##### Table of Contents



UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-QSB
 þ
    
    Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended June 30, 2007
 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
    
    20-0178991(State or Other Jurisdiction of
    
    (I.R.S. Employer Identification Number)Incorporation or Organization)
 25 Fl. Qiang Sheng Mansion
No. 145 Pu Jian Road, Pudong District
Shanghai, 211217, Peoples Republic of China
 (8621) 6864-4666
 Great Wall Acquisition Corporation
 þ o
 o þ
  o þ




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TABLE OF CONTENTS
  
 PagePART I FINANCIAL INFORMATION
    
    
    3Item 1. Financial Statements
    
    
    3Item 2.Managements Discussion and Analysis or Plan of Operation
    
    
    13Item 3.Controls and Procedures
    
    
    18PART II OTHER INFORMATION
    
    
    19Item 1.Legal Proceedings
    
    
    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
    
    
    19EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
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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 ofJune 30, 2007
    
    December 31, 2006US$
    
    RMB
    
    RMBAssetsCurrent assets:Cash and cash equivalents
    
    
    37,988
    
    
    
    288,707
    
    
    
    278,067Term deposits
    
    
    52,820
    
    
    
    401,434
    
    
    
    442,921Accounts receivable, net of allowance of RMB148 for both 2007 and 2006, respectively
    
    
    6,103
    
    
    
    46,382
    
    
    
    41,692Inventory  satellite communication related equipment and equipment accessories
    
    
    423
    
    
    
    3,212
    
    
    
    3,067Prepaid expenses and other current assets
    
    
    916
    
    
    
    6,971
    
    
    
    5,199Amounts due from related parties
    
    
    197
    
    
    
    1,496
    
    
    
    2,583Total current assets
    
    
    98,447
    
    
    
    748,202
    
    
    
    773,529Non-current deposits
    
    
    146
    
    
    
    1,106
    
    
    
    Property and equipment, net
    
    
    1,480
    
    
    
    11,245
    
    
    
    14,332Acquired intangible assets, net
    
    
    
    
    
    
    
    
    
    
    14,028Long-term investments
    
    
    1,786
    
    
    
    13,571
    
    
    
    5,114Deferred tax assets
    
    
    11
    
    
    
    86
    
    
    
    172Non-current advances to a related party
    
    
    17,039
    
    
    
    129,498
    
    
    
    129,866Goodwill
    
    
    256
    
    
    
    1,943
    
    
    
    3,538Total assets
    
    
    119,165
    
    
    
    905,651
    
    
    
    940,579Liabilities, minority interest, and shareholders equityCurrent liabilities:Accounts payable
    
    
    2,601
    
    
    
    19,765
    
    
    
    16,403Accrued expenses and other current liabilities
    
    
    4,904
    
    
    
    37,273
    
    
    
    96,204Amounts due to related parties
    
    
    
    
    
    
    
    
    
    
    4,469Income taxes payable
    
    
    3,402
    
    
    
    25,850
    
    
    
    42,769Current portion of capital lease obligation
    
    
    14
    
    
    
    107
    
    
    
    146Total current liabilities
    
    
    10,921
    
    
    
    82,995
    
    
    
    159,991Non-current liabilities:Capital lease obligation, net of current portion
    
    
    
    
    
    
    
    
    
    
    37Unrecognized tax benefits
    
    
    3,310
    
    
    
    25,155
    
    
    
    Total non-current liabilities
    
    
    3,310
    
    
    
    25,155
    
    
    
    37Total liabilities
    
    
    14,231
    
    
    
    108,150
    
    
    
    160,028Minority interest
    
    
    4,220
    
    
    
    32,078
    
    
    
    145,501Contingencies
(Note 10)Shareholders equity:Ordinary shares (US$0.0001 par value; 100,000,000 shares
authorized in 2007 and 2006; 27,050,128 and 23,140,702
shares issued and outstanding in 2007 and 2006,
respectively)
    
    
    3
    
    
    
    21
    
    
    
    18Additional paid-in capital
    
    
    100,226
    
    
    
    761,724
    
    
    
    653,000Statutory reserve
    
    
    1,141
    
    
    
    8,670
    
    
    
    9,721Accumulated other comprehensive loss
    
    
    (746
    )
    
    
    (5,677
    )
    
    
    (2,762
    )Retained earnings/(Accumulated deficit)
    
    
    90
    
    
    
    685
    
    
    
    (24,927
    )Total shareholders equity
    
    
    100,714
    
    
    
    765,423
    
    
    
    635,050Total liabilities, minority interest, and shareholders equity
    
    
    119,165
    
    
    
    905,651
    
    
    
    940,579
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CHINACAST EDUCATION CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except share-related data)
 For the three months ended June 30,
    
    For the six months ended June 30,2007
    
    2007
    
    2006
    
    2007
    
    2007
    
    2006US$
    
    RMB
    
    RMB
    
    US$
    
    RMB
    
    RMBRevenues:Service
    
    
    4,538
    
    
    
    34,487
    
    
    
    28,215
    
    
    
    8,950
    
    
    
    68,022
    
    
    
    58,812Equipment
    
    
    1,024
    
    
    
    7,786
    
    
    
    11,385
    
    
    
    1,856
    
    
    
    14,106
    
    
    
    23,2295,562
    
    
    
    42,273
    
    
    
    39,600
    
    
    
    10,806
    
    
    
    82,128
    
    
    
    82,041Cost of revenues:Service
    
    
    (1,359
    )
    
    
    (10,333
    )
    
    
    (10,586
    )
    
    
    (2,775
    )
    
    
    (21,089
    )
    
    
    (21,594
    )Equipment
    
    
    (1,075
    )
    
    
    (8,168
    )
    
    
    (10,893
    )
    
    
    (1,896
    )
    
    
    (14,411
    )
    
    
    (22,594
    )(2,434
    )
    
    
    (18,501
    )
    
    
    (21,479
    )
    
    
    (4,671
    )
    
    
    (35,500
    )
    
    
    (44,188
    )Gross profit
    
    
    3,128
    
    
    
    23,772
    
    
    
    18,121
    
    
    
    6,135
    
    
    
    46,628
    
    
    
    37,853Operating (expenses) income:Selling and marketing expenses
    
    
    (274
    )
    
    
    (2,086
    )
    
    
    (385
    )
    
    
    (364
    )
    
    
    (2,765
    )
    
    
    (1,059
    )General and administrative
expenses (including
share-based compensation of
RMBnil and RMB874 for the six
months ended June 30 for 2007
and 2006, respectively,
share-based compensation of
RMBnil and RMB431 for the three
months ended June 30 for 2007
and 2006, respectively)
    
    
    (1,438
    )
    
    
    (10,930
    )
    
    
    (9,308
    )
    
    
    (2,762
    )
    
    
    (20,998
    )
    
    
    (16,916
    )Foreign exchange loss
    
    
    (303
    )
    
    
    (2,299
    )
    
    
    162
    
    
    
    (414
    )
    
    
    (3,143
    )
    
    
    (251
    )Management service fee
    
    
    938
    
    
    
    7,128
    
    
    
    3,721
    
    
    
    1,556
    
    
    
    11,829
    
    
    
    6,831Total operating expenses, net
    
    
    (1,077
    )
    
    
    (8,187
    )
    
    
    (5,810
    )
    
    
    (1,984
    )
    
    
    (15,077
    )
    
    
    (11,395
    )Income from operations
    
    
    2,051
    
    
    
    15,585
    
    
    
    12,311
    
    
    
    4,151
    
    
    
    31,551
    
    
    
    26,458Interest income
    
    
    515
    
    
    
    3,917
    
    
    
    1,952
    
    
    
    898
    
    
    
    6,822
    
    
    
    2,600Interest expense
    
    
    
    
    
    
    (2
    )
    
    
    (4
    )
    
    
    (4
    )
    
    
    (30
    )
    
    
    (10
    )Income before provision for income taxes, earnings in
equity investments, minority interest and discontinued operations
    
    
    2,566
    
    
    
    19,500
    
    
    
    14,259
    
    
    
    5,045
    
    
    
    38,343
    
    
    
    29,048Provision for income taxes
    
    
    (597
    )
    
    
    (4,540
    )
    
    
    (2,440
    )
    
    
    (1,057
    )
    
    
    (8,032
    )
    
    
    (5,261
    )Net income before earnings in
equity investments, minority
interest, and discontinued
operations
    
    
    1,969
    
    
    
    14,960
    
    
    
    11,819
    
    
    
    3,988
    
    
    
    30,311
    
    
    
    23,787Earnings in equity investments
    
    
    (32
    )
    
    
    (240
    )
    
    
    (224
    )
    
    
    (63
    )
    
    
    (479
    )
    
    
    (386
    )Minority interest
    
    
    (85
    )
    
    
    (649
    )
    
    
    (1,932
    )
    
    
    (319
    )
    
    
    (2,424
    )
    
    
    (4,261
    )Income from continuing
operations
    
    
    1,852
    
    
    
    14,071
    
    
    
    9,663
    
    
    
    3,606
    
    
    
    27,408
    
    
    
    19,140Discontinued operations:Loss from discontinued
operations, net of tax RMBnil
for both 2007 and 2006
    
    
    
    
    
    
    
    
    
    
    (72
    )
    
    
    (18
    )
    
    
    (139
    )
    
    
    (1,440
    )Minority interest in
discontinued operations, net
of tax RMBnil for both 2007
and 2006
    
    
    
    
    
    
    
    
    
    
    (2,006
    )
    
    
    (30
    )
    
    
    (230
    )
    
    
    (915
    )Loss on discontinued operations
    
    
    
    
    
    
    
    
    
    
    (2,078
    )
    
    
    (48
    )
    
    
    (369
    )
    
    
    (2,355
    )Net income
    
    
    1,852
    
    
    
    14,071
    
    
    
    7,585
    
    
    
    3,558
    
    
    
    27,039
    
    
    
    16,785
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For the three months ended June 30,
    
    For the six months ended June 30,2007
    
    2007
    
    2006
    
    2007
    
    2007
    
    2006US$
    
    RMB
    
    RMB
    
    US$
    
    RMB
    
    RMBNet income per shareBasic
    
    
    0.07
    
    
    
    0.52
    
    
    
    0.46
    
    
    
    0.14
    
    
    
    1.05
    
    
    
    1.01Diluted
    
    
    0.07
    
    
    
    0.49
    
    
    
    0.44
    
    
    
    0.13
    
    
    
    0.99
    
    
    
    0.96Weighted average shares used
in computation:Basic
    
    
    26,954,945
    
    
    
    26,954,945
    
    
    
    16,657,872
    
    
    
    25,840,030
    
    
    
    25,840,030
    
    
    
    16,657,872Diluted
    
    
    28,463,653
    
    
    
    28,463,653
    
    
    
    17,416,220
    
    
    
    27,313,016
    
    
    
    27,313,016
    
    
    
    17,381,014
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CHINACAST EDUCATION CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
 For the six months ended June 30,2007
    
    2007
    
    2006US$
    
    RMB
    
    RMBCash flows from operating activities:Net income
    
    
    3,558
    
    
    
    27,039
    
    
    
    16,785Adjustments to reconcile net income to net cash (used in)
provided by operating activities:Minority interest in continuing operations
    
    
    319
    
    
    
    2,424
    
    
    
    4,261Minority interest in discontinued operations
    
    
    30
    
    
    
    230
    
    
    
    915Depreciation and amortization
    
    
    384
    
    
    
    2,921
    
    
    
    6,159Amortization of deferred share-based compensation
    
    
    
    
    
    
    
    
    
    
    874Loss on disposal of property and equipment
    
    
    
    
    
    
    
    
    
    
    7Earnings in equity investments
    
    
    63
    
    
    
    479
    
    
    
    386Changes in assets and liabilities:Accounts receivable
    
    
    (1,013
    )
    
    
    (7,698
    )
    
    
    (4,446
    )Inventory
    
    
    (19
    )
    
    
    (145
    )
    
    
    (1,447
    )Prepaid expenses and other current assets
    
    
    (273
    )
    
    
    (2,076
    )
    
    
    (589
    )Amounts due from related parties
    
    
    143
    
    
    
    1,087
    
    
    
    6,976Accounts payable
    
    
    621
    
    
    
    4,717
    
    
    
    6,282Accrued expenses and other current liabilities
    
    
    (6,173
    )
    
    
    (46,918
    )
    
    
    (2,915
    )Amount due to related parties
    
    
    (38
    )
    
    
    (292
    )
    
    
    (87
    )Income taxes payable
    
    
    345
    
    
    
    2,623
    
    
    
    5,095Deferred tax assets
    
    
    11
    
    
    
    86
    
    
    
    86Unrecognised tax benefits
    
    
    99
    
    
    
    750
    
    
    
    Net cash (used in) provided by operating activities
    
    
    (1,943
    )
    
    
    (14,773
    )
    
    
    38,342Cash flows from investing activities:Repayment from advance to related parties
    
    
    238
    
    
    
    1,811
    
    
    
    16,425Advance to related parties
    
    
    (191
    )
    
    
    (1,443
    )
    
    
    Return of deposit for the purchase of equipment
    
    
    
    
    
    
    
    
    
    
    3,800Deposits for business acquisition
    
    
    
    
    
    
    
    
    
    
    (10,000
    )Purchase of property and equipment
    
    
    (171
    )
    
    
    (1,298
    )
    
    
    (224
    )Term deposits
    
    
    5,459
    
    
    
    41,487
    
    
    
    (143,081
    )Proceeds from disposal of discontinued operations,
net of cash disposed of
    
    
    (1,199
    )
    
    
    (9,113
    )
    
    
    Net cash provided by (used in) investing activities
    
    
    4,136
    
    
    
    31,444
    
    
    
    (133,080
    )Cash flows from financing activities:Repayment of capital lease obligation
    
    
    (10
    )
    
    
    (76
    )
    
    
    (75
    )Repayment of advances from related parities
    
    
    (559
    )
    
    
    (4,251
    )
    
    
    Cash used in financing activities
    
    
    (569
    )
    
    
    (4,327
    )
    
    
    (75
    )Effect of foreign exchange rate changes
    
    
    (224
    )
    
    
    (1,704
    )
    
    
    (3)Net increase
(decrease) in cash and cash equivalents
    
    
    1,400
    
    
    
    10,640
    
    
    
    (94,816
    )Cash and cash equivalents at beginning of the period
    
    
    36,588
    
    
    
    278,067
    
    
    
    120,368Cash and cash equivalents at end of the period
    
    
    37,988
    
    
    
    288,707
    
    
    
    25,552
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NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share-related data)
 1.
    
    BASIS OF PREPARATIONThe 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
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,
2006.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, 2007.The accompanying unaudited condensed consolidated financial statements include the accounts of
CEC, its subsidiaries, and consolidated variable interest entity (collectively, the Company).
All significant intercompany balances and transactions have been eliminated in consolidation.Amounts in United States dollars (US$) are presented solely for the convenience of readers and
an exchange rate of RMB7.6 to US$1 was applied as of June 30,
2007. 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
remaining outstanding ordinary shares of ChinaCast not acquired by Great Wall were reported as
minority interest for all the periods presented.During the six months ended June 30, 2007, CEC acquired additional shares by issuing shares of
CEC to certain original ChinaCast shareholders and increased its holdings to 98.06% of the
outstanding ordinary shares of ChinaCast. The 17.79% of the additional shares acquired were
accounted for on the same basis as the Share Exchange Transaction.2.
    
    RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTSIn July 2006, the Financial Accounting Standard Board (FASB) issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes  An Interpretation of FASB Statement No. 109 (FIN
48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in any entitys
financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes and
prescribes a recognition threshold and measurement attributes for financial statement disclosure
of tax positions taken or expected to be taken on a tax return. Under FIN 48, the impact of an
uncertain income tax position on the income tax return must be recognized at the largest amount
that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An
uncertain income tax position will not be recognized if it has less than a 50% likelihood of
being sustained.
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Additionally, FIN 48 provides guidance on de-recognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years
beginning after December 15, 2006.The Company adopted the provisions of FIN 48 on January 1, 2007. The total amount of unrecognized
tax benefits as of the date of adoption was RMB23,337. As a result of the implementation of FIN
48, the Company recognized a RMB3,134 increase in the liability for unrecognized tax benefits
which was accounted for as an increase to the January 1, 2007, balance of accumulated deficit. In
addition, consistent with the provisions of FIN 48, the Company reclassified RMB20,203
unrecognized tax benefits from current to non-current because payment of cash is not anticipated
within one year of the balance sheet date. Included in the balance of unrecognized tax benefits
at January 1, 2007, are RMB23,337 of tax benefits that, if recognized, would affect the effective
tax rate. As of January 1, 2007, the total amount of accrued interests were RMB5,628. The Company
classifies interest as component of its income tax provision. The Companys various tax years
starting from 2001 to 2006 are remaining open in various taxing jurisdictions.In February 2007, FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities, Including an amendment of FASB Statement No. 115. SFAS No. 159 provides
companies with an irrevocable option to report selected financial assets and liabilities at fair
value. SFAS No. 159 requires companies to provide additional information that will help investors
and other users of financial statements to more easily understand the effect of the companys
choice to use fair value on its earnings. It also requires entities to display the fair value of
those assets and liabilities for which the company has chosen to use fair value on the face of
the balance sheet. SFAS No. 159 is effective as of the beginning of an entitys first fiscal year
beginning after November 15, 2007. Early adoption is permitted. The Company is currently
evaluating whether the adoption of SFAS No. 159 will have a material effect on its consolidated
financial condition or results of operations.In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements which provides
enhanced guidance for using fair value to measure assets and liabilities. SFAS No. 157 also
responds to investors requests for expanded information about the extent to which companies
measure assets and liabilities at fair value, the information used to measure fair value, and the
effect of fair value measurements on earnings. SFAS No. 157 applies whenever other standards
require (or permit) assets or liabilities to be measured at fair value. The standard does not
expand the use of fair value in any new circumstances. SFAS 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007, and interim periods within
those fiscal years. Early adoption is permitted. The Company is currently evaluating whether the
adoption of SFAS No. 157 will have a material effect on its consolidated financial position or
results of operations.3.
    
    DISCONTINUED OPERATIONSAs of January 1, 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). On February 9, 2007 (Closing Date), 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 net assets sold as of the
Closing Date and at December 31, 2006:
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##### Table of Contents



As of
    
    As ofFebruary 9, 2007
    
    December 31, 2006RMB
    
    RMBCurrent assets of
discontinued operations:Cash and cash equivalents
    
    
    9,113
    
    
    
    7,432Accounts receivable, net
    
    
    2,715
    
    
    
    2,994Prepaid expenses and other
current assets
    
    
    1,732
    
    
    
    1,42813,560
    
    
    
    11,854Non-current assets of
discontinued operations:Property and equipment, net
    
    
    1,433
    
    
    
    1,464Acquired intangible
assets, net
    
    
    13,581
    
    
    
    14,02815,014
    
    
    
    15,492Current liabilities of
discontinued operations:Accounts payable
    
    
    1,355
    
    
    
    1,355Accrued expenses and other
current liabilities
    
    
    6,884
    
    
    
    5,4838,239
    
    
    
    6,838Minority interest
    
    
    6,694
    
    
    
    6,463Attributable goodwill
    
    
    1,595
    
    
    
    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 and six months ended
June 30, 2007 and 2006.
 For the three months ended June 30,
    
    For the six months ended June 30,2007
    
    2006
    
    2007
    
    2006RMB
    
    RMB
    
    RMB
    
    RMBRevenues
    
    
    
    
    
    
    4,657
    
    
    
    1,096
    
    
    
    7,080Loss before provision of
income taxes from
discontinued operations
    
    
    
    
    
    
    (72
    )
    
    
    (139
    )
    
    
    (1,440
    )Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Minority interest in
discontinued operations
    
    
    
    
    
    
    (2,006
    )
    
    
    (230
    )
    
    
    (915
    )Loss from discontinued
operations, net of tax
    
    
    
    
    
    
    (2,078
    )
    
    
    (369
    )
    
    
    (2,355
    )Reduction in net income
per share of the Company
 basic and diluted
    
    
    
    
    
    
    (0.12
    )
    
    
    (0.01
    )
    
    
    (0.14
    )
 4.
    
    Non-current DepositsNon-current deposits consisted of the following:
 As of
    
    As ofJune 30, 2007
    
    December 31, 2006RMB
    
    RMBRental deposits
    
    
    1,106
    
    
    
    1,106
    
    
    
    
 Rental deposits represent satellite rental deposit for ChinaCast satellite business operations and office rental deposits for its daily operations. These deposits are classified into non-current deposits since they cannot be withdrawn within one year.
 5.
    
    COMPREHENSIVE INCOMEThe components of comprehensive income for the periods
presented are as follows:
 For
the three months ended June 30,
    
    

For
the six months ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006RMB
    
    

RMB
    
    

RMB
    
    

RMBNet income
    
    
    14,071
    
    
    
    7,585
    
    
    
    27,039
    
    
    
    16,785Foreign
currency translation adjustment
    
    
    (1,317
    )
    
    
    (689
    )
    
    
    (2,915
    )
    
    
    (673
    )Comprehensive
income
    
    
    12,754
    
    
    
    6,896
    
    
    
    24,124
    
    
    
    16,112
 6.
    
    INCOME TAXESOn March 16, 2007, the National Peoples Congress passed a new enterprise income tax law, which will
take effect beginning 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 those 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 the new tax law, one of our major operating
subsidiaries, ChinaCast Technology (Shanghai) Limited (CCT
Shanghai) may no longer be able to enjoy the preferential tax rates presently offered to it because
of its location in specially designated region. As the law was newly issued and no implementing rules have been
promulgated to date, it is uncertain whether CCT Shanghai may continue to enjoy the reduced tax rate going
forward. Nevertheless, this uncertainty does not have material impact
to the Companys deferred tax position as of
June 30, 2007 because the temporary differences between the tax basis
of assets and liabilities of CCT Shanghai as of June 30, 2007 will
be fully reversed in the period ending December 31, 2007.
 7.
    
    NET INCOME PER SHAREReconciliation of the basic and diluted net income per share is as follows:
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##### Table of Contents



For the three months ended June 30,
    
    
    For the six months ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Numerator used in basic and
diluted net income per share:Income from continuing operations
    
    RMB
    14,071
    
    
    RMB
    9,663
    
    
    RMB
    27,408
    
    
    RMB
    19,140Loss on discontinued operation
    
    RMB
    
    
    
    RMB
    (2,078
    )
    
    RMB
    (369
    )
    
    RMB
    (2,355
    )Net income attributable to holders of
ordinary shares
    
    RMB
    14,071
    
    
    RMB
    7,585
    
    
    RMB
    27,039
    
    
    RMB
    16,785Shares (denominator):Weighted average ordinary shares
outstanding used in computing
basic net income per share
    
    
    26,954,945
    
    
    
    16,657,872
    
    
    
    25,840,030
    
    
    
    16,657,872Plus:Incremental ordinary shares from
assumed conversions of stock
options and exercises of
Warrants (Note 9)
    
    
    1,508,708
    
    
    
    758,348
    
    
    
    1,472,986
    
    
    
    723,142Weighted average ordinary shares
outstanding used in computing
diluted net income per share
    
    
    28,463,653
    
    
    
    17,416,220
    
    
    
    27,313,016
    
    
    
    17,381,014Net income per share-basic:Income from continuing operations
    
    RMB
    0.52
    
    
    RMB
    0.58
    
    
    RMB
    1.06
    
    
    RMB
    1.15Loss on discontinued operations
    
    RMB
    
    
    
    RMB
    (0.12
    )
    
    RMB
    (0.01
    )
    
    RMB
    (0.14
    )Net income
    
    RMB
    0.52
    
    
    RMB
    0.46
    
    
    RMB
    1.05
    
    
    RMB
    1.01Net income per share-diluted:Income from continuing operations
    
    RMB
    0.49
    
    
    RMB
    0.56
    
    
    RMB
    1.00
    
    
    RMB
    1.10Loss on discontinued operations
    
    RMB
    
    
    
    RMB
    (0.12
    )
    
    RMB
    (0.01
    )
    
    RMB
    (0.14
    )Net income
    
    RMB
    0.49
    
    
    RMB
    0.44
    
    
    RMB
    0.99
    
    
    RMB
    0.96
 For periods prior to the Share Exchange Transaction, the number of shares included in the income
per share calculations has been retroactively restated to reflect the number of shares to which
ex-ChinaCast shareholders, who made acceptances in the Offer, are entitled. In addition, the
diluted net income per share calculations have not included the
outstanding UPO (Note 9) since
the effect is anti-dilutive.8.
    
    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.Four customers contributed to RMB16,887, or 40.0%, and
RMB32,004, or 39.0%, of the Companys total net
revenues during the three months and six months ended June 30, 2007, respectively, and the same four customers
contributed to RMB20,682, or 52.2%, and RMB38,592, or 47.0%, of the
Companys total net revenues during the
three months and six months ended June 30,
2006, respectively, as follows:
 For the three months ended June 30,
    
    
    For the six months ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006RMB
    
    
    RMB
    
    
    RMB
    
    
    RMBCustomers:A
    
    
    7,639
    
    
    
    
    
    
    
    13,392
    
    
    
    B
    
    
    4,035
    
    
    
    4,048
    
    
    
    8,120
    
    
    
    8,216C
    
    
    5,213
    
    
    
    5,231
    
    
    
    10,492
    
    
    
    10,618D
    
    
    
    
    
    
    11,403
    
    
    
    
    
    
    
    19,758Total
    
    
    16,887
    
    
    
    20,682
    
    
    
    32,004
    
    
    
    38,592
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Three customers as of June 30, 2007 and two different customers as of December 31, 2006 each
accounted for 10% or more of the Companys accounts receivable balances, representing an
aggregate of 36.9% and 26.8% of the Companys accounts receivable balances at June 30, 2007 and
December 31, 2006, respectively.
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##### Table of Contents



9.
    
    WARRANTS AND UNIT PURCHASE OPTIONSIn March 2004, the Company 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, the Company issued, for $100, an 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 underlying such units are exercisable at US$6.95 per share.There was no remeasurement required for these assumed Warrants and UPO because such assumption is
part of the recapitalization in connection with the Share Exchange Transaction. As of June 30,
2007, there were 400,000 UPO and 9,031,950 Warrants outstanding.10.
    
    CONTINGENCIES
 a)
    
    On March 21, 2006, after obtaining the approval of its shareholders, the Company amended
certificate of incorporation, the effect of which was, among other things, to eliminate the
provision of the certificate of incorporation that purported to prohibit 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.
 11.
    
    SUBSEQUENT EVENTSAs of July 11, 2007, CEC acquired additional shares and increased its holdings to 100% of the
outstanding ordinary shares of ChinaCast.On July 12, 2007, CEC entered into a letter of intent to
acquire a 51% interest in Beijing Jing Shi Li Yun Education
Technology Limited (Jing Shi) for RMB38 million
subject to due diligence and board approval. Jing Shi provides
student education and administration software services for K-12
schools in China.In July, the Company has granted 12,500 ordinary shares at no consideration to its employees under the 2007 ChinaCast Education Corporation 2007 Omnibus Securities and Incentive Plan.With effect from August 10, 2007, ChinaCast was de-listed from the Official List of the Singapore Exchange Securities Trading Limited.
 12




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Item 2. Managements Discussion and Analysis or Plan of Operation.
         13




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Results of Operations
  Three Months and Six Months Ended June 30 2007 compared to the three Months and Six Months Ended June 30 2006.
 Three Months ended
    
    Three Months EndedJune 30, 2007
    
    June 30, 2006(millions)
    
    RMB
    
    US$
    
    RMB
    
    US$Post secondary
education distance
learning
    
    
    15.4
    
    
    
    2.0
    
    
    
    13.1
    
    
    
    1.7K-12 and content delivery
    
    
    17.8
    
    
    
    2.3
    
    
    
    17.7
    
    
    
    2.2Vocational training,
enterprise / government
training and networking
services
    
    
    9.1
    
    
    
    1.3
    
    
    
    8.8
    
    
    
    1.1Total revenue
    
    
    42.3
    
    
    
    5.6
    
    
    
    39.6
    
    
    
    5.0
 Six Months ended
    
    Six Months EndedJune 30, 2007
    
    June 30, 2006(millions)
    
    RMB
    
    US$
    
    RMB
    
    US$Post secondary
education distance
learning
    
    
    30.2
    
    
    
    4.0
    
    
    
    26.9
    
    
    
    3.4K-12 and content delivery
    
    
    33.5
    
    
    
    4.4
    
    
    
    36.0
    
    
    
    4.5Vocational training,
enterprise / government
training and networking
services
    
    
    18.4
    
    
    
    2.4
    
    
    
    19.1
    
    
    
    2.4Total revenue
    
    
    82.1
    
    
    
    10.8
    
    
    
    82.0
    
    
    
    10.3
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Liquidity and Capital Resources
  As of
    
    As ofJune 30, 2007
    
    December 31, 2006(millions)
    
    RMB
    
    US$
    
    RMB
    
    US$Cash and cash equivalents
    
    
    288.7
    
    
    
    38.0
    
    
    
    278.1
    
    
    
    35.6Term deposits
    
    
    401.4
    
    
    
    52.8
    
    
    
    442.9
    
    
    
    56.7Subtotal
    
    
    690.1
    
    
    
    90.8
    
    
    
    721.0
    
    
    
    92.3Accounts receivable
    
    
    46.4
    
    
    
    6.1
    
    
    
    41.7
    
    
    
    5.3Inventory
    
    
    3.2
    
    
    
    0.4
    
    
    
    3.1
    
    
    
    0.4Prepaid expenses and other current assets
    
    
    7.0
    
    
    
    0.9
    
    
    
    5.2
    
    
    
    0.7Total current assets
    
    
    748.2
    
    
    
    98.4
    
    
    
    773.5
    
    
    
    99.0Non-current advances to a related party
    
    
    129.5
    
    
    
    17.0
    
    
    
    129.9
    
    
    
    16.6Total assets
    
    
    905.7
    
    
    
    119.2
    
    
    
    940.6
    
    
    
    120.4
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Item 3. Controls and Procedures.
   18




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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 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: August 14, 2007
    
    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