pension benefits, medical care, employee housing fund and other welfare benefits are provided to our employees. PRC labor regulations require that our PRC subsidiaries and
affiliated entities make contributions to the government for these benefits based on certain percentages of the employees salaries. We have no legal obligation for the benefits beyond the contributions made. The total amounts for such employee
benefits, which were expensed as incurred, were approximately $0.3 million, $0.6 million and $1.4 million for the years ended September 30, 2007, 2008 and 2009, respectively.

We recognize as expenses obligations for contributions to employee benefits plans for full-time employees in Hong Kong, including
contributions payable under the Hong Kong Mandatory Provident Fund Schemes Ordinance. The total amount for our Hong Kong employee benefits was approximately $1,000, $2,000 and $2,000 for each of the years ended September 30, 2007, 2008 and
2009, respectively.

We believe that we maintain a good working relationship with our employees and we have not experienced
any significant labor disputes. Our employees have not entered into any collective bargaining agreements.

We view staff
training as essential for the development of our human resources and our growth. We aim to provide our staff at all levels with the skills and knowledge relevant to their jobs and their career development as well as to improve their work efficiency.
We have both routine and developmental training programs for our staff. Routine training includes our orientation program for new employees and on-the-job training. Developmental training is geared towards staff promotion and providing updated or
new course information.

Our staff training is mainly conducted in-house. From time to time, we also engage external trainers
with the relevant expertise to train our staff in areas such as customer service and software development.

E. Share
Ownership

The following table sets forth information with respect to the beneficial ownership, within the meaning of Rule
13d-3 under the Exchange Act, of our ordinary shares as of March 15, 2010, the latest practicable date by:



| |  |  | our directors and executive officers as a group;
| | - |  | ------------------------------------------------



| |  |  | each person known to us to own beneficially more than 5% of our ordinary shares;
| | - |  | --------------------------------------------------------------------------------



|                                                                                                                         |  |                                   |  |            |  
|------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------- |  | ---------- | -
|                                                                                                                         |  | Ordinary SharesBeneficially Owned | 
|                                                                                                                         |  | Number(1)                         |  | Percent(2) |  
|Directors and Executive Officers:                                                                                        |  |                                   |  |            |  
|Zhengdong Zhu(3)                                                                                                         |  | 68,649,306                        |  | 49.5       | %
|Baohong Yin(4)                                                                                                           |  | 68,649,306                        |  | 49.5       | %
|Hongfeng Sun(5)                                                                                                          |  | 5,799,600                         |  | 4.2        | %
|Xiaoshu Chen(6)                                                                                                          |  | 2,939,800                         |  | 2.2        | %
|Annabelle Yu Long(7)                                                                                                     |  | *                                 |  | *          |  
|Liankui Hu(7)                                                                                                            |  | *                                 |  | *          |  
|Carol Yu(8)                                                                                                              |  | *                                 |  | *          |  
|Ping Wei                                                                                                                 |  | *                                 |  | *          |  
|Directors and Executive Officers Combined                                                                                |  | 69,783,075                        |  | 50.1       | %
|Principal Shareholders:                                                                                                  |  |                                   |  |            |  
|Champion International Holdings Limited(9)                                                                               |  | 57,996,000                        |  | 41.8       | %
|Champion Shine Trading Limited(10)                                                                                       |  | 10,613,306                        |  | 7.7        | %
|Orchid Asia III, L.P., Orchid Asia Co-Investment Limited, Orchid China Master Fund Limited and YM Investment Limited(11) |  | 16,269,177                        |  | 11.7       | %
|Artson Limited(12)                                                                                                       |  | 7,481,797                         |  | 5.4        | %
|Bertelsmann Asia Investments AG(13)                                                                                      |  | 16,268,523                        |  | 11.7       | %



|* | Beneficially owns less than 1% of our outstanding ordinary shares.
|- | ------------------------------------------------------------------

|(1) | The number of ordinary shares beneficially owned by each of the listed persons includes ordinary shares that such person has the right to acquire within 60 days after
March 15, 2010.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Percentage of beneficial ownership for each of the persons listed above is determined by dividing (i) the number of ordinary shares beneficially owned by such
person by (ii) the total number of ordinary shares outstanding, plus the number of ordinary shares such person has the right to acquire within 60 days after March 15, 2010. The total number of ordinary shares outstanding as of
March 15, 2010 is 138,654,845.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|(3) | Includes 10,613,306 ordinary shares held by Champion Shine Trading Limited, 57,996,000 ordinary shares held by Champion International Holdings Limited and 40,000
ordinary shares purchasable at an exercise price of $0.82 per share under the options granted by our board of directors to Baohong Yin on December 2, 2008 and vested on December 2, 2009. Champion Shine Trading Limited is a British Virgin
Islands company whose sole shareholder is Zhengdong Zhu. Champion International Holdings Limited, or Champion Holdings, is a Hong Kong limited liability company. Zhengdong Zhu holds 60% of the equity interest in Champion Holdings. Baohong Yin holds
20% of the equity interest in Champion Holdings. Zhengdong Zhu and Baohong Yin are husband and wife. As Zhengdong Zhu and Baohong Yin have a controlling interest in Champion Holdings, they may be deemed to share beneficial ownership of all the
shares held by Champion Holdings. In addition, Zhengdong Zhu may have an obligation to acquire, from Easerich Group Limited, a British Virgin Islands company owned and controlled by Ping Wei, our chief financial officer, 314,619 ordinary shares
pursuant to the put option arrangement as stipulated in a share purchase agreement entered into in April 2008 by and among Zhengdong Zhu, Champion Shine Trading Limited, Easerich Group Limited and our other shareholders. Technically, Zhengdong Zhu
may not be deemed to have voting and dispositive power over such 314,619 ordinary shares because those shares are currently held by Easerich Group Limited. The business address of Zhengdong Zhu is 18th Floor, Xueyuan International Tower 1, Zhichun
Road, Haidian District, Beijing 100083, China.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Includes 57,996,000 ordinary shares held by Champion Holdings, 10,613,306 ordinary shares held by Champion Shine Trading Limited and 40,000 ordinary shares purchasable
at an exercise price of $0.82 per share under the options granted by our board of directors on December 2, 2008 and vested on December 2, 2009. Baohong Yin holds 20% of the equity interest in Champion Holdings. Zhengdong Zhu holds 60% of
the equity interest in Champion Holdings and he is the sole shareholder of Champion Shine Trading Limited. Zhengdong Zhu and Baohong Yin are husband and wife. As Zhengdong Zhu and Baohong Yin have a controlling interest in Champion Holdings, they
may be deemed to share beneficial ownership of all the shares held by Champion Holdings. The business address of Baohong Yin is 18th Floor, Xueyuan International Tower, 1 Zhichun Road, Haidian District, Beijing 100083, China.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Includes 5,799,600 ordinary shares held by Champion Holdings. Hongfeng Sun holds 10% of the shares in Champion Holdings and therefore is deemed to receive the economic
benefit of ownership of 10% of the ordinary shares held by Champion Holdings. The business address of Hongfeng Sun is 18th Floor, Xueyuan International Tower, 1 Zhichun Road, Haidian District, Beijing 100083, China.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Includes 2,899,800 ordinary shares held by Champion Holdings and 40,000 ordinary shares purchasable at an exercise price of $0.82 per share under the options granted by
our board of directors on December 2, 2008 and vested on December 2, 2009. Xiaoshu Chen holds 5% of the equity interest in Champion Holdings and therefore is deemed to receive the economic benefit of ownership of 5% of the ordinary shares
held by Champion Holdings. The business address of Xiaoshu Chen is Southeastern University, No. 2 Sipailou, Nanjing 210096, China.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | Includes 40,000 ordinary shares purchasable at an exercise price of $0.82 per share under the options granted by our board of directors on December 2, 2008 and
vested on December 2, 2009.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(8) | Includes a certain number of ordinary shares which were part of the 57,143 ordinary shares granted by our board of directors upon the completion of our initial public
offering and 40,000 ordinary shares purchasable at an exercise price of $0.82 per share under the options granted by our board of directors on December 2, 2008 and vested on December 2, 2009. Prior to our initial public offering, our board
of directors has approved the issuance of a certain number of restricted ordinary shares to Ms. Yu in three installments. On August 4, 2008, 57,143 restricted ordinary shares were issued to her as the initial installment, of which a
portion was subsequently converted to ADSs and disposed of. On November 17, 2009, our board approved an amendment to Ms. Yus restricted share award agreement. Accordingly, Ms. Yu is entitled to receive, in lieu of two additional
installments of restricted shares with a total value of $100,000 each as provided in the original agreement, a cash compensation of $200,000 in two equal installments for her continuous service as the independent director and chairman of the audit
committee.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(9) | Includes 57,996,000 ordinary shares held by Champion Holdings. Champion Holdings is a Hong Kong limited liability company owned by our former director Yanping Chang and
our directors and executive officers Zhengdong Zhu, Baohong Yin, Hongfeng Sun and Xiaoshu Chen.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10) | Includes 10,613,306 ordinary shares held by Champion Shine Trading Limited, a British Virgin Islands company whose sole shareholder is Zhengdong Zhu. Champion Shine
Trading Limited may have an obligation to acquire, from Easerich Group Limited, a British Virgin Islands company owned and controlled by Ping Wei, our chief financial officer, 314,619 ordinary shares pursuant to the put option arrangement as
stipulated in a share purchase agreement entered into in April 2008 by and among Zhengdong Zhu, Champion Shine Trading Limited, Easerich Group Limited and our other shareholders. Technically, Champion Shine Trading Limited may not be deemed to have
voting and dispositive power over such 314,619 ordinary shares because those shares are currently held by Easerich Group Limited. The address of Champion Shine Trading Limited is Suites 1501-1503, 15th Floor, Gloucester Tower, The Landmark, 15
Queens Road Central, Hong Kong.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|(11) | Includes 13,494,910 ordinary shares held by Orchid Asia III, L.P., 417,439 ordinary shares held by Orchid Asia Co-Investment Limited, 589,456 ordinary shares as
represented by 147,364 ADSs held by Orchid China Master Fund Limited, and 1,767,372 ordinary shares as represented by 441,843 ADSs held by YM Investment Limited. Orchid Asia III, L.P., Orchid Asia Co-Investment Limited and Orchid China Master Fund
Limited are part of Orchid Asia Group, Limited, an investment complex that focuses on companies in Asia and China in particular. OAIII Holdings, L.P. is the general partner of Orchid Asia III, L.P. Orchid Asia Group Management Ltd. is the general
partner of OAIII Holdings, L.P. which is in turn a wholly-owned subsidiary of Orchid Asia Group, Limited. YM Investment Limited is the controlling shareholder of Orchid Asia Group, Limited, and is wholly-owned by The Li 2007 Family Trust. The Li
2007 Family Trust is a revocable trust established under the laws of the British Virgin Islands with Ms. Lam Lai Ming, Veronica as the settlor, Managecorp Limited as trustee and Ms. Lam Lai Ming and her family members the beneficiaries. YM
Investment Limited is also the controlling shareholder of Orchid Asia Co-Investment Limited. Orchid China Management (Cayman) Limited serves as the investment manager to Orchid China Master Fund Limited, which is in turn majority owned by YM
Investment Limited. The address of Orchid Asia III, L.P., Orchid Asia Co-Investment Limited, Orchid China Master Fund Limited and YM Investment Limited is c/o Orchid Asia Hong Kong Management Co. Ltd., Suite 6110, 61/F, The Center, 99 Queens
Road, Central, Hong Kong.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(12) | Includes 7,481,797 ordinary shares held by Artson Limited, a British Virgin Islands company with a correspondence address at 22nd Floor, Hang Lung Centre, 2-20 Paterson
Street, Causeway Bay, Hong Kong. Artson Limited is wholly-owned by Morningside Technology Investments Limited, a British Virgin Islands company, which is in turn ultimately wholly beneficially owned by a family trust established by Madam Chan Tan
Ching Fen.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(13) | Includes 14,518,523 ordinary shares and 1,750,000 ordinary shares as represented by 437,500 ADSs held by Bertelsmann Asia Investments AG, which is a wholly-owned
subsidiary of Bertelsmann AG and an investment fund used to finance Bertelsmanns strategic investments. Bertelsmann Stiftung owns 76.9% of the shares of Bertelsmann AG through intermediate shareholding companies without any voting rights in
these intermediate shareholding companies and the Mohn family owns the remaining 23.1% of the shares of Bertelsmann AG through intermediate shareholding companies without any voting rights in these intermediate shareholding companies. The
Bertelsmann Verwaltungsgesellschaft, which is controlled by the Mohn family, controls 100% of the voting rights in Bertelsmann AG through intermediate shareholding companies.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As of September 30, 2009, of the 138,765,685 issued and outstanding ordinary shares, approximately 26.9% of those ordinary shares are
held in the U.S., all under one registered holder of record.

None of our existing shareholders has voting rights that differ
from the voting rights of other shareholders. We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.

In April 2008, we adopted our Share Incentive Plan pursuant to which we have reserved 11,652,556 ordinary shares to be issued upon the exercise of share options that we may grant to certain employees and
others. We adopted on July 2, 2008, and amended and restated on February 16, 2009, our 2008 Performance Incentive Plan pursuant to which the maximum number of ordinary shares that may be issued is 8,511,007 ordinary shares as of
September 30, 2009, plus an automatic annual increase on October 1 of each calendar year, by an amount equal to the lesser of (i) 1% of the total number of ordinary shares issued and outstanding on September 30 of the same
calendar year, (ii) 1,387,657 ordinary shares, or (iii) such number of ordinary shares as may be determined by our board of directors. For more information on options granted to our existing shareholders, see Item 6.B. Director,
Senior Management and Employees  Compensation  Share Options, Restricted Shares and Share Incentive Plans.

We completed our initial public offering of 8,750,000 ADS, representing 35,000,000 ordinary shares on August 4, 2008.

Historical Changes in Shareholdings of our Major Shareholders

CDEL Hong Kong was incorporated in March 2003
with a total of ten outstanding shares, six of which were held by Empire China Limited and four by Zhengdong Zhu. In August 2004, prior to a contemplated initial public offering on the Singapore Stock Exchange, CET Technologies Pte Ltd., a Singapore
company, purchased one ordinary share of CDEL Hong Kong from Mr. Zhu at a purchase price of RMB7.2 million ($1.1 million), which was satisfied by a payment of HK$6,818,182. In September 2006, Mr. Zhu repurchased that one ordinary share at
a price of RMB16.2 million ($2.4 million). In January 2007, Mr. Zhu transferred three shares to Champion Shine Trading Limited, or Champion Shine, his personal holding company incorporated in the British Virgin Islands. In February 2007, CDEL
Hong Kong executed a 1 to 10,000 share split of its ordinary shares.



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The following table illustrates the transactions described above starting from the
incorporation of CDEL Hong Kong in March 2003 to the share split of CDEL Hong Kong in February 2007 and their impact on our equity ownership structure:



|                               |  |                                |  |     |                                       |  |                |                                          |     |   |                                        |                |  |                                             |   |  |                |  |     |   |  |                |  |     |  
|------------------------------ |  | ------------------------------ |  | --- | ------------------------------------- |  | -------------- | ---------------------------------------- | --- | - | -------------------------------------- | -------------- |  | ------------------------------------------- | - |  | -------------- |  | --- | - |  | -------------- |  | --- | -
|                               |  | UponIncorporation inMarch 2003 |  |     | Following ShareTransfer inAugust 2004 |  |                | Following ShareTransfer inSeptember 2006 |     |   | Following ShareTransfer inJanuary 2007 |                |  | Following ShareSub-division inFebruary 2007 |  
|                               |  | OrdinaryShares                 |  | %   |                                       |  | OrdinaryShares |                                          | %   |   |                                        | OrdinaryShares |  | %                                           |   |  | OrdinaryShares |  | %   |   |  | OrdinaryShares |  | %   |  
|Empire China Limited           |  | 6                              |  | 60  | %                                     |  | 6              |                                          | 60  | % |                                        | 6              |  | 60                                          | % |  | 6              |  | 60  | % |  | 60,000         |  | 60  | %
|Zhengdong Zhu                  |  | 4                              |  | 40  | %                                     |  | 3              |                                          | 30  | % |                                        | 4              |  | 40                                          | % |  | 1              |  | 10  | % |  | 10,000         |  | 10  | %
|CET Technologies Pte Ltd.      |  |                               |  |    |                                       |  | 1              |                                          | 10  | % |                                        |               |  |                                            |   |  |               |  |    |   |  |               |  |    |  
|Champion Shine Trading Limited |  |                               |  |    |                                       |  |               |                                          |    |   |                                        |               |  |                                            |   |  | 3              |  | 30  | % |  | 30,000         |  | 30  | %
|                               |  |                                |  |     |                                       |  |                |                                          |     |   |                                        |                |  |                                             |   |  |                |  |     |   |  |                |  |     |  
|Total Issued                   |  | 10                             |  | 100 | %                                     |  | 10             |                                          | 100 | % |                                        | 10             |  | 100                                         | % |  | 10             |  | 100 | % |  | 100,000        |  | 100 | %
|Total Authorized               |  | 10,000                         |  |     |                                       |  | 10,000         |                                          |     |   |                                        | 10,000         |  |                                             |   |  | 10,000         |  |     |   |  | 99,000,000     |  |     |  

In March 2007, CDEL Hong Kong issued and sold an aggregate of 12,996 Series A convertible
redeemable preferred shares, or preferred shares, to three investors, Orchid Asia III, L.P., Orchid Asia Co-Investment Limited and Artson Limited, at a price per share of $615.553 for an aggregate purchase price of approximately $7.9 million, net of
issuing expenses of approximately $0.1 million.

Immediately after the purchase of preferred shares by the three investors,
CDEL Hong Kong repurchased and cancelled from Champion Shine 8,123 ordinary shares at a price of $615.553 per share, amounting to an aggregate purchase price of $5.0 million.

In June 2007, Mr. Zhu transferred the 10,000 ordinary shares he then held to Champion Shine.

The following table illustrates the transactions described above from the Series A financing in March 2007 to the share transfer in June
2007 and their impact on our equity ownership structure.



|                                  |  |                                          |  |      |                                     |  |            |  |      |  
|--------------------------------- |  | ---------------------------------------- |  | ---- | ----------------------------------- |  | ---------- |  | ---- | -
|                                  |  | Following Series AFinancing inMarch
2007 |  |      | Following ShareTransfer inJune
2007 | 
|                                  |  | Shares                                   |  | %    |                                     |  | Shares     |  | %    |  
|Ordinary Shares Outstanding       |  |                                          |  |      |                                     |  |            |  |      |  
|Empire China Limited              |  | 60,000                                   |  | 57.2 | %                                   |  | 60,000     |  | 57.2 | %
|Zhengdong Zhu                     |  | 10,000                                   |  | 9.5  | %                                   |  |           |  |     |  
|Champion Shine Trading Limited    |  | 21,877                                   |  | 20.9 | %                                   |  | 31,877     |  | 30.4 | %
|                                  |  |                                          |  |      |                                     |  |            |  |      |  
|Total Issued                      |  | 91,877                                   |  | 87.6 | %                                   |  | 91,877     |  | 87.6 | %
|Total Authorized                  |  | 99,000,000                               |  |      |                                     |  | 99,000,000 |  |      |  
|Preferred A Shares Outstanding    |  |                                          |  |      |                                     |  |            |  |      |  
|Orchid Asia III, L.P.             |  | 6,303                                    |  | 6.0  | %                                   |  | 6,303      |  | 6.0  | %
|Orchid Asia Co-Investment Limited |  | 195                                      |  | 0.2  | %                                   |  | 195        |  | 0.2  | %
|Artson Limited                    |  | 6,498                                    |  | 6.2  | %                                   |  | 6,498      |  | 6.2  | %
|                                  |  |                                          |  |      |                                     |  |            |  |      |  
|Total Issued                      |  | 12,996                                   |  | 12.4 | %                                   |  | 12,996     |  | 12.4 | %
|Total Authorized                  |  | 1,000,000                                |  |      |                                     |  | 1,000,000  |  |      |  

In March 2008, CDEL Cayman issued shares to the existing shareholders of CDEL Hong Kong in
exchange of all of the outstanding shares of CDEL Hong Kong at a rate of 1,000 shares in CDEL Cayman in return for each share in CDEL Hong Kong. In this section only, all historical share and per share data before March 2008 are presented without
giving the retroactive effect to the share exchange between CDEL Hong Kong and our company at a rate of 1,000 shares in our company to one share in CDEL Hong Kong.



86



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In April 2008, Champion Shine sold an aggregate of 3,722,991 ordinary shares to Orchid Asia
III, L.P., Orchid Asia Co-Investment Limited and Easerich Group Limited, a British Virgin Islands company owned and controlled by Ping Wei, our chief financial officer, at a price of $2.995966 per share for an aggregate purchase price of
$11,153,954.5. In May 2008, Champion Shine sold an aggregate of 5,243,650 ordinary shares to Bertelsmann Asia Investments AG, a company organized under the laws of Switzerland at a price of $2.995966 per share for an aggregate purchase price of
$15,709,797. Pursuant to the share purchase agreements for the April and May 2008 share sales, the purchase price per share paid by each of the four purchasers was or will be reduced by an amount equal to $2.995966 minus 80% of the initial public
offering price, as our initial public offering price was less than $3.7449575 per ordinary share as represented by ADS. In the event that a qualified public offering is not completed by December 31, 2008 for any reason, each of Orchid Asia III,
L.P., Orchid Asia Co-Investment Limited, Easerich Group Limited and Bertelsmann Asia Investments AG had a put option to sell to Champion Shine or Mr. Zhu all or any portion of the ordinary shares it purchased at a price equal to 120% of the
original per share purchase price, compounding on a per annum basis to the payment date, provided that such put option must be exercised on or prior to December 31, 2009. For purposes of the put option, a qualified public offering means an
offering in which we raise gross proceeds of no less than $70 million (excluding underwriting discount) and in which the offering price per ordinary share is no less than $1.846659, which is three times the original subscription price of our
preferred shares. Our initial public offering was not considered a qualified public offering for these purposes. No qualified public offering was completed by December 31, 2008.

The following table illustrates the April and May 2008 transactions and their impact on our equity ownership structure.



|                                  |  |                                       |  |      |                                     |  |             |  |      |  
|--------------------------------- |  | ------------------------------------- |  | ---- | ----------------------------------- |  | ----------- |  | ---- | -
|                                  |  | Following ShareTransfer in April 2008 |  |      | Following ShareTransfer in May 2008 | 
|                                  |  | Shares                                |  | %(1) |                                     |  | Shares      |  | %(1) |  
|Ordinary Shares Outstanding       |  |                                       |  |      |                                     |  |             |  |      |  
|Empire China Limited              |  | 60,000,000                            |  | 56.2 | %                                   |  | 60,000,000  |  | 56.2 | %
|Champion Shine Trading Limited    |  | 28,154,009                            |  | 26.4 | %                                   |  | 22,910,359  |  | 21.4 | %
|Orchid Asia III, L.P.             |  | 3,306,121                             |  | 3.1  | %                                   |  | 3,306,121   |  | 3.1  | %
|Orchid Asia Co-Investment Limited |  | 102,251                               |  | 0.1  | %                                   |  | 102,251     |  | 0.1  | %
|Easerich Group Limited            |  | 314,619                               |  | 0.3  | %                                   |  | 314,619     |  | 0.3  | %
|Bertelsmann Asia Investments AG   |  |                                      |  |     |                                     |  | 5,243,650   |  | 4.9  | %
|                                  |  |                                       |  |      |                                     |  |             |  |      |  
|Total Issued                      |  | 91,877,000                            |  | 86.0 | %                                   |  | 91,877,000  |  | 86.0 | %
|Total Authorized                  |  | 480,000,000                           |  |      |                                     |  | 480,000,000 |  |      |  



|                                  |  |                                       |  |      |                                     |  |            |  |      |  
|--------------------------------- |  | ------------------------------------- |  | ---- | ----------------------------------- |  | ---------- |  | ---- | -
|                                  |  | Following ShareTransfer in April 2008 |  |      | Following ShareTransfer in May 2008 | 
|                                  |  | Shares                                |  | %(1) |                                     |  | Shares     |  | %(1) |  
|Preferred A Shares Outstanding    |  |                                       |  |      |                                     |  |            |  |      |  
|Orchid Asia III, L.P.             |  | 6,303,000                             |  | 6.8  | %                                   |  | 6,303,000  |  | 6.8  | %
|Orchid Asia Co-Investment Limited |  | 195,000                               |  | 0.2  | %                                   |  | 195,000    |  | 0.2  | %
|Artson Limited                    |  | 6,498,000                             |  | 7.0  | %                                   |  | 6,498,000  |  | 7.0  | %
|                                  |  |                                       |  |      |                                     |  |            |  |      |  
|Total Issued                      |  | 12,996,000                            |  | 14.0 | %                                   |  | 12,996,000 |  | 14.0 | %
|Total Authorized                  |  | 20,000,000                            |  |      |                                     |  | 20,000,000 |  |      |  



|(1) | Percentage is calculated based on a conversion ratio of 1.1514 ordinary shares for each preferred share.
|--- | --------------------------------------------------------------------------------------------------------

In June 2008, Empire China Limited transferred 57,996,000 and 2,004,000 ordinary shares to Champion International Holdings Limited and Union
Fortune Investment Limited, respectively, each with an aggregate consideration of $1.



87



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##### Table of Contents

The following table illustrates the June 2008 transaction and its impact on our equity
ownership structure.



|                                        |  |                                     |  |      |                                      |  |             |  |      |  
|--------------------------------------- |  | ----------------------------------- |  | ---- | ------------------------------------ |  | ----------- |  | ---- | -
|                                        |  | Following ShareTransfer in May 2008 |  |      | Following ShareTransfer in June 2008 | 
|                                        |  | Shares                              |  | %(1) |                                      |  | Shares      |  | %(1) |  
|Ordinary Shares Outstanding             |  |                                     |  |      |                                      |  |             |  |      |  
|Empire China Limited                    |  | 60,000,000                          |  | 56.2 | %                                    |  |            |  |     |  
|Champion Shine Trading Limited          |  | 22,910,359                          |  | 21.4 | %                                    |  | 22,910,359  |  | 21.4 | %
|Orchid Asia III, L.P.                   |  | 3,306,121                           |  | 3.1  | %                                    |  | 3,306,121   |  | 3.1  | %
|Orchid Asia Co-Investment Limited       |  | 102,251                             |  | 0.1  | %                                    |  | 102,251     |  | 0.1  | %
|Easerich Group Limited                  |  | 314,619                             |  | 0.3  | %                                    |  | 314,619     |  | 0.3  | %
|Bertelsmann Asia Investments AG         |  | 5,243,650                           |  | 4.9  | %                                    |  | 5,243,650   |  | 4.9  | %
|Champion International Holdings Limited |  |                                    |  |     |                                      |  | 57,996,000  |  | 54.3 | %
|Union Fortune Investment Limited        |  |                                    |  |     |                                      |  | 2,004,000   |  | 1.9  | %
|                                        |  |                                     |  |      |                                      |  |             |  |      |  
|Total Issued                            |  | 91,877,000                          |  | 86.0 | %                                    |  | 91,877,000  |  | 86.0 | %
|Total Authorized                        |  | 480,000,000                         |  |      |                                      |  | 480,000,000 |  |      |  
|Preferred A Shares Outstanding          |  |                                     |  |      |                                      |  |             |  |      |  
|Orchid Asia III, L.P.                   |  | 6,303,000                           |  | 6.8  | %                                    |  | 6,303,000   |  | 6.8  | %
|Orchid Asia Co-Investment Limited       |  | 195,000                             |  | 0.2  | %                                    |  | 195,000     |  | 0.2  | %
|Artson Limited                          |  | 6,498,000                           |  | 7.0  | %                                    |  | 6,498,000   |  | 7.0  | %
|                                        |  |                                     |  |      |                                      |  |             |  |      |  
|Total Issued                            |  | 12,996,000                          |  | 14.0 | %                                    |  | 12,996,000  |  | 14.0 | %
|Total Authorized                        |  | 20,000,000                          |  |      |                                      |  | 20,000,000  |  |      |  



|(1) | Percentage is calculated based on a conversion ratio of 1.1514 ordinary shares for each preferred share.
|--- | --------------------------------------------------------------------------------------------------------

In October 2008, Bertelsmann Asia Investments AG, Champion Shine and Mr. Zhu entered into a settlement agreement to settle all of their
claims, obligations and liabilities, including the penalty payment and put option discussed above, under the prior share purchase agreement entered into by them in May 2008. Pursuant to the settlement, the parties agreed that a $9,019,813.73 penalty
payment obligation owed by Mr. Zhu and Champion Shine to Bertelsmann would be completely satisfied by a transfer from Champion Shine to Bertelsmann Asia Investments AG of a total of 9,274,873 ordinary shares with a mutually agreed price of
$3.89 per ADS, or $0.9725 per ordinary share. The share transfer was completed in early November 2008 through two steps: (i) Bertelsmann Asia Investments AG enforced a charge created in its favor over 5,243,650 ordinary shares held by Champion
Shine; and (ii) Champion Shine transferred to Bertelsmann Asia Investments AG an additional 4,031,223 ordinary shares. The parties further agreed to grant each other a preemptive right with respect to any ordinary shares in the event of a
proposed share disposal by a party.

In 2008, our shareholders Bertelsmann Asia Investments AG acquired an aggregate of
1,750,000 ordinary shares as represented by 437,500 ADSs from the open market.

With respect to the penalty payment
obligations owed by Mr. Zhu and Champion Shine to Orchid Asia III, L.P. and Orchid Asia Co-Investment Limited under the share purchase agreement entered into by them in April 2008, the following transactions took place from September 2008 to
December 2008. In mid September 2008, Mr. Zhu paid an aggregate of $3,000,000 to Orchid Asia III, L.P. and Orchid Asia Co-Investment Limited, representing partial satisfaction of the total penalty payments owed to them. In late September 2008,
Orchid Asia III, L.P. and Orchid Asia Co-Investment Limited enforced two charges created in their favor over an aggregate of 6,816,744 ordinary shares held by Champion Shine. In November 2008, Orchid Asia III, L.P., Orchid Asia Co-Investment
Limited, Champion Shine and Mr. Zhu entered into a settlement agreement, to settle all of their claims, obligations and liabilities, including the penalty payment and put option discussed above, under the prior share purchase agreement.
Pursuant to the settlement, the parties agreed that the penalty payment obligations owed by Mr. Zhu and Champion Shine to Orchid Asia III, L.P. and Orchid Asia Co-Investment Limited would be completely satisfied by (i) the partial
satisfaction by Mr. Zhu in September 2008 and (ii) Orchid Asia III, L.P. and Orchid Asia Co-Investment Limited retaining an aggregate of 3,022,180 ordinary shares with a mutually agreed price of $3.89 per ADS, or $0.9725 per ordinary
share, which shares were part of the shares enforced in September 2008 by Orchid Asia III, L.P. and Orchid Asia Co-Investment Limited under the prior share charges. In December 2008, Orchid Asia III, L.P. and Orchid Asia Co-Investment Limited
transferred back to Champion Shine the remaining 3,794,564 ordinary shares subject to the prior charge.

In 2008, Orchid China
Master Fund Limited and YM Investment Limited, each an affiliate of our shareholders Orchid Asia III, L.P. and Orchid Asia Co-Investment Limited, acquired an aggregate of 1,885,540 ordinary shares as represented by 471,385 ADSs from the open market.
In 2009, YM Investment Limited acquired an aggregate of 218,008 ordinary shares as represented by 54,502 ADSs from the open market.



88



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##### Table of Contents

|ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|------- | -------------------------------------------------

A. Major Shareholders

Please refer to Item 6.E. Directors,
Senior Management and Employees  Share Ownership.

B. Related Party Transactions.

Share Repurchases and Private Placement

In March 2007, CDEL Hong Kong issued and sold in a private placement an aggregate of 12,996,000 Series A convertible redeemable preferred shares, or preferred shares, to three investors, Orchid Asia III,
L.P., Orchid Asia Co-Investment Limited and Artson Limited, at a price per share of $0.615553 for an aggregate purchase price of $7.9 million, net of issuing expenses of approximately $0.1 million. Immediately after the purchase of preferred shares
by the three investors, CDEL Hong Kong repurchased from Champion Shine Trading Limited, or Champion Shine, a 30.4% shareholder of CDEL Hong Kong, 8,123,000 ordinary shares at the price of $0.615553 per share, amounting to an aggregate purchase price
of $5.0 million.

We incorporated CDEL Cayman in the Cayman Islands in January 2008 as our listing vehicle. CDEL Cayman became
our immediate holding company in March 2008 when it issued shares to the existing shareholders of CDEL Hong Kong in exchange of all of the outstanding shares of CDEL Hong Kong at a rate of 1,000 shares in CDEL Cayman in return for each share in CDEL
Hong Kong.

Shareholders Agreement

We have entered into a shareholders agreement with Orchid Asia III, L.P., Orchid Asia Co-Investment Limited and Artson Limited and our existing holders of ordinary shares. Pursuant to the shareholders
agreement, we granted certain registration rights to holders of our registrable securities. Registrable securities include (i) our ordinary shares issuable or issued upon conversion of our preferred shares, (ii) any of our ordinary shares
issued as a dividend or other distribution with respect to, in exchange for, or in replacement of, the shares referenced in (i), and (iii) any other ordinary shares owned or acquired by any of holders of our preferred shares, excluding, among
others, shares sold in a public offering. On July 25, 2008, the parties amended the shareholders agreement solely for the purpose of revising the definition of a qualified public offering to be a firm commitment underwritten public offering of
our ordinary shares as represented by ADSs on NYSE Arca.

Under the terms of the agreement, from the date that is six months
after the closing of our initial public offering, which occurred on August 4, 2008, holders of a majority in interests of our then outstanding registrable securities may require us to effect the registration for the sale of their registrable
securities. We are obliged to effect up to five demand registrations. We have the right to defer filing for a period of no more than 90 days if our board of directors in good faith determines that filing of such registration will be materially
detrimental to us and our shareholders, but we can not utilize this right more than once in any twelve-month period.

Holders
of registrable securities also have piggyback registration rights, pursuant to which they may require us to register all or any part of the registrable securities then held by such holders when we file any registration statements for
purposes of effecting a public offering of our securities.

If any of the offerings relating to a demand registration or a
piggyback registration involves an underwriting, the managing underwriter of any such offering has certain rights to limit the number of shares included in such registration. However, where the number of registrable securities included in an
underwritten public offering is to be reduced, the securities other than registrable shares must be reduced before any registrable securities may be reduced, and the number of our registrable shares that are included in such offering may not be
reduced to less than 75% of the aggregate number of our registrable shares requested to be included in such underwriting.

Holders of registrable securities may also require us to effect a registration on Form S-3 or Form F-3 and any related qualification or compliance, as applicable, for a public offering of all or a part of their registrable securities so
long as we are entitled to use Form S-3 or Form F-3 for such offering. However, we are not obliged to effect any such registration, when (i) the aggregate price to the public of such offering is less than $500,000, or (ii) within the six
month period preceding the date of such request, we have already effected a registration other than the registration from which the registrable securities of such holders have been excluded. We have the right to defer such filing for a period of no
more than 90 days if our board of directors in good faith determines that filing of such registration will be materially detrimental to us and our shareholders, but we can not utilize this right more than once during any twelve-month period.



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We are generally required to pay all expenses relating to any demand, piggyback or F-3 or
S-3 registration other than all selling expenses or other amounts payable to underwriters or brokers for selling shareholders, if applicable.

We will have no obligations to effect any demand, piggyback or F-3 or S-3 registration with respect to any registrable securities after five years following the consummation of our initial public
offering.

Conversion of Our Preferred Shares

On July 25, 2008, all holders of our preferred shares, voting as a single class, unanimously consented to each preferred share being
automatically converted into our ordinary shares on a conversion price of $0.534636 immediately prior to our initial public offering.

Transactions with Certain Related Parties

In 2005, 2006 and 2007, Champion Technology and Champion Education
Technology, our PRC subsidiaries, and Beijing Champion, our affiliated entity, leased various office spaces from Zhengdong Zhu, our chairman and chief executive officer. As of the date of this annual report, all of these leases have been terminated.
We and Mr. Zhu have acknowledged in writing that there is no further claim against each other under such leases.

In
December 2006, Beijing Champion purchased an office space of 671.5 square meters from Mr. Zhu at a purchase price of $1.2 million. The price was determined by an independent third-party asset appraisal. Beijing Champion paid the purchase price
in full in April 2007 and the title of the premises was transferred to Beijing Champion at the same time.

In June 2007,
Champion Technology purchased an office space of 335.6 square meters from Mr. Zhu at a purchase price of $0.7 million. The price was determined by an independent third-party asset appraisal. Champion Technology paid the purchase price in full
in December 2007 and the title of the premises was transferred to Champion Technology at the same time.

In June 2007,
Champion Education Technology purchased an office space of 361.7 square meters from Mr. Zhu at a purchase price of $0.8 million. The price was determined by an independent third-party asset appraisal. Champion Education Technology paid the
purchase price in full in September 2007 and the title of the premises was transferred to Champion Education Technology at the same time.

In December 2006, Champion Technology and Mr. Zhu jointly provided a counter guarantee to Beijing Zhongguancun Sci-Tech Guaranty Co. Ltd., which in turn provided a guarantee for a short term
borrowing in the amount of $0.4 million incurred by Beijing Champion to Bank of Beijing. The loan was fully repaid in December 2007 by Beijing Champion.

Beijing Champion granted Caikaowang, its former equity investee, the use of certain of its domain names for no consideration during the period from November 30, 2007 to June 2, 2008 when
Caikaowang became a wholly owned subsidiary of Beijing Champion.

Agreements among CDEL Hong Kong, Champion Technology,
Champion Education Technology, Beijing Champion and Its Shareholders

See Item 4.C. Information on the Company 
Organizational Structure.

C. Interests of Experts and Counsel

Not applicable.



|ITEM 8. | FINANCIAL INFORMATION
|------- | ---------------------

A. Consolidated statements and other financial information.

We have appended consolidated financial statements
filed as part of this annual report. See Item 18. Financial Statements.



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Legal Proceedings

We are not currently involved in any litigation, arbitration or administrative proceedings that could have a material adverse effect on our
financial condition or results of operations. From time to time, we may be subject to various claims and legal actions arising in the ordinary course of business.

In January 2010, we filed an arbitration application, as amended in February and March 2010, with the China International Economic and Trade Arbitration Commission, or CIETAC, against Mr. Liang Ma,
Beijing Yinglun Yucai Education Consulting Co., Ltd. or Yinglun Yucai, and Global Education Consortium Group Co., Limited, or the respondents, in accordance with the dispute resolution clause in the investment agreement entered into between us and
the respondents in connection with our acquisition of Yinglun Yucais business start-up training business in March 2009. In the application, we request, among other things, that the respondents should: (i) cease their engagement in
competing businesses prohibited under the investment agreement and perform their obligation under such agreement, (ii) pay us damages in the amount of RMB2 million ($0.3 million), (iii) return to us a portion of the acquisition
consideration in the amount of RMB16.5 million($2.4 million) for failure to achieve the stipulated profit target for the fiscal year 2009, pursuant to the contingent payment obligation provision in the investment agreement, and (iv) compensate
Zhengbao Yucai in the amount of RMB 2.8 million ($0.4 million) for the operating loss incurred in the fiscal year 2009. The application has been accepted by CIETA but the proceeding has not commenced.

Dividend Policy

We currently intend to retain most of our available funds and any future earnings to finance our business and to fund the growth and expansion of our business in the PRC, and, therefore, do not expect to pay any cash dividends on our
ordinary shares, including those represented by ADSs, in the foreseeable future.

We are a holding company incorporated in the
Cayman Islands. We rely on dividends from our subsidiaries in China. Current PRC regulations permit our subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and
regulations. In addition, our subsidiaries in China are required to set aside each year a certain amount of their accumulated after-tax profits, if any, to fund certain statutory reserves. These reserves may not be distributed as cash dividends.
Further, if our subsidiaries in China incur debt on their own behalf, the instruments governing the debt may restrict their ability to pay dividends or make other payments to us. In addition, under the New EIT Law, effective as of January 1,
2008, dividends from our PRC subsidiaries to us may be subject to a 10% withholding tax, subject to reduction by an applicable tax treaty with the PRC if they are derived from profits generated after January 1, 2008. For a detailed discussion,
see Item 3.D. Key Information  Risk Factors  Risks Relating to Our Corporate Structure and Restrictions on Our Industry  We may rely principally on dividends and other distributions on equity paid by our PRC subsidiaries for
our cash requirements, but such dividends and other distributions are subject to restrictions under PRC law. Limitations on the ability of our PRC subsidiaries to transfer funds to us could materially and adversely affect our ability to grow, make
investments or acquisitions, pay dividends, and otherwise fund and conduct our businesses, and Item 5.A. Operating and Financial Review and Prospects  Operating Results  Taxation  Enterprise Income Tax. Any future
determination to pay dividends, if any, will be made at the discretion of our board of directors and will be based upon our future operations and earnings, capital requirements and surplus, general financial condition, shareholders interests,
contractual restrictions and other factors our board of directors may deem relevant.

Holders of our ADSs will be entitled to
receive dividends, if any, subject to the terms of the deposit agreement, to the same extent as the holders of our ordinary shares. Cash dividends will be paid to the depositary in U.S. dollars, which will distribute them to the holders of ADSs
according to the terms of the deposit agreement. Other distributions, if any, will be paid by the depositary to the holders of ADSs in any means it deems legal, fair and practical.

B. Significant Changes

Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our audited financial statements included in this report.



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|ITEM 9. | THE OFFER AND LISTING
|------- | ---------------------

A. Offering and listing details.

Price Range of Our ADSs

Our ADSs were initially listed for trading on NYSE Arca under the symbol DL. On February 4, 2009, we transferred the listing
and trading of our ADSs from NYSE Arca to the New York Stock Exchange, Inc., or the NYSE, under the same symbol DL. The following table sets forth the monthly high and low trading prices of our ADSs on the NYSE (or NYSE Arca, prior to
February 4, 2009), for the periods indicated:



|                                                   |  |      |      |     |   |     
|-------------------------------------------------- |  | ---- | ---- | --- | - | ----
|                                                   |  | High |      | Low
|Annual Highs and Lows                              |  |      |      |     |   |     
|Fiscal Year 2008 (from July 30, 2008)              |  | $    | 7.00 |     | $ | 3.00
|Fiscal Year 2009                                   |  | $    | 8.90 |     | $ | 2.08
|                                                   |  |     
|Quarterly Highs and Lows                           |  |      |      |     |   |     
|Fourth Fiscal Quarter of 2008 (from July 30, 2008) |  | $    | 7.00 |     | $ | 3.00
|First Fiscal Quarter of 2009                       |  | $    | 4.95 |     | $ | 2.08
|Second Fiscal Quarter of 2009                      |  | $    | 6.51 |     | $ | 3.81
|Third Fiscal Quarter of 2009                       |  | $    | 8.90 |     | $ | 4.28
|Fourth Fiscal Quarter of 2009                      |  | $    | 8.80 |     | $ | 6.16
|                                                   |  |     
|Monthly Highs and Lows                             |  |      |      |     |   |     
|2009                                               |  |      |      |     |   |     
|September                                          |  | $    | 8.08 |     | $ | 6.82
|October                                            |  | $    | 7.57 |     | $ | 6.40
|November                                           |  | $    | 7.96 |     | $ | 6.72
|December                                           |  | $    | 7.15 |     | $ | 5.18
|2010                                               |  |      |      |     |   |     
|January                                            |  | $    | 7.00 |     | $ | 6.01
|February                                           |  | $    | 6.85 |     | $ | 5.85
|March (through March 30, 2010)                     |  | $    | 6.80 |     | $ | 5.17

On March 30, 2010, the
closing sale price of our ADSs as reported on the NYSE was $6.24 per ADS.

B. Plan of Distribution

Not applicable.

C. Markets

See Item 9.A. above.

D. Selling Shareholders

Not applicable.

E. Dilution

Not applicable.

F. Expenses of the Issue

Not applicable.



|ITEM 10. | ADDITIONAL INFORMATION
|-------- | ----------------------

A. Share capital

Not applicable.



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B. Memorandum of Association and Articles of Association

We incorporate by reference into this annual report the description of our second amended and restated memorandum of association and articles
of association contained in Description of Share Capital of our F-1 registration statement (File No. 333-152167) originally filed with the Securities and Exchange Commission on July 7, 2008, as amended.

Differences in Corporate Law

China Distance Education Holdings Limited was incorporated as an exempted company with limited liability in the Cayman Islands in January 2008 under the Companies Law of the Cayman Islands, or the Company
Law. Our corporate affairs are governed by our second amended and restated memorandum of association and articles of association, the Cayman Islands Companies Law and the common law of the Cayman Islands.

The Companies Law is modeled after similar laws in the United Kingdom but does not follow recent changes in United Kingdom laws. In
addition, the Companies Law differs from laws applicable to United States corporations and their shareholders. Set forth below is a summary of the significant differences between the provisions of the Companies Law applicable to us and the laws
applicable to companies incorporated in the United States.

Mergers and Similar Arrangements. A merger of two or more
constituent companies under Cayman Islands law requires a plan of merger or consolidation to be approved by the directors of each constituent company and authorization by (a) a majority in number representing seventy-five percent (75%) in value of
the shareholders voting together as one class and (b) if the shares to be issued to each shareholder in the surviving company are to have the same rights and economic value as the shares held in the constituent company, a special resolution of the
shareholders voting together as one class.

A merger between a Cayman parent company and its Cayman subsidiary or subsidiaries
does not require authorization by a resolution of shareholders. For this purpose a subsidiary is a company of which at least ninety percent (90%) of the issued shares entitled to vote are owned by the parent company.

The consent of each holder of a fixed or floating security interest over a constituent company is required unless this requirement is waived
by a court in the Cayman Islands.

Save in certain circumstances, a dissentient shareholder of a Cayman constituent company is
entitled to payment of the fair value of his shares upon dissenting to a merger or consolidation. The exercise of appraisal rights will preclude the exercise of any other rights save for the right to seek relief on the grounds that the merger or
consolidation is void or unlawful.

In addition, there are statutory provisions that facilitate the reconstruction and
amalgamation of companies, provided that the arrangement is approved by a majority in number of each class of shareholders and creditors (representing 75% by value) with whom the arrangement is to be made, and who must, in addition, represent
three-fourths in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by proxy at a meeting, or meetings, convened for that purpose. The convening of the meetings and subsequently
the arrangement must be sanctioned by the Grand Court of the Cayman Islands. While a dissenting shareholder has the right to express to the court the view that the transaction ought not to be approved, the court can be expected to approve the
arrangement if it determines that:



| |  |  | the statutory provisions as to the required majority vote have been met;
| | - |  | ------------------------------------------------------------------------



| |  |  | the shareholders have been fairly represented at the meeting in question and the statutory majority are acting bona fide without coercion of the
minority to promote interests adverse to those of the class;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the arrangement is such that may be reasonably approved by an intelligent and honest man of that class acting in respect of his interest; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Law.
| | - |  | ------------------------------------------------------------------------------------------------------------------

When a take over offer is made and accepted by holders of 90% of the shares within four months, the offeror may, within a two-month period
commencing on the expiration of such four month period, require the holders of the remaining shares to transfer such shares on the terms of the offer. An objection can be made to the Grand Court of the Cayman Islands but this is unlikely to succeed
in the case of an offer which has been so approved unless there is evidence of fraud, bad faith or collusion.

If an
arrangement and reconstruction is thus approved, the dissenting shareholder would have no rights comparable to appraisal rights, which would otherwise ordinarily be available to dissenting shareholders of Delaware corporations, providing rights to
receive payment in cash for the judicially determined value of the shares.

Shareholders Suits. In principle, we will normally be the proper plaintiff and a derivative action may not be brought by a minority shareholder. However, based on English
authorities, which would in all likelihood be of persuasive authority in the Cayman Islands, exceptions to the foregoing principle apply in circumstances in which:



| |  |  | a company is acting or proposing to act illegally or beyond the scope of its authority;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | the act complained of, although not beyond the scope of its authority, could be effected duly if authorized by more than a simple majority vote which
has not been obtained; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | those who control the company are perpetrating a fraud on the minority.
| | - |  | -------------------------------------------------------------------------

Corporate Governance. Cayman Islands laws do not restrict transactions with directors, requiring only that directors exercise a duty
of care and owe a fiduciary duty to the companies for which they serve. Under our second amended and restated memorandum of association and articles of association, subject to any separate requirement for audit committee approval under the
applicable rules of the NYSE or unless disqualified by the chairman of the relevant board meeting, so long as a director discloses the nature of his interest in any contract or arrangement which he is interested in, such a director may vote in
respect of any contract or proposed contract or arrangement in which such director is interested and may be counted in the quorum at such meeting.



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C. Material Contracts

We have not entered into any material contracts other than in the ordinary course of business and other than those described in
Item 4. Information on the Company and in Item 7. Major Shareholders and Related Party Transactions or elsewhere in this annual report on Form 20-F.

D. Exchange Controls

Regulation of Foreign Exchange

The PRC government imposes restrictions on
the convertibility of the Renminbi and on the collection and use of foreign currency by PRC entities. Under current regulations, the Renminbi is convertible for current account transactions, which include dividend distributions, interest payments,
and the import and export of goods and services. Conversion of Renminbi into foreign currency and foreign currency into Renminbi for capital account transactions, such as direct investment, portfolio investment and loans, however, is still generally
subject to the prior approval of SAFE.

Under current PRC regulations, foreign-invested enterprises such as our PRC
subsidiaries are required to apply to SAFE for a Foreign Exchange Registration Certificate for Foreign-Invested Enterprise. With such a certificate (which is subject to review and renewal by SAFE on an annual basis), a foreign-invested enterprise
may open foreign exchange bank accounts at banks authorized to conduct foreign exchange business by SAFE and may buy, sell and remit foreign exchange through such banks, subject to documentation and approval requirements. Foreign-invested
enterprises are required to open and maintain separate foreign exchange accounts for capital account transactions and current account transactions. In addition, there are restrictions on the amount of foreign currency that foreign-invested
enterprises may retain in such accounts.

Regulation of Foreign Exchange in Certain Onshore and Offshore Transactions

In October 2005, SAFE issued the Notice on Issues Relating to the Administration of Foreign Exchange in Fund-Raising and
Return Investment Activities of Domestic Residents Conducted via Offshore Special Purpose Companies, or SAFE Circular 75, which became effective as of November 1, 2005. According to SAFE Circular 75, prior to establishing or assuming control of
an offshore enterprise for the purpose of financing that offshore enterprise with assets or equity interests in an onshore enterprise in the PRC, each PRC resident, whether a natural or legal person, must complete certain overseas investment foreign
exchange registration procedures with the relevant local SAFE branch. An amendment to the registration with the local SAFE branch is required to be filed by any PRC resident that directly or indirectly holds interests in that offshore enterprise
upon either (i) the injection of equity interests or assets of an onshore enterprise to the offshore enterprise or (ii) any overseas fund-raising by such offshore enterprise after such injection. An amendment to the registration with the
local SAFE branch is also required to be filed by such PRC resident when there is any material change involving a change in the capital of the offshore enterprise, such as (i) an increase or decrease in its capital, (ii) a transfer or swap
of shares, (iii) a merger or division, (iv) a long-term equity or debt investment or (v) the creation of any security interests.

SAFE Circular 75 applies retroactively. As a result, PRC residents who established or acquired control of offshore companies that made onshore investments in the PRC in the past were required to complete
the relevant overseas investment foreign exchange registration procedures by March 31, 2006. Under SAFE Circular 75, failure to comply with the registration procedures may result in restrictions on the relevant onshore entity, including
restrictions on the payment of dividends and other distributions to its offshore parent or affiliate and restrictions on the capital inflow from the offshore entity, and may also subject relevant PRC residents to penalties under the PRC foreign
exchange administration regulations.

As a Cayman Islands company, we are considered a foreign entity in China. If we purchase
the assets or equity interests of a PRC company owned by PRC residents in exchange for our equity interests, such PRC residents will be subject to the registration procedures described in SAFE Circular 75. Moreover, PRC residents who are beneficial
holders of our shares are required to register with SAFE in connection with their investment in us.

To further clarify the
implementation of SAFE Circular 75, SAFE issued SAFE Circular 106 in May 29, 2007. Under SAFE Circular 106, PRC subsidiaries of an offshore enterprise governed by SAFE Circular 75 are required to coordinate and supervise the filing of SAFE
registrations in a timely manner by the offshore holding companys shareholders who are PRC residents. If these shareholders fail to comply, the PRC subsidiaries are required to report to the local SAFE authorities. If the PRC resident
shareholders do not complete their registration with the local SAFE authorities, the related PRC subsidiaries will be prohibited from distributing their profits and proceeds from any reduction in capital, share transfer or liquidation to their
offshore parent company and the offshore parent company may be restricted in its ability to contribute additional capital to its PRC subsidiaries.



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Dividend Distributions

See Item 8.A. Financial Information  Dividend Policy in connection with our policy regarding dividend distributions. See
also Item 3.D. Key Information  Risk Factors  Risks Relating to Our ADS  You may not receive distributions on our ordinary shares or any value for them if such distribution is illegal or if any required government approval
cannot be obtained in order to make such distribution available to you.

E. Taxation

The following is a general summary of the material Cayman Islands, U.S. federal and Peoples Republic of China income tax
consequences relevant to an investment in our ADSs and ordinary shares. The discussion is not intended to be, nor should it be construed as, legal or tax advice to any particular prospective purchaser or current holders of our ADSs. The discussion
is based on laws and relevant interpretations thereof in effect as of the date of this annual report, all of which are subject to change or different interpretations, possibly with retroactive effect. The discussion does not address United States
state or local tax laws, or tax laws of jurisdictions other than the Cayman Islands and the United States.

Cayman
Islands Taxation

The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income,
gains or appreciations and there is no taxation in the nature of inheritance tax or estate duty or withholding tax applicable to us or to any holder of ADSs or ordinary shares. There are no other taxes likely to be material to us levied by the
Government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or after execution brought within the jurisdiction of the Cayman Islands. No stamp duty is payable in the Cayman Islands on transfers of
shares of Cayman Islands companies except those which hold interests in land in the Cayman Islands. The Cayman Islands is not party to any double tax treaties. There are no exchange control regulations or currency restrictions in the Cayman Islands.

Pursuant to Section 6 of the Tax Concessions Law (1999 Revision) of the Cayman Islands, we have obtained an undertaking
from the Governor-in-Cabinet:



| |  |  | that no law which is enacted in the Cayman Islands imposing any tax to be levied on profits or income or gains or appreciations shall apply to CDEL
Cayman or its operations; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | that the aforesaid tax or any tax in the nature of estate duty or inheritance tax shall not be payable on the shares, debentures or other obligations
of CDEL Cayman.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

The undertaking for CDEL Cayman is for a period of twenty years from January 29, 2008.

Peoples Republic of China Taxation

In 2007 China passed a new Enterprise Income Tax Law, or the New EIT Law, and its implementing rules, both of which became effective on January 1, 2008. The New EIT Law created a new resident
enterprise classification, which, if applied to us, would impose a 10% withholding tax on dividends payable to our non-PRC enterprise shareholders and with respect to gains derived by our non-PRC enterprise shareholders from disposition of our
shares or ADSs, if such dividends or gains are determined to have been derived from sources within China. The New EIT Law and its implementing rules are unclear as to how to determine the sources of such dividends or gains for non-Chinese enterprise
or group enterprise controlled entities. See Item 3.D. Key Information  Risk Factors  Under Chinas New EIT Law, we may be classified as a resident enterprise of China. Such classification could result in
unfavorable tax consequences to us and our non-PRC shareholders.

If we are not deemed as a resident enterprise, then
dividends payable to our non-PRC shareholders and gains from disposition of our shares of ADSs by our non-PRC shareholders will not be subject to PRC income tax withholding.

United States Federal Income Taxation

This discussion describes the material U.S. federal income tax consequences to U.S. Holders (as defined below) of the purchase, ownership and disposition of our ADSs and ordinary shares. This discussion
does not address any aspect of U.S. federal gift or estate tax, or the state, local or foreign tax consequences of an investment in our ADSs and ordinary shares. This discussion applies to you only if you beneficially own our ADSs or ordinary shares
as capital assets for tax purposes. This discussion does not apply to you if you are a member of a class of holders subject to special rules, such as:



| |  |  | dealers in securities or currencies;
| | - |  | ------------------------------------



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| |  |  | traders in securities that elect to use a mark-to-market method of accounting for securities holdings;
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | banks or certain financial institutions;
| | - |  | ----------------------------------------



| |  |  | insurance companies;
| | - |  | --------------------



| |  |  | tax-exempt organizations;
| | - |  | -------------------------



| |  |  | partnerships or other entities treated as partnerships or other pass-through entities for U.S. federal income tax purposes or persons holding ADSs or
ordinary shares through any such entities;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | regulated investments companies or real estate investment trusts;
| | - |  | -----------------------------------------------------------------



| |  |  | persons that hold ADSs or ordinary shares as part of a hedge, straddle, constructive sale, conversion transaction or other integrated investment;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | persons whose functional currency for tax purposes is not the U.S. dollar;
| | - |  | --------------------------------------------------------------------------



| |  |  | persons liable for alternative minimum tax; or
| | - |  | ----------------------------------------------



| |  |  | persons who own ADSs or ordinary shares and who actually or constructively own 10% or more of the total combined voting power of all classes of our
shares entitled to vote.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

This discussion is based on the U.S. Internal Revenue Code of 1986, as amended,
which we refer to in this discussion as the Code, its legislative history, existing and proposed regulations promulgated thereunder, published rulings and court decisions, all as of the date hereof. These laws are subject to change, possibly on a
retroactive basis. In addition, this discussion relies on our assumptions regarding the value of our ADSs and ordinary shares and the nature of our business over time.

Prospective purchasers are urged to consult their own tax advisor concerning the particular U.S. federal income tax consequences to them of the purchase, ownership and disposition of our ADSs and
ordinary shares, as well as the consequences to them arising under the laws of any other taxing jurisdiction.

For
purposes of the U.S. federal income tax discussion below, you are a U.S. Holder if you beneficially own ADSs or ordinary shares as capital assets within the meaning of Section 1221 of the Code and are:



| |  |  | a citizen or resident of the United States for U.S. federal income tax purposes;
| | - |  | --------------------------------------------------------------------------------



| |  |  | a corporation, or other entity taxable as a corporation, that was created or organized in or under the laws of the United States or any state thereof
or the District of Columbia;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | an estate the income of which is subject to U.S. federal income tax regardless of its source; or
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | a trust if (a) a court within the United States is able to exercise primary supervision over its administration and one or more U.S. persons have
the authority to control all substantial decisions of the trust, or (b) the trust has a valid election in effect to be treated as a U.S. person.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

For U.S. federal income tax purposes, income earned through a U.S. or non-U.S. partnership or other flow-through entity is attributed to its owners. Accordingly, if a partnership or other flow-through
entity holds ADSs or ordinary shares, the tax treatment of the holder will depend on the status of the partner or other owner and the activities of the partnership or other flow-through entity.

Dividends on ADSs and ordinary shares

Subject to the Passive Foreign Investment Company discussion below, if we make distributions and you are a U.S. Holder, the gross amount of any distributions with respect to your ADSs and
ordinary shares (including the amount of any taxes withheld therefrom) will be includible in your gross income on the day you actually or constructively receive such income as dividend income if the distributions are made from our current or
accumulated earnings and profits, calculated according to U.S. federal income tax principles. With respect to non-corporate U.S. Holders, certain dividends received in taxable years beginning before January 1, 2011 from a qualified foreign
corporation may be subject to a reduced rate of taxation. A non-U.S. corporation is treated as a qualified foreign corporation with respect to dividends from that corporation on shares (or ADSs backed by such shares) that are readily tradable on an
established securities market in the United States. U.S. Treasury Department guidance indicates that our ADSs, which are listed on the Nasdaq Global Market, but not our ordinary shares, will be readily tradable on an established securities market in
the United States. You should consult your own tax advisor as to the rate of tax that will apply to you with respect to dividend distributions, if any, you receive from us.



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Subject to the Passive Foreign Investment Company discussion below, to the
extent, if any, that the amount of any distribution by us on ADSs and ordinary shares exceeds our current and accumulated earnings and profits as determined under U.S. federal income tax principles, it will be treated first as a tax-free return of
the U.S. Holders adjusted tax basis in the ADSs and ordinary shares and thereafter as capital gain. However, we do not intend to calculate our earnings and profits according to U.S. federal income tax principles. Accordingly, distributions on
our ADSs and ordinary shares, if any, will generally be reported to you as dividend distributions for U.S. tax purposes. Corporations will not be entitled to claim a dividends-received deduction with respect to distributions made by us. Dividends
may constitute foreign source passive income for purposes of the U.S. foreign tax credit rules. You should consult your own tax advisors as to your ability, and the various limitations on your ability, to claim foreign tax credits in connection with
the receipt of dividends.

Sales and other dispositions of ADSs or ordinary shares

Subject to the Passive Foreign Investment Company discussion below, when you sell or otherwise dispose of ADSs or ordinary
shares, you will recognize capital gain or loss in an amount equal to the difference between the amount realized on the sale or other disposition and your adjusted tax basis in the ADSs or ordinary shares. Any such gain or losses that you recognize
will be treated as U.S. source income for foreign tax credit limitation purposes. Your adjusted tax basis will equal the amount you paid for the ADSs or ordinary shares. Any gain or loss you recognize will be long-term capital gain or loss if your
holding period in our ADSs or ordinary shares is more than one year at the time of disposition. If you are a non-corporate U.S. Holder, including an individual, any such long-term capital gain will be taxed at preferential rates (generally 15% for
capital gain recognized before January 1, 2011). Your ability to deduct capital losses will be subject to various limitations.

Passive foreign investment company

We believe that we were not a passive foreign investment company, or PFIC,
for U.S. federal income tax purposes for our taxable year ended September 30, 2009, and we do not expect to be a PFIC in any future taxable year. However, PFIC status is tested each year and depends on the composition of our assets and income
and the value of our assets from time to time. Since we currently hold, and expect to continue to hold, a substantial amount of cash and other passive assets and, since the value of our assets is to be determined in large part by reference to the
market prices of our ADSs and ordinary shares, which is likely to fluctuate over time, there can be no assurance that we will not be a PFIC in 2010 or for any future taxable year.

In general, we will be classified as a PFIC in any taxable year if either: (a) the average quarterly value of our gross assets that
produce passive income or are held for the production of passive income is at least 50% of the average quarterly value of our total gross assets or (b) 75% or more of our gross income for the taxable year is passive income (such as certain
dividends, interest or royalties). For purposes of the first test: (a) any cash and cash invested in short-term, interest-bearing, debt instruments or bank deposits that are readily convertible into cash will generally count as producing
passive income or held for the production of passive income, and (b) the total value of our assets is calculated based on our market capitalization.

We will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation in which we own, directly or indirectly, at least 25% (by
value) of the stock.

If we were a PFIC for any taxable year during which you held ADSs or ordinary shares, certain adverse
U.S. federal income tax rules would apply. You would generally be subject to additional taxes and interest charges on certain excess distributions we make and on any gain realized on the disposition or deemed disposition of your ADSs or
ordinary shares, regardless of whether we continue to be a PFIC in the year in which you receive an excess distribution or dispose of or are deemed to have disposed of, your ADSs or ordinary shares. Distributions in respect of your ADSs
or ordinary shares during a taxable year would generally constitute excess distributions if, in the aggregate, they exceed 125% of the average amount of distributions with respect to your ADSs or ordinary shares over the three preceding
taxable years or, if shorter, the portion of your holding period before such taxable year.

To compute the tax on excess
distributions or any gain, (a) the excess distribution or the gain would be allocated ratably to each day in your holding period, (b) the amount allocated to the current year and any tax year prior to the first taxable
year in which we were a PFIC would be taxed as ordinary income in the current year, (c) the amount allocated to other taxable years would be taxable at the highest applicable marginal rate in effect for that year, and (d) an interest
charge at the rate for underpayment of taxes for any period described under (c) above would be imposed with respect to any portion of the excess distribution or gain that is allocated to such period. In addition, if we were a PFIC,
no distribution that you receive from us would qualify for taxation at the preferential rate discussed in the Dividends on ADSs or ordinary shares section above.

Under certain attribution rules, if we are a PFIC, you will be deemed to own your proportionate share of lower-tier PFICs, and will be
subject to U.S. federal income tax on (i) a distribution on the shares of a lower-tier PFIC and (ii) a disposition of shares of a lower-tier PFIC, both as if you directly held the shares of such lower-tier PFIC.



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If we were a PFIC in any year, as a U.S. Holder, you would be required to file an annual
return on IRS Form 8621 regarding your ADSs and ordinary shares. You should consult with your tax adviser regarding reporting requirements with regard to your ADSs and ordinary shares.

If we were a PFIC in any year, you would generally be able to avoid the excess distribution rules described above by making a
timely mark-to-market election with respect to your ADSs and ordinary shares provided our ADSs or ordinary shares are marketable. Our ADSs or ordinary shares will be marketable as long as they remain regularly
traded on a national securities exchange, such as the NYSE. If you made this election in a timely fashion, you would generally recognize as ordinary income or ordinary loss the difference between the fair market value of your ADSs or ordinary shares
on the first day of any taxable year and their value on the last day of that taxable year. Any ordinary income resulting from this election would generally be taxed at ordinary income rates and would not be eligible for the reduced rate of tax
applicable to qualified dividend income. Any ordinary losses would be limited to the extent of the net amount of previously included income as a result of the mark-to-market election, if any. Your basis in the ADSs or ordinary shares would be
adjusted to reflect any such income or loss. You should consult your own tax advisor regarding potential advantages and disadvantages to you of making a mark-to-market election with respect to your ADSs or ordinary shares. The
mark-to-market election will not be available for any lower tier PFIC that is deemed owned pursuant to the attribution rules discussed above. We do not intend to provide you with the information you would need to make or maintain a Qualified
Electing Fund election and therefore you will not be able to make or maintain such an election with respect to your ADSs and ordinary shares.

U.S. information reporting and backup withholding rules

Dividend payments
with respect to the ADSs and ordinary shares and the proceeds received on the sale or other disposition of ADSs and ordinary shares may be subject to information reporting to the IRS and to backup withholding (currently imposed at a rate of 28%).
Backup withholding will not apply, however, if you (a) are a corporation or come within certain other exempt categories and, when required, can demonstrate that fact or (b) provide a taxpayer identification number, certify as to no loss of
exemption from backup withholding and otherwise comply with the applicable backup withholding rules. To establish your status as an exempt person, you will be required to provide certification on IRS Form W-9. Any amounts withheld from payments to
you under the backup withholding rules that exceed your U.S. federal income tax liability will be allowed as a refund or a credit against your U.S. federal income tax liability, provided that you furnish the required information to the IRS.

PROSPECTIVE PURCHASERS OF OUR ADSS AND ORDINARY SHARES SHOULD CONSULT THEIR OWN TAX ADVISOR REGARDING THE APPLICATION OF THE
U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES RESULTING FROM PURCHASING, HOLDING OR DISPOSING OF OUR ADSS AND ORDINARY SHARES, INCLUDING THE APPLICABILITY AND EFFECT OF THE TAX LAWS OF ANY STATE, LOCAL
OR FOREIGN JURISDICTION AND INCLUDING ESTATE, GIFT AND INHERITANCE LAWS.

F. Dividends and Paying Agents

Not applicable.

G. Statement by Experts.

Not applicable.

H. Documents on Display

We previously filed with the Securities and Exchange Commission our registration statement on Form F-1 as amended.

We have filed this annual report on Form 20-F with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. Statements made in this annual report as to the contents of
any document referred to are not necessarily complete. With respect to each such document filed as an exhibit to this annual report, reference is made to the exhibit for a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference.

We are subject to the informational requirements of the Exchange
Act and file reports and other information with the Securities and Exchange Commission. Reports and other information which we filed with the Securities and Exchange Commission, including this annual report on Form 20-F, may be inspected and copied
at the public reference room of the Securities and Exchange Commission at 100 F Street, N.E. Washington D.C. 20549.



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You can also obtain copies of this annual report on Form 20-F by mail from the Public
Reference Section of the Securities and Exchange Commission, 100 F Street, N.E., Washington D.C. 20549, at prescribed rates. Additionally, copies of this material may be obtained from the Securities and Exchange Commissions Internet site athttp://www.sec.gov. The Commissions telephone number is 1-800-SEC-0330.

I. Subsidiary Information

For a listing of our subsidiaries, see Item 4. Information on the Company  C. Organizational Structure.



|ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|-------- | ----------------------------------------------------------

Quantitative and Qualitative Disclosures about Market Risk

Interest
Rate Risk

Our exposure to interest rate risk primarily relates to our interest income generated by excess cash, which
is mostly held in interest-bearing bank deposits and AAA rated money market funds, as of the date of this annual report. We have not used derivative financial instruments in our investment portfolio. We have not been exposed, nor do we anticipate
being exposed, to material risks due to changes in market interest rates. However, our future interest income may fall short of expectations due to changes in market interest rates.

Foreign Currency Risk

Substantially all of our revenues and expenditures are denominated in Renminbi. As a result, fluctuations in the exchange rate between the U.S. dollars and Renminbi will affect our financial results in
U.S. dollars terms without giving effect to any underlying change in our business or results of operations. The Renminbis exchange rate with the U.S. dollar and other currencies is affected by, among other things, changes in Chinas
political and economic conditions. The exchange rate for conversion of Renminbi into foreign currencies is heavily influenced by intervention in the foreign exchange market by the Peoples Bank of China. From 1995 until July 2005, the
Peoples Bank of China intervened in the foreign exchange market to maintain an exchange rate of approximately 8.3 Renminbi per U.S. dollar. On July 21, 2005, the PRC government changed this policy and began allowing modest appreciation of
the Renminbi versus the U.S. dollar. However, the Renminbi is restricted to a rise or fall of no more than 0.5% per day versus the U.S. dollar, and the Peoples Bank of China continues to intervene in the foreign exchange market to prevent
significant short-term fluctuations in the Renminbi exchange rate. Nevertheless, under Chinas current exchange rate regime, the Renminbi may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term.
There remains significant international pressure on the PRC government to adopt a substantial liberalization of its currency policy, which could result in a further and more significant appreciation in the value of the Renminbi against the U.S.
dollar.

To the extent that we need to convert the proceeds we received from our initial public offering from U.S. dollars
into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount we receive from the conversion. Assuming we had converted the U.S. dollar denominated cash balance of $50.2
million as of September 30, 2009 into Renminbi at the exchange rate of $1.00 for RMB6.8262 as of September 30, 2009, this cash balance would have been RMB342.7 million. Assuming a further 1.0% appreciation of the Renminbi against the U.S.
dollar, this cash balance would have decreased to RMB339.3 million as of September 30, 2009.

Very limited hedging
transactions are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter
into hedging transactions in the future, the availability and effectiveness of these hedging transactions may be limited and we may not be able to successfully hedge our exposure at all. In addition, our currency exchange losses may be magnified by
PRC exchange control regulations that restrict our ability to convert Renminbi into foreign currency.



|ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
|-------- | ------------------------------------------------------

Not applicable.



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PART II



|ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
|-------- | -----------------------------------------------

None.



|ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
|-------- | ----------------------------------------------------------------------------

The rights of securities holders have not been materially modified.



|ITEM 15. | CONTROLS AND PROCEDURES
|-------- | -----------------------

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive
officer and chief financial officer, has performed an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report, as required by
Rule 13a-15(b) under the Exchange Act. Based on that evaluation, our management has concluded that, as of September 30, 2009, our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in
reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms, and that the information required to be disclosed in the reports that we file
or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.

Managements Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule
13a-15(f) under the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements in accordance
with generally accepted accounting principles, and includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of a
companys assets, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that a
companys receipts and expenditures are being made only in accordance with authorizations of a companys management and directors, and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of a companys assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

As required by Section 404 of the Sarbanes-Oxley Act and related rules as promulgated by the SEC, our management, with the participation of our chief executive officer and our chief financial officer, evaluated the effectiveness of our
internal control over financial reporting based on criteria established in the framework in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our
management has concluded that our internal control over financial reporting was effective as of September 30, 2009.

Our
management excluded Zhengbao Yucai and Champion Xinlixiang, the businesses of which we acquired and started to operate in March 2009 and September 2009, respectively, from its assessment of internal control over financial reporting as of
September 30, 2009 due to a lack of adequate time for the assessment.

The total assets of Zhengbao Yucai as of
September 30, 2009 were $6.2 million, representing approximately 6.7% of the total assets in our consolidated balance sheet as of September 30, 2009. The total revenues of Zhengbao Yucai were $1.5 million, representing approximately 4.8%
of total net revenues in our consolidated statement of operations for the year ended September 30, 2009.

The total
assets of Champion Xinlixiang as of September 30, 2009 were $5.6 million, representing approximately 6.1% of the total assets in our consolidated balance sheet as of September 30, 2009. There was no revenue from Champion Xinlixiang for the
year ended September 30, 2009.



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Our independent registered public accounting firm has audited our internal control over
financial reporting as of September 30, 2009 and has issued an attestation report set forth below.

Report of
Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of China Distance Education
Holdings Limited.

We have audited the internal control over financial reporting of China Distance Education Holdings Limited
(the Company), its subsidiaries and its variable interest entity (collectively, the Group) as of September 30, 2009, based on criteria established in Internal Control  Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission. As described in Managements Report on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Beijing Zhengbao
Yucai Education Technology Co., Ltd. (Zhengbao Yucai), whose business was acquired on March 10, 2009 and financial statements constitute 6.7% and 4.8% of total assets and net revenues of the consolidated financial statement amounts
as of and for the year ended September 30, 2009, and Zhejiang Champion Xinlixiang Education Management Co., Ltd. (Champion Xinlixiang), whose business was acquired on September 30, 2009 and financial statements constitute 6.1%
of total assets of the consolidated financial statement amount as of September 30, 2009. Accordingly, our audit did not include the internal control over financial reporting at Zhengbao Yucai and Champion Xinlixiang. The Groups management
is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Managements Report on Internal Control
over Financial Reporting. Our responsibility is to express an opinion on the Groups internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.

A companys internal control over financial reporting is a process designed by, or
under the supervision of, the companys principal executive and principal financial officers, or persons performing similar functions, and effected by the companys board of directors, management, and other personnel to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material
effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the
internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Group maintained, in all material respects, effective internal control over financial reporting as of
September 30, 2009, based on the criteria established in Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated
financial statements as of and for the year ended September 30, 2009 of the Group and our report dated March 30, 2010 expressed an unqualified opinion on those financial statements.

/s/ Deloitte Touche Tohmatsu CPA Ltd.

Beijing, the Peoples Republic of China

March 30, 2010



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Changes in Internal Control over Financial Reporting

We previously disclosed in our Form 20-F for the year ended September 30, 2008 that we had identified material weaknesses and
significant deficiencies in internal control over financial reporting. The following summarizes the material weakness and significant deficiencies reported as of September 30, 2008:



| |  |  | Insufficient integration of our personnel with U.S. GAAP expertise into the financial reporting process, resulting in inadequate processes and
documentation to address accounting and reporting requirements under U.S. GAAP.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our lack of formal contracts with relevant local government authorities in various parts of China regarding the provision of accounting continuing
education in those areas.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our lack of a comprehensive computerized system to timely track operating data and integrate such data with our accounting system.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our failure to maintain an appropriate level of security within our information technology systems and applications for Caikaowang.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------

In response to the above outlined material weakness and significant deficiencies identified in our 2008
annual report on Form 20-F, in cooperation with our Board and under the supervision of our Audit Committee, we have actively engaged during fiscal 2009 in a number of actions to remediate the material weakness and significant deficiencies described
above, including:



| |  |  | Engaging external consultants to help identify deficiencies in the design or operation of our internal controls, and to help us design and document
appropriate processes and internal controls.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Establishing a comprehensive accounting manual in accordance with U.S. GAAP as well as PRC GAAP to provide guidance on the day-to-day operations of
accounting personnel.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Standardizing the month-end closing checklist and the reporting package across all subsidiaries in terms of the specific content requirements.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Signing formal contracts with relevant local government authorities in various parts of China regarding the provision of accounting continuing
education in those areas.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Updating and improving our information system so that it can timely track operating data and generate reports to be used for financial accounting.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Implementing comprehensive information technology policies and procedures at Caikaowang to maintain an appropriate level of security within its
information systems.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

As of September 30, 2009, management determined that the applicable controls were
effectively designed and operating so as to enable management to conclude that the aforementioned material weaknesses and significant deficiencies have been remediated.

Except for the remedial measures described above, there have been no significant changes in our internal control over financial reporting during the year ended September 30, 2009 that have materially
affected, or a reasonably likely to materially affect, our internal control over financial reporting.



|ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT
|--------- | --------------------------------

Our audit committee consists of Carol Yu, Liankui Hu and Xiaoshu Chen. Carol Yu is the chairman of our audit committee. Our board of directors has determined that all of our audit committee members satisfy the independence
requirements of relevant rules of the NYSE and Rule10A-3 under the Securities Exchange Act of 1934. Carol Yu meets the criteria of an audit committee financial expert as set forth under the applicable rules of the SEC.



|ITEM 16B. | CODE OF ETHICS
|--------- | --------------

Our board
of directors has adopted a code of ethics that is applicable to our senior executive and financial officers. In addition, our board of directors adopted a code of conduct that is applicable to all of our directors, officers and employees. Our code
of ethics and our code of conduct are publicly available on our website, http://www.cdeledu.com.



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|ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|--------- | --------------------------------------

The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by Ernst & Young Hua Ming, or E&Y, and Deloitte
Touche Tohmatsu CPA Ltd., or Deloitte, our principal external auditors, in the fiscal year ended September 30, 2008 and the fiscal year ended September 30, 2009, respectively.



|                       |  |                                 |  |         |  |           |  |        
|---------------------- |  | ------------------------------- |  | ------- |  | --------- |  | -------
|                       |  | Fiscal Year ended September 30,
|                       |  | 2008                            |  | 2009   
|                       |  | RMB                             |  | US$     |  | RMB       |  | US$    
|Audit fees (1)         |  | 3,789,474                       |  | 558,105 |  | 2,909,200 |  | 427,824
|Audit-related fees (2) |  | 325,824                         |  | 47,987  |  | 1,844,000 |  | 271,176
|Tax fees (3)           |  |                                |  |        |  | 320,000   |  | 46,850 



|(1) | Audit fees means the aggregate fees billed or payable for professional services rendered by our independent auditors in connection with the audit of our
consolidated financial statements or the review of our interim consolidated financial statements required for statutory or regulatory filings.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Audit-related fees means the aggregate fees billed or payable for professional services rendered by our independent auditors in connection with the review
of our interim consolidated financial statements not required for statutory or regulatory filings.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Tax fees means the aggregate fees billed or payable for tax compliance services, transfer pricing and requests for rulings or technical advice from taxing
authorities and tax planning services.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The audit committee or our board of directors is to pre-approve all
auditing services and permitted non-audit services to be performed for us by our independent registered public accounting firm, including the fees and terms thereof (subject to the de minimums exceptions for non-audit services described in
Section 10A(i)(l)(B) of the Exchange Act which are approved by the audit committee or our board of directors prior to the completion of the audit).



|ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
|--------- | ----------------------------------------------------------

None.



|ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
|--------- | ----------------------------------------------------------------------

The table below details our purchases of our own equity securities pursuant to our share repurchase program adopted and publicly announced on
November 20, 2008 and extended on November 17, 2009. Our share repurchase program authorizes the repurchase of up to an aggregate of $10 million of our ADSs. The repurchase program will continue until November 20,
2010. As of December 31, 2009, we have repurchased a total of 802,700 ADSs, representing 3,210,800 ordinary shares, in open-market transactions for total cash consideration of $4.0 million. See Item 5.B. Operating and
Financial Review and Prospects  Liquidity and Capital Resources for a further discussion of the repurchase program.



|                        |  |                               |  |                           |        |                                                                   |         |                                                                           |   |            
|----------------------- |  | ----------------------------- |  | ------------------------- | ------ | ----------------------------------------------------------------- | ------- | ------------------------------------------------------------------------- | - | -----------
|Period                  |  | Total Number ofADSs Purchased |  | Average PricePaid Per ADS |        | Total Number of ADSsPurchased as Part ofPublicly AnnouncedProgram |         | Approximate DollarValue of ADSs thatMay Yet be PurchasedUnder the
Program
|11/01/2008  11/30/2008 |  | 19,200                        |  | $                         | 2.9991 |                                                                   | 19,200  |                                                                           | $ | 9.9 million
|12/01/2008  12/31/2008 |  | 128,200                       |  | $                         | 3.7130 |                                                                   | 128,200 |                                                                           | $ | 9.5 million
|01/01/2009  01/31/2009 |  | 90,700                        |  | $                         | 4.1944 |                                                                   | 90,700  |                                                                           | $ | 9.1 million
|02/01/2009  02/28/2009 |  | 90,600                        |  | $                         | 4.7235 |                                                                   | 90,600  |                                                                           | $ | 8.7 million
|03/01/2009  03/31/2009 |  | 24,600                        |  | $                         | 5.3724 |                                                                   | 24,600  |                                                                           | $ | 8.5 million
|04/01/2009  04/30/2009 |  | 99,700                        |  | $                         | 5.8734 |                                                                   | 99,700  |                                                                           | $ | 7.9 million
|05/01/2009  05/31/2009 |  | 245,000                       |  | $                         | 5.2689 |                                                                   | 245,000 |                                                                           | $ | 6.6 million
|06/01/2009  06/30/2009 |  | 80,700                        |  | $                         | 6.0968 |                                                                   | 80,700  |                                                                           | $ | 6.2 million
|07/01/2009  07/31/2009 |  | 12,200                        |  | $                         | 6.4148 |                                                                   | 12,200  |                                                                           | $ | 6.1 million
|08/01/2009  08/31/2009 |  |                              |  | $                         |       |                                                                   |        |                                                                           | $ | 6.1 million
|09/01/2009  09/30/2009 |  |                              |  | $                         |       |                                                                   |        |                                                                           | $ | 6.1 million



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|ITEM 16F. | CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT
|--------- | --------------------------------------------

(a) Dismissal of Principal Accountant

Effective on April 16, 2009, we
dismissed E&Y as our principal accountant. The decision to dismiss E&Y was approved by our Board of Directors on March 16, 2009 and became effective on April 16, 2009 when our shareholders approved the dismissal at our annual general
meeting. E&Ys reports on our consolidated financial statements as of and for the fiscal years ended September 30, 2007 and September 30, 2008 did not contain an adverse opinion or disclaimer of opinion, nor were such reports qualified or
modified as to uncertainty, audit scope, or accounting principles.

During the two fiscal years ended September 30, 2008 and
through April 16, 2009, we did not have any disagreements with E&Y on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of
E&Y, would have caused them to make reference thereto in their report on the consolidated financial statements for such years.

During the two fiscal years ended September 30, 2008 and through April 16, 2009, there were no reportable events (hereinafter defined) requiring disclosure pursuant to Item 16F(a)(1)(v) of Form 20-F, except that E&Y had
identified two material weaknesses and two significant deficiencies in connection with the audit of the Companys financial statements for the fiscal year ended September 30, 2007 and one material weakness and three significant deficiencies in
connection with the audit of our financial statements for the fiscal year ended September 30, 2008. These material weaknesses and significant deficiencies are described in more detail in our Form F-1 dated July 29, 2008 and in our Annual Report on
Form 20-F for the fiscal year ended September 30, 2008. As used herein, the term reportable event means any of the items listed in paragraphs (a)(1)(v)(A)-(D) of Item 16F of Form 20-F. We concluded that two material weaknesses in
internal control over our financial reporting existed as of September 30, 2007 due to (i) our insufficient personnel with U.S. GAAP expertise resulting in inadequate processes and documentation to address accounting and reporting requirements under
U.S. GAAP and (ii) our inadequate independent oversight over financial reporting due to the lack of an independent audit committee. We also concluded that a material weakness in internal control over our financial reporting existed as of September
30, 2008 due to insufficient integration of our personnel with U.S. GAAP expertise into the financial reporting process, resulting in inadequate processes and documentation to address accounting and reporting requirements under U.S. GAAP.

We provided a copy of this disclosure to E&Y and requested that E&Y furnish a letter addressed to the SEC stating
whether it agrees with the above statements, and if not, stating the respects in which it does not agree. A copy of the letter from E&Y addressed to the SEC, dated March 30, 2010, is filed as Exhibit 15.3.

(b) Engagement of New Principal Accountant

On April16, 2009, our shareholders approved the appointment of Deloitte as our independent registered public accounting firm. During the fiscal year ended September 30, 2008 and through April 16, 2009,
neither we nor anyone on our behalf consulted Deloitte regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our consolidated
financial statements, nor has Deloitte provided to us a written report or oral advice that Deloitte concluded was an important factor considered by us in reaching a decision as to the accounting, auditing or financial reporting issue, or (ii) any
matter that was either the subject of a disagreement with E&Y, as that term is defined in Item 16F(a)(1)(iv) of Form 20-F and the related instructions to Item 16F of Form 20-F, or a reportable event, as that term is
described in Item 16F(a)(1)(v) of Form 20-F.



|ITEM 16G. | CORPORATE GOVERNANCE
|--------- | --------------------

As
a foreign private issuer with ADSs listed on the NYSE we are subject to corporate governance requirements imposed by the NYSE. Under Section 303A of the NYSE Listed Company Manual, in general NYSE-listed non-U.S. companies may follow their
home-country corporate governance practices in lieu of some of the NYSE corporate governance requirements. We are committed to a high standard of corporate governance. As such, we strive to comply with most of the NYSE corporate governance
practices. However, the following are the ways in which our current corporate governance practices differ from NYSE corporate governance requirements because the laws of Cayman Islands do not require such compliance:



| |  |  | We are not required to obtain shareholder approval for the adoption of, or material revisions to, our equity-compensation plans where our directors
consider it in the best interests of the company to do so and when the issue price of shares issued pursuant to such plans is otherwise fair.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our compensation committee of our board of directors is not comprised entirely of independent directors.
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | Our nomination committee of our board of directors is not comprised entirely of independent directors.
| | - |  | ------------------------------------------------------------------------------------------------------

We may determine to voluntarily comply with one or more of the foregoing provisions as required by the NYSE Listed Company Manual.



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PART III



|ITEM 17. | FINANCIAL STATEMENTS
|-------- | --------------------

We
have elected to provide our financial statements pursuant to Item 18.



|ITEM 18. | FINANCIAL STATEMENTS
|-------- | --------------------

Our
consolidated financial statements are included at the end of this annual report.



|ITEM 19. | EXHIBITS
|-------- | --------

Index to
Exhibits



|           |  |                                                                                                                                                                                   
|---------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNo. |  | Description of Exhibit                                                                                                                                                            
|           | 
|1.1        |  | Form of Second Amended and Restated Memorandum of Association and Articles of Association of the Registrant*                                                                     
|           | 
|2.1        |  | Form of Ordinary Share Certificate.*                                                                                                                                             
|           | 
|2.2        |  | Form of Deposit Agreement between the Registrant and Deutsche Bank Trust Company Americas, as depositary.(1)                                                                     
|           | 
|2.3        |  | Form of American depositary receipt evidencing American depositary shares (included in Exhibit 2.2).(1)                                                                          
|           | 
|4.1        |  | Technical Support and Consultancy Services Agreement between Beijing Champion Distance Education Technology Co., Ltd. and Beijing Champion Hi-Tech Co., Ltd., dated May 1,
2004.*
|           | 
|4.2        |  | Equity Pledge Agreement between Beijing Champion Distance Education Technology Co., Ltd and Zhengdong Zhu, dated May 1, 2004.*                                                   
|           | 
|4.3        |  | Equity Pledge Agreement between Beijing Champion Distance Education Technology Co., Ltd. and Baohong Yin, dated May 1, 2004.*                                                    
|           | 
|4.4        |  | Exclusive Purchase Rights Agreement among China Distance Education Limited, Beijing Champion Hi-Tech Co., Ltd. and Zhengdong Zhu, dated May 9, 2004.*                            
|           | 
|4.5        |  | Exclusive Purchase Rights Agreement among China Distance Education Limited, Beijing Champion Hi-Tech Co., Ltd. and Baohong Yin, dated May 9, 2004.*                              
|           | 
|4.6        |  | Courseware License Agreement between Beijing Champion Hi-Tech Co., Ltd. and Beijing Champion Distance Education Technology Co., Ltd., dated August 1, 2004.*                     
|           | 
|4.7        |  | Software License Agreement between Beijing Champion Education Technology Co., Ltd. and Beijing Champion Hi-Tech Co., Ltd., dated May 20, 2007.*                                  
|           | 
|4.8        |  | Courseware Production Entrustment Agreement between Beijing Champion Education Technology Co., Ltd. and Beijing Champion Hi-Tech Co., Ltd., dated May 20,
2007.*                 
|           | 
|4.9        |  | Letter of Undertaking from Beijing Champion Distance Education Technology Co., Ltd. to Beijing Champion Hi-Tech Co., Ltd., dated February 13, 2008.*                             
|           | 
|4.10       |  | Letter of Undertaking from Zhengdong Zhu and Baohong Yin to Beijing Champion Distance Education Technology Co., Ltd., dated February 13, 2008.*                                  
|           | 
|4.11       |  | Declaration Letter by Zhengdong Zhu, dated March 24, 1008.*                                                                                                                      
|           | 
|4.12       |  | Declaration Letter by Baohong Yin, dated March 24, 2008.*                                                                                                                        
|           | 
|4.13       |  | Power of Attorney by Zhengdong Zhu, dated March 25. 2008.*                                                                                                                       
|           | 
|4.14       |  | Power of Attorney by Baohong Yin, dated March 25, 2008.*                                                                                                                         
|           | 
|4.15       |  | Notice from Beijing Champion Distance Education Technology Co., Ltd. to Beijing Champion Hi-Tech Co., Ltd., Zhengdong Zhu and Baohong Yin, dated March 25,
2008.*                
|           | 
|4.16       |  | Acknowledgement Letter from Zhengdong Zhu and Baohong Yin to the Registrant, dated March 25, 2008.*                                                                              



105



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|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | 
|4.17 |  | Acknowledgement Letter from Zhengdong Zhu and Baohong Yin to Beijing Champion Distance Education Technology Co., Ltd., dated March 25, 2008.*                                                                                                                                                                                                                                                                                                                 
|     | 
|4.18 |  | Shareholders Agreement among the Registrant, China Distance Education Limited, Beijing Champion Distance Education Technology Co., Ltd., Beijing Champion Education Technology
Co., Ltd., Beijing Champion Hi-Tech Co., Ltd., Champion Shine Trading Limited, Empire China Limited, Zhengdong Zhu, Hongfeng Sun, Baohong Yin, Orchid Asia III, L.P., Orchid Asia Co-Investment Limited, and Artson Limited, dated March 7, 2008, as
amended on July 25, 2008.*
|     | 
|4.19 |  | Form confidentiality and non-competition agreement.*                                                                                                                                                                                                                                                                                                                                                                                                          
|     | 
|4.20 |  | Incentive share plan.*                                                                                                                                                                                                                                                                                                                                                                                                                                        
|     | 
|4.21 |  | 2008 Performance Incentive Plan.*                                                                                                                                                                                                                                                                                                                                                                                                                             
|     | 
|4.22 |  | Amended and Restated 2008 Performance Incentive Plan. **                                                                                                                                                                                                                                                                                                                                                                                                      
|     | 
|4.23 |  | Amended and Restated Equity Pledge Agreement between Beijing Champion Distance Education Technology Co., Ltd. and Zhengdong Zhu, dated December 31, 2008. **                                                                                                                                                                                                                                                                                                  
|     | 
|4.24 |  | Amended and Restated Equity Pledge Agreement between Beijing Champion Distance Education Technology Co., Ltd. and Baohong Yin, dated December 31, 2008. **                                                                                                                                                                                                                                                                                                    
|     | 
|8.1  |  | Subsidiaries of Registrant.*                                                                                                                                                                                                                                                                                                                                                                                                                                  
|     | 
|11.1 |  | Code of Business Conduct and Ethics of the Registrant.*                                                                                                                                                                                                                                                                                                                                                                                                       
|     | 
|12.1 |  | CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                  
|     | 
|12.2 |  | CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                  
|     | 
|13.1 |  | CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                  
|     | 
|13.2 |  | CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                  
|     | 
|15.1 |  | Consent of Deloitte Touche Tohmatsu CPA Ltd.                                                                                                                                                                                                                                                                                                                                                                                                                  
|     | 
|15.2 |  | Consent of Ernst & Young Hua Ming.                                                                                                                                                                                                                                                                                                                                                                                                                            
|     | 
|15.3 |  | Letter of Ernst & Young Hua Ming to SEC regarding the disclosure in Item 16F.                                                                                                                                                                                                                                                                                                                                                                                 
|     | 
|15.4 |  | Consent of Jingtian & Gongcheng.                                                                                                                                                                                                                                                                                                                                                                                                                              
|     | 
|15.5 |  | Consent of American Appraisal.                                                                                                                                                                                                                                                                                                                                                                                                                                



|* | Previously filed with the Registrants registration statement on Form F-1 (File No. 333-152167), as amended.
|- | ------------------------------------------------------------------------------------------------------------

|** | Previously filed with the Registrants Annual Report on Form 20-F for the year ended September 30, 2008.
|-- | --------------------------------------------------------------------------------------------------------

|(1) | Incorporated by reference to the Registration Statement on Form F-6 (File No. 333-152345) filed with the Securities and Exchange Commission with respect to
American depositary shares representing our ordinary shares.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



106



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SIGNATURE

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the
undersigned to sign this annual report on its behalf.



China Distance Education Holdings Limited/S/    PING
WEIName:

Ping WeiTitle:

Chief Financial Officer


Date:
March 31, 2010



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##### Table of Contents

CHINA DISTANCE EDUCATION HOLDINGS LIMITED

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                                                                |  |       
|------------------------------------------------------------------------------------------------------------------------------- |  | ------
|CONTENTS                                                                                                                        |  | PAGE  
|                                                                                                                                | 
|REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
(DELOITTE TOUCHE TOHMATSU CPA LTD.)                                     |  | F - 2 
|                                                                                                                                | 
|REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
(ERNST & YOUNG HUA MING)                                                |  | F - 3 
|                                                                                                                                | 
|CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2008 AND 2009                                                                   |  | F - 4 
|                                                                                                                                | 
|CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND
2009                                     |  | F - 6 
|                                                                                                                                | 
|CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME FOR THE YEARS ENDED SEPTEMBER 30, 2007,
 2008 AND 2009 |  | F - 7 
|                                                                                                                                | 
|CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND
2009                                     |  | F - 8 
|                                                                                                                                | 
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                                                      |  | F - 10



---

##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF

CHINA DISTANCE EDUCATION HOLDINGS LIMITED.

We have audited the accompanying consolidated balance
sheet of China Distance Education Holdings Limited, its subsidiaries and its variable interest entity (collectively, the Group) as of September 30, 2009, and the related consolidated statements of operation, stockholders
equity and comprehensive income, and cash flow for the year ended September 30, 2009. These financial statements are the responsibility of the Groups management. Our responsibility is to express an opinion on the financial statements
based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of the Group as of September 30, 2009, and the results of its operation and its cash flow for the year ended September 30, 2009, in conformity with accounting principles generally accepted in the United
States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the Groups internal control over financial reporting as of September 30, 2009, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and
our report dated March 30, 2010 expressed an unqualified opinion on the Groups internal control over financial reporting.

/s/
Deloitte Touche Tohmatsu CPA Ltd.

Beijing, the Peoples Republic of China

March 30, 2010



F-2



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##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of

China Distance Education Holdings Limited

We have audited the accompanying consolidated balance sheet of China Distance Education
Holdings Limited (the Company) and its subsidiaries (together, the Group) as of September 30, 2008, and the related consolidated statements of operations, cash flows and changes in shareholders equity for each of
the two years in the period ended September 30, 2008. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Groups internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Groups
internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Group at September 30, 2008 and the consolidated
results of their operations and their cash flows for each of the two years in the period ended September 30, 2008, in conformity with U.S. generally accepted accounting principles.



|                                        
|----------------------------------------
|/s/ Ernst & Young Hua Ming              
|Shenzhen, the Peoples Republic of China
|December 10, 2008                       



F-3



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##### Table of Contents

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)



|                                           |  |                     |  |       
|------------------------------------------ |  | ------------------- |  | ------
|                                           |  | As of September 30,
|                                           |  | 2008                |  | 2009  
|                                           |  | US$                 |  | US$   
|ASSETS                                     |  |                     |  |       
|                                           |  |                    
|Current assets                             |  |                     |  |       
|Cash and cash equivalents                  |  | 66,223              |  | 21,437
|Term deposits                              |  |                    |  | 27,750
|Restricted cash                            |  |                    |  | 8,250 
|Accounts receivable                        |  | 715                 |  | 7,004 
|Inventories                                |  | 177                 |  | 297   
|Prepayment and other current assets        |  | 1,469               |  | 1,579 
|Deferred tax assets, current portion       |  | 2,297               |  | 976   
|Deferred cost                              |  | 448                 |  | 1,289 
|                                           |  |                     |  |       
|Total current assets                       |  | 71,329              |  | 68,582
|                                           |  |                     |  |       
|                                           |  |                    
|Non-current assets                         |  |                     |  |       
|Property, plant and equipment, net         |  | 7,089               |  | 7,899 
|Goodwill                                   |  | 5,278               |  | 9,030 
|Other intangible assets, net               |  | 1,390               |  | 3,966 
|Purchased call option                      |  |                    |  | 1,892 
|Deposit for purchase of non-current assets |  | 151                 |  | 356   
|Deferred tax assets, non-current portion   |  | 89                  |  |      
|Other non-current assets                   |  |                    |  | 808   
|                                           |  |                     |  |       
|Total non-current assets                   |  | 13,997              |  | 23,951
|                                           |  |                     |  |       
|Total assets                               |  | 85,326              |  | 92,533
|                                           |  |                     |  |       



F-4



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##### Table of Contents

CONSOLIDATED BALANCE SHEETS - continued

(In thousands, except share and per share data)



|                                                                                                                                                                                                                                                                          |  |                     |   |  |        |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------- | - |  | ------ | -
|                                                                                                                                                                                                                                                                          |  | As of September 30, |  
|                                                                                                                                                                                                                                                                          |  | 2008                |   |  | 2009   |  
|                                                                                                                                                                                                                                                                          |  | US$                 |   |  | US$    |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                                                                                                                      |  |                     |   |  |        |  
|                                                                                                                                                                                                                                                                          |  |                    
|Current liabilities                                                                                                                                                                                                                                                       |  |                     |   |  |        |  
|Accrued expenses and other liabilities                                                                                                                                                                                                                                    |  | 2,983               |   |  | 4,618  |  
|Income tax payable                                                                                                                                                                                                                                                        |  | 1,014               |   |  | 982    |  
|Deferred revenue, current portion                                                                                                                                                                                                                                         |  | 3,728               |   |  | 7,643  |  
|Refundable fees                                                                                                                                                                                                                                                           |  | 4,688               |   |  | 1,781  |  
|                                                                                                                                                                                                                                                                          |  |                     |   |  |        |  
|Total current liabilities                                                                                                                                                                                                                                                 |  | 12,413              |   |  | 15,024 |  
|                                                                                                                                                                                                                                                                          |  |                     |   |  |        |  
|                                                                                                                                                                                                                                                                          |  |                    
|Non-current liabilities                                                                                                                                                                                                                                                   |  |                     |   |  |        |  
|Deferred revenue, non-current portion                                                                                                                                                                                                                                     |  | 163                 |   |  |       |  
|Deferred tax liabilities non-current portion                                                                                                                                                                                                                              |  |                    |   |  | 637    |  
|                                                                                                                                                                                                                                                                          |  |                     |   |  |        |  
|Total non-current liabilities                                                                                                                                                                                                                                             |  | 163                 |   |  | 637    |  
|                                                                                                                                                                                                                                                                          |  |                     |   |  |        |  
|Total liabilities                                                                                                                                                                                                                                                         |  | 12,576              |   |  | 15,661 |  
|                                                                                                                                                                                                                                                                          |  |                     |   |  |        |  
|Minority interest                                                                                                                                                                                                                                                         |  |                    |   |  | 2,963  |  
|                                                                                                                                                                                                                                                                          |  |                     |   |  |        |  
|                                                                                                                                                                                                                                                                          |  |                    
|Commitments and contingencies (Note 18)                                                                                                                                                                                                                                   |  |                     |   |  |        |  
|                                                                                                                                                                                                                                                                          |  |                    
|Shareholders equity                                                                                                                                                                                                                                                      |  |                     |   |  |        |  
|Ordinary shares (par value of US$0.0001 per share at September 30, 2008 and 2009, respectively; Authorized - 480,000,000
shares at September 30, 2008 and 2009; Issued and outstanding - 141,897,737 and 138,765,685 shares at September 30, 2008 and 2009, respectively) |  | 14                  |   |  | 14     |  
|Additional paid-in capital                                                                                                                                                                                                                                                |  | 76,811              |   |  | 76,797 |  
|Accumulated other comprehensive income                                                                                                                                                                                                                                    |  | 1,717               |   |  | 1,702  |  
|Cumulative deficits                                                                                                                                                                                                                                                       |  | (5,792              | ) |  | (4,604 | )
|                                                                                                                                                                                                                                                                          |  |                     |   |  |        |  
|Total shareholders equity                                                                                                                                                                                                                                                |  | 72,750              |   |  | 73,909 |  
|                                                                                                                                                                                                                                                                          |  |                     |   |  |        |  
|Total liabilities, minority interest and shareholders equity                                                                                                                                                                                                             |  | 85,326              |   |  | 92,533 |  
|                                                                                                                                                                                                                                                                          |  |                     |   |  |        |  

The accompanying notes are an integral part of the consolidated financial statements.



F-5



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##### Table of Contents

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)



|                                                                                                                                                                                                                |  |                           |   |  |             |   |  |             |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- | - |  | ----------- | - |  | ----------- | -
|                                                                                                                                                                                                                |  | Years ended September 30, |  
|                                                                                                                                                                                                                |  | 2007                      |   |  | 2008        |   |  | 2009        |  
|                                                                                                                                                                                                                |  | US$                       |   |  | US$         |   |  | US$         |  
|Sales, net of business tax, value-added tax and related surcharges                                                                                                                                              |  |                           |   |  |             |   |  |             |  
|Online education services                                                                                                                                                                                       |  | 10,637                    |   |  | 13,900      |   |  | 22,279      |  
|Books and reference materials                                                                                                                                                                                   |  | 484                       |   |  | 1,616       |   |  | 2,709       |  
|Others                                                                                                                                                                                                          |  | 725                       |   |  | 2,058       |   |  | 5,133       |  
|                                                                                                                                                                                                                |  |                           |   |  |             |   |  |             |  
|Total net revenues                                                                                                                                                                                              |  | 11,846                    |   |  | 17,574      |   |  | 30,121      |  
|                                                                                                                                                                                                                |  |                           |   |  |             |   |  |             |  
|                                                                                                                                                                                                                |  |                           |  
|Cost of sales                                                                                                                                                                                                   |  |                           |   |  |             |   |  |             |  
|Cost of services                                                                                                                                                                                                |  | (3,553                    | ) |  | (5,981      | ) |  | (12,834     | )
|Cost of tangible goods sold                                                                                                                                                                                     |  | (354                      | ) |  | (818        | ) |  | (1,577      | )
|                                                                                                                                                                                                                |  |                           |   |  |             |   |  |             |  
|Total cost of sales                                                                                                                                                                                             |  | (3,907                    | ) |  | (6,799      | ) |  | (14,411     | )
|                                                                                                                                                                                                                |  |                           |   |  |             |   |  |             |  
|Gross profit                                                                                                                                                                                                    |  | 7,939                     |   |  | 10,775      |   |  | 15,710      |  
|Operating expenses                                                                                                                                                                                              |  |                           |   |  |             |   |  |             |  
|Selling expenses                                                                                                                                                                                                |  | (1,285                    | ) |  | (2,448      | ) |  | (6,722      | )
|General and administrative expenses (including related party amounts of US$205, US$nil and US$nil for the years ended
September 30, 2007, 2008 and 2009, respectively)                                          |  | (1,638                    | ) |  | (3,906      | ) |  | (7,432      | )
|                                                                                                                                                                                                                |  |                           |   |  |             |   |  |             |  
|Total operating expenses                                                                                                                                                                                        |  | (2,923                    | ) |  | (6,354      | ) |  | (14,154     | )
|Other operating income                                                                                                                                                                                          |  | 131                       |   |  | 209         |   |  | 292         |  
|Other expense                                                                                                                                                                                                   |  |                          |   |  | (144        | ) |  |            |  
|                                                                                                                                                                                                                |  |                           |   |  |             |   |  |             |  
|Operating income                                                                                                                                                                                                |  | 5,147                     |   |  | 4,486       |   |  | 1,848       |  
|Interest expense                                                                                                                                                                                                |  | (58                       | ) |  | (33         | ) |  |            |  
|Interest income                                                                                                                                                                                                 |  | 53                        |   |  | 209         |   |  | 742         |  
|Exchange loss                                                                                                                                                                                                   |  |                          |   |  | (75         | ) |  | (6          | )
|Equity in loss of an affiliated company                                                                                                                                                                         |  |                          |   |  | (64         | ) |  |            |  
|                                                                                                                                                                                                                |  |                           |   |  |             |   |  |             |  
|Income before income taxes                                                                                                                                                                                      |  | 5,142                     |   |  | 4,523       |   |  | 2,584       |  
|Income tax (expense) benefit                                                                                                                                                                                    |  | 307                       |   |  | (526        | ) |  | (1,478      | )
|Minority interest, net of taxes                                                                                                                                                                                 |  |                          |   |  |            |   |  | 82          |  
|                                                                                                                                                                                                                |  |                           |   |  |             |   |  |             |  
|Net income                                                                                                                                                                                                      |  | 5,449                     |   |  | 3,997       |   |  | 1,188       |  
|                                                                                                                                                                                                                |  |                           |   |  |             |   |  |             |  
|Accretion of Series A convertible contingently redeemable preferred shares to redemption amount and accretion of beneficial
conversion feature of Series A convertible contingently redeemable preferred shares |  | (903                      | ) |  | (9,332      | ) |  |            |  
|                                                                                                                                                                                                                |  |                           |   |  |             |   |  |             |  
|Net income (loss) attributable to ordinary shareholders                                                                                                                                                         |  | 4,546                     |   |  | (5,335      | ) |  | 1,188       |  
|                                                                                                                                                                                                                |  |                           |   |  |             |   |  |             |  
|                                                                                                                                                                                                                |  |                           |  
|Net income (loss) per share                                                                                                                                                                                     |  |                           |   |  |             |   |  |             |  
|Basic                                                                                                                                                                                                           |  | 0.04                      |   |  | (0.05       | ) |  | 0.01        |  
|                                                                                                                                                                                                                |  |                           |   |  |             |   |  |             |  
|Diluted                                                                                                                                                                                                         |  | 0.04                      |   |  | (0.05       | ) |  | 0.01        |  
|                                                                                                                                                                                                                |  |                           |   |  |             |   |  |             |  
|                                                                                                                                                                                                                |  |                           |  
|Weighted average number of ordinary shares outstanding                                                                                                                                                          |  |                           |   |  |             |   |  |             |  
|Basic                                                                                                                                                                                                           |  | 95,415,512                |   |  | 100,373,673 |   |  | 140,260,811 |  
|                                                                                                                                                                                                                |  |                           |   |  |             |   |  |             |  
|Diluted                                                                                                                                                                                                         |  | 95,415,512                |   |  | 100,373,673 |   |  | 140,475,941 |  
|                                                                                                                                                                                                                |  |                           |   |  |             |   |  |             |  

The accompanying notes are an integral part of the consolidated financial statements.



F-6



---

##### Table of Contents

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY

AND COMPREHENSIVE INCOME

(In thousands, except share data)



|                                                                                                                                                                                                                          |  |                         |   |  |                |   |  |                          |   |  |                                     |   |  |                    |   |  |                          |   |  |                     |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | - |  | -------------- | - |  | ------------------------ | - |  | ----------------------------------- | - |  | ------------------ | - |  | ------------------------ | - |  | ------------------- | -
|                                                                                                                                                                                                                          |  | Number ofordinaryshares |   |  | Ordinaryshares |   |  | Additionalpaid-incapital |   |  | Accumulatedothercomprehensiveincome |   |  | Cumulativedeficits |   |  | Totalshareholdersequity |   |  | Comprehensiveincome |  
|                                                                                                                                                                                                                          |  |                         |   |  | US$            |   |  | US$                      |   |  | US$                                 |   |  | US$                |   |  | US$                      |   |  | US$                 |  
|Balance as of October 1, 2006                                                                                                                                                                                             |  | 100,000,000             |   |  | 10             |   |  | 277                      |   |  | 35                                  |   |  | 399                |   |  | 721                      |   |  |                    |  
|                                                                                                                                                                                                                          |  |                         |   |  |                |   |  |                          |   |  |                                     |   |  |                    |   |  |                          |   |  |                     |  
|Net income for the year                                                                                                                                                                                                   |  |                        |   |  |               |   |  |                         |   |  |                                    |   |  | 5,449              |   |  | 5,449                    |   |  | 5,449               |  
|Foreign currency translation adjustments                                                                                                                                                                                  |  |                        |   |  |               |   |  |                         |   |  | 398                                 |   |  |                   |   |  | 398                      |   |  | 398                 |  
|Push down adjustments                                                                                                                                                                                                     |  |                        |   |  |               |   |  | 4,458                    |   |  |                                    |   |  |                   |   |  | 4,458                    |   |  |                    |  
|Repurchase of ordinary shares                                                                                                                                                                                             |  | (8,123,000              | ) |  | (1             | ) |  |                         |   |  |                                    |   |  | (4,999             | ) |  | (5,000                   | ) |  |                    |  
|Compensation charge                                                                                                                                                                                                       |  |                        |   |  |               |   |  |                         |   |  |                                    |   |  | 25                 |   |  | 25                       |   |  |                    |  
|Recognition of beneficial conversion feature upon issuance of Series A convertible contingently redeemable preferred shares (Note
12)                                                                                     |  |                        |   |  |               |   |  | 7,871                    |   |  |                                    |   |  |                   |   |  | 7,871                    |   |  |                    |  
|Deemed dividends arising from purchase of properties from a controlling shareholder (Note 16 (b))                                                                                                                         |  |                        |   |  |               |   |  |                         |   |  |                                    |   |  | (235               | ) |  | (235                     | ) |  |                    |  
|Accretion of Series A convertible contingently redeemable preferred shares to redemption amount and accretion of beneficial
conversion feature of Series A convertible contingently redeemable preferred shares (Note 12) |  |                        |   |  |               |   |  |                         |   |  |                                    |   |  | (903               | ) |  | (903                     | ) |  |                    |  
|                                                                                                                                                                                                                          |  |                         |   |  |                |   |  |                          |   |  |                                     |   |  |                    |   |  |                          |   |  |                     |  
|Balance as of September 30, 2007                                                                                                                                                                                          |  | 91,877,000              |   |  | 9              |   |  | 12,606                   |   |  | 433                                 |   |  | (264               | ) |  | 12,784                   |   |  | 5,847               |  
|                                                                                                                                                                                                                          |  |                         |   |  |                |   |  |                          |   |  |                                     |   |  |                    |   |  |                          |   |  |                     |  
|Net income for the year                                                                                                                                                                                                   |  |                        |   |  |               |   |  |                         |   |  |                                    |   |  | 3,997              |   |  | 3,997                    |   |  | 3,997               |  
|Foreign currency translation adjustments                                                                                                                                                                                  |  |                        |   |  |               |   |  |                         |   |  | 1,284                               |   |  |                   |   |  | 1,284                    |   |  | 1,284               |  
|Initial public offering of ordinary shares                                                                                                                                                                                |  | 35,000,000              |   |  | 4              |   |  | 52,492                   |   |  |                                    |   |  |                   |   |  | 52,496                   |   |  |                    |  
|Conversion of Series A convertible contingently redeemable preferred shares into ordinary shares                                                                                                                          |  | 14,963,594              |   |  | 1              |   |  | 10,234                   |   |  |                                    |   |  |                   |   |  | 10,235                   |   |  |                    |  
|Issuance of restricted ordinary shares (Note 21)                                                                                                                                                                          |  | 57,143                  |   |  |               |   |  | 100                      |   |  |                                    |   |  |                   |   |  | 100                      |   |  |                    |  
|Accretion of Series A convertible contingently redeemable preferred shares to redemption amount and accretion of beneficial
conversion feature of Series A convertible contingently redeemable preferred shares (Note 12) |  |                        |   |  |               |   |  |                         |   |  |                                    |   |  | (9,332             | ) |  | (9,332                   | ) |  |                    |  
|Stock-based compensation expense-stock options (Note 21)                                                                                                                                                                  |  |                        |   |  |               |   |  | 1,379                    |   |  |                                    |   |  |                   |   |  | 1,379                    |   |  |                    |  
|Deemed dividends arising from purchase of properties from a controlling shareholder (Note 16 (b))                                                                                                                         |  |                        |   |  |               |   |  |                         |   |  |                                    |   |  | (193               | ) |  | (193                     | ) |  |                    |  
|                                                                                                                                                                                                                          |  |                         |   |  |                |   |  |                          |   |  |                                     |   |  |                    |   |  |                          |   |  |                     |  
|Balance as of September 30, 2008                                                                                                                                                                                          |  | 141,897,737             |   |  | 14             |   |  | 76,811                   |   |  | 1,717                               |   |  | (5,792             | ) |  | 72,750                   |   |  | 5,281               |  
|                                                                                                                                                                                                                          |  |                         |   |  |                |   |  |                          |   |  |                                     |   |  |                    |   |  |                          |   |  |                     |  
|Net income for the year                                                                                                                                                                                                   |  |                        |   |  |               |   |  |                         |   |  |                                    |   |  | 1,188              |   |  | 1,188                    |   |  | 1,188               |  
|Foreign currency translation adjustments                                                                                                                                                                                  |  |                        |   |  |               |   |  |                         |   |  | (15                                 | ) |  |                   |   |  | (15                      | ) |  | (15                 | )
|Repurchase of ordinary shares                                                                                                                                                                                             |  | (3,163,600              | ) |  |               |   |  | (3,960                   | ) |  |                                    |   |  |                   |   |  | (3,960                   | ) |  |                    |  
|Options exercised                                                                                                                                                                                                         |  | 31,548                  |   |  |               |   |  | 26                       |   |  |                                    |   |  |                   |   |  | 26                       |   |  |                    |  
|Stock-based compensation expense-stock options (Note 21)                                                                                                                                                                  |  |                        |   |  |               |   |  | 3,920                    |   |  |                                    |   |  |                   |   |  | 3,920                    |   |  |                    |  
|                                                                                                                                                                                                                          |  |                         |   |  |                |   |  |                          |   |  |                                     |   |  |                    |   |  |                          |   |  |                     |  
|Balance as of September 30, 2009                                                                                                                                                                                          |  | 138,765,685             |   |  | 14             |   |  | 76,797                   |   |  | 1,702                               |   |  | (4,604             | ) |  | 73,909                   |   |  | 1,173               |  
|                                                                                                                                                                                                                          |  |                         |   |  |                |   |  |                          |   |  |                                     |   |  |                    |   |  |                          |   |  |                     |  

The accompanying notes are an integral part of the consolidated financial statements.



F-7



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##### Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



|                                                                                                                                                                                                |  |                           |   |  |        |   |  |         |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- | - |  | ------ | - |  | ------- | -
|                                                                                                                                                                                                |  | Years ended September 30, |  
|                                                                                                                                                                                                |  | 2007                      |   |  | 2008   |   |  | 2009    |  
|                                                                                                                                                                                                |  | US$                       |   |  | US$    |   |  | US$     |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                                                                                                                                            |  |                           |   |  |        |   |  |         |  
|Net income                                                                                                                                                                                      |  | 5,449                     |   |  | 3,997  |   |  | 1,188   |  
|Adjustments to reconcile net income to net cash provided by operating activities:                                                                                                               |  |                           |   |  |        |   |  |         |  
|Equity in loss of an affiliated company                                                                                                                                                         |  |                          |   |  | 64     |   |  |        |  
|Stock-based compensation                                                                                                                                                                        |  |                          |   |  | 1,479  |   |  | 3,920   |  
|Minority interest                                                                                                                                                                               |  |                          |   |  |       |   |  | (82     | )
|Depreciation of property, plant and equipment                                                                                                                                                   |  | 286                       |   |  | 555    |   |  | 930     |  
|Amortization of other intangible assets                                                                                                                                                         |  | 240                       |   |  | 235    |   |  | 579     |  
|Write-downs of inventories to net realizable value                                                                                                                                              |  | 43                        |   |  |       |   |  | 3       |  
|Deferred tax expense                                                                                                                                                                            |  | (963                      | ) |  | (622   | ) |  | 1,330   |  
|Changes in operating assets and liabilities:                                                                                                                                                    |  |                           |   |  |        |   |  |         |  
|(Increase) in accounts receivable                                                                                                                                                               |  | (138                      | ) |  | (561   | ) |  | (4,323  | )
|(Increase) decrease in prepayments, deposits and other assets                                                                                                                                   |  | (53                       | ) |  | (1,212 | ) |  | (112    | )
|Increase in inventories                                                                                                                                                                         |  | (151                      | ) |  | (50    | ) |  | (123    | )
|Decrease in amounts due from related parties                                                                                                                                                    |  | 4                         |   |  |       |   |  |        |  
|Increase in deferred cost                                                                                                                                                                       |  | (210                      | ) |  | (193   | ) |  | (841    | )
|Decrease (increase) in other non-current assets                                                                                                                                                 |  | (51                       | ) |  | 79     |   |  | (808    | )
|Increase in accrued expenses and other liabilities                                                                                                                                              |  | 121                       |   |  | 924    |   |  | 805     |  
|Increase in deferred revenue                                                                                                                                                                    |  | 728                       |   |  | 860    |   |  | 2,137   |  
|Increase (decrease) in refundable fees                                                                                                                                                          |  | 1,805                     |   |  | 2,548  |   |  | (2,907  | )
|Increase (decrease) in income tax payable                                                                                                                                                       |  | (111                      | ) |  | 961    |   |  | (89     | )
|Decrease in amounts due to related parties                                                                                                                                                      |  | (38                       | ) |  |       |   |  |        |  
|                                                                                                                                                                                                |  |                           |   |  |        |   |  |         |  
|                                                                                                                                                                                                |  |                           |  
|Net cash generated from operating activities                                                                                                                                                    |  | 6,961                     |   |  | 9,064  |   |  | 1,607   |  
|                                                                                                                                                                                                |  |                           |   |  |        |   |  |         |  
|                                                                                                                                                                                                |  |                           |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                                                                                                                                            |  |                           |   |  |        |   |  |         |  
|Decrease in advance to a magazine                                                                                                                                                               |  | 220                       |   |  |       |   |  |        |  
|Acquisition of business (net of cash acquired of US$48 and US$2,854 respectively for the year ended September 30, 2008 and
2009)                                                                |  |                          |   |  | (688   | ) |  | (3,211  | )
|Change in restricted cash                                                                                                                                                                       |  |                          |   |  |       |   |  | (8,250  | )
|Term deposits                                                                                                                                                                                   |  |                          |   |  |       |   |  | (27,753 | )
|Acquisition of property, plant and equipment                                                                                                                                                    |  | (3,233                    | ) |  | (1,779 | ) |  | (1,451  | )
|Acquisition of other intangible assets                                                                                                                                                          |  | (118                      | ) |  | (450   | ) |  | (513    | )
|Payment of deposit for the acquisition of non-current assets (including related party amounts of US$666, US$nil and US$nil for
the years ended September 30, 2007, 2008 and 2009, respectively) |  | (782                      | ) |  | (176   | ) |  | (356    | )
|                                                                                                                                                                                                |  |                           |   |  |        |   |  |         |  
|                                                                                                                                                                                                |  |                           |  
|Net cash used in investing activities                                                                                                                                                           |  | (3,913                    | ) |  | (3,093 | ) |  | (41,534 | )
|                                                                                                                                                                                                |  |                           |   |  |        |   |  |         |  



F-8



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##### Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS - continued

(In thousands)



|                                                                                                                          |  |                           |   |  |        |   |  |         |  
|------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- | - |  | ------ | - |  | ------- | -
|                                                                                                                          |  | Years ended September 30, |  
|                                                                                                                          |  | 2007                      |   |  | 2008   |   |  | 2009    |  
|                                                                                                                          |  | US$                       |   |  | US$    |   |  | US$     |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                                                                      |  |                           |   |  |        |   |  |         |  
|Proceeds from issuance of Series A convertible contingently redeemable preferred shares (net of issuance costs of
US$129) |  | 7,871                     |   |  |       |   |  |        |  
|Proceeds from initial public offering (net of underwriter discount of                                                     |  |                           |   |  |        |   |  |         |  
|US$4,288 and paid issuance costs of US$3,559)                                                                             |  |                          |   |  | 53,403 |   |  |        |  
|Proceeds from short-term bank borrowing                                                                                   |  | 384                       |   |  |       |   |  |        |  
|Repurchase of ordinary shares                                                                                             |  | (4,975                    | ) |  |       |   |  | (3,960  | )
|Repayment of long-term bank borrowings                                                                                    |  | (48                       | ) |  | (454   | ) |  |        |  
|Repayment of short-term bank borrowings                                                                                   |  |                          |   |  | (411   | ) |  |        |  
|Proceeds from share options exercised by employees                                                                        |  |                          |   |  |       |   |  | 26      |  
|Payment of deferred initial public offering costs                                                                         |  |                          |   |  |       |   |  | (907    | )
|                                                                                                                          |  |                           |   |  |        |   |  |         |  
|Net cash generated from (used in) financing activities                                                                    |  | 3,232                     |   |  | 52,538 |   |  | (4,841  | )
|                                                                                                                          |  |                           |   |  |        |   |  |         |  
|Exchange rate effect on cash and cash equivalents                                                                         |  | 136                       |   |  | 608    |   |  | (18     | )
|                                                                                                                          |  |                           |   |  |        |   |  |         |  
|Net increase (decrease) in cash and cash equivalents                                                                      |  | 6,416                     |   |  | 59,117 |   |  | (44,786 | )
|Cash and cash equivalents at beginning of the year                                                                        |  | 690                       |   |  | 7,106  |   |  | 66,223  |  
|                                                                                                                          |  |                           |   |  |        |   |  |         |  
|Cash and cash equivalents at end of the year                                                                              |  | 7,106                     |   |  | 66,223 |   |  | 21,437  |  
|                                                                                                                          |  |                           |   |  |        |   |  |         |  
|Supplemental schedule of cash flows information                                                                           |  |                           |   |  |        |   |  |         |  
|Income tax paid                                                                                                           |  | (563                      | ) |  | (163   | ) |  | (334    | )
|Interest paid                                                                                                             |  | (58                       | ) |  | (33    | ) |  |        |  
|Supplemental schedule of non-cash activities                                                                              |  |                           |   |  |        |   |  |         |  
|Acquisition of property, plant and equipment included in accrued expenses and other liabilities                           |  |                          |   |  |       |   |  |        |  
|Acquisition of property, plant and equipment and other intangible assets through utilization of deposits                  |  | 466                       |   |  | 752    |   |  | 151     |  
|Acquisition of an investment through utilization of deposits                                                              |  |                          |   |  | 133    |   |  |        |  
|Initial public offering costs included in accrued expenses and other liabilities                                          |  |                          |   |  | 907    |   |  |        |  
|Conversion of Series A convertible contingently redeemable preferred shares into ordinary shares                          |  |                           |   |  | 10,235 |   |  |        |  
|Acquisition consideration payable (Champion Xinlixiang)                                                                   |  |                          |   |  |       |   |  | 1,628   |  
|                                                                                                                          |  |                           |   |  |        |   |  |         |  

The accompanying notes are an integral part of the consolidated financial statements.



F-9



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)

1. ORGANIZATION AND BASIS OF
PRESENTATION

China Distance Education Holdings Limited (the Company) was incorporated under the law of the Cayman Islands on
January 11, 2008. The accompanying consolidated financial statements include the financial statements of the Company, its subsidiaries and its variable interest entities, including China Distance Education Limited (CDEL Hong Kong),
Beijing Champion Distance Education Technology Co., Ltd. (Champion Technology), Beijing Champion Education Technology Co., Ltd. (Champion Education Technology), Beijing Champion Hi-Tech Co., Ltd. (Beijing
Champion), Beijing Caikaowang Company Limited (Caikaowang), Beijing Champion Wangge Education Technology Co., Ltd. (Champion Wangge), Beijing Zhengbao Yucai Education Technology Co., Ltd (Zhengbao Yucai),
Beijing Haidian District Champion Training School (Champion Training School) and Zhejiang Champion Xinlixiang Education Management Co., Ltd (Champion Xinlixiang). The Company, its subsidiaries and its variable interest entity
are collectively referred to as the Group, hereinafter.

The Group is principally engaged in provision of online and classroom
education services, and selling related products in the Peoples Republic of China (PRC). The Group develops and operates its business through its subsidiaries and its variable interest entities. Details of the Companys
subsidiaries and variable interest entities as of September 30, 2009 are as follows:



|                                          |  |                      |  |                       |  |                                            |  |                                                                                  
|----------------------------------------- |  | -------------------- |  | --------------------- |  | ------------------------------------------ |  | ---------------------------------------------------------------------------------
|Company                                   |  | Date ofestablishment |  | Place ofestablishment |  | Percentage oflegal ownership bythe Company |  | Principal activities                                                             
|                                          |  |                      |  |                      
|Subsidiaries:                             |  |                      |  |                       |  |                                            |  |                                                                                  
|CDEL Hong Kong                            |  | March 13, 2003       |  | Hong Kong             |  | 100%                                       |  | Investment holding                                                               
|Champion Technology                       |  | January 5, 2004      |  | PRC                   |  | 100%                                       |  | Provision of technical support and consultancy services and course production    
|Champion Education Technology             |  | April 23, 2007       |  | PRC                   |  | 100%                                       |  | Software licensing and course production                                         
|                                          |  |                      |  |                      
|Variable interest entity:                 |  |                      |  |                       |  |                                            |  |                                                                                  
|Beijing Champion                          |  | July 12, 2000        |  | PRC                   |  | Nil                                        |  | Provision of online education services and sales of books and reference materials
|                                          |  |                      |  |                      
|Subsidiaries of variable interest entity: |  |                      |  |                       |  |                                            |  |                                                                                  
|Caikaowang                                |  | November 28, 2007    |  | PRC                   |  | Nil                                        |  | Provision of online education services                                           
|Champion Wangge                           |  | June 24, 2008        |  | PRC                   |  | Nil                                        |  | Provision of online education services                                           
|Zhengbao Yucai                            |  | February 19, 2009    |  | PRC                   |  | Nil                                        |  | Provision of online and classroom education services                             
|Champion Training School                  |  | February 19, 2009    |  | PRC                   |  | Nil                                        |  | Provision of online and classroom education services                             
|Champion Xinlixiang                       |  | July 8, 2009         |  | PRC                   |  | Nil                                        |  | Provision of online and classroom education services                             

In order to comply with PRC law and regulations which prohibit foreign control of companies in certain industries, the Company operates its websites and provides online and classroom education services in the PRC through Beijing Champion,
which is effectively controlled by the Company through a series of contractual arrangements without transferring legal ownership in Beijing Champion (see Note 2). As a result of these contractual arrangements, the Company maintains the ability to
approve decisions made by Beijing Champion and is entitled to substantially all of the economic benefits of Beijing Champion. Therefore, the Company consolidates Beijing Champion together with Beijing Champions five subsidiaries, namely
Caikaowang, Champion Wangge, Zhengbao Yucai, Champion Training School and Champion Xinlixiang.



F-10



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



2. SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation and use of
estimates

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America (U.S. GAAP).

The preparation of consolidated financial statements in conformity with
U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the balance sheet dates and the reported amounts of revenues and expenses
during the reporting periods. Significant estimates and assumptions reflected in the Group financial statements include, but are not limited to, revenue recognition, useful lives of property, plant and equipment and other intangible assets,
provision for obsolete inventories, deferred tax assets valuation allowance, uncertain tax positions, impairment of goodwill and long-term assets and share-based compensation expenses. Actual results could materially differ from those estimates.

Principles of consolidation

The consolidated financial statements include the financial statements of the Company, its subsidiaries and its variable interest entities. All transactions and balances among the Company, its
subsidiaries and its variable interest entities have been eliminated upon consolidation.

PRC laws and regulations restrict foreign ownership
of companies that provide telecommunications value-added services (which includes the provision of internet content or information services). To comply with these foreign ownership restrictions, the Company operates its online education services in
the PRC through Beijing Champion, which is an entity legally owned by Mr. Zhengdong Zhu, the CEO, and his wife, Ms. Baohong Yin, and holds the license and approvals to provide telecommunications value-added services in the PRC. In May
2004, a series of agreements were entered into amongst CDEL Hong Kong, Champion Technology, Beijing Champion and Beijing Champions direct equity holders.

Pursuant to the contractual arrangements with Beijing Champion, Champion Technology provides certain technical and consulting services to Beijing Champion in exchange for fees. As Champion Technology
contractually controls the management of Beijing Champion and Beijing Champion has granted an irrevocable proxy to Champion Technology or its designee, the Company, through its wholly-owned equity interest in Champion Technology, in substance, has
unilateral discretion in setting the fees charged to Beijing Champion. Champion Technology is obligated to provide financial support to Beijing Champion in the event it incurs losses.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



2. SIGNIFICANT ACCOUNTING POLICIES - continued



Principles of consolidation - continued



In addition to the exclusive technical support and consultancy services agreement, pursuant to which Champion Technology
provides exclusive technical and consulting services to Beijing Champion, Champion Technology has entered into agreements with Beijing Champion and its equity holders with respect to certain shareholder rights and corporate governance matters.
Pursuant to these contractual arrangements:



| |  |  | The annual budget of Beijing Champion should be assessed and approved by Champion Technology. Such assessments include projection for revenue, working
capital, as well as pricing strategies and payment policies for online courses. Operating expenses of Beijing Champion should not exceed the annual budget approved by Champion Technology;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Beijing Champion will not enter into any transaction that may materially affect its assets, liabilities, equity or operations without the prior written
consent of Champion Technology;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Champion Technology may purchase the entire equity interest in, or all the assets of Beijing Champion, for a purchase price equal to the net assets of
Beijing Champion or the minimum price permitted by PRC laws, if and when PRC laws are revised to permit such a transaction;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The equity holders of Beijing Champion have pledged their equity interest in Beijing Champion to Champion Technology to secure the payment obligations
of Beijing Champion under the technical support and consultancy services agreement between Beijing Champion and Champion Technology;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The equity holders of Beijing Champion will not transfer, sell, pledge or dispose of their equity interest in Beijing Champion without the prior
written consent of Champion Technology;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Beijing Champion will not distribute any dividend without the prior consent of Champion Technology;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | The legal shareholders of Beijing Champion agree to remit dividends, if any, and/or any other considerations including the exercise price of the option
received from Beijing Champion back to Champion Technology; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Beijing Champion pays Champion Technology a technical service fee equal to its revenue less cost of sales and operating expenses as approved by
Champion Technology monthly.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As a result of these contractual arrangements, the Company is the primary beneficiary of the
variable interest entity and accordingly has consolidated the financial results of the variable interest entity and its subsidiaries in its consolidated financial statements.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



2. SIGNIFICANT ACCOUNTING POLICIES - continued



Principles of consolidation - continued



The following financial statement amounts and balances of the Companys variable interest entities, Beijing Champion and
its subsidiaries, are included in the accompanying consolidated financial statements:



|                  |  |                     |  |       
|----------------- |  | ------------------- |  | ------
|                  |  | As of September 30,
|                  |  | 2008                |  | 2009  
|                  |  | US$                 |  | US$   
|Total assets      |  | 21,972              |  | 36,358
|                  |  |                     |  |       
|Total liabilities |  | 16,890              |  | 24,533
|                  |  |                     |  |       



|           |  |                                  |  |        |  |       
|---------- |  | -------------------------------- |  | ------ |  | ------
|           |  | For the years endedSeptember 30,
|           |  | 2007                             |  | 2008   |  | 2009  
|           |  | US$                              |  | US$    |  | US$   
|Revenues   |  | 10,680                           |  | 16,831 |  | 29,722
|           |  |                                  |  |        |  |       
|Net income |  | 7,592                            |  | 8,847  |  | 10,824
|           |  |                                  |  |        |  |       

Foreign currency translation and transactions

The Company and CDEL Hong Kongs functional currencies are United States dollars (US$). The Companys PRC
subsidiaries and variable interest entities determine their functional currencies to be the Chinese Renminbi (RMB). The Company uses the US$ as its reporting currency and uses the monthly average exchange rate for the year and the
exchange rate at the balance sheet date to translate the operating results and financial position of its PRC subsidiaries and its variable interest entities, respectively. Translation differences are recorded in accumulated other comprehensive
income, a component of shareholders equity.

Transactions denominated in foreign currencies are remeasured into the functional currency
at the exchange rates prevailing on the transaction dates. Foreign currency denominated financial assets and liabilities are remeasured at the balance sheet date exchange rate. Exchange gains and losses are included in the consolidated statements of
operations.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



2. SIGNIFICANT ACCOUNTING POLICIES - continued



Cash and cash equivalents

Cash and cash equivalents consist of cash on hand and highly liquid investments which are unrestricted as to withdrawal or use, and which have an original maturity of three months or less when purchased.

Term deposits

Term
deposits consist of deposits placed with financial institutions with an original maturity of greater than three months and less than one year.

Restricted cash

Restricted cash represents US$ deposited in bank accounts for
obtaining a revolving line of credit in RMB equivalent to US$7,500. The credit line was obtained in June 2009 and was not drawn as of September 30, 2009. Loans obtained under the credit line will be no longer than 6 months and bear the
prevailing interest rate at 10% discount.

Inventories

Inventories, consisting of papers and professional examination reference books, are stated at the lower of cost or market value. Cost is determined by the
first in, first out method.

Fair value

Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the
fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Group considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants
would use when pricing the asset or liability. Authoritative literature provides a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The level in the hierarchy within which
the fair value measurement in its entirety falls is based upon the lowest level of input that is significant to the fair value measurement as follows:

Level 1

Level 1 applies to assets or liabilities for which there are quoted prices in
active markets for identical assets or liabilities.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



2. SIGNIFICANT ACCOUNTING POLICIES - continued



Fair value - continued



Level 2

Level 2 applies to
assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical
assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable
market data.

Level 3

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

Allowance for doubtful accounts

An allowance for doubtful accounts is recorded in the period in which a loss is determined to be probable based on an assessment of specific evidence indicating doubtful collection, historical experience,
account balance aging and prevailing economic conditions. Accounts receivable balances are written off after all collection efforts have been exhausted.

Investment

The investment for which the Group has the ability to exercise
significant influence but not control is accounted for using the equity method. Significant influence generally exists when at least 20% but less than 50% of the voting interest is acquired in an investment. Under the equity method, the investment
is initially recorded at purchase cost and adjusted by the Groups proportionate share in the earnings or losses and distributions from the investee and any purchase price adjustments arising from the acquisition of the investee. All unrealized
inter-company profits and losses have been eliminated under the equity method.

An impairment charge is recognized for equity method accounted
for investment when an other than temporary decline in its carrying value has occurred.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



2. SIGNIFICANT ACCOUNTING POLICIES - continued



Property, plant and equipment, net

Property, plant and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets, as follows:



|                                |  |                       |  |                         
|------------------------------- |  | --------------------- |  | ------------------------
|Category                        |  | Estimated useful life |  | Estimated residual value
|Buildings                       |  | 35 years              |  | 5-10%                   
|Electronic and office equipment |  | 5 years               |  | 5-10%                   
|Motor vehicles                  |  | 5 years               |  | 5-10%                   
|Leasehold improvement           |  | shorter of lease term |  |                        
|and building improvement        |  | or 5 years            |  |                         

Repair and maintenance costs are charged to expense as incurred, whereas the cost of renewals and betterment that
extends the useful lives of property, plant and equipment are capitalized as additions to the related assets. Retirements, sales and disposals of assets are recorded by removing the cost and accumulated depreciation from the asset and accumulated
depreciation accounts with any resulting gain or loss reflected in the consolidated statements of operations.

Goodwill

The excess of the purchase price over the fair value of net assets acquired is recorded on the consolidated balance sheet as goodwill.
Goodwill is not amortized but is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired. The Group has two reporting units, the Online education service and
Classroom education service. We perform our annual goodwill impairment test on September 30 of each fiscal year for both reporting units. Goodwill is tested following a two-step process. The first step compares the fair value of
each reporting unit to its carrying amount, including goodwill. If the fair value of each reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and the second step will not be required. If the carrying amount of a
reporting unit exceeds its fair value, the second step compares the implied fair value of goodwill to the carrying value of a reporting units goodwill. The implied fair value of goodwill is determined in a manner similar to accounting for a
business combination with the allocation of the assessed fair value determined in the first step to the assets and liabilities of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to the assets and
liabilities is the implied fair value of goodwill. An impairment loss is recognized for any excess in the carrying value of goodwill over the implied fair value of goodwill. The company recognized no impairment loss on goodwill for any of the
periods presented.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



2. SIGNIFICANT ACCOUNTING POLICIES - continued



Other intangible assets, net

Other intangible assets are amortized using the straight-line basis over the estimated useful lives as follows:



|                            |  |                      
|--------------------------- |  | ---------------------
|Category                    |  | Estimated useful life
|Computer software           |  | 3~5 years            
|Domain names and trademarks |  | 10~11 years          
|Courseware                  |  | 1~5 years            
|Website                     |  | 5 years              
|Business contacts           |  | 3~5 years            
|Copyrights                  |  | 5 years              
|Platform                    |  | 3.5 years            
|Non-compete agreement       |  | 15 years             

Impairment
of long-lived assets

The Group evaluates its long-lived assets or asset group including intangibles with finite lives for impairment
whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying amount of a group of long-lived assets may not be fully recoverable.
When these events occur, the Group evaluates the impairment by comparing the carrying amount of the assets to future undiscounted net cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected
undiscounted cash flows is less than the carrying amount of the assets, the Group recognizes an impairment loss based on the excess of the carrying amount of the asset group over its fair value, generally based upon discounted cash flows. There was
no such impairment charge recorded for any of the periods presented.

Fair value of financial instruments

The carrying amounts of cash and cash equivalents, term deposits, restricted cash, accounts receivable, other current assets, and
other liabilities approximate their fair value due to the short-term maturity of these instruments.

Revenue recognition

Revenues are recognized when the following four criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the
service has been rendered, (iii) the fees are fixed or determinable, and (iv) collectability is reasonably assured.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



2. SIGNIFICANT ACCOUNTING POLICIES - continued



Revenue recognition - continued



Online education services

The online education services provided by the Group to its customers include audio-video course content, mock examinations and online chat rooms. The overall package of services provided to the customers is a multiple-element arrangement.
Due to lack of objective and reliable evidence of fair value for each deliverable included in the arrangement, a combined unit of accounting is used.

The Group earns revenues by providing online education services to customers pursuant to two types of revenue modelsnon-refundable course model and refundable course model. For online courses using the non-refundable course model,
revenues are recognized on a straight line basis over the subscription period from the month in which the customers enroll in the courses to the month in which subscribed courses terminate. For online courses using the refundable course model, if
the customers complete the courses and fail the professional exams and their scores are within a range provided for in the agreement, they are entitled to either a full refund or the right to retake the course. The customers must notify the Group
within a 15-day period after the professional examinations scores are released in order to be eligible for the refund or the right to retake the course. The proceeds from the refundable course model are initially recorded as refundable
fees. Revenues are recognized upon the expiration of the customers right to either receive a refund or retake the course.

Customers enroll for online courses mainly through the use of prepaid study cards which are purchased from distributors. The Group sells to its distributors prepaid study cards at a discount to the face value of the cards. Revenues are
recorded using the after-discount-selling-price of the cards and recognized over the period the online course is available to the customer, which generally is from the enrollment date to the completion of the relevant professional examination date.
Sales of prepaid study cards that are not activated for course enrollment are recognized as revenues upon expiration of the cards. Prepaid study cards that have been activated but have not been used to enroll online courses do not have an expiry
date and will be deferred until they are used to enroll in online courses. Customers who enroll with the Company directly are eligible to a refund within a 7-day trial period. Revenues from direct enrollment with the Company are recognized over the
period from the lapse of the 7-day trial period to the completion of the relevant professional examination date.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



2. SIGNIFICANT ACCOUNTING POLICIES - continued



Revenue recognition - continued



Online education services - continued



The Group may, at times, offer volume discounts to its distributors for purchases over a specified amount of prepaid cards (non-rebate study
cards) during a specified period of time, generally, one year. These discounts are provided to the distributors in the form of additional free study cards (rebate study cards). The amount of future rebates relating to these volume
discounts cannot be reasonably estimated and accordingly a deferred revenue balance is recognized for the maximum potential amount of volume discount. If the number of purchases specified in the volume discount provisions is not reached upon the
expiry of the volume discount period, the deferred revenue relating to such volume discount is recognized as revenue over the remaining period the online course is available to the user who enrolls using non-rebate study cards. If the number of
purchases specified in the volume discount provisions is reached, the revenues recognized related to the rebate study cards will be recognized as revenues over the subscription period the online course is available to the user who enrolls using the
rebate study cards. Proceeds allocated to the rebate study cards that have never been activated for course enrollment are recognized as revenues upon expiration of the cards.

For the year ended September 30, 2007, 2008 and 2009, the Group recognized revenues before business tax and related surcharges in connection with expired study cards amounted to approximately US$305,
US$43 and US$90 respectively.

Beijing Champion is subject to approximately 3% business tax and related surcharges on the revenues earned from
provision of online education services. The Group records revenues net of these taxes in the consolidated statement of operations. Such business tax and related surcharges for the years ended September 30, 2007, 2008 and 2009 are approximately
US$360, US$458 and US$1,014, respectively.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



2. SIGNIFICANT ACCOUNTING POLICIES - continued



Revenue recognition - continued



Books and reference materials

In 2007, the Group sold books and reference materials to its distributors and provided them with the right to return up to 5% of the unsold products and credit terms of one year or above. Since late 2008, the right of return is no longer
made available to the distributors. Due to the extended credit terms, revenues relating to such sales are deferred until cash is collected from the distributors. Inventory costs of products delivered to distributors for which revenues have been
deferred are presented as deferred costs on the consolidated balance sheets.

The Group also sells books and reference materials
together with study cards which allow the customers to take a certain number of on-line courses for no additional charge. Due to the significant variability in the prices charged for on-line courses, the Company does not have sufficient evidence of
fair value for the study cards. Therefore, the sales of books and reference material in these multiple-element arrangements cannot be accounted for as a separate accounting unit, and accordingly the entire revenues are recognized over the
subscription period the online course is available to the user or upon expiration of the study cards.

The cost of books and reference
materials are deferred and recognized as cost of goods sold over the subscription period the online course is available to the user or upon expiration of the cards.

In accordance with the relevant tax laws in the PRC, value-added tax, or VAT, is levied on the invoiced value of sales of books and reference materials and is payable by the purchaser. Revenues are
recognized net of all VAT imposed by governmental authorities and collected from customers concurrent with revenue-producing transactions. VAT amounted to approximately US$209, US$296 and US$350 for the years ended September 30, 2007, 2008 and
2009, respectively.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



2. SIGNIFICANT ACCOUNTING POLICIES - continued



Revenue recognition - continued



Other revenues

Other
revenues include sales of classroom education services, courseware production services, platform production services, and others.

Revenues
from classroom training are recognized when the training courses are provided. For classroom training sponsored by government authorities, the tuition fees of the training participants are subsidized by the government. Qualified enrollments and the
fees to be earned cannot be determined until the confirmation from government authorities regarding the number of students and fees is received by the Company, which is after the completion of services. Therefore, revenues from such services are
recognized upon cash receipt or the receipt of confirmations from government authorities, whichever is earlier.

Revenues from sales of
courseware or platforms, which are designed and developed pursuant to the requests from customers, are recognized when the courseware or platforms are accepted by the customers. The Company has no remaining obligation with respect to the courseware
or platforms upon the acceptance of the customers.

Revenues from other services, including magazine content production, advertising and
consulting services, are recognized over the period when such services are provided.

From time to time, the Group enters into arrangements to
provide the development and maintenance of online platforms to its customers. The on-line platforms, which are owned by the Group, enable customers to sell products through the Company's website. After the development of online platforms, the Group
provides support and maintenance services, which encompass bug fixes and general technical support but do not include upgrades or increased functionality of the online platform, for a period of time for no additional charge. The development of
online platform and the support and maintenance services are accounted for as a single unit of accounting due to the lack of sufficient evidence of fair value of the support and maintenance services. Accordingly, revenues from such arrangements are
recognized ratably over the support and maintenance services period.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



2. SIGNIFICANT ACCOUNTING POLICIES - continued



Cost of sales

Cost
of online education services primarily includes the production costs of study cards, server and bandwidth leasing fees, lecturer fees, staff costs involved in the operation of online education services including network operation and maintenance,
course production and tutor services and other direct costs of providing these services. These costs are expensed when incurred.

Cost of
books and reference materials includes direct materials used for production of books, authorship fee and printing costs.

5% business tax on
technical and consulting service, software licensing and course production fee received by Champion Technology and Champion Education Technology from Beijing Champion is included in the cost of services.

Advertising expenditure

Advertising costs are expensed when incurred and are included in selling expenses in the consolidated statements of operations. For the years ended September 30, 2007, 2008 and 2009, advertising expenses were approximately
US$660, US$783 and US$1,997, respectively.

Shipping and handling costs

Shipping and handling costs of books and reference materials are classified as a component of selling expenses in the consolidated statements of
operations. During the years ended September 30, 2007, 2008 and 2009, shipping and handling costs classified as selling expenses were US$109, US$202 and US$382, respectively.

Income taxes

The
Group follows the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted
tax rates that will be in effect in the period in which the differences are expected to reverse. The Group records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some
portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized in the consolidated statement of operations in the period that includes the enactment date.

Effective October 1, 2007, the Group adopted the recognition and measurement methods under the authoritative interpretation regarding accounting for
uncertainty in income taxes, which clarifies the accounting and disclosure for uncertainty in tax positions, as defined in that statement. See Note 15 for additional information including the impact on the Groups consolidated financial
statements.

The Group recognizes, if any, interest related to unrecognized tax benefits in interest expense and penalties in other expenses.
The interest and penalties related to potential underpaid income tax expenses have been insignificant.



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FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



2. SIGNIFICANT ACCOUNTING POLICIES - continued



Share-based compensation

The Group granted to its employees and non-employees share-based compensation awards in 2008 and granted to its non-executive director share-based compensation awards in 2009 subject to graded vesting.

Share-based compensation with employees is measured based on the grant-date fair value of the equity instrument issued and recognized as compensation
expense over the requisite service period, with a corresponding addition to paid-in capital. The Group recognizes compensation expense over the vesting term on a straight-line basis with the amount of compensation expense recognized at any date not
less than the portion of the grant-date value of the option vested at that date.

Share-based compensation with non-employee is measured based
on the fair value of options at the earlier of the performance commitment date or the date at which the non-employees performance is complete (hereafter referred to as the measurement date). For the grants in 2008, the Group determined the
measurement date to be the performance commitment date pursuant to the employment supplemental agreements entered with the non-employees, in which the penalty for nonperformance was stipulated and represented a sufficiently large disincentive for
nonperformance. The Group recognizes compensation expense using the graded vesting attribution method.

Share-based compensation awards which
require the issuance of a variable number of shares to settle a fixed monetary amount are accounted for as liabilities.

Net income per share

Basic net income per share is computed by dividing income attributable to holders of ordinary
shares by the weighted average number of ordinary shares outstanding during the period. Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue ordinary shares were exercised or
converted into ordinary shares. Ordinary shares issuable upon the conversion of the convertible contingently redeemable preferred shares are included in the computation of diluted net income per ordinary share on an if-converted basis
when the impact is dilutive. The dilutive effect of outstanding share-based awards is reflected in the diluted net income per share by application of the treasury stock method. Two-class method is used to calculate net income per share data for
preferred shares that are participating securities.

Comprehensive income

Comprehensive income includes net income and foreign currency translation adjustments. Comprehensive income is reported as a component of the consolidated
statements of shareholders equity and comprehensive income.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



2. SIGNIFICANT ACCOUNTING POLICIES - continued



Recently issued accounting pronouncements

In December 2007, the FASB issued an authoritative pronouncement regarding business combination. The new pronouncement replaces existing pronouncement to require the acquiring entity in a business
combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction; to establish the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and to require the
acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination. The new pronouncement applies prospectively to business combinations with
acquisition dates on or after the beginning of the first annual reporting period on or after December 15, 2008. Early application is prohibited. The Group does not expect the adoption of this pronouncement will have a significant effect on its
consolidated financial position or results of operations.

In December 2007, the FASB issued an authoritative pronouncement regarding
non-controlling interests in consolidated financial statements to improve the relevance, comparability, and transparency of financial information provided to investors by requiring all entities to report non-controlling (minority) interests in
subsidiaries in the same way as required in the consolidated financial statements. Moreover, the new pronouncement eliminates the diversity that currently exists in accounting for transactions between an entity and non-controlling interests by
requiring they be treated as equity transaction. The new pronouncement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Early application is prohibited. The Group will adopt
this standard in the fiscal year 2010, which will require retrospective application of the presentation and disclosure requirements of this standard for all of the Groups minority interest.

In April 2008, the FASB issued an authoritative pronouncement regarding the determination of the useful life of intangible assets. The new pronouncement
amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under existing pronouncement. The new pronouncement is effective for fiscal years
beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The guidance for determining the useful life of a recognized intangible asset in the new pronouncement shall be applied
prospectively to intangible assets acquired after the effective date. The Group does not expect the adoption of this pronouncement will have a significant effect on its consolidated financial position or results of operations.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



2. SIGNIFICANT ACCOUNTING POLICIES - continued



Recently issued accounting pronouncements - continued



In April 2009, the FASB issued an authoritative pronouncement regarding accounting for assets acquired and liabilities assumed
in a business combination that arise from contingencies. This new pronouncement amends and clarifies existing pronouncement to address application issues on initial recognition and measurement, subsequent measurement and accounting, and disclosure
of assets and liabilities arising from contingencies in a business combination. The new pronouncement shall be effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December 15, 2008. The Group does not expect that the adoption of this pronouncement will have a significant effect on its consolidated financial position or results of
operations.

In June 2009, the FASB issued an authoritative pronouncement, which changes how a company determines whether an entity should be
consolidated when such entity is insufficiently capitalized or is not controlled by the company through voting (or similar rights). The determination of whether a company is required to consolidate an entity is based on, among other things, the
entitys purpose and design and the companys ability to direct the activities of the entity that most significantly impact the entitys economic performance. The pronouncement is effective as of the beginning of an entitys
first fiscal year that begins after November 15, 2009. The Group does not expect that the adoption of this pronouncement will have a significant effect on its consolidated financial position or results of operations.

In September 2009, the FASB issued an authoritative pronouncement regarding the revenue arrangements with multiple deliverables. Although the new
pronouncement retains the criteria from existing authoritative literature for when delivered items in a multiple-deliverable arrangement should be considered separate units of accounting, it removes the previous separation criterion that objective
and reliable evidence of the fair value of any undelivered items must exist for the delivered items to be considered separate units of accounting. The new pronouncement is effective for fiscal years beginning on or after June 15, 2010. Entities
can elect to apply this pronouncement (1) prospectively to new or materially modified arrangements after the pronouncements effective date or (2) retrospectively for all periods presented. Early application is permitted; however, if
the entity elects prospective application and early adopts this pronouncement after its first interim reporting period, it must also do the following in the period of adoption: (1) retrospectively apply this pronouncement as of the beginning of
that fiscal year and (2) disclose the effect of the retrospective adjustments on the prior interim periods revenue, income before taxes, net income, and earnings per share. The Group is in the process of evaluating the effect of adoption
of this pronouncement.



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



2. SIGNIFICANT ACCOUNTING POLICIES - continued



Recently issued accounting pronouncements - continued



In September 2009, the FASB issued an authoritative pronouncement regarding software revenue recognition. This new
pronouncement amends existing pronouncement to exclude from their scope all tangible products containing both software and nonsoftware components that function together to deliver the products essential functionality. That is, the entire
product (including the software deliverables and nonsoftware deliverables) would be outside the scope of software revenue recognition and would be accounted for under other accounting literature. The new pronouncement include factors that entities
should consider when determining whether the software and nonsoftware components function together to deliver the products essential functionality and are thus outside the revised scope of the authoritative literature that governs software
revenue recognition. The pronouncement is effective for fiscal years beginning on or after June 15, 2010. Entities can elect to apply this pronouncement (1) prospectively to new or materially modified arrangements after the
pronouncements effective date or (2) retrospectively for all periods presented. Early application is permitted; however, if the entity elects prospective application and early adopts this pronouncement after its first interim reporting
period, it must also do the following in the period of adoption: (1) retrospectively apply this pronouncement as of the beginning of that fiscal year and (2) disclose the effect of the retrospective adjustments on the prior interim
periods revenue, income before taxes, net income, and earnings per share. The Group is in the process of evaluating the effect of adoption of this pronouncement.

In January 2010, the FASB issued authoritative guidance to improve disclosures about fair value measurements. This guidance amends previous guidance on fair value measurements to add new requirements for
disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurement on a gross basis rather than as a net basis as currently required. This guidance
also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. This guidance is effective for annual and interim periods beginning after December 15, 2009,
except for the requirement to provide the level 3 activities of purchases, sales, issuances, and settlements on a gross basis, which will be effective for annual and interim periods beginning after December 15, 2010. Early application is
permitted and in the period of initial adoption, entities are not required to provide the amended disclosures for any previous periods presented for comparative purposes. The Group does not expect the adoption of this pronouncement will have a
significant effect on its consolidated financial position or results of operations.



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



2. SIGNIFICANT ACCOUNTING POLICIES - continued



Concentration of risks

Concentration of credit risk

Financial instrument that potentially expose the Group to
significant concentration of credit risk primarily consist of cash and cash equivalents, accounts receivable and funds receivable. As of September 30, 2009, substantially all of the Groups cash and cash equivalents were deposited in
financial institutions located in the PRC and in Hong Kong, which management believes are of high credit quality. Accounts receivable are typically unsecured and are derived from revenue earned from customers in the PRC. The risk with respect to
accounts receivable is mitigated by credit evaluations the Group performs on its customers and its ongoing monitoring process of outstanding balances. Funds receivable are unsecured and are held by external parties who collect fees from customers
who pay using online payment networks. The funds are transferred to the Group on a periodic basis which typically range from one to three business days. To mitigate the credit risk, the Group only engages large scale and reputable payment networks
to collect fees on its behalf. The Group also monitors the timeliness and accuracy of funds transfer by the external payment networks and the credit worthiness of the external payment networks.

Concentration of customers

There are no revenues from customers which individually represent greater than 10% of the total net revenues for any year of the three years period ended September 30, 2009.

Primarily due to the long payment cycles of government authorities, receivables with two customers as of September 30, 2008 and receivables with three
customers as of September 30, 2009 each accounted for 10% or more of the Groups accounts receivable balances, representing an aggregate of 48.0% and 56.1% of the Groups accounts receivable balances at September 30, 2008 and
2009, respectively.

Current vulnerability due to certain other concentrations

The Groups operations may be adversely affected by significant political, economic and social uncertainties in the PRC. Although the PRC government has
been pursuing economic reform policies for more than 20 years, no assurance can be given that the PRC government will continue to pursue such policies or that such policies may not be significantly altered, especially in the event of a change in
leadership, social or political disruption or unforeseen circumstances affecting the PRC political, economic and social conditions. There is also no guarantee that the PRC governments pursuit of economic reforms will be consistent or
effective.



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



2. SIGNIFICANT ACCOUNTING POLICIES - continued



Concentration of risks - continued



Current vulnerability due to certain other concentrations - continued



The Group transacts all of its business in RMB, which is not freely convertible into foreign currencies. On January 1,
1994, the PRC government abolished the dual rate system and introduced a single rate of exchange as quoted daily by the Peoples Bank of China (the PBOC). However, the unification of the exchange rates does not imply that the RMB
may be readily convertible into United States dollars or other foreign currencies. All foreign exchange transactions continue to take place either through the PBOC or other banks authorized to buy and sell foreign currencies at the exchange rates
quoted by the PBOC. Approval of foreign currency payments by the PBOC or other institutions requires submitting a payment application form together with suppliers invoices, shipping documents and signed contracts.

Additionally, the value of the RMB is subject to changes in central government policies and international economic and political developments affecting
supply and demand in the PRC foreign exchange trading system market.

Foreign ownership of Internet-based businesses is subject to significant
restrictions under current PRC laws and regulations. Especially, foreign investors are not allowed to own more than 50% equity interest in any entity with an Internet content distribution business. Currently, the Group conducts its operations in
China through a series of contractual arrangements entered into among Champion Technology, Champion Education Technology, Beijing Champion and its shareholders.

The relevant regulatory authorities may find the current ownership structure, contractual arrangements and businesses to be in violation of any existing or future PRC laws or regulations. If so, the
relevant regulatory authorities would have broad discretion in dealing with such violations.



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



3. ACQUISITIONS

Acquisition of Caikaowang

On November 30, 2007, Beijing Champion acquired from an independent third party a 40% equity interest in Beijing Caikaowang Company Limited
(Caikaowang), the rights to certain low activity internet domain names at the stated contract price of US$54 (RMB400) and US$270 (RMB2,000), respectively, and the option to acquire an additional 40% equity interest in Caikaowang at a
purchase price to be determined based on certain financial results of the investee. Caikaowang is mainly engaged in the provision of on-line education services.

As the above acquisitions were contemplated concurrently and entered into with the same counterparty, the acquisitions were accounted for as a single purchase whereby the total purchase price of US$324
(RMB2,400) was allocated to the assets acquired based on their fair values.

The Group accounted for the investment in Caikaowang using the
equity method of accounting because the Group has the ability to exercise significant influence over Caikaowang. During the year ended September 30, 2008, the Group recorded an equity method loss of US$64 in Caikaowang.

In June 2008, Beijing Champion acquired the remaining 60% equity interest in Caikaowang at a contractual consideration of US$576 (RMB4,000). As a result,
Caikaowang became a 100% owned subsidiary of Beijing Champion. This step of acquisition was accounted for as a business combination. The results of Caikaowangs operations, attributable to the 100% interest acquired, have been included in the
Companys consolidated financial statements since June 2008.

The aggregate purchase price was determined to be US$633, comprising of
cash of US$576, and US$57 relating to the purchase option acquired on November 30, 2007.

The following table presents the allocation of
the purchase price to the fair values of the portion of the assets acquired and liabilities assumed on June 2, 2008, which were determined by the Group with the assistance of American Appraisal China Limited, an independent valuation firm.



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



3. ACQUISITIONS - continued



Acquisition of Caikaowang - continued



|                              |  |     |   |  |                   
|----------------------------- |  | --- | - |  | ------------------
|                              |  | US$ |   |  | Amortizationperiod
|                              |  |    
|Cash                          |  | 48  |   |  |                   
|Property, plant and equipment |  | 36  |   |  |                   
|Other intangible assets       |  | 76  |   |  | 0.3~10.5 years    
|Deferred revenue              |  | (89 | ) |  |                   
|Other current liabilities     |  | (44 | ) |  |                   
|Deferred tax liabilities      |  | (19 | ) |  |                   
|Goodwill                      |  | 625 |   |  |                   
|                              |  |     |   |  |                   
|Total consideration           |  | 633 |   |  |                   
|                              |  |     |   |  |                   

Acquisition of Zhengbao Yucai

On March 10, 2009, Beijing Champion acquired the business of start-up training services from Beijing Yinglun Yucai Education Consulting Co., Ltd.
(Yinglun Yucai) which was owned by Mr. Liang Ma. The acquired business is operated by Zhengbao Yucai, an entity established by Beijing Champion. Upon the completion of the acquisition, Beijing Champion transferred 40% equity
interest of Zhengbao Yucai to Mr. Liang Ma.

The initial consideration for this acquisition was US$5,318 in cash, including US$56 of
transaction costs, of which US$5,314 was paid during the fiscal year 2009.

In addition, the purchase agreement provides for further
contingent consideration to be paid or received by Beijing Champion as follows:



| |  |  | For the fiscal year of 2009, if Zhengbao Yucai has a net income greater than RMB22,500 (approximately US$3,296), Beijing Champion will pay
Mr. Liang Ma an additional cash consideration equal to 40% of the excess amount of net income over RMB22,500.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | For the fiscal year of 2010, if Zhengbao Yucai has a net income greater than RMB47,000 (approximately US$6,881), Beijing Champion will pay
Mr. Liang Ma an additional cash consideration equal to 30% of the excess amount of net income over RMB47,000.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | If Zhengbao Yucais net income for the fiscal year of 2009 is less than RMB22,500 or for the fiscal year of 2010 is less than RMB47,000,
Mr. Liang Ma will pay Beijing Champion a specified amount of cash which Mr. Liang Ma may settle in stock of Zhengbao Yucai.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-30



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



3. ACQUISITIONS - continued



Acquisition of Zhengbao Yucai - continued



The purchase agreement also included the following call and put options:



| |  |  | If Zhengbao Yucai has a net loss for the fiscal year of 2009 or 2010, Beijing Champion has the option to sell its equity interest of Zhengbao Yucai
back to Mr. Liang Ma for RMB43,200 in cash.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Beijing Champion has the option to acquire an additional 30% equity interest of Zhengbao Yucai in the next 5 years starting from the end of the fiscal
year 2009 at a price equal to 30% of six times of the net income of Zhengbao Yucai for the preceding fiscal year. Zhengbao Yucai has the option to acquire up to 49% equity interest of Beijing Yinhong International Education Consulting Co. Ltd.
(Yinhong), owned by Yinglun Yucai, within 3 years starting from February 15, 2009 at a price up to 49% of six times of the net income of Yinhong for the preceding fiscal year.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following table presents the allocation of the purchase price to the fair values of the portion of the assets acquired and liabilities assumed on
March 10, 2009, which were determined by the Group with the assistance of American Appraisal China Limited, an independent valuation firm.



|                              |  |        |   |  |                   
|----------------------------- |  | ------ | - |  | ------------------
|                              |  | US$    |   |  | Amortizationperiod
|                              |  |       
|Cash                          |  | 2,854  |   |  |                   
|Property, plant and equipment |  | 138    |   |  |                   
|Purchased call options        |  | 1,221  |   |  |                   
|Other intangible assets:      |  |        |   |  |                   
|Business contracts            |  | 476    |   |  | 3~5 years         
|Copyrights                    |  | 586    |   |  | 5 years           
|Platform                      |  | 195    |   |  | 3.5 years         
|Domain names                  |  | 168    |   |  | 10~11 years       
|Software                      |  | 311    |   |  | 3 years           
|Courseware                    |  | 255    |   |  | 5 years           
|Deferred tax liability        |  | (382   | ) |  |                   
|Minority interest             |  | (2,107 | ) |  |                   
|Goodwill                      |  | 1,603  |   |  |                   
|                              |  |        |   |  |                   
|Total consideration           |  | 5,318  |   |  |                   
|                              |  |        |   |  |                   

The purchased call options to acquire additional equity interest in Zhengbao Yucai and Yinhong were recorded at
fair value at the acquisition date and carried at cost less impairment.

In January 2010, the Group filed an arbitration application, as
amended in February and March 2010, with the China International Economic and Trade Arbitration Commission, against Mr. Liang Ma, Yinglun Yucai, and Global Education Consortium Group Co., Limited (the respondents), in accordance with the
dispute resolution clause in the original purchase agreement. In the application, the Group requested, among other things, the respondents to cease engagement in competing businesses prohibited under the original purchase agreement, and a return of
a portion of the acquisition consideration in cash of RMB16,500 (US$2,417) and a contribution from Mr. Liang Ma to Zhengbao Yucai in cash of RMB2,816 (US$413) for failure to achieve the stipulated profit target for the fiscal year 2009, pursuant to
the contingent payment obligation provision in the original purchase agreement.



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



3. ACQUISITIONS - continued



Acquisition of Champion Xinlixiang

On September 30, 2009, Champion Wangge
acquired the Gaokao re-take business from Mr. Junnan Ye and Mr. Xiujie Hu, two third-party individuals. The acquired business is operated by Champion Xinlixiang, an entity established by Champion Wangge. Upon the completion of the
acquisition, Champion Wangge transferred 40% equity interest of Champion Xinlixiang to Mr. Junnan and Mr. Xiujie Hu.

The initial
consideration for this acquisition was US$2,379 in cash (RMB16,000), including US$37 of transaction costs, of which US$751 was paid during the fiscal year 2009.

In addition, the purchase agreement provides for further contingent consideration to be paid or received by Champion Wangge as follows:



| |  |  | For the fiscal year of 2010, if Champion Xinlixiang has a net income greater than RMB8,000 (approximately US$1,172), Champion Wangge will pay
Mr. Junnan Ye and Mr. Xiujie Hu an additional cash consideration equal to 40% of the excess amount of net income over RMB8,000.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | For the fiscal year of 2011, if Champion Xinlixiang has a net income greater than RMB16,000 (approximately US$2,344), Champion Wangge will pay
Mr. Junnan Ye and Mr. Xiujie Hu an additional cash consideration equal to 30% of the excess amount of net income over RMB16,000.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | If Champion Xinlixiangs net income for the fiscal year of 2010 is less than RMB8,000 or for the fiscal year of 2011 is less than RMB16,000,
Mr. Junnan Ye and Mr. Xiujie Hu will pay Champion Wangge a specified amount of cash which Mr. Junnan Ye and Mr. Xiujie Hu may settle in stock of Champion Xinlixiang.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The purchase agreement also included the following call and put options:



| |  |  | If Champion Xinlixiang has a net loss for the fiscal year of 2010 or 2011, Champion Wangge has the option to sell its equity interest of Champion
Xinlixiang back to Mr. Junnan Ye and Mr. Xiujie Hu for RMB19,200 in cash.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Champion Wangge, beginning October 1, 2011, has the option to acquire an additional 40% equity interest of Champion Xinlixiang at a price equal to
40% of six times of the net income of Champion Xinlixiang for the preceding fiscal year. Mr. Junnan Ye and Mr. Xiujie Hu, beginning October 1, 2011, have the right to request Champion Wangge to purchase their equity interest of
Champion Xinlixiang at the same price. Upon the refusal of Champion Wangge, the sellers have the right to sell their equity interest of Champion Xinlixiang to a third party at a price no lower than Champion Wangges purchase price.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



3. ACQUISITIONS - continued



Acquisition of Champion Xinlixiang - continued



The following table presents the allocation of the purchase price to the fair values of the portion of the assets acquired and liabilities assumed on September 30, 2009, which were determined by the
Group with the assistance of American Appraisal China Limited, an independent valuation firm.



|                           |  |        |   |  |                   
|-------------------------- |  | ------ | - |  | ------------------
|                           |  | US$    |   |  | Amortizationperiod
|                           |  |       
|Accounts receivable        |  | 1,968  |   |  |                   
|Purchased call option      |  | 669    |   |  |                   
|Other intangible assets:   |  |        |   |  |                   
|Non-compete agreement      |  | 650    |   |  | 15 years          
|Supplementary domain names |  | 1      |   |  | 10 years          
|Deferred revenue           |  | (1,617 | ) |  |                   
|Deferred tax liability     |  | (330   | ) |  |                   
|Income tax payable         |  | (61    | ) |  |                   
|Other payables             |  | (107   | ) |  |                   
|Minority interest          |  | (937   | ) |  |                   
|Goodwill                   |  | 2,143  |   |  |                   
|                           |  |        |   |  |                   
|Total consideration        |  | 2,379  |   |  |                   
|                           |  |        |   |  |                   

The purchased call option to acquire additional equity interest in Champion Xinlixiang was recorded at fair value
at the acquisition date and carried at cost less impairment.

No supplemental information on a pro forma basis has been presented for the
above acquisitions as such information is not available without unreasonable effort and cost.

4. ACCOUNTS RECEIVABLE



|                       |  |                     |  |      
|---------------------- |  | ------------------- |  | -----
|                       |  | As of September 30,
|                       |  | 2008                |  | 2009 
|                       |  | US$                 |  | US$  
|                       |  |                    
|Balance at end of year |  | 715                 |  | 7,004
|                       |  |                     |  |      

All the accounts receivable are non-interest bearing. Based on the
Groups assessment of collectibility, there has been no allowance for doubtful accounts recognized in any year of the three years period ended September 30, 2009.



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



5. INVENTORIES

Inventories consist of the following:



|               |  |                     |  |     
|-------------- |  | ------------------- |  | ----
|               |  | As of September 30,
|               |  | 2008                |  | 2009
|               |  | US$                 |  | US$ 
|               |  |                    
|Raw materials  |  | 173                 |  | 87  
|Finished goods |  | 4                   |  | 210 
|               |  |                     |  |     
|               |  | 177                 |  | 297 
|               |  |                     |  |     

Inventory write-downs of US$43, US$ nil and US$3 for the years ended
September 30, 2007, 2008 and 2009, respectively, were charged to cost of tangible goods sold.

6. PREPAYMENT AND OTHER CURRENT ASSETS

Prepayment and other current assets consist of the following:



|                            |  |      |   |  |                     |  |      
|--------------------------- |  | ---- | - |  | ------------------- |  | -----
|                            |  |      |   |  | As of September 30,
|                            |  | Note |   |  | 2008                |  | 2009 
|                            |  |      |   |  | US$                 |  | US$  
|                            |  |      |  
|Deposits                    |  |      |   |  | 59                  |  | 91   
|Advance to the suppliers    |  | (1   | ) |  | 369                 |  | 51   
|Prepaid expenses            |  |      |   |  | 261                 |  | 506  
|Prepaid course remuneration |  |      |   |  | 22                  |  | 257  
|Funds receivable            |  | (2   | ) |  | 617                 |  | 195  
|Others                      |  |      |   |  | 141                 |  | 479  
|                            |  |      |   |  |                     |  |      
|                            |  |      |   |  | 1,469               |  | 1,579
|                            |  |      |   |  |                     |  |      



|(1) | Advance to the suppliers represents interest-free cash deposits paid to suppliers for future purchase of raw materials and finished goods. The risk of loss arising from
non-performance by or bankruptcy of the suppliers is assessed prior to making the deposits and is monitored on a regular basis by management. A charge to cost of revenue is recorded in the period in which a loss is incurred. To date, the Group has
not experienced any loss of advances to suppliers.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Funds receivable arise due to the time taken to clear customers payment transactions through external payment networks. When customers remit fees to the Group via
external payment networks using their bank account or credit card, there is a clearing period before the cash is received by the Group which usually takes one to three business days. Hence, these fees are treated as a receivable until the cash is
received.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



7. PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment consist of the following:



|                                               |      |                     |   |      |        |  
|---------------------------------------------- | ---- | ------------------- | - | ---- | ------ | -
|                                               |      | As of September 30, |  
|                                               | 2008 |                     |   | 2009 |       
|                                               | US$  |                     |   | US$  |       
|                                               |      |                    
|Buildings                                      |      | 4,728               |   |      | 4,744  |  
|Electronic and office equipment                |      | 2,703               |   |      | 3,908  |  
|Motor vehicles                                 |      | 254                 |   |      | 479    |  
|Leasehold improvement and building improvement |      | 721                 |   |      | 1,015  |  
|                                               |      |                     |   |      |        |  
|Total                                          |      | 8,406               |   |      | 10,146 |  
|Less: Accumulated depreciation                 |      | (1,317              | ) |      | (2,247 | )
|                                               |      |                     |   |      |        |  
|                                               |      | 7,089               |   |      | 7,899  |  
|                                               |      |                     |   |      |        |  

Depreciation expenses were approximately US$286, US$555 and US$930 for the years ended September 30, 2007, 2008 and
2009, respectively.

8. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill is comprised of the following:



|                                                                                                                                                                                                            |      |                          |   |      |      
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | ------------------------ | - | ---- | -----
|                                                                                                                                                                                                            |      | Years endedSeptember
30,
|                                                                                                                                                                                                            | 2008 |                          |   | 2009
|                                                                                                                                                                                                            | US$  |                          |   | US$ 
|                                                                                                                                                                                                            |      |                         
|Balance at beginning of year                                                                                                                                                                                |      | 4,119                    |   |      | 5,278
|Goodwill upon reclassification of Caikaowang from an equity method investment to a consolidated subsidiary (Note
3)                                                                                         |      | 144                      |   |      |     
|Goodwill upon step acquisition of remaining 60% interest in Caikaowang (Note 3)                                                                                                                             |      | 625                      |   |      |     
|Goodwill reduced as a result of a reduction of valuation allowances associated with tax benefit of net operating loss and
deductible temporary differences realized subsequent to acquisition of Caikaowang |      | (57                      | ) |      |     
|Goodwill upon acquisition of 60% interest in Zhengbao Yucai                                                                                                                                                 |      |                         |   |      | 1,603
|Goodwill upon acquisition of 60% interest in Champion Xinlixiang                                                                                                                                            |      |                         |   |      | 2,143
|Foreign currency adjustment                                                                                                                                                                                 |      | 447                      |   |      | 6    
|                                                                                                                                                                                                            |      |                          |   |      |      
|Balance at end of the year                                                                                                                                                                                  |      | 5,278                    |   |      | 9,030
|                                                                                                                                                                                                            |      |                          |   |      |      



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



8. GOODWILL AND OTHER INTANGIBLE ASSETS - continued



No goodwill impairment loss has been recognized in any of the years in the three years ended September 30, 2009.

Other intangible assets consist of the following:



|                               |      |                     |   |      |        |  
|------------------------------ | ---- | ------------------- | - | ---- | ------ | -
|                               |      | As of September 30, |  
|                               | 2008 |                     |   | 2009 |       
|                               | US$  |                     |   | US$  |       
|                               |      |                    
|Computer software              |      | 774                 |   |      | 1,585  |  
|Trademarks and domain names    |      | 1,034               |   |      | 1,216  |  
|Website                        |      | 95                  |   |      | 95     |  
|Courseware                     |      | 182                 |   |      | 437    |  
|Business contracts             |      |                    |   |      | 476    |  
|Copyrights                     |      |                    |   |      | 586    |  
|Platform                       |      |                    |   |      | 195    |  
|Non-compete agreement          |      |                    |   |      | 650    |  
|                               |      |                     |   |      |        |  
|Total intangible assets        |      | 2,085               |   |      | 5,240  |  
|Less: Accumulated amortization |      |                     |   |      |        |  
|Computer software              |      | (252                | ) |      | (522   | )
|Trademarks and domain names    |      | (209                | ) |      | (321   | )
|Website                        |      | (54                 | ) |      | (65    | )
|Courseware                     |      | (180                | ) |      | (210   | )
|Business contracts             |      |                    |   |      | (60    | )
|Copyrights                     |      |                    |   |      | (65    | )
|Platform                       |      |                    |   |      | (31    | )
|Non-compete agreement          |      |                    |   |      |       |  
|Accumulated amortization       |      | (695                | ) |      | (1,274 | )
|                               |      |                     |   |      |        |  
|Intangible assets, net         |      | 1,390               |   |      | 3,966  |  
|                               |      |                     |   |      |        |  

Amortization expenses were approximately US$240, US$235 and US$579 for the years ended September 30, 2007, 2008 and
2009, respectively.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



8. GOODWILL AND OTHER INTANGIBLE ASSETS - continued



The estimated amortization expenses for the above other intangible assets for each of the following fiscal years are as follows:



|                    |  |             
|------------------- |  | ------------
|                    |  | Amortization
|                    |  | US$         
|                    | 
|2010                |  | 830         
|2011                |  | 822         
|2012                |  | 710         
|2013                |  | 541         
|2014                |  | 275         
|2015 and thereafter |  | 788         
|                    |  |             
|                    |  | 3,966       
|                    |  |             

9. DEPOSITS FOR NON-CURRENT ASSETS

Deposits for non-current assets consist of the following:



|                                                      |  |                     |  |     
|----------------------------------------------------- |  | ------------------- |  | ----
|                                                      |  | As of September 30,
|                                                      |  | 2008                |  | 2009
|                                                      |  | US$                 |  | US$ 
|                                                      |  |                    
|Deposit for purchase of property, plant and equipment |  | 24                  |  | 356 
|Deposit for purchase of software                      |  | 127                 |  |    
|                                                      |  |                     |  |     
|                                                      |  | 151                 |  | 356 
|                                                      |  |                     |  |     

10. OTHER NON-CURRENT ASSETS

Other non-current assets consist of the following:



|                           |  |                     |  |     
|-------------------------- |  | ------------------- |  | ----
|                           |  | As of September 30,
|                           |  | 2008                |  | 2009
|                           |  | US$                 |  | US$ 
|                           |  |                    
|Rental deposits            |  |                    |  | 103 
|Long term prepaid expenses |  |                    |  | 692 
|Others                     |  |                    |  | 13  
|                           |  |                     |  |     
|                           |  |                    |  | 808 
|                           |  |                     |  |     



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



10. OTHER NON-CURRENT ASSETS - continued



Rental deposits represent office rental deposits for the Groups daily operations. These deposits are classified as non-current deposits since they will not be refunded within one year.

Long term prepaid expenses represent prepaid management fee for obtaining government authorization to provide the ITAT program, an information technique
application training program, for a period of ten years. The amortization of the long term prepaid expenses was included in cost of sales on the consolidated statements of operations.

11. ACCRUED EXPENSES AND OTHER LIABILITIES

The components of accrued expenses and other liabilities are as follows:



|                                              |      |                     |      |      
|--------------------------------------------- | ---- | ------------------- | ---- | -----
|                                              |      | As of September 30,
|                                              | 2008 |                     | 2009
|                                              | US$  |                     | US$ 
|                                              |      |                    
|Accrued professional fees                     |      | 907                 |      | 43   
|Accrued expenses                              |      | 438                 |      | 731  
|Salary and welfare payable                    |      | 428                 |      | 968  
|Other payable                                 |      | 799                 |      | 960  
|Uncertain income tax liabilities (Note 15)    |      | 255                 |      | 159  
|Remuneration payable to lecturers             |      | 156                 |      | 125  
|Payable for Zhengbao Yucais acquisition      |      |                    |      | 4    
|Payable for Champion Xinlixiangs acquisition |      |                    |      | 1,628
|                                              |      |                     |      |      
|                                              |      | 2,983               |      | 4,618
|                                              |      |                     |      |      

Other payable mainly represents other tax liabilities including
business tax payable, value-added tax payable and withholding individual income tax payable.

The Group is required to remit the value-added
tax (VAT) it collects to the tax authority, but may deduct the VAT it has paid on eligible purchases. To the extent that the Group collected more than paid, the difference represents the net VAT payable balance at the balance sheet date.
As of September 30, 2008 and 2009, there were US$138 and US$12 of VAT payable included in other payable in the consolidated financial statements, respectively.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



12. SERIES A CONVERTIBLE CONTINGENTLY REDEEMABLE PREFERRED SHARES

On March 9, 2007,
the Company issued 12,996,000 shares of Series A preferred shares at US$0.615553 per share to three unrelated investors (the Investors), namely Orchid Asia III, L.P., Orchid Asia Co-Investment Limited and Artson Limited, for US$7,871,
net of issuance expenses of US$129.

The movement of Series A contingently redeemable preferred shares (Series A Shares) was as
follows:



|                                                                                                                                                                                                                |  |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------- | -
|                                                                                                                                                                                                                |  | US$     |  
|Series A Shares - Balance as at October 1, 2006                                                                                                                                                                 |  |        |  
|Proceeds of Series A Shares (net of issuance cost of US$129)                                                                                                                                                    |  | 7,871   |  
|Allocation of proceeds to beneficial conversion feature                                                                                                                                                         |  | (7,871  | )
|Accretion of Series A convertible contingently redeemable preferred shares to redemption amount and accretion of beneficial
conversion feature of Series A convertible contingently redeemable preferred shares |  | 903     |  
|                                                                                                                                                                                                                |  |         |  
|Series A Shares - Balance as at October 1, 2007                                                                                                                                                                 |  | 903     |  
|Accretion of Series A convertible contingently redeemable preferred shares to redemption amount                                                                                                                 |  | 1,332   |  
|Accretion of beneficial conversion feature of Series A convertible contingently redeemable preferred shares                                                                                                     |  | 8,000   |  
|Conversion to ordinary shares immediately prior to initial public offering                                                                                                                                      |  | (10,235 | )
|                                                                                                                                                                                                                |  |         |  
|Series A Shares - Balance as at September 30, 2008                                                                                                                                                              |  |        |  
|                                                                                                                                                                                                                |  |         |  

The rights, preferences and privileges with respect to the Series A convertible contingently redeemable preferred shares are
as follows:

Voting rights

The Series A Shareholders were entitled to one vote for every ordinary share which the Series A Shares were convertible into.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



12. SERIES A CONVERTIBLE CONTINGENTLY REDEEMABLE PREFERRED SHARES - continued



Liquidation preference

In the event of any liquidation, dissolution or winding up of the Company, the holders of the Series A Shares would be entitled to receive, prior and in
preference to the holders of ordinary shares or any other class or series of shares, the amount equal to the Series A Issue Price (as adjusted for share splits, share dividends, combinations, recapitalizations and similar events with respect to such
shares), plus all accrued but unpaid dividends on the Series A Shares.

Dividends

The holders of Series A Shares, in preference to the holders of ordinary shares, were entitled to receive dividends at a rate equal to the greater of
(i) eight percent (8%) of the Series A Issue Price per annum or (ii) in the event dividends would be paid on or set aside for any ordinary shares, the amount per share to be paid on or set aside for all outstanding Series A Shares (on
an as-converted basis) (subject to standard anti-dilutive adjustments such as share dividends, splits, and recapitalizations). Dividend was payable upon declaration by the Board of Directors and was noncumulative. All declared but not paid dividends
would be paid on or before the consummation of a qualified public offering.

Conversion rights

Series A Shares were convertible into ordinary shares at the option of the holder at any time after the issuance date at an initial conversion price of
US$0.615553 per share. The conversion price was subject to standard anti-dilutive adjustments such as stock splits, stock dividends and recapitalization. The conversion price was also reduced in the event that after the Series A original issue date
the Company issued or was deemed to issue additional ordinary shares for a consideration per share less than the Series A conversion price in effect immediately prior to such issue.

In addition, the Series A conversion price was subject to reduction if net profit under US GAAP or the International Financial Reporting Standards (IFRS) as determined by the Company,
excluding extraordinary and exceptional one-time income items that are approved by the investors, is below RMB50 million and RMB100 million for the years ended September 30, 2007 and 2008, respectively. Pursuant to such clause, the conversion
price was subsequently reduced to US$0.534636 per share as the net income of fiscal year 2007, determined as aforementioned, was below RMB50 million.



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



12. SERIES A CONVERTIBLE CONTINGENTLY REDEEMABLE PREFERRED SHARES - continued



Automatic conversion

Each Series A Share would automatically be converted into ordinary shares upon the earlier of (i) no less than fifty-one percent (51%) of the
Series A Share holders vote to convert or (ii) upon the consummation of a qualified public offering with an offering size of no less than US$70 million and the offering price no less than three times the original subscription price of
US$0.615553 per preferred share. On July 25, 2008, the automatic conversion clauses were amended so that each Series A Share would automatically convert, at the conversion price of US$0.534636, into ordinary shares of the Company immediately
prior to the listing of the Company's ADSs on NYSE provided the IPO would be consummated on or prior to December 31, 2008.

Redemption

The Series A Shares were redeemable at the option of the holders of the Series A any time after
December 31, 2010, provided that a qualified public offering has not occurred, at a redemption price per share that would give each holder of Series A Shares a fixed internal rate of return of twenty percent (20%) per annum, plus all
declared but unpaid dividends thereon up to the date of redemption.

With the assistance of American Appraisal China Limited, the Group
concluded that the fair value of ordinary shares was greater than the conversion price of Series A Shares at the commitment date and the excess is greater than the proceeds received from the issuance of Series A Shares. Accordingly, the total
proceeds were allocated to the beneficial conversion feature with a credit to Additional paid-in capital upon the issuance of the Series A Shares. All of the unamortized discount remaining at the date of conversion was immediately recognized as a
reduction to net income attributable to ordinary shareholders.

An accretion charge to increase the Series A Shares carrying value to
their expected redemption amount over the period from issuance to earliest redemption date was recorded as a reduction to net income available to ordinary shareholders using the effective yield method.

Upon the consummation of the Companys initial public offering (Note 1), all of the Series A Shares were automatically converted to 14,963,594 ordinary
shares of the Company on July 29, 2008.



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



13. ORDINARY SHARES

All share and per share data before January 11, 2008, the inception date of the Company, are presented to give retroactive effect to the share exchange between CDEL Hong Kong and the Company at a
ratio of 1,000 shares in the Company to 1 share in CDEL Hong Kong.

On August 4, 2008, the Company completed its initial public offering
of 35,000,000 ordinary shares. Immediately prior to the initial public offering, 12,996,000 Series A Shares were converted into 14,963,594 ordinary shares.

On November 20, 2008, the Companys board of directors approved a share repurchase program effective November 20, 2008. Under the approved program, the Company is authorized to repurchase
up to US$10 million worth of its issued and outstanding ADSs from time to time in open-market transactions on NYSE Arca. During the year ended September 31, 2009, the Company repurchased 3,163,600 ordinary shares for a total consideration of
US$3,960.

14. RESTRICTED NET ASSETS

Relevant PRC statutory laws and regulations permit payments of dividends by the Groups PRC subsidiaries only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. The
results of operations reflected in the financial statements prepared in accordance with U.S. GAAP differ from those reflected in the statutory financial statements of the Companys subsidiaries.

In accordance with the Regulations on Enterprises with Foreign Investment of China and their articles of association, a foreign invested enterprise
established in the PRC is required to provide certain statutory reserves, namely general reserve fund, the enterprise expansion fund and staff welfare and bonus fund which are appropriated from net profit as reported in the enterprises PRC
statutory accounts. A wholly-owned foreign invested enterprise is required to allocate at least 10% of its annual after-tax profit to the general reserve until such reserve has reached 50% of its respective registered capital based on the
enterprises PRC statutory accounts. Appropriations to the enterprise expansion fund and staff welfare and bonus fund are at the discretion of the board of directors for all foreign invested enterprises. The aforementioned reserves can only be
used for specific purposes and are not distributable as cash dividends. Champion Technology and Champion Education Technology were established as wholly-owned foreign invested enterprises and therefore are subject to the above mandated restrictions
on distributable profits.

Additionally, in accordance with the Company Law of the PRC, a domestic enterprise is required to provide statutory
common reserve at least 10% of its annual after-tax profit until such reserve has reached 50% of its respective registered capital based on the enterprises PRC statutory accounts. A domestic enterprise is also required to provide for
discretionary surplus reserve, at the discretion of the board of directors, from the profits determined in accordance with the enterprises PRC statutory accounts. The aforementioned reserves can only be used for specific purposes and are not
distributable as cash dividends. Beijing Champion was established as a domestic invested enterprise and therefore is subject to the above mandated restrictions on distributable profits.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



14. RESTRICTED NET ASSETS - continued



As a result of these PRC laws and regulations, appropriation to the statutory reserve amounted to US$290, US$323 and US$1,053 for the years ended September 30, 2007, 2008 and 2009, respectively. As
of September 30, 2009, the aggregate amount of net assets of the relevant subsidiaries and variable interest entities in the Group not available for distribution was US$13,273.

15. TAXATION

Cayman Islands

Under current law of Cayman Islands, the Company is not subject to income or capital gains taxes. In addition, dividends payments are not subject to tax
withholding in the Cayman Islands.

Hong Kong

CDEL Hong Kong has not recorded tax provision for Hong Kong profits tax as the company has not had assessable profits arising in or derived from Hong Kong.

China

Prior to
January 1, 2008, the Groups subsidiaries and variable interest entities incorporated in the PRC are governed by the Enterprise Income Tax Law (the EIT Law) of the PRC with the statutory income tax rate at 33% except for
entities that enjoy a tax holiday or preferential tax treatment. Beijing Champion and Champion Technology qualified for high and new technology enterprise under the EIT Law and were granted the preferential tax rate of 15% with a
three-year exemption followed by the reduced rate of 7.5% for subsequent three tax years. In 2007, Beijing Champion and Champion Technology were taxed at 15% and 7.5% respectively

On March 16, 2007, the National Peoples Congress adopted the Enterprise Income Tax Law (the New EIT Law), which become effective on January 1, 2008 and replaced the existing
separate income tax laws for domestic enterprises and foreign-invested enterprises, by adopting unified income tax rate of 25% for most enterprises.

In 2008, Beijing Champion and Champion Technology qualified as high and new technology enterprise strongly supported by the State (HNTE) under the New EIT Law, and therefore, were continually entitled to the
preferential income tax rate of 15%. Beijing Champion is subject to the tax rate of 15% from 2008 through 2010. Champion Technology is subject to the tax rate of 7.5% for 2008 through 2009 and 15% for 2010.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



15. TAXATION - continued



China - continued



The HNTE status would allow qualified China based enterprises to use the preferential tax rate of 15% for three tax years. At the conclusion of the period of three tax years, the qualified enterprises
have the option to renew for an additional three tax years through a simplified application process if the companys business operations continue to qualify for HNTE status. Accordingly, in calculating deferred tax assets and liabilities, the
Group has assumed its qualifying entities will continue to renew the HNTE status at the conclusion of the initial three tax years. If the Groups qualifying entities fail to obtain such renewals, the impact on net deferred tax liability balance
would be insignificant.

In general, the PRC tax authorities have up to five years to conduct examinations of the PRC entities tax
filings. Accordingly, the PRC entities tax years from 2004 to 2008 remain subject to examination by the tax authorities.

(Loss) income
before income taxes consists of:



|          |      |                           |   |      |       |   |      |        |  
|--------- | ---- | ------------------------- | - | ---- | ----- | - | ---- | ------ | -
|          |      | Years ended September 30, |  
|          | 2007 |                           |   | 2008 |       |   | 2009 |       
|          | US$  |                           |   | US$  |       |   | US$  |       
|          |      |                           |  
|Non - PRC |      | (32                       | ) |      | (435  | ) |      | (4,668 | )
|PRC       |      | 5,174                     |   |      | 4,958 |   |      | 7,252  |  
|          |      |                           |   |      |       |   |      |        |  
|          |      | 5,142                     |   |      | 4,523 |   |      | 2,584  |  
|          |      |                           |   |      |       |   |      |        |  

The current and deferred components of the income tax (expense)/benefit appearing in the consolidated statements of
operations are as follows:



|                               |  |                           |   |  |        |   |  |        |  
|------------------------------ |  | ------------------------- | - |  | ------ | - |  | ------ | -
|                               |  | Years ended September 30, |  
|                               |  | 2007                      |   |  | 2008   |   |  | 2009   |  
|                               |  | US$                       |   |  | US$    |   |  | US$    |  
|                               |  |                           |  
|Current tax expense            |  | (656                      | ) |  | (1,148 | ) |  | (148   | )
|Deferred tax (expense)/benefit |  | 963                       |   |  | 622    |   |  | (1,330 | )
|                               |  |                           |   |  |        |   |  |        |  
|                               |  | 307                       |   |  | (526   | ) |  | (1,478 | )
|                               |  |                           |   |  |        |   |  |        |  



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



15. TAXATION - continued



China - continued



The reconciliation of the effective tax rate and the statutory income tax rate applicable to PRC operations is as follows:



|                                                                  |  |                           |    |  |        |   |  |        |  
|----------------------------------------------------------------- |  | ------------------------- | -- |  | ------ | - |  | ------ | -
|                                                                  |  | Years ended September 30, |   
|                                                                  |  | 2007                      |    |  | 2008   |   |  | 2009   |  
|                                                                  |  | US$                       |    |  | US$    |   |  | US$    |  
|                                                                  |  |                           |   
|Income before taxes                                               |  | 5,142                     |    |  | 4,523  |   |  | 2,584  |  
|                                                                  |  |                           |    |  |        |   |  |        |  
|Income tax expense computed at applicable tax rates of 33% or 25% |  | (1,696                    | )  |  | (1,135 | ) |  | (646   | )
|Effect of different tax rates in different jurisdictions          |  | (5                        | )  |  | (86    | ) |  | (1,107 | )
|Non-deductible expenses                                           |  | (252                      | )  |  | (170   | ) |  | (177   | )
|Effect of tax holidays                                            |  | 1,717                     |    |  | 1,120  |   |  | 988    |  
|Effect of tax rate changes                                        |  | 543                       |    |  |       |   |  | (500   | )
|Effect of valuation allowances                                    |  |                          |    |  |       |   |  | (132   | )
|Increase (decrease) in unrecognized tax benefit balance           |  |                          |    |  | (255   | ) |  | 96     |  
|                                                                  |  |                           |    |  |        |   |  |        |  
|                                                                  |  | 307                       |    |  | (526   | ) |  | (1,478 | )
|                                                                  |  |                           |    |  |        |   |  |        |  
|Effective income tax rate                                         |  | (5.97                     | %) |  | 11.63  | % |  | 57.19  | %
|                                                                  |  |                           |    |  |        |   |  |        |  

The Group adopted the authoritative interpretation on accounting for uncertainty in income taxes on October 1, 2007.
The authoritative guidance requires that the Group recognizes the impact of a tax position in the financial statements if that position is more likely than not of being sustained upon audit by the tax authority, based on the technical merits of the
position. Under PRC laws and regulations, arrangements and transactions among related parties may be subject to examination by the PRC tax authorities. If the PRC tax authorities determine that the contractual arrangements among related companies do
not represent a price under normal commercial terms, they may make adjustments to the companies income and expenses. A transfer pricing adjustment could result in additional tax liabilities.

As a result, the Group assessed its tax positions and concluded that there was no cumulative effect adjustment to the opening balance of retained earnings
as of October 1, 2007. As of September 30, 2008, the Group recorded an unrecognized tax benefit of US$255 in the account of accrued expenses and other liabilities.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



15. TAXATION - continued



China - continued



In fiscal year 2009, the Group reassessed its tax positions basing on an updated benchmark analysis and accordingly reversed the unrecognized tax benefit of US$96, resulting in an unrecognized tax benefit
of US$159 as of September 30, 2009.

Reconciliation of accrued unrecognized tax benefits is as follows:



|                                                            |  |                          |  
|----------------------------------------------------------- |  | ------------------------ | -
|                                                            |  | Unrecognizedtax
benefits |  
|                                                           
|                                                            | 
|Balance - October 1, 2008                                   |  | 255                      |  
|Reversal based on tax positions related to the current year |  | (96                      | )
|                                                            |  |                          |  
|Balance - September 30, 2009                                |  | 159                      |  
|                                                            |  |                          |  

The unrecognized tax benefits would impact the effective tax rate, if recognized in connection with the normal tax return
preparation. It is possible that the amount of unrecognized tax benefits will change in the next twelve months. However, an estimate of the range of the possible change cannot be made at this time.

The aggregate amount and per share effect of the tax holidays are as follows:



|                                                                |  |                           |  |       |  |     
|--------------------------------------------------------------- |  | ------------------------- |  | ----- |  | ----
|                                                                |  | Years ended September 30,
|                                                                |  | 2007                      |  | 2008  |  | 2009
|                                                                |  | US$                       |  | US$   |  | US$ 
|                                                                |  |                           | 
|The aggregate amount of tax holidays                            |  | 1,717                     |  | 1,120 |  | 988 
|                                                                |  |                           |  |       |  |     
|The aggregate effect on basic and diluted net income per share: |  |                           |  |       |  |     
|- Basic                                                         |  | 0.02                      |  | 0.01  |  | 0.01
|                                                                |  |                           |  |       |  |     
|- Diluted                                                       |  | 0.02                      |  | 0.01  |  | 0.01
|                                                                |  |                           |  |       |  |     



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



15. TAXATION - continued



China - continued



Deferred taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The
components of deferred taxes are as follows:



|                                      |  |                     |   |  |       |  
|------------------------------------- |  | ------------------- | - |  | ----- | -
|                                      |  | As of September 30, |  
|                                      |  | 2008                |   |  | 2009  |  
|                                      |  | US$                 |   |  | US$   |  
|                                      |  |                    
|Current deferred tax assets           |  |                     |   |  |       |  
|Account receivable                    |  | 228                 |   |  |      |  
|Payroll payable                       |  |                    |   |  | 112   |  
|Accrued expenses                      |  | 118                 |   |  | 94    |  
|Deferred revenue                      |  | 891                 |   |  |      |  
|Refundable fees                       |  | 1,172               |   |  | 157   |  
|Net operating loss carry-forwards     |  |                    |   |  | 742   |  
|                                      |  |                     |   |  |       |  
|Total current deferred tax assets     |  | 2,409               |   |  | 1,105 |  
|                                      |  |                     |   |  |       |  
|Less: valuation allowance             |  |                    |   |  | (129  | )
|                                      |  |                     |   |  |       |  
|Current deferred tax assets, net      |  | 2,409               |   |  | 976   |  
|Current deferred tax liabilities      |  |                     |   |  |       |  
|Deferred cost                         |  | (112                | ) |  |      |  
|                                      |  |                     |   |  |       |  
|Non-current deferred tax assets       |  |                     |   |  |       |  
|Intangible assets                     |  | 67                  |   |  | 187   |  
|Property, plant and equipment         |  | 154                 |   |  | 147   |  
|Deferred revenue, non-current portion |  | 38                  |   |  |      |  
|                                      |  |                     |   |  |       |  
|Total non-current deferred tax assets |  | 259                 |   |  | 334   |  
|                                      |  |                     |   |  |       |  
|Non-current deferred tax liabilities  |  |                     |   |  |       |  
|Intangible assets                     |  | 170                 |   |  | 971   |  
|                                      |  |                     |   |  |       |  

In the fourth quarter of fiscal year 2008, Caikaowang generated a taxable income for PRC income tax purposes that was offset
by available net operating loss carryforwards and deductible temporary differences, a portion of which was subject to valuation allowances previously established in acquisition of Caikaowang. Due to the utilization of these net operating loss
carryforwards and deductible temporary differences, the related valuation allowance was reduced by approximately US$57 in the fourth quarter of fiscal year 2008 with a corresponding reduction in goodwill related to the acquisition of Caikaowang.

Prior to 2009, the Group computed its income tax payable based on cash receipts from sales, resulting in significant deferred tax assets as
certain amounts of cash receipts were deferred for revenue recognition. Since the beginning of 2009, the Group has paid income tax based on revenue recognized. Therefore, as of December 30, 2009, no deferred tax assets were resulted from
deferred revenues.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



15. TAXATION - continued



China - continued



The New EIT Law includes a provision specifying that legal entities organized outside of the PRC will be considered residents for Chinese Income tax purposes if the place of effective management or
control is within the PRC. The implementation rules to the New EIT Law provide that non-resident legal entities will be considered PRC residents if substantial and overall management and control over the manufacturing and business operations,
personnel, accounting, properties, etc, occurs within the PRC. Despite the present uncertainties resulting from the limited PRC tax guidance on the issue, the Company and its non-PRC subsidiary does not believe that it should be treated as residents
for EIT law purposes. If the PRC tax authorities subsequently determine that the Company and its non-PRC subsidiary should be deemed a resident enterprise, the Company and its non-PRC subsidiary will be subject to the PRC income tax at a rate of
25%.

If any entity within the Group that is outside the PRC were to be a non-resident for PRC tax purposes dividends paid to it out of
profits earned after January 1, 2008 would be subject to a withholding tax at a rate of 10%, subject to reduction by an applicable tax treaty with the PRC.

Aggregate undistributed earnings of the Companys subsidiaries and its variable interest entities located in the PRC that are available for distribution at September 30, 2009 are considered to
be indefinitely reinvested and accordingly, no provision has been made for the Chinese dividend withholding taxes that would be payable upon the distribution of those amounts to any entity within the Group that is outside the PRC.

The Group does not have any present plan to pay any cash dividends on its ordinary shares in the foreseeable future. It intends to retain most of its
available funds and any future earnings for use in the operation and expansion of its business. As of September 30, 2009, the Group has not declared any dividends.

16. RELATED PARTY TRANSACTIONS



|(a) | Related parties
|--- | ---------------



|                        |  |                                       
|----------------------- |  | --------------------------------------
|Name of related parties |  | Relationship with the Group           
|Mr. Zhengdong Zhu       |  | Director of the Company and ultimate  
|                        |  | controlling shareholder of the Company



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



16. RELATED PARTY TRANSACTIONS - continued



|(b) | The Group had the following related party transactions for the years ended September 30, 2007, 2008 and 2009:
|--- | -------------------------------------------------------------------------------------------------------------



|                                                     |  |                           |  |      |  |     
|---------------------------------------------------- |  | ------------------------- |  | ---- |  | ----
|                                                     |  | Years ended September 30,
|                                                     |  | 2007                      |  | 2008 |  | 2009
|                                                     |  | US$                       |  | US$  |  | US$ 
|Office rental expenses paid to Mr. Zhengdong Zhu     |  | 205                       |  |     |  |    
|Purchase of properties from Mr. Zhengdong Zhu (1)    |  | 1,977                     |  | 738  |  |    
|Short-term borrowing guaranteed by Mr. Zhengdong Zhu |  | 399                       |  |     |  |    
|                                                     |  |                           |  |      |  |     



|(1) | In December 2007, the Group purchased certain property from Mr. Zhengdong Zhu at a total consideration of approximately US$738 which approximated the fair value of
the assets acquired. The excess of the consideration paid by the Group over the net carrying value of the properties amounted to US$193 (net of deferred tax effect of US$64) and was reflected as deemed dividend distributed to Mr. Zhengdong Zhu,
the controlling shareholder of the Company, in the consolidated statement of changes in shareholdersequity.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | In December 2006 and July 2007, the Group purchased certain properties from Mr. Zhengdong Zhu at a total consideration of approximately US$1,977 which approximated
the fair value of the assets acquired. The excess of the consideration paid by the Group over the net carrying value of the properties amounted to US$235 (net of deferred tax effect of US$78) and was reflected as deemed dividend distributed to
Mr. Zhengdong Zhu, the controlling shareholder of the Company, in the consolidated statement of changes in shareholders equity.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Beijing Champion granted Caikaowang, its former equity investee, the use of certain of its domain names for no consideration during the period from November 30, 2007 to June 2, 2008 when
Caikaowang became a wholly owned subsidiary of Beijing Champion.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



17. EMPLOYEE DEFINED CONTRIBUTION PLAN

Full time employees of the Group in the PRC
participate in a government mandated defined contribution plan, pursuant to which certain pension benefits, medical care, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations require that the PRC
subsidiaries of the Group make contributions to the government for these benefits based on certain percentages of the employees salaries. The Group has no legal obligation for the benefits beyond the contributions made. The total amounts for
such employee benefits, which were expensed as incurred, were approximately US$297, US$596 and US$1,350 for the years ended September 30, 2007, 2008 and 2009, respectively.

Obligations for contributions to defined contribution retirement plans for full-time employee in Hong Kong, including contributions payable under the Hong Kong Mandatory Provident Fund Schemes Ordinance,
are recognized as expenses in the income statement as incurred. The total amounts for such employee benefits were approximately US$1,169, US$1,538 and US$1,538 for the years ended September 30, 2007, 2008 and 2009, respectively.

18. COMMITMENTS AND CONTINGENCIES

Operating lease commitments

Future minimum payments under non-cancelable operating leases with initial terms of
one-year or more consist of the following at September 30, 2009:



|                           |  |      
|-------------------------- |  | -----
|                           |  | US$  
|Years ending September 30, |  |      
|2010                       |  | 1,592
|2011                       |  | 937  
|2012                       |  | 734  
|2013                       |  | 692  
|2014                       |  | 58   
|                           |  |      
|                           |  | 4,013
|                           |  |      

Payments under operating leases are expensed on the straight-line
basis over the periods of their respective leases. The terms of the leases do not contain rent escalation or contingent rents. For the years ended September 30, 2007, 2008 and 2009, total rental expenses for all operating leases amounted to
approximately US$219, US$659 and US$1,555, respectively.

Legal contingencies

The group is a party in potential claims arising in the ordinary course of business. The Group does not believe that the resolution of these matters will
have a material adverse effect on its financial position or results of operations.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



19. SEGMENT REPORTING

The Group operates and manages its business as a single segment that
includes primarily the provision of online and classroom education services and selling of related products.

The revenues attributable to the
different service and product groups are as follows:



|                              |  |                           |  |        |  |       
|----------------------------- |  | ------------------------- |  | ------ |  | ------
|                              |  | Years ended September 30,
|                              |  | 2007                      |  | 2008   |  | 2009  
|                              |  | US$                       |  | US$    |  | US$   
|                              |  |                           | 
|Online education services     |  | 10,637                    |  | 13,900 |  | 22,279
|Classroom education services  |  |                          |  | 905    |  | 2,576 
|Books and reference materials |  | 484                       |  | 1,616  |  | 2,709 
|Others                        |  | 725                       |  | 1,153  |  | 2,557 
|                              |  |                           |  |        |  |       
|                              |  | 11,846                    |  | 17,574 |  | 30,121
|                              |  |                           |  |        |  |       

Online education services accounted for 90%, 79% and 74% of the
Groups total net revenue for the years ended September 30, 2007, 2008 and 2009, respectively. Any significant reduction in sales from this service could have a substantial negative impact on the Groups results of operations.

For presentation purposes, the revenues recognized for multiple element transactions involving books and reference materials and study cards
that can be used to enroll in any online courses are allocated to online education services revenues based on the stated price of the study card relative to the total stated selling price of the multiple element transaction. The stated price of the
study card and the total stated selling price of the multiple element transaction are substantive because a significant portion of the Group sales of online education services and multiple element arrangements are sold at their respective stated
prices without granting a discount. The residual amount is allocated to books and reference materials revenue. The above methodology has been consistently applied for all years presented.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



19. SEGMENT REPORTING - continued



For presentation purposes, the revenue recognized for multiple element transactions involving books and reference materials and study cards that can only be used to enroll in certain new online courses is
allocated to online education services revenue and books and reference materials revenue based on the relative input costs of the particular courses and input costs of the books and reference materials to their total costs. This approach to
allocating revenue for these multiple element transactions is rational and systematic because the costs incurred for the particular courses and the books and reference materials are verifiable inputs.

Revenues recognized from multiple element arrangements which are accounted for as a single unit of accounting amounted to approximately US$709, US$1,844 and
US$775 for the years ended September 30, 2007, 2008 and 2009, respectively and were allocated to service and product revenues as follows:



|                              |  |                           |  |       |  |     
|----------------------------- |  | ------------------------- |  | ----- |  | ----
|                              |  | Years ended September 30,
|                              |  | 2007                      |  | 2008  |  | 2009
|                              |  | US$                       |  | US$   |  | US$ 
|                              |  |                           | 
|Online education services     |  | 350                       |  | 429   |  | 44  
|Books and reference materials |  | 359                       |  | 1,415 |  | 731 
|                              |  |                           |  |       |  |     
|                              |  | 709                       |  | 1,844 |  | 775 
|                              |  |                           |  |       |  |     

The Group also considered other appropriate allocation methodologies
and concluded that the use of those alternative methodologies would not result in materially different revenue presentation. While the Group believes its current revenue presentation methodology is systematic and rational, it will periodically
reassess the appropriateness of its methodology.

Geographic disclosures:

As the Group primarily generates its revenues from customers in the PRC, no geographical segments are presented. All of the Groups long-lived assets are located in the PRC.



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



20. NET INCOME (LOSS) PER SHARE

Basic and diluted net income (loss) per share for each of
the periods presented are calculated as follows:



|                                                                                                                         |  |                           |   |  |             |   |  |            
|------------------------------------------------------------------------------------------------------------------------ |  | ------------------------- | - |  | ----------- | - |  | -----------
|                                                                                                                         |  | Years ended September 30,
|                                                                                                                         |  | 2007                      |   |  | 2008        |   |  | 2009       
|                                                                                                                         |  | US$                       |   |  | US$         |   |  | US$        
|                                                                                                                         |  |                           |  
|Numerator:                                                                                                               |  |                           |   |  |             |   |  |            
|Net income (loss) attributable to ordinary shareholders                                                                  |  | 4,546                     |   |  | (5,335      | ) |  | 1,188      
|Less: Undistributed earnings allocated to participating preferred shares                                                 |  | (318                      | ) |  |            |   |  |           
|                                                                                                                         |  |                           |   |  |             |   |  |            
|Net income (loss) allocated to ordinary shares for computing net income (loss) per ordinary shares - basic and
diluted   |  | 4,228                     |   |  | (5,335      | ) |  | 1,188      
|                                                                                                                         |  |                           |   |  |             |   |  |            
|Denominator:                                                                                                             |  |                           |   |  |             |   |  |            
|Weighted average number of ordinary shares outstanding used in calculating basic net income (loss) per share             |  | 95,415,512                |   |  | 100,373,673 |   |  | 140,260,811
|Plus incremental weighted average common shares from assumed conversion of share options using the treasury stock
method |  |                          |   |  |            |   |  | 215,130    
|                                                                                                                         |  |                           |   |  |             |   |  |            
|Weighted average common shares outstanding used in computing diluted net income per share                                |  | 95,415,512                |   |  | 100,373,673 |   |  | 140,475,941
|                                                                                                                         |  |                           |   |  |             |   |  |            
|Basic net income (loss) per share                                                                                        |  | 0.04                      |   |  | (0.05       | ) |  | 0.01       
|Diluted net income (loss) per share                                                                                      |  | 0.04                      |   |  | (0.05       | ) |  | 0.01       
|                                                                                                                         |  |                           |   |  |             |   |  |            

In the year ended September 30, 2007, the basic net income per
share was calculated using the two class method because the Series A Shares were participating securities. Diluted net income per share is the same as basic net income per share because the effects of the Series A Shares were anti-dilutive when
computed on an if converted basis.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



21. SHARE INCENTIVE PLAN

Share options

On April 18, 2008, the Companys shareholders approved the China Distance Education Holdings Limited Share Incentive Plan (the
Prior Plan). The maximum number of ordinary shares that may be delivered pursuant to compensatory awards granted to employees and non-employees of the Group (the Participants) under the Prior Plan should not exceed 11,652,556
ordinary shares of par value US$0.0001 per share. On July 2, 2008, the Companys shareholders approved the China Distance Education Holdings Limited 2008 Performance Incentive Plan (the New Plan). Subject to any
amendment of the New Plan, the maximum number of ordinary shares that may be issued pursuant to the New Plan is equal to 5% of the total number of ordinary shares issued and outstanding as of August 4, 2008, plus an automatic annual increase on
October 1 of each calendar year commencing with October 1, 2008, by an amount equal to the lesser of (i) 1% of the total number of ordinary shares issued and outstanding on September 30 of the same calendar year, or
(ii) such number of ordinary shares as may be determined by the Companys board of director. The purpose of these share incentive plans is to promote the success of the Company and the interests of its shareholders by providing a means
through which the Company may grant equity-based incentives to attract, motivate, retain and reward certain officers, employees, directors and other eligible persons and to further link the interests of recipients with those of the Companys
shareholders generally. The Prior Plan will expire on April 17, 2018. The New Plan will expire on the tenth anniversary date of August 4, 2008.

By a resolution of the board of directors on April 18, 2008, 11,652,556 share options were authorized to be granted to certain employees and non-employees. An aggregate of 11,045,500 share options
were granted, including a total of 10,060,600 granted to employees on April 18, 2008 and May 31, 2008, and 984,900 granted to non-employees on April 18, 2008. The share options had an exercise price of US$2.995966 per share and a
graded vesting term of four years.

The options would vest as to 25% of the total number of ordinary shares subject to the options on the
first anniversary of the vesting commencement date. The remaining 75% of the total number of ordinary shares subject to the options would vest in six substantially equal semi-annual installments, with the first installment vesting on the last day of
the sixth month following the month in which the first anniversary of the vesting commencement date occurs and an additional installment vesting on the last day of every six months thereafter.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



21. SHARE INCENTIVE PLAN - continued



Share options - continued



On November 17, 2008, the Companys board of directors and compensation committee approved to provide a compensation package for the non-executive directors. 400,000 options were granted to five
directors on December 2, 2008. These options are subject to a two-year vesting schedule with 50% vesting in each year. The exercise price is US$0.82 per share which was determined by the closing price of the Companys ADSs on NYSE Arca on
December 2, 2008.

On December 2, 2008 (the repricing date), the Companys board of directors and compensation
committee approved to amend the terms of certain stock options granted to 260 employees and 17 non-employees to reduce the exercise price of all outstanding share options from US$2.995966 per share to US$0.82 per share based on the closing price of
the Companys ADSs on NYSE Arca on December 2, 2008. The amendments did not change the vesting provisions or the number of shares subject to any of the option awards. This was accounted for as a share option modification and required the
remeasurement of these share options. This remeasurement resulted in a total incremental share-based compensation of US$2,699, of which US$752 was recognized in the year ended September 30, 2009 and the remaining will be recognized ratably over
the remaining vesting period of the award.



|                                                              |  |                 |   |  |                                |          |                                      |     |                                                  |  |                          |  |      
|------------------------------------------------------------- |  | --------------- | - |  | ------------------------------ | -------- | ------------------------------------ | --- | ------------------------------------------------ |  | ------------------------ |  | -----
|Share option granted to employees and non-executive directors |  | Numberof shares |   |  | Weighted-averageexercise price |          | Weighted-averagegrant-datefair value |     | Weighted-averageremainingcontractualterm (years) |  | Aggregatedintrinsicvalue
|                                                              |  |                 |   |  |                               
|Outstanding, October 1, 2007                                  |  |                |   |  |                                |         |                                      |     |                                                 |  |                          |  |      
|Granted                                                       |  | 10,060,600      |   |  | US$                            | 2.995966 |                                      | US$ | 1.1686                                           |  |                          |  |      
|Forfeited                                                     |  | (413,700        | ) |  | US$                            | 2.995966 |                                      | US$ | 1.1686                                           |  | 9.55                     |  |      
|                                                              |  |                 |   |  |                                |          |                                      |     |                                                  |  |                          |  |      
|Outstanding, September 30, 2008                               |  | 9,646,900       |   |  | US$                            | 2.995966 |                                      | US$ | 1.1686                                           |  | 9.55                     |  |      
|Granted                                                       |  | 10,027,000      |   |  | US$                            | 0.82     |                                      | US$ | 1.4002                                           |  |                          |  |      
|Exercised                                                     |  | (31,548         | ) |  | US$                            | 0.82     |                                      | US$ | 1.4414                                           |  |                          |  |      
|Forfeited (up to the repricing date)                          |  | (19,900         | ) |  | US$                            | 2.995966 |                                      | US$ | 1.1686                                           |  |                          |  |      
|Forfeited (after the repricing date)                          |  | (143,644        | ) |  | US$                            | 0.82     |                                      | US$ | 1.4414                                           |  |                          |  |      
|Cancelled                                                     |  | (9,627,000      | ) |  | US$                            | 2.995966 |                                      | US$ | 1.1686                                           |  |                          |  |      
|                                                              |  |                 |   |  |                                |          |                                      |     |                                                  |  |                          |  |      
|Outstanding, September 30, 2009                               |  | 9,851,808       |   |  | US$                            | 0.82     |                                      | US$ | 1.3994                                           |  | 8.58                     |  | 9,655
|                                                              |  |                 |   |  |                                |          |                                      |     |                                                  |  |                          |  |      
|Expected to vest, September 30, 2009                          |  | 7,550,213       |   |  | US$                            | 0.82     |                                      | US$ | 1.3994                                           |  | 8.58                     |  | 7,399
|                                                              |  |                 |   |  |                                |          |                                      |     |                                                  |  |                          |  |      
|Exercisable, September 30, 2009                               |  | 2,301,595       |   |  | US$                            | 0.82     |                                      | US$ | 1.3994                                           |  | 8.55                     |  | 2,256
|                                                              |  |                 |   |  |                                |          |                                      |     |                                                  |  |                          |  |      



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



21. SHARE INCENTIVE PLAN - continued



Share options - continued



|                                      |  |                 |   |  |                                |          |                                      |     |                                                  |  |                          |  |    
|------------------------------------- |  | --------------- | - |  | ------------------------------ | -------- | ------------------------------------ | --- | ------------------------------------------------ |  | ------------------------ |  | ---
|Share option granted to non-employees |  | Numberof shares |   |  | Weighted-averageexercise price |          | Weighted-averagegrant-datefair value |     | Weighted-averageremainingcontractualterm (years) |  | Aggregatedintrinsicvalue
|                                      |  |                 |   |  |                               
|Outstanding, October 1, 2007          |  |                |   |  |                                |         |                                      |     |                                                 |  |                          |  |    
|Granted                               |  | 984,900         |   |  | US$                            | 2.995966 |                                      | US$ | 1.1684                                           |  |                          |  |    
|                                      |  |                 |   |  |                                |          |                                      |     |                                                  |  |                          |  |    
|Outstanding, September 30, 2008       |  | 984,900         |   |  | US$                            | 2.995966 |                                      | US$ | 1.1684                                           |  | 9.55                     |  |    
|Granted                               |  | 984,900         |   |  | US$                            | 0.82     |                                      | US$ | 1.4428                                           |  |                          |  |    
|Cancelled                             |  | (984,900        | ) |  | US$                            | 2.995966 |                                      | US$ | 1.1698                                           |  |                          |  |    
|                                      |  |                 |   |  |                                |          |                                      |     |                                                  |  |                          |  |    
|Outstanding, September 30, 2009       |  | 984,900         |   |  | US$                            | 0.82     |                                      | US$ | 1.4428                                           |  | 8.55                     |  | 965
|                                      |  |                 |   |  |                                |          |                                      |     |                                                  |  |                          |  |    
|Expected to vest, September 30, 2009  |  | 738,675         |   |  | US$                            | 0.82     |                                      | US$ | 1.4428                                           |  | 8.55                     |  | 724
|                                      |  |                 |   |  |                                |          |                                      |     |                                                  |  |                          |  |    
|Exercisable at September 30, 2009     |  | 246,225         |   |  | US$                            | 0.82     |                                      | US$ | 1.4428                                           |  | 8.55                     |  | 241
|                                      |  |                 |   |  |                                |          |                                      |     |                                                  |  |                          |  |    

The total intrinsic value of options exercised during the year ended September 30, 2009 was US$37. As of
September 30, 2009, the unrecognized share-based compensation cost related to share options amounted to approximately US$9,315. This compensation cost is expected to be recognized over a weighted-average vesting period of 2.56 years.
Forfeitures were estimated based on historical experience. To the extent the actual forfeiture rate is different from the original estimate, actual share-based compensation expenses related to these awards may be different from the expectation.

The fair value of each option award to employees and non-employees was estimated using the Black-Scholes Option Pricing Model by the
management of the Company with the assistance of American Appraisal China Limited, a third-party valuation firm. The volatility assumption was estimated based on the price volatility of the shares of comparable companies in the education business
because the Company did not have sufficient data to calculate expected volatility of the price of the underlying ordinary shares over the expected term of the option. The expected term was estimated based on the vesting terms, contractual terms and
managements expectation of exercise behavior of the option grantees. The risk-free rate was based on the market yield of China Sovereign Bonds denominated in US$ with maturity terms equal to the expected term of the option awards. Prior to the
IPO in July 2008,the management of the Company estimated the fair value of the ordinary shares on the grant dates based on a number of factors, including the result of a third-party appraisal and equity transactions of the Company, while taking into
account standard valuation methods and the achievement of certain events. After the IPO, the closing market price of the ordinary shares of the Company as of the grant date was used as the fair value of the ordinary shares on that date.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



21. SHARE INCENTIVE PLAN - continued



Share options - continued



The Company used the Black Scholes Model to estimate the fair value of the share options on the grant dates with the following assumptions:



|                          |  |                                  |  |          
|------------------------- |  | -------------------------------- |  | ---------
|                          |  | For the year ended September 30,
|                          |  | 2008                             |  | 2009     
|                          |  |                                 
|Risk-free interest rate   |  | 4.470%~4.679%                    |  | 3.932%   
|Dividend yield            |  |                                 |  |         
|Expected volatility range |  | 47%                              |  | 47%      
|Expected life (in years)  |  | 5.98~6.2                         |  | 5.55~5.75

Restricted ordinary shares

On July 2, 2008, the Companys board of directors approved to pay US$300 to an
independent director in exchange for her services to be provided to the Company over a three-year period commencing from the effectiveness of the Companys registration statement on Form F-1 on July 29, 2008. The US$300 will be paid in
three installments in the form of restricted ordinary shares of the Company. The initial installment of such restricted shares was issued on the completion of the Companys initial public offering on August 4, 2008, and the remaining two
installments will be issued on the second anniversary and third anniversary of August 4, 2008. The number of restricted shares issued on the initial installment date was 57,143 which was determined as the quotient yielded by dividing US$100 by
the ordinary share price, calculated based on the price at which the ADSs were sold to the public in the Companys initial public offering. The number of restricted shares to be issued on the second anniversary and third anniversary of
August 4, 2008 will be equal to the quotient yielded by dividing US$100 by the ordinary share price calculated based on the closing price of the Companys ADSs at the date of issuance. This stock-based compensation with fixed monetary
amount has been recognized as expense over the three-year period with a corresponding liability accrued prior to the issuance of shares. Upon the issuance of shares, the related liability will be eliminated against additional paid in capital.

Total share-based compensation expense of share-based awards granted to employees and non employees recognized for the years ended
September 30, 2008 and 2009 are as follows:



|                                    |  |                     |  |      
|----------------------------------- |  | ------------------- |  | -----
|                                    |  | As of September 30,
|                                    |  | 2008                |  | 2009 
|                                    |  | US$                 |  | US$  
|                                    |  |                    
|Cost of services                    |  | 689                 |  | 1,854
|General and administrative expenses |  | 629                 |  | 1,612
|Selling expenses                    |  | 161                 |  | 454  
|                                    |  |                     |  |      
|                                    |  | 1,479               |  | 3,920
|                                    |  |                     |  |      



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2008 AND 2009

(In thousands, except share and per share data)



22. SUBSEQUENT EVENTS

The Company granted the following share options on November 17,
2009 pursuant to the Prior Plan and the New Plan. 1,361,900 share options on the Groups ordinary share were granted to selected employees for an exercise price per share equal to US$1.87. The option shall vest as to 25% of the total number of
ordinary shares subject to the option on the first anniversary of the vesting commencement date. The remaining 75% of the total number of ordinary shares subject to the option shall vest in six substantially equal semi-annual installments, with the
first installment vesting on the last day of the sixth month following the month in which the first anniversary of the vesting commencement date occurs and an additional installment vesting on the last day of every six months thereafter.

On November 17, 2009, the Companys board of directors and compensation committee approved an amendment to the Companys independent
directors restricted shares award agreement. Pursuant to the amended and restated award agreement, the independent director will receive, in lieu of two additional installments of restricted shares with a total value of US$200 as provided in
the original agreement, a cash compensation of US$200 in two equal installments for her continuous service as the independent director and chairman of the audit committee. The first installment had been granted on November 17, 2009. The second
installment will be granted on July 29, 2010, provided that the independent director agrees to continue to serve as an independent director and chairman of the audit committee until July 29, 2011.



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