##### 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 March 31, 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
    
    
    2Item 1. Financial Statements
    
    
    2Item 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 ofMarch 31, 2007
    

December 31, 2006US$
    
    RMB
    
    RMBAssetsCurrent assets:Cash and cash equivalents
    
    
    25,546
    
    
    
    196,705
    
    
    
    278,067Term deposits
    
    
    63,057
    
    
    
    485,543
    
    
    
    442,921Accounts receivable, net of allowance of
RMB148 for both 2007 and 2006, respectively
    
    
    5,198
    
    
    
    40,023
    
    
    
    41,692Inventory  satellite communication related equipment
and equipment accessories
    
    
    397
    
    
    
    3,057
    
    
    
    3,067Prepaid expenses and other current assets
    
    
    1,310
    
    
    
    10,088
    
    
    
    5,199Amounts due from related parties
    
    
    388
    
    
    
    2,989
    
    
    
    2,583Total current assets
    
    
    95,896
    
    
    
    738,405
    
    
    
    773,529Property and equipment, net
    
    
    1,490
    
    
    
    11,470
    
    
    
    14,332Acquired intangible assets, net
    
    
    
    
    
    
    
    
    
    
    14,028Long-term investments
    
    
    1,794
    
    
    
    13,811
    
    
    
    5,114Deferred tax assets
    
    
    17
    
    
    
    129
    
    
    
    172Non-current advances to a related party
    
    
    16,631
    
    
    
    128,055
    
    
    
    129,866Goodwill
    
    
    252
    
    
    
    1,943
    
    
    
    3,538Total assets
    
    
    116,080
    
    
    
    893,813
    
    
    
    940,579Liabilities, minority interest, and shareholders equityCurrent liabilities:Accounts payable
    
    
    2,493
    
    
    
    19,197
    
    
    
    16,403Accrued expenses and other current liabilities
    
    
    5,199
    
    
    
    40,031
    
    
    
    96,204Amounts due to related parties
    
    
    6
    
    
    
    44
    
    
    
    4,469Income taxes payable
    
    
    3,389
    
    
    
    26,100
    
    
    
    42,769Current portion of capital lease obligation
    
    
    19
    
    
    
    145
    
    
    
    146Total current liabilities
    
    
    11,106
    
    
    
    85,517
    
    
    
    159,991Non-current liabilities:Capital lease obligation, net of current portion
    
    
    
    
    
    
    
    
    
    
    37Unrecognized tax benefits
    
    
    3,143
    
    
    
    24,197
    
    
    
    Total non-current liabilities
    
    
    3,143
    
    
    
    24,197
    
    
    
    37Total liabilities
    
    
    14,249
    
    
    
    109,714
    
    
    
    160,028Minority interest
    
    
    7,556
    
    
    
    58,181
    
    
    
    145,501
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CHINACAST EDUCATION CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)  continued
(In thousands, except share-related data)
 As of
    
    As ofMarch 31, 2007
    
    December 31, 2006US$
    
    RMB
    
    RMBContingencies (Note 7)Shareholders equity:Ordinary shares (US$0.0001 par value; 100,000,000 shares
authorized in 2007 and 2006; 26,098,275 and 23,140,702
shares issued and outstanding in 2007 and
2006, respectively)
    
    
    3
    
    
    
    20
    
    
    
    18Additional paid-in capital
    
    
    95,451
    
    
    
    734,973
    
    
    
    653,000Statutory reserve
    
    
    1,126
    
    
    
    8,670
    
    
    
    9,721Accumulated other comprehensive loss
    
    
    (566
    )
    
    
    (4,360
    )
    
    
    (2,762
    )Accumulated deficit
    
    
    (1,739
    )
    
    
    (13,385
    )
    
    
    (24,927
    )Total shareholders equity
    
    
    94,275
    
    
    
    725,918
    
    
    
    635,050Total liabilities, minority interest, and shareholders equity
    
    
    116,080
    
    
    
    893,813
    
    
    
    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 March 31,2007
    
    2007
    
    2006US$
    
    RMB
    
    RMBRevenues:Service
    
    
    4,355
    
    
    
    33,535
    
    
    
    30,597Equipment
    
    
    821
    
    
    
    6,320
    
    
    
    11,8445,176
    
    
    
    39,855
    
    
    
    42,441Cost of revenues:Service
    
    
    (1,397
    )
    
    
    (10,756
    )
    
    
    (11,008
    )Equipment
    
    
    (811
    )
    
    
    (6,243
    )
    
    
    (11,701
    )(2,208
    )
    
    
    (16,999
    )
    
    
    (22,709
    )Gross profit
    
    
    2,968
    
    
    
    22,856
    
    
    
    19,732Operating (expenses) income:Selling and marketing expenses
    
    
    (88
    )
    
    
    (679
    )
    
    
    (674
    )General and administrative expenses (including
share-based compensation of RMBnil
and RMB443 for 2007 and 2006, respectively)
    
    
    (1,307
    )
    
    
    (10,068
    )
    
    
    (7,608
    )Foreign exchange loss
    
    
    (110
    )
    
    
    (844
    )
    
    
    (453
    )Management service fee
    
    
    611
    
    
    
    4,701
    
    
    
    3,110Total operating expenses, net
    
    
    (894
    )
    
    
    (6,890
    )
    
    
    (5,625
    )Income from operations
    
    
    2,074
    
    
    
    15,966
    
    
    
    14,107Interest income
    
    
    377
    
    
    
    2,905
    
    
    
    648Interest expense
    
    
    (4
    )
    
    
    (28
    )
    
    
    (6
    )Other income
    
    
    
    
    
    
    
    
    
    
    40Income before provision for income taxes, earnings in
equity investments, and minority interest
    
    
    2,447
    
    
    
    18,843
    
    
    
    14,789Provision for income taxes
    
    
    (454
    )
    
    
    (3,492
    )
    
    
    (2,821
    )Net income before earnings in equity investments and
minority interest
    
    
    1,993
    
    
    
    15,351
    
    
    
    11,968Earnings in equity investments
    
    
    (31
    )
    
    
    (239
    )
    
    
    (162
    )Minority interest
    
    
    (230
    )
    
    
    (1,775
    )
    
    
    (2,329
    )Income from continuing operations
    
    
    1,732
    
    
    
    13,337
    
    
    
    9,477Discontinued operations:Loss from
discontinued operations, net of tax RMBnil for both 2007 and 2006
    
    
    (18
    )
    
    
    (139
    )
    
    
    (1,368
    )Minority
interest in discontinued operations,
net of tax RMBnil for both 2007 and 2006
    
    
    (30
    )
    
    
    (230
    )
    
    
    1,091Loss on discontinued operations
    
    
    (48
    )
    
    
    (369
    )
    
    
    (277
    )Net income
    
    
    1,684
    
    
    
    12,968
    
    
    
    9,200Net income per shareBasic
    
    
    0.07
    
    
    
    0.52
    
    
    
    0.55Diluted
    
    
    0.06
    
    
    
    0.50
    
    
    
    0.53Weighted average shares used in computation:Basic
    
    
    24,725,116
    
    
    
    24,725,116
    
    
    
    16,657,872Diluted
    
    
    26,162,379
    
    
    
    26,162,379
    
    
    
    17,345,807
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CHINACAST EDUCATION CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
 For the three months ended March 31,2007
    
    2007
    
    2006US$
    
    RMB
    
    RMBCash flows from operating activities:Net income
    
    
    1,684
    
    
    
    12,968
    
    
    
    9,200Adjustments to reconcile net income to net cash provided by
operating activities:Minority interest in continuing operations
    
    
    230
    
    
    
    1,775
    
    
    
    2,329Minority interest in discontinued operations
    
    
    30
    
    
    
    230
    
    
    
    (1,091
    )Depreciation and amortization
    
    
    275
    
    
    
    2,119
    
    
    
    3,067Amortization of deferred share-based compensation
    
    
    
    
    
    
    
    
    
    
    448Earnings in equity investments
    
    
    31
    
    
    
    239
    
    
    
    162Changes in assets and liabilities:Accounts receivable
    
    
    (158
    )
    
    
    (1,214
    )
    
    
    (2,254
    )Inventory
    
    
    1
    
    
    
    10
    
    
    
    (1,840
    )Prepaid expenses and other current assets
    
    
    (534
    )
    
    
    (4,109
    )
    
    
    (1,550
    )Amounts due from related parties
    
    
    (51
    )
    
    
    (389
    )
    
    
    1,423Accounts payable
    
    
    539
    
    
    
    4,149
    
    
    
    (2,458
    )Accrued expenses and other current liabilities
    
    
    (5,568
    )
    
    
    (42,879
    )
    
    
    6,167Amount due to related parties
    
    
    (33
    )
    
    
    (253
    )
    
    
    (86
    )Income taxes payable
    
    
    296
    
    
    
    2,279
    
    
    
    2,841Deferred tax assets
    
    
    6
    
    
    
    43
    
    
    
    43Unrecognised tax benefits
    
    
    5
    
    
    
    36
    
    
    
    Net cash
(used in) provided by operating activities
    
    
    (3,247
    )
    
    
    (24,996
    )
    
    
    16,401Cash flows from investing activities:Repayment from advance to related parties
    
    
    235
    
    
    
    1,811
    
    
    
    10,531Return of deposit for the purchase of equipment
    
    
    
    
    
    
    
    
    
    
    3,800Deposits for business acquisition
    
    
    
    
    
    
    
    
    
    
    (10,000
    )Purchase of property and equipment
    
    
    (91
    )
    
    
    (703
    )
    
    
    (134
    )Term deposits
    
    
    (5,535
    )
    
    
    (42,622
    )
    
    
    (41,000
    )Proceeds
from disposal of discounted operations, net of cash disposed of
    
    
    (1,184
    )
    
    
    (9,113
    )
    
    
    Net cash used in investing activities
    
    
    (6,575
    )
    
    
    (50,627
    )
    
    
    (36,803
    )Cash flows from financing activities:Repayment of capital lease obligation
    
    
    (5
    )
    
    
    (38
    )
    
    
    (38
    )Repayment of advances from related parities
    
    
    (552
    )
    
    
    (4,251
    )
    
    
    Cash used in financing activities
    
    
    (557
    )
    
    
    (4,289
    )
    
    
    (38
    )Effect of foreign exchange rate changes
    
    
    (188
    )
    
    
    (1,450
    )
    
    
    (7
    )Net decrease in cash and cash equivalents
    
    
    (10,567
    )
    
    
    (81,362
    )
    
    
    (20,447
    )Cash and cash equivalents at beginning of the period
    
    
    36,113
    
    
    
    278,067
    
    
    
    120,368Cash and cash equivalents at end of the period
    
    
    25,546
    
    
    
    196,705
    
    
    
    99,921
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NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(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 RMB7.7 to US$1 was applied as of March 31, 2007. No
representation is made that the RMB amounts could have been, or could be, converted into
United States dollars at that rate or at any other rate.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% (the Share Exchange Transaction). Since Great Wall was not
an operating company and the shareholders of ChinaCast control the combined company after
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.
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NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)- continued
(In thousands, except share-related data)
 1.
    
    BASIS OF PREPARATION  continuedThe Share Exchange Transaction- continuedDuring the three months ended March 31, 2007, CEC acquired additional shares by issuing
shares of CEC to certain original ChinaCast shareholders and increased its holdings to
93.73% of the outstanding ordinary shares of ChinaCast. The 13.46% 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. 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.
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NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)- continued
(In thousands, except share-related data)
 2.
    
    RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS  continuedIn 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 December 31, 2006, the Company had a 50% stake in
Beijing Tongfang Digital Education Technology Limited
(Tongfang) and Tongfang had a 51%
stake in Beijing Tongfang Chuangxin Technology Limited (Tongfang Chuangxin). 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 December 31, 2006 and the Closing
Date:
 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
    
    
    
    11,854
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NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)- continued
(In thousands, except share-related data)
 3.
    
    DISCONTINUED OPERATIONS  continued
 As of
    
    As ofFebruary 9, 2007
    
    December 31, 2006RMB
    
    RMBNon-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
  For the three months ended March 31,2007
    
    2006RMB
    
    RMBRevenues
    
    
    1,096
    
    
    
    2,423Loss before provision of income taxes from
discontinued operations
    
    
    139
    
    
    
    1,368Provision for income taxes
    
    
    
    
    
    
    Minority interest in discontinued operations
    
    
    230
    
    
    
    (1,091
    )Loss from discontinued operations, net of tax
    
    
    369
    
    
    
    277Reduction in net income per share
of the Company  basic and diluted
    
    
    0.01
    
    
    
    0.02
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NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)- continued
(In thousands, except share-related data)
 4.
    
    NET INCOME PER SHAREReconciliation of the basic and diluted net income per share is as follows:
 For the three months ended March 31,2007
    
    2006Income attributable to holders
of ordinary shares (numerator)
    
    
    RMB12,968
    
    
    
    RMB9,200Shares (denominator):Weighted average ordinary shares outstanding
used in computing basic net income per share
    
    
    24,725,116
    
    
    
    16,657,872Plus:Incremental ordinary shares from assumed
conversions of stock options
and exercises of Warrants (Note 6)
    
    
    1,437,263
    
    
    
    687,935Weighted average ordinary shares outstanding
used in computing diluted net income per share
    
    
    26,162,379
    
    
    
    17,345,807Net income per shareBasic
    
    
    RMB0.52
    
    
    
    RMB0.55Diluted
    
    
    RMB0.50
    
    
    
    RMB0.53
 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 6) since the effect is anti-dilutive.5.
    
    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 RMB15,117, or 37.9%, of the Companys total net revenues
during the three months ended March 31, 2007, and the same four customers contributed to
RMB17,910, or 42.2%, of the Companys total net revenues during the three months ended
March 31, 2006 as follows:
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NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)- continued
(In thousands, except share-related data)
 5.
    
    SEGMENT INFORMATION- continued
 For the three months ended March 31,2007
    
    2006RMB
    
    RMBCustomers:A
    
    
    5,753
    
    
    
    B
    
    
    4,085
    
    
    
    4,168C
    
    
    5,279
    
    
    
    5,387D
    
    
    
    
    
    
    8,355Total
    
    
    15,117
    
    
    
    17,910
 Two customers as of March 31, 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 24.1% and 26.8% of the Companys accounts receivable balances at March 31,
2007 and December 31, 2006, respectively.6.
    
    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 Great Walls common stock and two redeemable common stock purchase
warrants (Warrants). Each Warrant will entitle the holder to purchase from Great Wall
two shares of common stock at an exercise price of US$5 commencing on the consummation of
the Share Exchange Transaction. In no event will the Company be required to net cash
settle the warrant exercise.In connection with the initial public offering, Great Wall issued, for $100, an 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 March 31, 2007, there were 400,000 UPO and 9,031,950 Warrants
outstanding.
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NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)- continued
(In thousands, except share-related data)
 7.
    
    CONTINGENCIES
 a)
    
    On March 21, 2006, after obtaining the approval of its shareholders, Great
Wall 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 Great Wall 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 Great Wall 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.
 8.
    
    SUBSEQUENT EVENTAs of April 10, 2007, CEC acquired additional shares and increased its holdings to 98.06%
of the outstanding ordinary shares of ChinaCast.
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Item 2. Managements Discussion and Analysis or Plan of Operation.
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Results of Operations
  Three Months Ended March 31, 2007 compared to the Three Months Ended March 31, 2006.
 Three Months ended
    
    Three Months EndedMarch 31, 2007
    
    March 31, 2006(millions)
    
    RMB
    
    US$
    
    RMB
    
    US$Post secondary education
distance learning
    
    
    14.7
    
    
    
    1.9
    
    
    
    13.8
    
    
    
    1.7K-12 and content delivery
    
    
    15.7
    
    
    
    2.1
    
    
    
    18.3
    
    
    
    2.3Vocational training,
enterprise /government
training and networking
services
    
    
    9.5
    
    
    
    1.2
    
    
    
    10.3
    
    
    
    1.3Total revenue
    
    
    39.9
    
    
    
    5.2
    
    
    
    42.4
    
    
    
    5.3
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Liquidity and Capital Resources
  As of
    
    As ofMarch 31, 2007
    

December 31, 2006(millions)
    
    RMB
    
    US$
    
    RMB
    
    US$Cash and cash equivalents
    
    
    196.7
    
    
    
    25.5
    
    
    
    278.1
    
    
    
    35.6Term deposits
    
    
    485.5
    
    
    
    63.1
    
    
    
    442.9
    
    
    
    56.7Subtotal
    
    
    682.2
    
    
    
    88.6
    
    
    
    721.0
    
    
    
    92.3Accounts receivable
    
    
    40.0
    
    
    
    5.2
    
    
    
    41.7
    
    
    
    5.3Inventory
    
    
    3.1
    
    
    
    0.4
    
    
    
    3.1
    
    
    
    0.4Prepaid expenses and
other current assets
    
    
    10.1
    
    
    
    1.3
    
    
    
    5.2
    
    
    
    0.7Total current assets
    
    
    738.4
    
    
    
    95.9
    
    
    
    773.5
    
    
    
    99.0Non-current advances to a
related party
    
    
    128.1
    
    
    
    16.6
    
    
    
    129.9
    
    
    
    16.6Total assets
    
    
    893.8
    
    
    
    116.1
    
    
    
    940.6
    
    
    
    120.4
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Item 3. Controls and Procedures.
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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: May 21, 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 and
Secretary
(Principal Financial Officer)
 20