##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended March 31, 2008
 o
    
    Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period            to
 Commission File Number 000-50550
 
 CHINACAST EDUCATION CORPORATION
  Delaware
(State or Other Jurisdiction of 
Incorporation or Organization)
    
    20-0178991
(I.R.S. Employer Identification Number)
 15F Reignwood Center,
8 Yong An Dongli
Jianguo Menwai Avenue,
Beijing, 100022, Peoples Republic of China
 (8610) 6566-7788
 Great Wall Acquisition Corporation
 þ o
  Large
accelerated
filer oAccelerated
filer þNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company o o þ
  o þ




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##### 



PagePART I FINANCIAL INFORMATION
    
    
    3Item 1. Financial Statements
    
    
    3Item 2.Managements Discussion and Analysis or Plan of Operation
    
    
    13Item 3.Quantitative and Qualitative Disclosures About Market Risk
    
    
    18Item 4.Controls and Procedures
    
    
    18Item 4A.Controls and Procedures
    
    
    18PART II OTHER INFORMATION
    
    
    19Item 1.Legal Proceedings
    
    
    19Item 1A.Risk Factors
    
    
    19Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    19Item 3.Defaults Upon Senior Securities
    
    
    19Item 4.Submission of Matters To a Vote of Security Holders
    
    
    19Item 5.Other Information
    
    
    19Item 6.Exhibits
    
    
    19EX-31.1 CERTIFICATION OF CEO PURSUANT TO SEC 302EX-31.2 CERTIFICATION OF CFO PURSUANT TO SEC 302EX-32.1 CERTIFICATION OF CEO PURSUANT TO SEC 906EX-32.2 CERTIFICATION OF CFO PURSUANT TO SEC 906
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PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 CHINACAST EDUCATION CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands, except share-related data)
 As of
    
    As ofMarch 31, 2008
    
    December 31, 2007US$(Note 1)
    
    RMB
    
    RMBAssetsCurrent assets:Cash and cash equivalents
    
    
    19,402
    
    
    
    135,814
    
    
    
    138,610Term deposits
    
    
    88,725
    
    
    
    621,076
    
    
    
    596,768Accounts receivable, net of allowance of RMB148 for both 2008 and 2007
    
    
    7,669
    
    
    
    53,682
    
    
    
    35,316Inventory
    
    
    285
    
    
    
    1,993
    
    
    
    2,015Prepaid expenses and other current assets
    
    
    1,312
    
    
    
    9,187
    
    
    
    7,127Amounts due from related parties
    
    
    493
    
    
    
    3,448
    
    
    
    3,248Total current assets
    
    
    117,886
    
    
    
    825,200
    
    
    
    783,084Non-current deposits
    
    
    155
    
    
    
    1,087
    
    
    
    1,948Property and equipment, net
    
    
    1,484
    
    
    
    10,387
    
    
    
    11,107Acquired intangible assets, net
    
    
    3,031
    
    
    
    21,218
    
    
    
    21,781Long-term investments
    
    
    1,537
    
    
    
    10,757
    
    
    
    11,165Non-current advances to a related party
    
    
    15,871
    
    
    
    111,097
    
    
    
    119,914Goodwill
    
    
    236
    
    
    
    1,652
    
    
    
    1,715Total assets
    
    
    142,200
    
    
    
    981,398
    
    
    
    950,714Liabilities, minority interest, and shareholders equityCurrent liabilities:Accounts payable
    
    
    2,751
    
    
    
    19,256
    
    
    
    13,027Accrued expenses and other current liabilities
    
    
    8,119
    
    
    
    56,831
    
    
    
    53,376Income taxes payable
    
    
    4,920
    
    
    
    34,441
    
    
    
    31,237Current portion of capital lease obligation
    
    
    
    
    
    
    
    
    
    
    34Total current liabilities
    
    
    15,790
    
    
    
    110,528
    
    
    
    97,674Non-current liabilities:Unrecognized tax benefits
    
    
    4,002
    
    
    
    28,016
    
    
    
    27,892Total non-current liabilities
    
    
    4,002
    
    
    
    28,016
    
    
    
    27,892Total liabilities
    
    
    19,792
    
    
    
    138,544
    
    
    
    125,566Minority interest
    
    
    2,985
    
    
    
    20,896
    
    
    
    20,512Commitments and contingencies (Note 12)Shareholders equity:Ordinary shares (US$0.0001 par value; 100,000,000 shares authorized
in 2008 and 2007; 27,297,641 and 27,292,641 shares issued and
outstanding in 2008 and 2007, respectively)
    
    
    3
    
    
    
    21
    
    
    
    21Additional paid-in capital
    
    
    111,161
    
    
    
    778,119
    
    
    
    768,844Statutory reserve
    
    
    2,490
    
    
    
    17,433
    
    
    
    16,087Accumulated other comprehensive loss
    
    
    (770
    )
    
    
    (5,388
    )
    
    
    (5,205
    )Retained earnings
    
    
    4,539
    
    
    
    31,773
    
    
    
    24,889Total shareholders equity
    
    
    117,423
    
    
    
    821,958
    
    
    
    804,636Total liabilities, minority interest, and shareholders equity
    
    
    142,200
    
    
    
    981,398
    
    
    
    950,714
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CHINACAST EDUCATION CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except share-related data)
 For the three months ended March 31,2008
    
    2008
    
    2007US$
    
    RMB
    
    RMB(Note 1)Revenues:Service
    
    
    5,744
    
    
    
    40,205
    
    
    
    33,535Equipment
    
    
    2,755
    
    
    
    19,289
    
    
    
    6,3208,499
    
    
    
    59,494
    
    
    
    39,855Cost of revenues:Service
    
    
    (1,712
    )
    
    
    (11,986
    )
    
    
    (10,756
    )Equipment
    
    
    (2,730
    )
    
    
    (19,105
    )
    
    
    (6,243
    )(4,442
    )
    
    
    (31,091
    )
    
    
    (16,999
    )Gross profit
    
    
    4,057
    
    
    
    28,403
    
    
    
    22,856Operating (expenses) income:Selling and
marketing expenses (including
share-based compensation of RMB1,281 and
RMBnil for 2008 and 2007, respectively)
    
    
    (498
    )
    
    
    (3,487
    )
    
    
    (679
    )General and administrative expenses
(including share-based compensation of
RMB7,834 and RMBnil for 2008 and 2007,
respectively)
    
    
    (2,602
    )
    
    
    (18,216
    )
    
    
    (10,068
    )Foreign exchange loss
    
    
    (66
    )
    
    
    (465
    )
    
    
    (844
    )Management service fee
    
    
    114
    
    
    
    798
    
    
    
    4,701Total operating expenses, net
    
    
    (3,052
    )
    
    
    (21,370
    )
    
    
    (6,890
    )Income from operations
    
    
    1,005
    
    
    
    7,033
    
    
    
    15,966Interest income
    
    
    836
    
    
    
    5,852
    
    
    
    2,905Interest expense
    
    
    (1
    )
    
    
    (4
    )
    
    
    (28
    )Income before provision for income taxes,
earnings in equity investments, and
minority interest and discounted operations
    
    
    1,840
    
    
    
    12,881
    
    
    
    18,843Provision for income taxes
    
    
    (551
    )
    
    
    (3,859
    )
    
    
    (3,492
    )Income before earnings in equity
investments, minority interest, and
discontinued operations
    
    
    1,289
    
    
    
    9,022
    
    
    
    15,351Loss in equity investments
    
    
    (58
    )
    
    
    (408
    )
    
    
    (239
    )Minority interest
    
    
    (55
    )
    
    
    (384
    )
    
    
    (1,775
    )Income from continuing operations
    
    
    1,176
    
    
    
    8,230
    
    
    
    13,337Discontinued operations:Loss from discontinued operations, net of
tax RMBnil for both 2008 and 2007
    
    
    
    
    
    
    
    
    
    
    (139
    )Minority interest in discontinued
operations, net of tax RMBnil for both 2008
and 2007
    
    
    
    
    
    
    
    
    
    
    (230
    )Loss on discontinued operations
    
    
    
    
    
    
    
    
    
    
    (369
    )Net income
    
    
    1,176
    
    
    
    8,230
    
    
    
    12,968Net income per shareBasic
    
    
    0.04
    
    
    
    0.30
    
    
    
    0.52Diluted
    
    
    0.04
    
    
    
    0.29
    
    
    
    0.50Weighted average shares used in computation:Basic
    
    
    27,297,256
    
    
    
    27,297,256
    
    
    
    24,725,116Diluted
    
    
    28,292,257
    
    
    
    28,292,257
    
    
    
    26,162,379
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CHINACAST EDUCATION CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
 For the three months ended March 31,2008
    
    2008
    
    2007US$
    
    RMB
    
    RMB(Note 1)Cash flows from operating activities:Net income
    
    
    1,176
    
    
    
    8,230
    
    
    
    12,968Adjustments to reconcile net income to net cash provided
by (used in) operating activities:Minority interest in continuing operations
    
    
    55
    
    
    
    384
    
    
    
    1,775Minority interest in discontinued operations
    
    
    
    
    
    
    
    
    
    
    230Depreciation and amortization
    
    
    203
    
    
    
    1,421
    
    
    
    2,119Share-based compensation
    
    
    1,302
    
    
    
    9,115
    
    
    
    Loss in equity investments
    
    
    58
    
    
    
    408
    
    
    
    239Changes in assets and liabilities:Accounts receivable
    
    
    (2,696
    )
    
    
    (18,869
    )
    
    
    (1,214
    )Inventory
    
    
    3
    
    
    
    22
    
    
    
    10Prepaid expenses and other current assets
    
    
    (297
    )
    
    
    (2,078
    )
    
    
    (4,109
    )Non-current deposits
    
    
    120
    
    
    
    837
    
    
    
    Amounts due from related parties
    
    
    (29
    )
    
    
    (200
    )
    
    
    (389
    )Accounts payable
    
    
    900
    
    
    
    6,300
    
    
    
    4,149Accrued expenses and other current liabilities
    
    
    592
    
    
    
    4,143
    
    
    
    (42,879
    )Amounts due to related parties
    
    
    
    
    
    
    
    
    
    
    (253
    )Income taxes payable
    
    
    459
    
    
    
    3,210
    
    
    
    2,279Deferred taxes
    
    
    
    
    
    
    
    
    
    
    43Unrecognized tax benefits
    
    
    18
    
    
    
    124
    
    
    
    36Net cash
provided by (used in) operating activities
    
    
    1,864
    
    
    
    13,047
    
    
    
    (24,996
    )Cash flows from investing activities:Repayment from advance to related parties
    
    
    1,260
    
    
    
    8,817
    
    
    
    1,811Purchase of property and equipment
    
    
    (92
    )
    
    
    (642
    )
    
    
    (703
    )Term deposits
    
    
    (3,473
    )
    
    
    (24,308
    )
    
    
    (42,622
    )Proceeds from disposal of discontinued operations, net
of cash disposed of
    
    
    
    
    
    
    
    
    
    
    (9,113
    )Net cash used in investing activities
    
    
    (2,305
    )
    
    
    (16,133
    )
    
    
    (50,627
    )Cash flows from financing activities:Exercise of unit purchase options
    
    
    50
    
    
    
    347
    
    
    
    Repayment of capital lease obligation
    
    
    (5
    )
    
    
    (33
    )
    
    
    (38
    )Repayment of advances from related parities
    
    
    
    
    
    
    
    
    
    
    (4,251
    )Net cash provided by (used in) financing activities
    
    
    45
    
    
    
    314
    
    
    
    (4,289
    )Effect of foreign exchange rate changes
    
    
    (3
    )
    
    
    (24
    )
    
    
    (1,450
    )Net decrease in cash and cash equivalents
    
    
    (399
    )
    
    
    (2,796
    )
    
    
    (81,362
    )Cash and cash equivalents at beginning of the period
    
    
    19,801
    
    
    
    138,610
    
    
    
    278,067Cash and cash equivalents at end of the period
    
    
    19,402
    
    
    
    135,814
    
    
    
    196,705
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NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In thousands, except share-related data)
 1.
    
    BASIS OF PREPARATION
 The accompanying unaudited condensed consolidated financial statements of ChinaCast Education
Corporation (CEC, formerly Great Wall Acquisition Corporation (Great Wall)) have been
prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC)
regarding interim financial reporting. Accordingly, they do not include all of the information
and notes required by accounting principles generally accepted in the United States of America
(US GAAP) for complete financial statements and should be read in conjunction with the audited
financial statements included in CECs Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2007.In the opinion of the management of CEC, the accompanying unaudited condensed consolidated
financial statements are prepared on the same basis as the audited financial statements, and
these unaudited condensed consolidated financial statements reflect all adjustments, consisting
only of normal recurring adjustments necessary for a fair presentation of the results of the
interim periods presented. The results of operations for the interim periods presented are not
necessarily indicative of the operating results expected for any subsequent interim period or
for CECs fiscal year ending December 31, 2008.The accompanying unaudited condensed consolidated financial statements include the accounts of
CEC, its subsidiaries, and variable interest entities (collectively, the Company). All
significant intercompany balances and transactions have been eliminated in consolidation.Convenience TranslationAmounts in United States dollars (US$) are presented solely for the convenience of readers and
an exchange rate of RMB7.0 to US$1 was applied as of March 31, 2008. Such transaction should not
be construed to be the amounts that would have been reported under US GAAP.The Share Exchange TransactionOn December 22, 2006, Great Wall consummated the voluntary conditional offer (the Offer) made
in Singapore to acquire all of the outstanding ordinary shares of ChinaCast Communication
Holdings Limited (ChinaCast). Pursuant to the terms of the Offer, ChinaCast shareholders had
the option to receive either shares of CEC or a cash payment for each ChinaCast share tendered.
On January 18, 2007, the closing date of the Offer, total shares acquired were 80.27%. Since
Great Wall was not an operating company and the shareholders of ChinaCast control the combined
company after the above transaction consummated on December 22, 2006 (the Share Exchange
Transaction), the Share Exchange Transaction was accounted for as a recapitalization in which
ChinaCast was the accounting acquirer. The cash consideration paid as part of the Offer was
accounted for as a capital distribution. For purposes of the preparation of the consolidated
financial statements, the consummation date was designed as the effective date when 80.27% of
the outstanding ordinary shares of ChinaCast were acquired by Great Wall and the remaining
outstanding ordinary shares of ChinaCast not acquired by Great Wall were reported as minority
interest for all the periods presented.During the year ended December 31, 2007, CEC acquired additional shares by issuing shares of CEC
and cash amount to RMB5,793 to certain original ChinaCast shareholders and, as of July 11,
2007, CEC increased its holdings to 100% of the outstanding ordinary shares of ChinaCast. The
19.73% of the additional shares acquired were accounted for on the same basis as the Share
Exchange Transaction.2.
    
    RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTSIn December 2007, the Financial Accounting Standard
Board (FASB) issued Standard of Financial Accounting
Standards (SFAS) No.141R, "Business Combination", to improve reporting
creating greater consistency in the accounting and financial reporting of business combinations.
The standard requires the acquiring entity in a business combination to recognize all (and
only) the assets acquired and liabilities assumed in the transaction; establishes the
acquisition-date fair value as the measurement objective for all assets acquired and liabilities
assumed; and requires 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. SFAS No.141R applies prospectively to 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. An entity may not apply it before that date. The Company is
currently evaluating whether the adoption of SFAS No. 141R will have a significant effect on its
consolidated financial position, results of operations or cash flows.
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In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated
Financial Statements" to improve the relevance, comparability, and transparency of financial
information provided to investors by requiring all entities to report noncontrolling (minority)
interests in subsidiaries in the same way as required in the consolidated financial statements.
Moreover, SFAS No. 160 eliminates the diversity that currently exists in accounting for
transactions between an entity and noncontrolling interests by requiring they be treated as
equity transaction. SFAS No. 160 is effective for fiscal years, and interim periods within
those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited.
The Company is currently evaluating whether the adoption of SFAS No. 160 will have a significant
effect on its consolidated financial position, results of operations or cash flows.3.
    
    DISCONTINUED OPERATIONSAs of December 31, 2006, the Company had a 50% stake in Beijing Tongfang Digital Education
Technology Limited (Tongfang) and Tongfang had a 51% stake in Beijing Tongfang Chuangxin
Technology Limited (Tongfang Chuangxin). The Company considers Tongfang and Tongfang Chuangxin
as subsidiaries due to the fact that the Company controls the entities by having the majority
voting rights in the board of directors of Tongfang who in turn holds a majority ownership
interest in Tongfang Chuangxin. On February 9, 2007, the Company completed the
transaction under a sale and purchase agreement with Tongfang Co. Limited to dispose all of its
shareholding in Tongfang in return for a 17.85% interest in Tongfang Chuangxin. As part of the
consideration for the sale, the Company offset the RMB6,300 payable to Tongfang Co. Limited
against the sale proceeds. No significant gain or loss was reported as a result of the sale.
Tongfang ceased to be a subsidiary of the Company and the Company has accounted for its
investment in Tongfang Chuangxin amounting to RMB8,936 under the cost method of accounting
thereafter.The following is a summary of the assets and liabilities associated with the discontinued
operations as of February 9, 2007:
 7




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As ofFebruary 9, 2007RMBCurrent assets of discontinued operations:Cash and cash equivalents
    
    
    9,113Accounts receivable, net
    
    
    2,715Prepaid expenses and other current assets
    
    
    1,73213,560Non-current assets of discontinued operations:Property and equipment, net
    
    
    1,433Acquired intangible assets, net
    
    
    13,58115,014Current liabilities of discontinued operations:Accounts payable
    
    
    1,355Accrued expenses and other current liabilities
    
    
    6,8848,239Minority interest
    
    
    6,694Attributable goodwill
    
    
    1,595
 Summarized operating results from the discontinued operations included in the Companys
consolidated statements of operations are as follows for the three months ended March 31, 2008
and 2007, respectively.
 For the three months ended March 31,2008
    
    2007RMB
    
    RMBRevenues
    
    
    
    
    
    
    1,096Loss before provision of income taxes from discontinued operations
    
    
    
    
    
    
    (139
    )Provision for income taxes
    
    
    
    
    
    
    Minority interest in discontinued operations
    
    
    
    
    
    
    (230
    )Loss from discontinued operations, net of tax
    
    
    
    
    
    
    (369
    )Reduction in net income per share of the Company  basic and diluted
    
    
    
    
    
    
    (0.01
    )
 4.
    
    NON-CURRENT DEPOSITSNon-current deposits consisted of the following:
 As of March 31, 2008
    

As of December 31, 2007RMB
    
    RMBRental deposits
    
    
    1,087
    
    
    
    1,948
 Rental deposits represented satellite rental deposit for ChinaCast satellite business
operations and office rental deposits for the Companys daily operations. These deposits are
classified into non-current deposits since they will not be refunded within one year.5.
    
    COMPREHENSIVE INCOMEThe components of comprehensive income for the periods presented are as follows:
 For the three months ended March 31,2008
    
    2007RMB
    
    RMBNet income
    
    
    8,230
    
    
    
    12,968Foreign currency translation adjustment
    
    
    (183
    )
    
    
    (1,598
    )Comprehensive income
    
    
    8,047
    
    
    
    11,370
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6.
    
    ACQUIRED INTANGIBLE ASSET, NETAcquired intangible assets, net consisted of the following:
 As of March 31, 2008
    
    As of December 31, 2007RMB
    
    RMBBrand name usage right
    
    
    22,532
    
    
    
    22,532Less: accumulated amortization
    
    
    (1,314
    )
    
    
    (751
    )21,218
    
    
    
    21,781
 On August 30, 2007, the Company acquired 100% of the outstanding registered capital of Modern
English Trademark Limited (MET), in exchange for cash of RMB22,532 (US$3,000). MET has no
asset or liability except for a 10-year exclusive brand name usage right. The acquisition was
recorded as an intangible asset, which is being amortized on a straight-line basis over 10
years.For the three months ended March 31, 2008, the Company recorded amortization expense in respect
of the brand name usage right amounting to RMB563. The Company will record amortization
expenses of RMB1,690, RMB2,253, RMB2,253, RMB2,253, RMB12,769 in 2008, 2009, 2010, 2011 and
2012 thereafter, respectively.7.
    
    STOCK COMPENSATION PLAN
 2007 Omnibus Securities and Incentive Plan (2007 Plan)Under the 2007 Plan adopted in May 2007, the Company may grant any awards to eligible
participates, including employees, directors or consultants, to purchase up to 2,500,000 ordinary shares.On July 11, 2007, the Company granted, under the 2007 Plan, 12,500 ordinary shares to its
employees at no consideration. The per share fair value of ordinary shares as of the grant date
was US$5.65 (RMB42.75).On January 11, 2008, the Company granted, under the 2007 Plan, restricted shares to its three
directors at no consideration. Each of the three directors was granted 100,000 restricted shares
of the Companys common stock. All of the shares of restricted stock granted to the directors
were issued at fair market value based on the closing price on January 11, 2008 of US$6.25
(RMB45.38). For each of the three directors of CEC, 10,000, 30,000 and 60,000 restricted shares
were/will be vested on February 9, 2008, February 9, 2009
and February 9, 2010, respectively. On January 11, 2008, the Company granted, under the 2007 Plan, 1,200,000 share options on the Companys
common stock to selected employees at no consideration. The exercise price of the options granted
is US$6.30 and the expiry date is January 11, 2018. A total of 401,000, 401,000 and
398,000 share options were/will be vested on March 31, 2008, March 31, 2009 and March 31, 2010,
respectively. As of March 31, 2008, no restricted shares or share options have
been forfeited.
 Management used the Black Scholes Model to estimate the fair value of the share options on
the grant date with the following assumptions:
 As of March 31, 2008Expected price volatility
    
    37.6%Risk-free interest rate
    
    4.75%Expected life
    
    67 monthsExpected dividends
    
    Fair value of ordinary share at grant date
    
    US$6.25
 The fair value of the share option on the grant date was US$2.67 (RMB19.33). In calculating the
fair value of the options using the Black Scholes Model, the following major assumptions were used:
 (1)
    
    VolatilityThe volatility of the underlying ordinary shares during the life of the options was
estimated based on the historical stock prices volatility of listed comparable companies
over a period comparable to the expected term of the options.(2)
    
    Risk free interest rateRisk free interest rate was estimated based on the yield to maturity of China
international government bonds with a maturity period close to the expected term of the
options.(3)
    
    Expected termAs the Company did not have historical share option exercise experience, it estimated
the expected term as the weighted average between the vesting term of the options and
the original contractual term.(4)
    
    Dividend yieldThe dividend yield was estimated by the Company based on their expected dividend policy
over the expected term of the options.(5)
    
    Exercise priceThe exercise price of the options was determined by the Companys board of directors.(6)
    
    Fair value of underlying ordinary sharesThe estimated fair value of the ordinary shares underlying the options as of the grant
date was determined based on the closing price of the ordinary shares traded in NASDAQ
Global Market as of the grant date.
 As of March 31, 2008, 401,000 share options were exercisable. The following table summarized
information with respect to share options outstanding at March 31, 2008:
 Weighted-averageExercise
    
    
    Number
    
    
    Remaining
    
    
    Intrinsicprice
    
    
    outstanding
    
    
    contractual life
    
    
    valueShare options
    
    US$
    6.3
    
    

    1,200,000
    
    
    9.8 years
    
    


    
 The aggregate intrinsic value of share options outstanding and exercisable as of March
31, 2008 was US$nil and US$nil, respectively.
 Total share-based compensation expenses amounting to RMB9,115 and RMBnil were recognized for the
three months ended March 31, 2008 and 2007, respectively.
 There was RMB26,686 of total unrecognized compensation expense related to nonvested
restricted shares and share options granted as of March 31, 2008.
 As of March 31, 2008, no other awards have been granted under the 2007 Plan.
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8.
    
    INCOME TAXES
 On March 16, 2007, the National Peoples Congress enacted a new enterprise income tax law, which
takes effect from January 1, 2008. The new law applies a uniform 25% enterprise income tax rate
to both foreign invested enterprises and domestic enterprises. The new law provides a five-year
transition period from its effective date for the entitled enterprises which were established
before the promulgation date of the new tax law and which were entitled to a preferential tax
treatment such as a reduced tax rate or a tax holiday. According to transitional rules published
after the new income tax law, one of the Companys major operating subsidiaries, CCT Shanghai,
which was subject to the preferential tax rate of 15%, is now eligible to the phased-in rates,
which is 18% in 2008, 20% in 2009, 22% in 2210, 24% in 2011, 25% in 2012 and thereafter.The Company considers itself to be permanently reinvested with respect to its investment in
its foreign subsidiaries. Accordingly, no deferred income tax liability related to the unremitted
earnings of its foreign subsidiaries has been included in the Companys provision for income
taxes. Upon distribution of subsidiaries earnings in the form of dividends or otherwise, the
Company would be subject to a withholding tax calculated based on 10% of the gross amount of
distribution. Management has considered the determination of the amount of unrecognized deferred
income tax liability to be not practicable because of the complexities associated with the
hypothetical calculation.The Company adopted the provisions of FASB Interpretation
No. 48, "Accounting for Uncertainty in
Income Taxes  An Interpretation of FASB Statement No. 109"
("FIN 48") on January 1, 2007. During the
three months ended March 31, 2008, the unrecognized tax benefits
increased from RMB27,892 to RMB28,016.
 9.
    
    NET INCOME PER SHAREReconciliation of the basic and diluted net income per share is as follows:
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For the three months ended March 31,2008
    
    2007RMB
    
    RMBNumerator used in basic and diluted net income per share:Income from continuing operations
    
    
    8,230
    
    
    
    13,337Loss on discontinued operation
    
    
    
    
    
    
    (369
    )Income attributable to holders of ordinary shares
    
    
    8,230
    
    
    
    12,968Shares (denominator):Weighted average ordinary shares outstanding used in
computing basic net income per share
    
    
    27,297,256
    
    
    
    24,725,116Plus:Incremental ordinary shares from assumed conversions of
stock options and exercises of Warrants (Note 11)
    
    
    995,001
    
    
    
    1,437,263Weighted average ordinary shares outstanding used in
computing diluted net income per share
    
    
    28,292,257
    
    
    
    26,162,379Net income per share-basic:Income from continuing operations
    
    
    0.30
    
    
    
    0.53Loss on discontinued operations
    
    
    
    
    
    
    (0.01
    )Net income
    
    
    0.30
    
    
    
    0.52Net income per share-diluted:Income from continuing operations
    
    
    0.29
    
    
    
    0.51Loss on discontinued operations
    
    
    
    
    
    
    (0.01
    )Net income
    
    
    0.29
    
    
    
    0.50
 The
diluted net income per share calculations have not included the outstanding UPO or the related
warrants (Note 11) since the effect is anti-dilutive.
 10.
    
    SEGMENT INFORMATIONThe Company has one segment. The Companys revenue and net income are substantially derived from
provision of satellite bandwidth and network access services throughout the Peoples Republic of
China (the PRC). Most of the assets and capital expenditure of the Company are employed in the
PRC. The Companys chief operating decision maker is the Chief Executive Officer who reviews
consolidated financial information prepared using US GAAP when making decisions about allocating
resources and assessing performance of the Company.A summary of customers accounting for 10% or more of total net revenues was as follows:
 For the three months ended March 31,2008
    
    2007RMB
    
    RMBCustomers:A
    
    
    13,288
    
    
    
    5,753B
    
    
    N/A
    
    
    
    5,279C
    
    
    N/A
    
    
    
    4,085
 Two customers as of March 31, 2008 and two customers as of December 31, 2007 each accounted for
10% or more of the Companys accounts receivable balances, representing an aggregate of 22.8%
and 25.7% of the Companys accounts receivable balances at March 31, 2008 and December 31, 2007,
respectively.
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##### Table of Contents



11.
    
    WARRANTS AND UNIT PURCHASE OPTIONS
 In March 2004, Great Wall sold 4,515,975 units in its initial public offering. Each unit
consists of one share of the Companys common stock and two redeemable common stock purchase
warrants (Warrants). Each Warrant will entitle the holder
to purchase from the Company two shares of common stock at an
exercise price of US$5 commencing on the consummation of the Share
Exchange Transaction. In no event will the Company be required to net cash settle the warrant
exercise.In connection with the initial public offering, Great Wall
issued, for $100, an unit purchase option (UPO)
to the representative of the underwriters to purchase 400,000 units at an exercise price of
US$9.90 per unit. In addition, the warrants (UPO Warrants) underlying such units are
exercisable at US$6.95 per share. In January 2008, the underwriters exercised the UPO to
purchase 5,000 units.As of March
31, 2008, there were 395,000 UPO, 10,000 UPO Warrants and 9,031,950 Warrants outstanding.
 12.
    
    CONTINGENCIES
 a)
    
    On March 21, 2006, after obtaining the approval of its shareholders, the Company
amended its certificate of incorporation, the effect of which was, among other things, to
eliminate the provision of the certificate of incorporation that
purported to prohibit the
amendment of the business combination provisions contained therein and to extend the
date before which the Company must complete a business combination, to avoid being
required to liquidate, from March 23, 2006 to December 31, 2006. Because extending the
period during which the Company could consummate a business combination was not
contemplated by the initial public offering (IPO) prospectus, shareholders may have
securities law claims against the Company for rescission (under which a successful
claimant would have the right to receive the total amount paid for his or her shares, plus
interest and less any income earned on the shares, in exchange for surrender of the shares) or damages (compensation for loss on an investment caused by alleged material
misrepresentations or omissions in the sale of the security). Such claims might entitle
shareholders asserting them to up to US$6.00 per share of common stock, based on the
initial offering price of the public units comprised of stock and warrants, less any
amount received from sale of the original warrants purchased with them and plus interest
from the date of the IPO. A successful claimant for damages under federal or state law
could be awarded an amount to compensate for the decrease in value of his or her shares
caused by the alleged violation (including, possibly, punitive damages), together with
interest, while retaining the shares. The Company believes the shareholder claims for
rescission or damages are remote. As such, the Company has not recorded a liability for
such possible rescission. However, the Company cannot definitively predict whether
shareholders will bring such claims, how many might bring them or the extent to which they
might be successful.b)
    
    The Company may be subject to claims for rescission or other securities law claims
resulting from the failure to disclose that the charter provision purporting to prohibit
certain amendments was possibly inconsistent with Delawares General Corporation Law. The
Company may also be subject to such claims as a result of inaccuracies in other
disclosures, as follows: It may be argued that the IPO prospectus misstated the vote
required by its charter to approve a business combination by providing that [w]e will
proceed with a business combination only if the public shareholders who own at least a
majority of the shares of common stock sold in [that] offering vote in favor [of it] ...,
and that the Exchange Act reports have been inaccurate in describing ChinaCast as a
leading provider of e-learning content (as opposed to being primarily a content carrier).
On November 13, 2006, the Company filed a Current Report on Form 8-K with the SEC
regarding this last item. The Company is unable to predict the likelihood that claims
might be made with regard to the foregoing or estimate any amounts for which it might be
liable if any such claim was made. As such, the Company has not recorded a liability for
such possible rescission.
 13.
    
    SUBSEQUENT EVENT
  12




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Item 2. Managements Discussion and Analysis or Plan of Operation.
 Forward Looking Statements
  Overview
    Critical Accounting Policies
  Results of Operations
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Three
Months Ended March 31, 2008 compared to the three Months Ended
March 31, 2007.
 Three Months ended
    
    Three Months EndedMarch 31, 2008
    
    March 31, 2007(millions)
    
    RMB
    
    US$
    
    RMBPost secondary education distance
learning
    
    
    22.8
    
    
    
    3.3
    
    
    
    14.7K-12 and content delivery
    
    
    15.9
    
    
    
    2.3
    
    
    
    15.7Vocational training, enterprise /
government training and networking
and English training services
    
    
    20.8
    
    
    
    2.9
    
    
    
    9.5Total revenue
    
    
    59.5
    
    
    
    8.5
    
    
    
    39.9
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##### Table of Contents



Liquidity and Capital Resources
  As of
    
    As ofMarch 31, 2008
    
    December 31, 2007(millions)
    
    RMB
    
    US$
    
    RMBCash and cash equivalents
    
    
    135.8
    
    
    
    19.4
    
    
    
    138.6Term deposits
    
    
    621.1
    
    
    
    88.7
    
    
    
    596.8Subtotal
    
    
    756.9
    
    
    
    108.1
    
    
    
    735.4Accounts receivable
    
    
    53.7
    
    
    
    7.7
    
    
    
    35.3Inventory
    
    
    2.0
    
    
    
    0.3
    
    
    
    2.0Prepaid expenses and other current assets
    
    
    9.2
    
    
    
    1.3
    
    
    
    7.1Total current assets
    
    
    825.2
    
    
    
    117.9
    
    
    
    783.1Non-current advances to a related party
    
    
    111.1
    
    
    
    15.9
    
    
    
    119.9Total assets
    
    
    981.4
    
    
    
    142.2
    
    
    
    950.7
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Off-Balance Sheet Arrangements
  17




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Item 3. Quantitative And Qualitative Disclosures About Market Risk
 Foreign Exchange Risk
       Interest Rate Risk
   Inflation
  
 Item 4. Controls and Procedures.
   
 Item 4A. Controls and Procedures.
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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 1A.
Risk Factors.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. Submission of Matters To a Vote of Security Holders.
  
 Item 5. Other Information.
  
 Item 6. Exhibits.
 31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
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SIGNATURES
  CHINACAST EDUCATION CORPORATION
(Registrant)Date: May 12, 2008
    By:
    /s/ Ron Chan Tze NgonName:
    Ron Chan Tze NgonTitle:
    Chairman of the Board,Chief Executive Officer (Principal Executive Officer)By:
    /s/ Antonio SenaName:
    Antonio SenaTitle:
    Chief Financial Officer andSecretary (Principal Financial Officer) 20