##### 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 June 30, 2009
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the transition period from                    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)
 Suite 3316, 33/F, One IFC
1 Harbour View Street,
Central, Hong Kong
 (852) 2811 2389
 
  þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller
reporting company)
 o þ




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##### 



TABLE OF CONTENTS
 PagePART I FINANCIAL INFORMATION
    
    
    3Item 1 .Financial Statements (unaudited)
    
    
    3Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3.Quantitative and Qualitative Disclosures About Market Risk
    
    
    20Item 4.Controls and Procedures
    
    
    20PART II OTHER INFORMATION
    
    
    21Item 1.Legal Proceedings
    
    
    21Item 1A.Risk Factors
    
    
    21Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    21Item 3.Defaults Upon Senior Securities
    
    
    21Item 4.Submission of Matters To a Vote of Security Holders
    
    
    21Item 5.Other Information
    
    
    21Item 6.Exhibits
    
    
    21
  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 ofAs of June 30,
    
    
    December 31,2009
    
    
    2009
    
    
    2008US$
    
    
    RMB
    
    
    RMB(Note 1)
    
    
    
    
    
    
    (Note 1)AssetsCurrent assets:Cash and cash equivalents
    
    
    19,508
    
    
    
    132,652
    
    
    
    220,131Term deposits
    
    
    74,515
    
    
    
    506,700
    
    
    
    369,000Accounts receivable
    
    
    6,827
    
    
    
    46,423
    
    
    
    32,581Inventory
    
    
    207
    
    
    
    1,409
    
    
    
    1,419Prepaid expenses and other current assets
    
    
    1188
    
    
    
    8,077
    
    
    
    8,987Amounts due
from related parties
    
    
    278
    
    
    
    1,888
    
    
    
    2,488Total current assets
    
    
    102,523
    
    
    
    697,149
    
    
    
    634,606Non-current deposits
    
    
    596
    
    
    
    4,050
    
    
    
    686Property and equipment, net
    
    
    39,400
    
    
    
    267,919
    
    
    
    283,982Land use rights, net
    
    
    17,717
    
    
    
    120,475
    
    
    
    121,783Acquired intangible assets, net
    
    
    3,404
    
    
    
    23,149
    
    
    
    31,330Long-term investments
    
    
    683
    
    
    
    4,647
    
    
    
    5,224Non-current advances to a related party
    
    
    14,827
    
    
    
    100,825
    
    
    
    110,217Goodwill
    
    
    45,784
    
    
    
    311,333
    
    
    
    311,331Total assets
    
    
    224,934
    
    
    
    1,529,547
    
    
    
    1,499,159Liabilities and shareholders equityCurrent liabilities:Accounts payable
    
    
    2,026
    
    
    
    13,775
    
    
    
    11,467Accrued expenses and other current liabilities
    
    
    16,297
    
    
    
    110,824
    
    
    
    132,807Deferred revenues
    
    
    3,396
    
    
    
    23,092
    
    
    
    84,372Amount due
to related party
    
    
    162
    
    
    
    1,100
    
    
    
    1,127Income taxes payable
    
    
    8,785
    
    
    
    59,739
    
    
    
    50,594Current portion of long-term bank borrowings
    
    
    11,529
    
    
    
    78,400
    
    
    
    20,000Current portion of capital lease obligation
    
    
    185
    
    
    
    1,255
    
    
    
    1,191Other borrowings
    
    
    1,681
    
    
    
    11,430
    
    
    
    1,097Total current liabilities
    
    
    44,061
    
    
    
    299,615
    
    
    
    302,655Non-current liabilities:Long-term bank borrowings
    
    
    4,412
    
    
    
    30,000
    
    
    
    58,400Capital lease obligation, net of current portion
    
    
    188
    
    
    
    1,279
    
    
    
    1,323Deferred tax liabilities
    
    
    2,909
    
    
    
    19,778
    
    
    
    21,030Unrecognized tax benefits
    
    
    7,114
    
    
    
    48,376
    
    
    
    44,612Total non-current liabilities
    
    
    14,623
    
    
    
    99,433
    
    
    
    125,365Total liabilities
    
    
    58,684
    
    
    
    399,048
    
    
    
    428,020Commitments and contingencies (Note 13)Shareholders equity:Ordinary shares (US$0.0001 par value; 100,000,000
shares authorized; 35,768,251 and 35,648,251 shares
issued and outstanding)
    
    
    4
    
    
    
    27
    
    
    
    27Additional paid-in capital
    
    
    140,892
    
    
    
    958,064
    
    
    
    948,352Statutory reserve
    
    
    4,134
    
    
    
    28,117
    
    
    
    28,117Accumulated other comprehensive loss
    
    
    (911
    )
    
    
    (6,198
    )
    
    
    (5,462
    )Retained earnings
    
    
    14,854
    
    
    
    101,005
    
    
    
    55,526Total ChinaCast Education Corporation shareholders equity
    
    
    158,973
    
    
    
    1,081,015
    
    
    
    1,026,560Noncontrolling interest
    
    
    7,277
    
    
    
    49,484
    
    
    
    44,579Total shareholders equity
    
    
    166,250
    
    
    
    1,130,499
    
    
    
    1,071,139Total liabilities and shareholders equity
    
    
    224,934
    
    
    
    1,529,547
    
    
    
    1,499,159
  3




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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 30,2009
    
    
    2009
    
    
    2008
    
    
    2009
    
    
    2009
    
    
    2008US$
    
    
    RMB
    
    
    RMB
    
    
    US$
    
    
    RMB
    
    
    RMB(Note 1)
    
    
    
    
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    
    
    
    
    (Note 1)Revenues:Service
    
    
    10,998
    
    
    
    74,784
    
    
    
    70,808
    
    
    
    21,889
    
    
    
    148,846
    
    
    
    111,013Equipment
    
    
    190
    
    
    
    1,293
    
    
    
    3,115
    
    
    
    613
    
    
    
    4,169
    
    
    
    22,40411,188
    
    
    
    76,077
    
    
    
    73,923
    
    
    
    22,502
    
    
    
    153,015
    
    
    
    133,417Cost of revenues:Service
    
    
    (4,143
    )
    
    
    (28,170
    )
    
    
    (30,496
    )
    
    
    (8,251
    )
    
    
    (56,111
    )
    
    
    (42,482
    )Equipment
    
    
    (189
    )
    
    
    (1,288
    )
    
    
    (3,090
    )
    
    
    (607
    )
    
    
    (4,126
    )
    
    
    (22,195
    )(4,332
    )
    
    
    (29,458
    )
    
    
    (33,586
    )
    
    
    (8,858
    )
    
    
    (60,237
    )
    
    
    (64,677
    )Gross profit
    
    
    6,856
    
    
    
    46,619
    
    
    
    40,337
    
    
    
    13,644
    
    
    
    92,778
    
    
    
    68,740Operating (expenses) income:Selling and marketing expenses (including
share-based compensation of RMB266 and RMB111
for the three months ended June 30 for 2009
and 2008, respectively, share-based
compensation of RMB1,106 and RMB1,392 for the
six months ended June 30 for 2009 and 2008,
respectively)
    
    
    (123
    )
    
    
    (838
    )
    
    
    (882
    )
    
    
    (400
    )
    
    
    (2,721
    )
    
    
    (4,369
    )General and administrative expenses
(including share-based compensation of
RMB2,868 and RMB2,130 for the three months
ended June 30 for 2009 and 2008,
respectively, share-based compensation of
RMB8,606 and RMB9,964 for the six months
ended June 30 for 2009 and 2008,
respectively)
    
    
    (1,944
    )
    
    
    (13,215
    )
    
    
    (12,183
    )
    
    
    (4,583
    )
    
    
    (31,159
    )
    
    
    (30,399
    )Foreign exchange gain (loss)
    
    
    (8
    )
    
    
    (53
    )
    
    
    (186
    )
    
    
    17
    
    
    
    116
    
    
    
    (651
    )Management service fee
    
    
    343
    
    
    
    2,329
    
    
    
    1,993
    
    
    
    485
    
    
    
    3,296
    
    
    
    2,791Other operating income
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    75
    
    
    
    507
    
    
    
    Total operating expenses, net
    
    
    (1,732
    )
    
    
    (11,775
    )
    
    
    (11,258
    )
    
    
    (4,406
    )
    
    
    (29,961
    )
    
    
    (32,628
    )Income from operations
    
    
    5,124
    
    
    
    34,844
    
    
    
    29,079
    
    
    
    9,238
    
    
    
    62,817
    
    
    
    36,112Interest income
    
    
    364
    
    
    
    2,477
    
    
    
    5,721
    
    
    
    704
    
    
    
    4,789
    
    
    
    11,573Interest expense
    
    
    (252
    )
    
    
    (1,717
    )
    
    
    (182
    )
    
    
    (466
    )
    
    
    (3,170
    )
    
    
    (186
    )Income before provision for income taxes and
loss in equity investments
    
    
    5,236
    
    
    
    35,604
    
    
    
    34,618
    
    
    
    9,476
    
    
    
    64,436
    
    
    
    47,499Provision for income taxes
    
    
    (1,051
    )
    
    
    (7,146
    )
    
    
    (6,009
    )
    
    
    (1,981
    )
    
    
    (13,471
    )
    
    
    (9,868
    )Income before loss in equity investments
    
    
    4,185
    
    
    
    28,458
    
    
    
    28,609
    
    
    
    7,495
    
    
    
    50,965
    
    
    
    37,631Loss in equity investments
    
    
    (46
    )
    
    
    (311
    )
    
    
    (408
    )
    
    
    (85
    )
    
    
    (577
    )
    
    
    (816
    )Net Income
    
    
    4,139
    
    
    
    28,147
    
    
    
    28,201
    
    
    
    7,410
    
    
    
    50,388
    
    
    
    36,815Less: Net income attributable to
noncontrolling interest
    
    
    (346
    )
    
    
    (2,350
    )
    
    
    (2,457
    )
    
    
    (722
    )
    
    
    (4,909
    )
    
    
    (2,841
    )Net income attributable to ChinaCast
Education Corporation
    
    
    3,793
    
    
    
    25,797
    
    
    
    25,744
    
    
    
    6,688
    
    
    
    45,479
    
    
    
    33,974Earnings per shareNet income attributable to ChinaCast
Education Corporation per share:Basic
    
    
    0.11
    
    
    
    0.72
    
    
    
    0.94
    
    
    
    0.19
    
    
    
    1.28
    
    
    
    1.24Diluted
    
    
    0.11
    
    
    
    0.72
    
    
    
    0.94
    
    
    
    0.19
    
    
    
    1.27
    
    
    
    1.22Weighted average shares used in
computation:Basic
    
    
    35,656,163
    
    
    
    35,656,163
    
    
    
    27,385,554
    
    
    
    35,652,229
    
    
    
    35,652,229
    
    
    
    27,341,405Diluted
    
    
    35,802,327
    
    
    
    35,802,327
    
    
    
    27,385,554
    
    
    
    35,725,311
    
    
    
    35,725,311
    
    
    
    27,838,906
  4




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CHINACAST EDUCATION CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME (Unaudited)
(In thousands, except share-related data)
 ChinaCast Education Corporation ShareholdersAdditional
    
    
    
    
    
    
    
    
    
    
    Accumulated other
    
    
    
    
    
    
    TotalOrdinary
    
    
    paid-in
    
    
    Statutory
    
    
    Retained
    
    
    comprehensive
    
    
    Noncontrolling
    
    
    stockholdersShares
    
    
    Amount
    
    
    capital
    
    
    Reserve
    
    
    earnings
    
    
    loss
    
    
    interest
    
    
    equityRMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMBBalance at January 1, 2009
    
    
    35,648,251
    
    
    
    27
    
    
    
    948,352
    
    
    
    28,117
    
    
    
    55,526
    
    
    
    (5,462
    )
    
    
    44,579
    
    
    
    1,071,139Issuance of
restricted shares of common stock
    
    
    120,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Share-based compensation
    
    
    
    
    
    
    
    
    
    
    9,712
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,712Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45,479
    
    
    
    
    
    
    
    4,909
    
    
    
    50,388Foreign
currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (736
    )
    
    
    (4
    )
    
    
    (740
    )Balance at June 30, 2009
    
    
    35,768,251
    
    
    
    27
    
    
    
    958,064
    
    
    
    28,117
    
    
    
    101,005
    
    
    
    (6,198
    )
    
    
    49,484
    
    
    
    1,130,499US$
    4
    
    
    US$
    140,892
    
    
    US$
    4,134
    
    
    US$
    14,854
    
    
    US$
    (911
    )
    
    US$
    7,277
    
    
    US$
    166,250
  5




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CHINACAST EDUCATION CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
 For the six months ended June 30,2009
    
    
    2009
    
    
    2008US$
    
    
    RMB
    
    
    RMB(Note 1)
    
    
    
    
    
    
(Note 1)Cash flows from operating activities:Net income
    
    
    7,410
    
    
    
    50,388
    
    
    
    36,815Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    3,117
    
    
    
    21,193
    
    
    
    12,348Share-based compensation
    
    
    1,428
    
    
    
    9,712
    
    
    
    11,356Gain on disposal of property and equipment
    
    
    
    
    
    
    3
    
    
    
    Loss in equity investments
    
    
    85
    
    
    
    577
    
    
    
    816Changes in assets and liabilities:Accounts receivable
    
    
    (2,033
    )
    
    
    (13,824
    )
    
    
    (4,586
    )Inventory
    
    
    1
    
    
    
    10
    
    
    
    29Prepaid expenses and other current assets
    
    
    207
    
    
    
    1,410
    
    
    
    (2,223
    )Non-current deposits
    
    
    (54
    )
    
    
    (364
    )
    
    
    1,081Amounts due from related parties
    
    
    88
    
    
    
    600
    
    
    
    1,160Accounts payable
    
    
    339
    
    
    
    2,308
    
    
    
    1,338Accrued expenses and other current liabilities
    
    
    922
    
    
    
    6,256
    
    
    
    (30,176
    )Deferred revenues
    
    
    (9,012
    )
    
    
    (61,280
    )
    
    
    16,011Amount due to related party
    
    
    (4
    )
    
    
    (27
    )
    
    
    Income taxes payable
    
    
    1,345
    
    
    
    9,145
    
    
    
    7,707Deferred taxes liabilities
    
    
    (184
    )
    
    
    (1,252
    )
    
    
    (816
    )Unrecognized tax benefits
    
    
    553
    
    
    
    3,764
    
    
    
    (6
    )Net cash provided by operating activities
    
    
    4,208
    
    
    
    28,619
    
    
    
    50,854Cash flows from investing activities:Advance to related party
    
    
    (2,941
    )
    
    
    (20,000
    )
    
    
    (149
    )Repayment from advance to related party
    
    
    4,322
    
    
    
    29,392
    
    
    
    8,817Purchase of subsidiaries, net of cash acquired
    
    
    
    
    
    
    
    
    
    
    (413,657
    )Purchase of property and equipment
    
    
    (3,697
    )
    
    
    (25,142
    )
    
    
    (3,536
    )Term deposits
    
    
    (20,250
    )
    
    
    (137,700
    )
    
    
    223,372Net cash used in investing activities
    
    
    (22,566
    )
    
    
    (153,450
    )
    
    
    (185,153
    )Cash flows from financing activities:Other borrowings raised
    
    
    1,522
    
    
    
    10,350
    
    
    
    1,680Other borrowing raised from related party
    
    
    74
    
    
    
    500
    
    
    
    Repayment of other borrowings
    
    
    (76
    )
    
    
    (517
    )
    
    
    Bank
borrowings raised
    
    
    4,412
    
    
    
    30,000
    
    
    
    Guarantee
deposit paid
    
    
    (441
    )
    
    
    (3,000
    )
    
    
    Exercise of warrants
    
    
    
    
    
    
    
    
    
    
    14,064Repayment of capital lease obligation
    
    
    3
    
    
    
    20
    
    
    
    (32
    )Net cash provided by financing activities
    
    
    5,494
    
    
    
    37,353
    
    
    
    15,712Effect of foreign exchange rate changes
    
    
    
    
    
    
    (1)
    
    
    
    (224
    )Net decrease in cash and cash equivalents
    
    
    (12,864
    )
    
    
    (87,479
    )
    
    
    (118,811
    )Cash and cash equivalents at beginning of the period
    
    
    32,372
    
    
    
    220,131
    
    
    
    138,610Cash and cash equivalents at end of the period
    
    
    19,508
    
    
    
    132,652
    
    
    
    19,799
  6




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##### Table of Contents



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-K for the fiscal year ended December 31, 2008.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 that
are, in the opinion of management, 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,
2009.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.
 Significant Accounting PoliciesThe accompanying unaudited condensed consolidated financial statements have
been using the same accounting policies used in the preparation of the audited
financial statements included in CECs Annual Report on Form 10-K for the
fiscal year ended December 31, 2008, except for the following additional
accounting policies:(1) Adoption of Statement of Financial Accounting Standards (SFAS) No. 160,
Noncontrolling Interests in Consolidated Financial Statements  an amendment
of ARB No. 51.Effective January 1, 2009, the Company adopted SFAS 160. The adoption did not
impact the condensed consolidated financial statements for the three and six
month periods ended June 30, 2009, except for the presentation and disclosure
requirements affecting all periods presented including (a) the noncontrolling
interest has been reclassified to equity, (b) consolidated net income or loss
has been adjusted to include the net income or loss attributable to the
noncontrolling interest, (c) consolidated comprehensive income or loss has been
adjusted to include the comprehensive income or loss attributable to the
noncontrolling interest and (d) for each reporting period the Company must
present a reconciliation at the beginning and end of the period of the carrying
amount of total equity and equity attributable to the Company and the
noncontrolling interest.(2) Adoption of SFAS No. 141(R), Business Combinations.Effective January 1, 2009, the Company adopted SFAS 141(R). The adoption of
SFAS No. 141(R) did not have a significant effect on the
Companys consolidated financial
statements for the three and six month periods ended June 30, 2009.
 Convenience TranslationAmounts in United States dollars (US$) are presented solely for the
convenience of readers and an exchange rate of RMB6.8 to US$1 was applied as of
June 30, 2009. Such translation 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. The remaining outstanding ordinary
shares of ChinaCast not acquired by Great Wall were reported as minority
interest.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 PRONOUNCEMENTS
 On April 9, 2009, the Financial Accounting Standards Board (FASB) issued FASB Staff Position No.
FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments (FAS 107-1
and APB 28-1). FAS 107-1 and APB 28-1 amend FASB Statement No. 107, Disclosures about Fair
Value of Financial Instruments, to require disclosures about fair value of financial instruments
for interim reporting periods as well as in annual financial statements of publicly traded
companies. FAS 107-1 and APB 28-1 also amend APB Opinion No. 28, Interim Financial Reporting, to
require those disclosures in summarized financial information at interim reporting periods. FAS
107-1 and APB 28-1 became effective on April 1, 2009. They do not require disclosures for earlier
periods presented for comparative purposes at initial adoption. In periods after initial adoption,
FAS 107-1 and APB 28-1 require comparative disclosures only for periods ending after initial
adoption. The adoption of FAS 107-1 and APB 28-1 did not have a
material effect on the Companys consolidated
financial statements.On April 9, 2009, the FASB issued Staff Position No. FAS 115-2 and FAS 124-2, Recognition and
Presentation of Other-Than-Temporary Impairments (FAS 115-2 and FAS 124-2). FAS 115-2 and FAS
124-2 amend the other-than-temporary impairment guidance in U.S. GAAP for debt securities to make
the guidance more operational and to improve the presentation and disclosure of
other-than-temporary impairments on debt and equity securities in the financial statements. FAS
115-2 and FAS 124-2 do not amend existing recognition and measurement guidance related to
other-than-temporary impairments of equity securities. FAS 115-2 and FAS 124-2 became effective on
April 1, 2009. They do not require disclosures for earlier periods presented for comparative
purposes at initial adoption. In periods after initial adoption, FAS 115-2 and FAS 124-2 require
comparative disclosures only for periods ending after initial adoption. The adoption of FAS 115-2
and FAS 124-2 did not have a significant effect on the Companys consolidated financial position or results
of operations.On April 9, 2009, the FASB issued FASB Staff Position No. FAS 157-4, Determining Fair Value When
the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly (FAS 157-4). FAS 157-4 provides additional
guidance for estimating fair value in accordance with FASB Statement No. 157, Fair Value
Measurements, when the volume and level of activity for the asset or liability have significantly
decreased. FAS 157-4 also includes guidance on identifying circumstances that indicate a
transaction is not orderly. FAS 157-4 emphasizes that even if there has been a significant decrease
in the volume and level of activity for the asset or liability and regardless of the valuation
technique(s) used, the objective of a fair value measurement remains the same. Fair value is the
price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction (that is, not a forced liquidation or distressed sale) between market participants at
the measurement date under current market conditions. FAS 157-4 became effective on April 1, 2009
and is applied prospectively. It does not require disclosures for earlier periods presented for
comparative purposes at initial adoption. In periods after initial adoption, FAS 157-4 requires
comparative disclosures only for periods ending after initial adoption. The adoption of FAS 157-4
did not have a significant effect on the Companys consolidated financial position or results of operations.On May 28, 2009, the FASB issued SFAS No. 165, Subsequent
Events. The objective of SFAS No. 165 is to establish general standards for
the accounting and disclosure of events that occur after the balance sheet date but before financial statements are issued or are
available to be issued. In particular, SFAS No. 165 sets forth the period after the balance sheet date during which management of a reporting entity
should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; the
circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and
the disclosures that an entity should make about events or
transactions that occurred after the balance sheet date. SFAS
No. 165 is effective
for interim or annual periods ending after June 15, 2009. The
adoption of SFAS No. 165 did not have a significant
effect on the Companys consolidated financial position or results of operations.On June 12, 2009, the FASB issued SFAS No. 167,
Amendments to FASB Interpretation
No. 46(R). SFAS No. 167 is a revision to FIN 46(R) and
changes how a company determines when an entity that is insufficiently capitalized or is not
controlled through voting (or similar rights) should be consolidated. The determination of
whether a company is required to consolidate an entity is based on, among other things, an
entitys purpose and design and a companys ability to direct the activities of the entity that
most significantly impact the entitys economic performance.
SFAS No. 167 retains the scope of FIN
46(R) with the addition of entities previously considered qualifying special-purpose entities, as the concept of these
entities was eliminated in SFAS No. 166. The Statement is effective as of the beginning of the
first fiscal year that begins after November 15, 2009. The Company is currently evaluating
whether the adoption of SFAS No. 167 will have a significant effect on its consolidated financial
position or results of operations.
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3.
    
    ACQUISITIONOn April 11, 2008, Yupei Training Information Technology
Co., Ltd., the Companys
subsidiary in the Peoples Republic of China (the PRC), consummated
the acquisition of an 80% interest in Hai Lai Education Technology
Limited (Hai Lai) from Beijing Heng Tai Jufu Investment Limited. Hai
Lai holds the entire interest in the Foreign Trade and Business College
of Chongqing Normal University (FTBC) and Hai Yuen Company Limited
(Hai Yuen). FTBC is a private college affiliated with Chongqing
Normal University. The consideration for the acquisition was
RMB480,000, of which RMB475,850 was paid during 2008. The acquisition
was recorded using the purchase method of accounting and, accordingly,
the acquired assets and liabilities were recorded at their fair market
value at the date of acquisition. The purchase price allocation was as
follows:
 AmortizationRMB
    
    periodCash
    
    
    10,343Other current assets
    
    
    323Non-current deposits
    
    
    523Property and equipment and land use rights
    
    
    334,227
    
    
    4-50 yearsIntangible assets:Customer relationship
    
    
    40,329
    
    
    41 monthsGoodwill
    
    
    309,717Bank and other borrowings
    
    
    (65,000
    )Other current liabilities
    
    
    (83,779
    )Deferred tax liabilities
    
    
    (23,296
    )Long-term bank loans
    
    
    (20,000
    )Unrecognized tax benefits
    
    
    (6,837
    )Noncontrolling interest
    
    
    (16,550
    )Total
    
    
    480,000
 The Company performed the purchase price allocation for the acquisition. The
valuation analysis utilized and considered generally accepted valuation
methodologies such as income, market and cost approach.The Company believes that the acquisition furthers its strategy of expanding into
the post-secondary bricks and mortar education market. The combination of these
factors is the rationale for the excess of purchase price over the value of the
assets acquired and liabilities assumed.Pro formaThe following supplemental unaudited pro forma results of operations for the three
months and six months ended June 30, 2008 presented the acquisition as if it had
occurred on January 1, 2008. The unaudited pro forma results include
estimates and assumptions regarding amortization of acquired intangible assets
which the Company believes are reasonable. However, pro forma results are not
necessarily indicative of the results that would have occurred if the acquisition
had occurred on the dates, indicated, or that may result in the future:
 For the three months ended June 30,
    
    For the six months ended June 30,2008
    
    2008RMB
    
    RMBNet revenues
    
    
    76,893
    
    
    
    163,713Net income attributable to holders
of o ordinary shares
    
    
    25,705
    
    
    
    31,626Net income per share  basic
    
    
    0.72
    
    
    
    0.89Net income per share  diluted
    
    
    0.72
    
    
    
    0.89
 4.
    
    NON-CURRENT DEPOSITSNon-current deposits consisted of the following:
 As of June 30,
    
    As of December 31,2009
    
    2008RMB
    
    RMBRental deposits
    
    
    530
    
    
    
    166Utilities deposits
    
    
    270
    
    
    
    270Guarantee deposit
    
    
    3,000
    
    
    
    Other deposits
    
    
    250
    
    
    
    250Total
    
    
    4,050
    
    
    
    686
 Rental deposits represented 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.Guarantee deposit represented a deposit placed with Chongqing Education
Guarantee Co., Ltd. (CQEG), a long-term investment of the Company, which in
turn provided guarantee in favor of the relevant bank for the Companys bank
borrowing of RMB30,000.
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5.
    
    COMPREHENSIVE INCOMEThe components of comprehensive income for the periods presented were as follows:
 For the three months ended June 30,
    
    For the six months ended June 30,2009
    
    2008
    
    2009
    
    2008RMB
    
    RMB
    
    RMB
    
    RMBNet income
    
    
    28,147
    
    
    
    28,201
    
    
    
    50,388
    
    
    
    36,815Foreign
currency translation adjustments
    
    
    62
    
    
    
    (63
    )
    
    
    (740
    )
    
    
    (246
    )Comprehensive income
    
    
    28,209
    
    
    
    28,138
    
    
    
    49,648
    
    
    
    36,569Comprehensive income attributable to
noncontrolling interest
    
    
    (2,352
    )
    
    
    (2,457
    )
    
    
    (4,905
    )
    
    
    (2,841
    )Comprehensive income attributable to
ChinaCast Education Corporation
    
    
    25,857
    
    
    
    25,681
    
    
    
    44,743
    
    
    
    33,728
 6.
    
    ACQUIRED INTANGIBLE ASSETS, NETAcquired intangible assets, net consisted of the following:
 As of June 30,
    
    As of December 31,2009
    
    2008RMB
    
    RMBBrand name usage rightCost
    
    
    22,532
    
    
    
    22,532Less: Accumulated amortization
    
    
    (3,294
    )
    
    
    (3,004
    )Less: Impairment loss
    
    
    (14,500
    )
    
    
    (14,500
    )4,738
    
    
    
    5,028Customer relationshipCost
    
    
    40,329
    
    
    
    40,329Less: Accumulated amortization
    
    
    (21,918
    )
    
    
    (14,027
    )18,411
    
    
    
    26,302Acquired intangible assets, net
    
    
    23,149
    
    
    
    31,330
 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 assets or liabilities 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. In
2008, an impairment loss amounting to RMB14,500 was recorded in relation to
this brand name usage right.For the three and six month periods ended June 30, 2009, the Company recorded
amortization expense in respect of the brand name usage right amounting to
RMB145 and RMB290, respectively. The Company will record amortization expenses
in respect of brand name usage right of RMB290, RMB580, RMB580, RMB580, RMB580,
RMB2,128 in 2009, 2010, 2011, 2012, 2013 and 2014 and thereafter, respectively.On April 11, 2008, the Company acquired a customer relationship through an
acquisition (see Note 3). The customer relationship is being amortized using
accelerated amortization method over 41 months based on the estimated
progression of the students through the respective courses, giving
consideration to the revenue and cash flow associated.For the three and six month periods ended June 30, 2009, the Company recorded
amortization expense in respect of the customer relationship amounting to
RMB3,945 and RMB7,891, respectively. The Company will record amortization
expenses in respect of the customer relationship of RMB6,136, RMB8,767 and
RMB3,508 in 2009, 2010 and 2011, respectively.
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7.
    
    BORROWINGSIn June 2009, a bank borrowing amounting to RMB30,000 was raised. The
bank borrowing carried interests at the benchmark interest rate
announced by the Peoples Bank of China plus 10% to 20% per annum and
was secured by guarantees given by CQEG and by Hai Lai in favor of the
relevant bank. In connection with the guarantee given by CQEG, the
entitlement to tuition fees from students of FTBC and a deposit of
RMB3,000 were pledged to CQEG. RMB10,000 of the borrowing will be
repayable on September 30, 2010, the remaining RMB20,000 will be
repayable on June 19, 2011 and accordingly the borrowing was
classified as a non-current liability.A bank borrowing outstanding as of January 1, 2009 amounting to
RMB20,000 was repayable in June 2009 under its original
terms of the loan agreement. In June 2009, the Company entered into an
agreement with the relevant bank that effectively extended the
maturity of the borrowing to June 2010 and accordingly the borrowing
continued to be classified as a current liability.During the six months ended June 30, 2009, an aggregate amount of
other borrowings amounting to RMB10,850 was raised. The borrowings
carried interest at 6.31% per annum, were unsecured and repayable
within one year. Accordingly, the borrowings were classified as a
current liability.8.
    
    STOCK COMPENSATION PLANUnder the 2007 Omnibus Securities and Incentive Plan (2007 Plan) adopted in May 2007, the Company may grant any
awards to eligible participants, 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 restricted 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 June 25, 2009,
120,000 restricted shares were issued. 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 share
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. Upon exercise of these
share options, a total of 1,200,000 common stock will be issued. As of June 30, 2009, no restricted shares or share
options have been forfeited.A summary of the share option activity under 2007 Plan was as follows:
 WeightedaverageexerciseNumber
    
    priceof options
    
    US$Options outstanding at January 1, 2007 and December 31, 2007Granted
    
    
    
    
    
    
    Exercised
    
    
    1,200,000
    
    
    
    6.30Cancelled
    
    
    
    
    
    
    
    
    
    
    Options outstanding at December 31, 20081,200,000
    
    
    
    6.30GrantedExercised
    
    
    
    
    
    
    Cancelled
    
    
    
    
    
    
    
    
    
    
    Options outstanding at June 30, 20091,200,000
    
    
    
    6.30Options exercisable at June 30, 2009802,000
    
    
    
    6.30
 The per share fair value of options as of January 11, 2008, the grant date was as follows:
 Ordinary shares
    
    US$
    2.67(RMB
    19.33
    )
 The aggregate intrinsic value of share options outstanding and exercisable as
of June 30, 2009 was US$1,044 and US$698, respectively.The weighted average remaining contractual life is 8.5 years as of June 30, 2009.Total share-based compensation expenses amounting to RMB3,134 and RMB2,241 were
recognized for the three month periods ended June 30, 2009 and 2008,
respectively. Total share-based compensation expenses amounting to RMB9,712 and
RMB11,356 were recognized for the six month periods ended June 30, 2009 and 2008,
respectively.There was RMB9,443 of total unrecognized compensation expense related to
nonvested restricted shares and share options as of June 30, 2009.As of June 30, 2009, no other awards have been granted under the 2007 Plan.
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9.
    
    INCOME TAXESOn March 16, 2007, the National Peoples Congress enacted a new enterprise
income tax law, which took effect on 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: 18%
in 2008, 20% in 2009, 22% in 2010, 24% in 2011, 25% in 2012 and thereafter.On April 11, 2008, the Company consummated the acquisition of an 80% interest
in Hai Lai. Hai Lai holds the entire interest in FTBC and Hai Yuen. Hai Lai was
incorporated in the PRC and is subject to PRC income tax rate of 25% since
2008. FTBC and Hai Yuen were incorporated in Chongqing of the PRC and are
subject to the preferential tax rate of 15% until 2010 in accordance with the
western development preferential policy.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.The Company adopted the provisions of FASB Interpretation No. 48, Accounting
for Uncertainty in Income Taxes  an Interpretation of FASB Statement No. 109
on January 1, 2007. During the six months ended June 30, 2009, the unrecognized
tax benefits increased from RMB44,612 to RMB48,376.10.
    
    NET INCOME ATTRIBUTABLE TO CHINACAST EDUCATION CORPORATION PER SHAREReconciliation of the basic and diluted net income per share is as follows:
 For the three months ended June 30,
    
    
    For the six months ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Numerator used in basic and
diluted net income
attributable to ChinaCast
Education Corporation per
share:Income attributable to
holders of ordinary
shares
    
    
    RMB25,797
    
    
    
    RMB25,744
    
    
    
    RMB45,479
    
    
    
    RMB33,974Shares (denominator):Weighted average
ordinary shares
outstanding used in
computing basic net
income attributable
to ChinaCast
Education
Corporation per
share
    
    
    35,656,163
    
    
    
    27,385,554
    
    
    
    35,652,229
    
    
    
    27,341,405Plus:Incremental
ordinary shares
from assumed
exercises of
Underwriter
Warrants and restricted shares granted to directors (Note 12)
    
    
    146,164
    
    
    
    
    
    
    
    73,082
    
    
    
    497,501Weighted average ordinary
shares outstanding used in
computing diluted net
income attributable to
ChinaCast Education
Corporation per share
    
    
    35,802,327
    
    
    
    27,385,554
    
    
    
    35,725,311
    
    
    
    27,838,906Net income attributable to
ChinaCast Education
Corporation per
sharebasic:
    
    
    RMB0.72
    
    
    
    RMB0.94
    
    
    
    RMB1.28
    
    
    
    RMB1.24Net income attributable to
ChinaCast Education
Corporation per share
diluted:
    
    
    RMB0.72
    
    
    
    RMB0.94
    
    
    
    RMB1.27
    
    
    
    RMB1.22
 The diluted net income attributable to ChinaCast Education Corporation per
share calculations for three and six month periods ended June 30, 2009 have not
included the outstanding Warrants, UPO, UPO Warrants (see Note 12) or the outstanding employee share options since the effect is
anti-dilutive.
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11.
    
    SEGMENT INFORMATIONSince the acquisition of Hai Lai in April 2008, the Company has been organized as two business segments, the E-learning and training service Group (ELG), encompassing
all the Companys business operations before the acquisition, and the Traditional University Group (TUG), offering bachelor and diploma programs to students in the PRC.
The Company follows the provisions of SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, which establishes standards for reporting
information about operating segments. Operating segments are defined as components of an enterprise about which discrete financial information is available that is
evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance.
The Companys chief operating decision maker is the Chief Executive Officer. The following were details of the Companys reportable segments:
 For the three months ended June 30,
    
    For the six months ended June 30,2009
    
    2008
    
    2009
    
    2008RMB
    
    RMB
    
    RMB
    
    RMBRevenues from external customers:ELG
    
    
    47,433
    
    
    
    48,311
    
    
    
    94,628
    
    
    
    107,805TUG
    
    
    28,644
    
    
    
    25,612
    
    
    
    58,387
    
    
    
    25,61276,077
    
    
    
    73,923
    
    
    
    153,015
    
    
    
    133,417Additional analysis of revenues from ELG by product
or service:Service
    
    
    46,140
    
    
    
    45,196
    
    
    
    90,459
    
    
    
    85,401Equipment
    
    
    1,293
    
    
    
    3,115
    
    
    
    4,169
    
    
    
    22,40447,433
    
    
    
    48,311
    
    
    
    94,628
    
    
    
    107,805Additional analysis of revenues from ELG by
business lines:Post secondary education distance learning
    
    
    26,622
    
    
    
    24,049
    
    
    
    52,451
    
    
    
    46,807K-12 and content delivery
    
    
    16,044
    
    
    
    17,418
    
    
    
    32,263
    
    
    
    33,280Vocational training, enterprise/government
training and networking services
    
    
    4,767
    
    
    
    6,844
    
    
    
    9,914
    
    
    
    27,71847,433
    
    
    
    48,311
    
    
    
    94,628
    
    
    
    107,805Income from operations:ELG
    
    
    26,547
    
    
    
    22,406
    
    
    
    43,602
    
    
    
    29,439TUG
    
    
    8,297
    
    
    
    6,673
    
    
    
    19,215
    
    
    
    6,67334,844
    
    
    
    29,079
    
    
    
    62,817
    
    
    
    36,112
 As of June
    
    As of December30, 2009
    
    31, 2008RMB
    
    RMBSegment assets:ELG
    
    
    777,481
    
    
    
    725,516TUG
    
    
    752,066
    
    
    
    773,6431,529,547
    
    
    
    1,499,159
 The Companys revenues and net income are substantially derived from the PRC. Most of the assets and capital expenditure of the
Company are employed in the PRC.There were no customers accounting for 10% or more of total net revenues for the three and six month periods ended June 30, 2009.Two customers as of June 30, 2009 and four different customers as of December 31, 2008 each accounted for 10% or more of the
Companys accounts receivable balances, representing an aggregate of 23.7% and 55.4% of the Companys accounts receivable
balance at June 30, 2009 and December 31, 2008, respectively.
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12.
    
    WARRANTS AND UNIT PURCHASE OPTIONSIn 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 one share 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 April 2008, 50,100 Warrants had been exercised at an exercise price of US$5.In June and July 2008, the Company entered into agreements with Fir Tree Value
Master Fund, L.P. and Fir Tree Capital Opportunity Master Fund, L.P.
(collectively, Fir Tree), Sherleigh Associates Inc. Profit Sharing Plan and
Sherleigh Associates Inc. Defined Benefit Pension Plan (collectively,
Sherleigh) and Capela Overseas Ltd (Capela), (Fir Tree, Sherleigh and
Capela, collectively, the Warrantholders), whereby the Company agreed to
reduce the exercise price of the Warrants held by Fir Tree, Sherleigh and
Capela from US$5.00 per share to US$4.25 per share. In connection with the
reduction in the price of the Warrants, in June 2008, Fir Tree exercised in
full an aggregate of 3,007,200 Warrants and Sherleigh exercised in full an
aggregate of 411,882 Warrants. In July, Capela exercised in full an aggregate
of 94,117 Warrants. As additional consideration for the Warrantholders
exercising the Warrants in full as well as for the value of the Warrants, in
June 2008 the Company issued 459,924 restricted shares of common stock of the
Company to Fir Tree and 62,993 restricted shares of common stock of the Company
to Sherleigh. In July, the Company issued 14,394 restricted shares of common
stock of the Company to Capela.All the outstanding Warrants expired in March 2009.In connection with the initial public offering, Great Wall issued, for $100, a
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.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.In connection with the share offering which was consummated in October 2008,
the Company sold to the underwriter in December 2008, for nominal
consideration, an aggregate of 255,000 Underwriter Warrants with a price of
US$3.15 per share. The Underwriter Warrants will be exercisable for five years
from the closing date of the share offering. There was no remeasurement
required for these Underwriter Warrants since they do not provide for a net
cash settlement.All the outstanding UPO and UPO Warrants expired during the
six months ended June 30, 2009. As of
June 30, 2009, there were 255,000 Underwriter Warrants outstanding.13.
    
    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.
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Forward Looking Statements
  Overview
    Critical Accounting Policies
      14




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Results of Operations
   Three Months Ended June 30, 2009 compared to the Three Months Ended June 30, 2008.
  Three Months endedJune 30, 2009
    
    June 30, 2008(millions)
    
    US$
    
    RMB
    
    RMBPost secondary education distance learning
    
    
    3.9
    
    
    
    26.6
    
    
    
    24.1K-12 and content delivery
    
    
    2.4
    
    
    
    16.0
    
    
    
    17.4Vocational training, enterprise /
government training and networking and
English training services
    
    
    0.7
    
    
    
    4.8
    
    
    
    6.8Total ELG revenue
    
    
    7.0
    
    
    
    47.4
    
    
    
    48.3
 Six Months endedJune 30, 2009
    
    June 30, 2008(millions)
    
    US$
    
    RMB
    
    RMBPost secondary education distance learning
    
    
    7.7
    
    
    
    52.5
    
    
    
    46.8K-12 and content delivery
    
    
    4.7
    
    
    
    32.2
    
    
    
    33.3Vocational training, enterprise /
government training and networking and
English training services
    
    
    1.5
    
    
    
    9.9
    
    
    
    27.7Total ELG revenue
    
    
    13.9
    
    
    
    94.6
    
    
    
    107.8
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Liquidity and Capital Resources
  As ofAs of
    
    December 31,June 30, 2009
    
    2008(millions)
    
    RMB
    
    US$
    
    RMBCash and cash equivalents
    
    
    132.7
    
    
    
    19.5
    
    
    
    220.1Term deposits
    
    
    506.7
    
    
    
    74.5
    
    
    
    369.0Subtotal
    
    
    639.4
    
    
    
    94.0
    
    
    
    589.1Accounts receivable
    
    
    46.4
    
    
    
    6.8
    
    
    
    32.6Inventory
    
    
    1.4
    
    
    
    0.2
    
    
    
    1.4Prepaid expenses and other current assets
    
    
    8.1
    
    
    
    1.2
    
    
    
    9.0Total current assets
    
    
    697.1
    
    
    
    102.5
    
    
    
    634.6Non-current advances to a related party
    
    
    100.8
    
    
    
    14.8
    
    
    
    110.2Total assets
    
    
    1,529.5
    
    
    
    224.9
    
    
    
    1,499.2
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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.
   20




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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 Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.99.1
    
    Insider Trading Policy
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SIGNATURES
  CHINACAST EDUCATION CORPORATION
(Registrant)Date: August 10, 2009
    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) 22