##### 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 September 30, 2007
 o
    
    Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period            to
 Commission File Number 000-50550
 
 CHINACAST EDUCATION CORPORATION
  Delaware
    
    20-0178991(State or Other Jurisdiction of
    
    (I.R.S. Employer Identification Number)Incorporation or Organization)
 25 Fl. Qiang Sheng Mansion
No. 145 Pu Jian Road, Pudong District
Shanghai, 211217, Peoples Republic of China
 (8621) 6864-4666
 Great Wall Acquisition Corporation
 þ o
 o þ
  o þ




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##### 



TABLE OF CONTENTS
 PagePART I FINANCIAL INFORMATION
    
    
    3Item 1. Financial Statements
    
    
    3Item 2.Managements Discussion and Analysis or Plan of Operation
    
    
    14Item 3.Controls and Procedures
    
    
    21PART II OTHER INFORMATION
    
    
    22Item 1.Legal Proceedings
    
    
    22Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    22Item 3.Defaults Upon Senior Securities
    
    
    22Item 4.Submission of Matters To a Vote of Security Holders
    
    
    22Item 5.Other Information
    
    
    22Item 6.Exhibits
    
    
    22EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2EX-31.1 CEO CertificationEX-31.2 CFO CertificationEX-32.1 CEO Certification to Section 1350EX-32.2 CFO Certification to section 1350
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##### Table of Contents



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 ofSeptember 30, 2007
    
    December 31, 2006US$
    
    RMB
    
    RMBAssetsCurrent assets:Cash and cash equivalents
    
    
    41,034
    
    
    
    307,752
    
    
    
    278,067Term deposits
    
    
    57,006
    
    
    
    427,543
    
    
    
    442,921Accounts receivable, net of allowance of RMB148 for both 2007 and 2006
    
    
    4,406
    
    
    
    33,048
    
    
    
    41,692Inventory  satellite communication related equipment and equipment accessories
    
    
    431
    
    
    
    3,231
    
    
    
    3,067Prepaid expenses and other current assets
    
    
    865
    
    
    
    6,491
    
    
    
    5,199Amounts due from related parties
    
    
    245
    
    
    
    1,838
    
    
    
    2,583Total current assets
    
    
    103,987
    
    
    
    779,903
    
    
    
    773,529Non-current deposits
    
    
    147
    
    
    
    1,099
    
    
    
    Property and equipment, net
    
    
    1,427
    
    
    
    10,705
    
    
    
    14,332Acquired intangible assets, net
    
    
    2,979
    
    
    
    22,345
    
    
    
    14,028Long-term investments
    
    
    1,779
    
    
    
    13,339
    
    
    
    5,114Deferred tax assets
    
    
    6
    
    
    
    43
    
    
    
    172Non-current advances to a related party
    
    
    16,285
    
    
    
    122,139
    
    
    
    129,866Goodwill
    
    
    259
    
    
    
    1,943
    
    
    
    3,538Total assets
    
    
    126,869
    
    
    
    951,516
    
    
    
    940,579Liabilities, minority interest, and shareholders equityCurrent liabilities:Accounts payable
    
    
    1,372
    
    
    
    10,287
    
    
    
    16,403Accrued expenses and other current liabilities
    
    
    10,302
    
    
    
    77,260
    
    
    
    96,204Amounts due to related parties
    
    
    24
    
    
    
    183
    
    
    
    4,469Income taxes payable
    
    
    3,823
    
    
    
    28,671
    
    
    
    42,769Current portion of capital lease obligation
    
    
    9
    
    
    
    70
    
    
    
    146Total current liabilities
    
    
    15,530
    
    
    
    116,471
    
    
    
    159,991Non-current liabilities:Capital lease obligation, net of current portion
    
    
    
    
    
    
    
    
    
    
    37Unrecognized tax benefits
    
    
    3,453
    
    
    
    25,899
    
    
    
    Total non-current liabilities
    
    
    3,453
    
    
    
    25,899
    
    
    
    37Total liabilities
    
    
    18,983
    
    
    
    142,370
    
    
    
    160,028Minority interest
    
    
    2,665
    
    
    
    19,990
    
    
    
    145,501Contingencies
(Note 12)Shareholders equity:Ordinary shares (US$0.0001 par value; 100,000,000 shares
authorized in 2007 and 2006; 27,292,641 and 23,140,702
shares issued and outstanding in 2007 and 2006,
respectively)
    
    
    3
    
    
    
    21
    
    
    
    18Additional paid-in capital
    
    
    102,513
    
    
    
    768,844
    
    
    
    653,000Statutory reserve
    
    
    1,156
    
    
    
    8,670
    
    
    
    9,721Accumulated other comprehensive loss
    
    
    (787
    )
    
    
    (5,899
    )
    
    
    (2,762
    )Retained
earnings (accumulated deficit)
    
    
    2,336
    
    
    
    17,520
    
    
    
    (24,927
    )Total shareholders equity
    
    
    105,221
    
    
    
    789,156
    
    
    
    635,050Total liabilities, minority interest, and shareholders equity
    
    
    126,869
    
    
    
    951,516
    
    
    
    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 September 30,
    
    For the nine months ended September 30,2007
    
    2007
    
    2006
    
    2007
    
    2007
    
    2006US$
    
    RMB
    
    RMB
    
    US$
    
    RMB
    
    RMBRevenues:Service
    
    
    5,066
    
    
    
    37,992
    
    
    
    32,652
    
    
    
    14,135
    
    
    
    106,014
    
    
    
    91,464Equipment
    
    
    1,072
    
    
    
    8,038
    
    
    
    4,213
    
    
    
    2,953
    
    
    
    22,144
    
    
    
    27,4426,138
    
    
    
    46,030
    
    
    
    36,865
    
    
    
    17,088
    
    
    
    128,158
    
    
    
    118,906Cost of revenues:Service
    
    
    (1,624
    )
    
    
    (12,178
    )
    
    
    (8,660
    )
    
    
    (4,436
    )
    
    
    (33,267
    )
    
    
    (30,254
    )Equipment
    
    
    (1,062
    )
    
    
    (7,967
    )
    
    
    (4,521
    )
    
    
    (2,984
    )
    
    
    (22,378
    )
    
    
    (27,115
    )(2,686
    )
    
    
    (20,145
    )
    
    
    (13,181
    )
    
    
    (7,420
    )
    
    
    (55,645
    )
    
    
    (57,369
    )Gross profit
    
    
    3,452
    
    
    
    25,885
    
    
    
    23,684
    
    
    
    9,668
    
    
    
    72,513
    
    
    
    61,537Operating (expenses) income:Selling and
marketing expenses (including share-based compensation of RMB170 and
RMBnil for the nine-month periods ended September 30 for 2007 and
2006, respectively, share-based compensation of RMB170 and RMBnil for
the three-month periods ended September 30 for 2007 and 2006,
respectively)
    
    
    (231
    )
    
    
    (1,731
    )
    
    
    (653
    )
    
    
    (599
    )
    
    
    (4,496
    )
    
    
    (1,712
    )General and administrative
expenses (including
share-based compensation of
RMB360 and RMB1,181 for the nine-month periods ended September 30 for
2007 and 2006, respectively,
share-based compensation of
RMB360 and RMB307 for the three-month periods ended September 30 for
2007 and 2006, respectively)
    
    
    (1,657
    )
    
    
    (12,425
    )
    
    
    (9,657
    )
    
    
    (4,456
    )
    
    
    (33,423
    )
    
    
    (26,573
    )Foreign exchange loss
    
    
    (149
    )
    
    
    (1,114
    )
    
    
    (817
    )
    
    
    (568
    )
    
    
    (4,257
    )
    
    
    (1,068
    )Management service fee
    
    
    685
    
    
    
    5,138
    
    
    
    1,316
    
    
    
    2,262
    
    
    
    16,967
    
    
    
    8,147Total operating expenses, net
    
    
    (1,352
    )
    
    
    (10,132
    )
    
    
    (9,811
    )
    
    
    (3,361
    )
    
    
    (25,209
    )
    
    
    (21,206
    )Income from operations
    
    
    2,100
    
    
    
    15,753
    
    
    
    13,873
    
    
    
    6,307
    
    
    
    47,304
    
    
    
    40,331Interest income
    
    
    819
    
    
    
    6,140
    
    
    
    3,632
    
    
    
    1,728
    
    
    
    12,962
    
    
    
    6,232Interest expense
    
    
    (1
    )
    
    
    (4
    )
    
    
    (4
    )
    
    
    (4
    )
    
    
    (34
    )
    
    
    (14
    )Income before provision for
income taxes, earnings in
equity investments, and
minority interest and discounted operations
    
    
    2,918
    
    
    
    21,889
    
    
    
    17,501
    
    
    
    8,031
    
    
    
    60,232
    
    
    
    46,549Provision for income taxes
    
    
    (604
    )
    
    
    (4,527
    )
    
    
    (3,497
    )
    
    
    (1,674
    )
    
    
    (12,559
    )
    
    
    (8,758
    )Income before earnings in
equity investments, minority
interest, and discontinued
operations
    
    
    2,314
    
    
    
    17,362
    
    
    
    14,004
    
    
    
    6,357
    
    
    
    47,673
    
    
    
    37,791Loss in equity investments
    
    
    (31
    )
    
    
    (232
    )
    
    
    (318
    )
    
    
    (95
    )
    
    
    (711
    )
    
    
    (704
    )Minority interest
    
    
    (39
    )
    
    
    (295
    )
    
    
    (2,584
    )
    
    
    (363
    )
    
    
    (2,719
    )
    
    
    (6,845
    )Income from continuing
operations
    
    
    2,244
    
    
    
    16,835
    
    
    
    11,102
    
    
    
    5,899
    
    
    
    44,243
    
    
    
    30,242Discontinued operations:Income (loss) from discontinued
operations, net of tax RMBnil
for both 2007 and 2006
    
    
    
    
    
    
    
    
    
    
    205
    
    
    
    (19
    )
    
    
    (139
    )
    
    
    (1,235
    )Minority interest in
discontinued operations, net
of tax RMBnil for both 2007
and 2006
    
    
    
    
    
    
    
    
    
    
    (1,152
    )
    
    
    (30
    )
    
    
    (230
    )
    
    
    (2,067
    )Loss on discontinued operations
    
    
    
    
    
    
    
    
    
    
    (947
    )
    
    
    (49
    )
    
    
    (369
    )
    
    
    (3,302
    )Net income
    
    
    2,244
    
    
    
    16,835
    
    
    
    10,155
    
    
    
    5,850
    
    
    
    43,874
    
    
    
    26,940Net income per share
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For the three months ended September 30,
    
    For the nine months ended September 30,2007
    
    2007
    
    2006
    
    2007
    
    2007
    
    2006US$
    
    RMB
    
    RMB
    
    US$
    
    RMB
    
    RMBBasic
    
    
    0.08
    
    
    
    0.62
    
    
    
    0.61
    
    
    
    0.22
    
    
    
    1.67
    
    
    
    1.62Diluted
    
    
    0.08
    
    
    
    0.61
    
    
    
    0.58
    
    
    
    0.21
    
    
    
    1.60
    
    
    
    1.55Weighted average shares used
in computation:Basic
    
    
    27,266,564
    
    
    
    27,266,564
    
    
    
    16,657,872
    
    
    
    26,315,541
    
    
    
    26,315,541
    
    
    
    16,657,872Diluted
    
    
    27,783,672
    
    
    
    27,783,672
    
    
    
    17,406,787
    
    
    
    27,491,941
    
    
    
    27,491,941
    
    
    
    17,360,353
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CHINACAST EDUCATION CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
 For the nine months ended September 30,2007
    
    2007
    
    2006US$
    
    RMB
    
    RMBCash flows from operating activities:Net income
    
    
    5,850
    
    
    
    43,874
    
    
    
    26,940Adjustments to reconcile net income to net cash provided
by operating activities:Deferred
taxes
    
    
    17
    
    
    
    129
    
    
    
    130Minority interest in continuing operations
    
    
    363
    
    
    
    2,719
    
    
    
    6,845Minority interest in discontinued operations
    
    
    30
    
    
    
    230
    
    
    
    2,067Depreciation and amortization
    
    
    517
    
    
    
    3,878
    
    
    
    9,261Amortization of deferred share-based compensation
    
    
    71
    
    
    
    530
    
    
    
    1,181Loss on disposal of property and equipment
    
    
    
    
    
    
    
    
    
    
    7Loss in equity investments
    
    
    95
    
    
    
    711
    
    
    
    704Changes in assets and liabilities:Accounts receivable
    
    
    747
    
    
    
    5,604
    
    
    
    (3,578
    )Inventory
    
    
    (22
    )
    
    
    (164
    )
    
    
    (747
    )Prepaid expenses and other current assets
    
    
    (237
    )
    
    
    (1,779
    )
    
    
    877Amounts due from related parties
    
    
    99
    
    
    
    745
    
    
    
    7,047Accounts payable
    
    
    (635
    )
    
    
    (4,761
    )
    
    
    5,595Accrued expenses and other current liabilities
    
    
    (5,605
    )
    
    
    (42,039
    )
    
    
    (2,024
    )Amounts due to related parties
    
    
    (15
    )
    
    
    (115
    )
    
    
    187Income taxes payable
    
    
    547
    
    
    
    4,098
    
    
    
    7,870Unrecognised tax benefits
    
    
    459
    
    
    
    3,443
    
    
    
    Net cash provided by operating activities
    
    
    2,281
    
    
    
    17,103
    
    
    
    62,362Cash flows from investing activities:Repayment from advance to related parties
    
    
    1,223
    
    
    
    9,170
    
    
    
    21,812Advance to related parties
    
    
    (193
    )
    
    
    (1,443
    )
    
    
    Return of deposit for the purchase of equipment
    
    
    
    
    
    
    
    
    
    
    2,800Deposits for business acquisition
    
    
    
    
    
    
    
    
    
    
    (10,000
    )Purchase of property and equipment
    
    
    (206
    )
    
    
    (1,548
    )
    
    
    (973
    )Term deposits
    
    
    2,050
    
    
    
    15,378
    
    
    
    (156,473
    )Advance received from disposal of cost method investment
    
    
    1,600
    
    
    
    12,000
    
    
    
    Proceeds from disposal of discontinued operations, net of cash
disposed of
    
    
    (1,215
    )
    
    
    (9,113
    )
    
    
    Net cash provided by (used in) investing activities
    
    
    3,259
    
    
    
    24,444
    
    
    
    (142,834
    )Cash flows from financing activities:Repayment of capital lease obligation
    
    
    (15
    )
    
    
    (111
    )
    
    
    (111
    )Repayment of advances from related parities
    
    
    (567
    )
    
    
    (4,251
    )
    
    
    Capital distribution (Note 1)
    
    
    (772
    )
    
    
    (5,793
    )
    
    
    Net cash used in financing activities
    
    
    (1,354
    )
    
    
    (10,155
    )
    
    
    (111
    )Effect of foreign exchange rate changes
    
    
    (228
    )
    
    
    (1,707
    )
    
    
    (5
    )Net increase (decrease) in cash and cash equivalents
    
    
    3,958
    
    
    
    29,685
    
    
    
    (80,588
    )Cash and cash equivalents at beginning of the period
    
    
    37,076
    
    
    
    278,067
    
    
    
    120,368Cash and cash equivalents at end of the period
    
    
    41,034
    
    
    
    307,752
    
    
    
    39,780
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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
(US GAAP) for complete financial statements and should be read in conjunction with the audited financial
statements included in CECs Annual Report on Form 10-KSB for the fiscal year ended December 31,
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 variable interest entities (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 RMB7.5 to US$1 was applied as of
September 30, 2007. Such transaction should not be construed to
be the amounts that would have been reported under US GAAP.The Share Exchange TransactionOn December 22, 2006, Great Wall consummated the voluntary conditional offer (the Offer) made
in Singapore to acquire all of the outstanding ordinary shares of ChinaCast Communication
Holdings Limited (ChinaCast). Pursuant to the terms of the Offer, ChinaCast shareholders had
the option to receive either shares of CEC or a cash payment for each ChinaCast share tendered.
On January 18, 2007, the closing date of the Offer, total shares acquired were 80.27%. Since
Great Wall was not an operating company and the shareholders of ChinaCast control the combined
company after the above transaction consummated on December 22, 2006 (the Share Exchange
Transaction) the Share Exchange Transaction was accounted for as a recapitalization in which
ChinaCast was the accounting acquirer. The cash consideration paid as part of the Offer was
accounted for as a capital distribution. For purposes of the preparation of the consolidated
financial statements, the remaining outstanding ordinary shares of ChinaCast not acquired by
Great Wall were reported as minority interest for all the periods presented.During the nine months ended September 30, 2007, CEC acquired additional shares by issuing
shares of CEC and cash amounted to RMB5,793 to certain original ChinaCast shareholders and 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
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In February 2007, the Financial Accounting Standard Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities, Including an amendment of FASB Statement No. 115. SFAS No. 159 provides
companies with an irrevocable option to report selected financial assets and liabilities at fair
value. SFAS No. 159 requires companies to provide additional information that will help
investors and other users of financial statements to more easily understand the effect of the
companys choice to use fair value on its earnings. It also requires entities to display the
fair value of those assets and liabilities for which the company has chosen to use fair value on
the face of the balance sheet. SFAS No. 159 is effective as of the beginning of an entitys
first fiscal year beginning after November 15, 2007. Early adoption is permitted. The Company is
currently evaluating whether the adoption of SFAS No. 159 will have a material effect on its
consolidated financial condition or results of operations.In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements which provides
enhanced guidance for using fair value to measure assets and liabilities. SFAS No. 157 also
responds to investors requests for expanded information about the extent to which companies
measure assets and liabilities at fair value, the information used to measure fair value, and
the effect of fair value measurements on earnings. SFAS No. 157 applies whenever other standards
require (or permit) assets or liabilities to be measured at fair value. The standard does not
expand the use of fair value in any new circumstances. SFAS 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007, and interim periods within
those fiscal years. Early adoption is permitted. The Company is currently evaluating whether the
adoption of SFAS No. 157 will have a material effect on its consolidated financial position or
results of operations.
 3.
    
    DISCONTINUED OPERATIONSAs of January 1, 2006, the Company had a 50% stake in Beijing Tongfang Digital Education
Technology Limited (Tongfang) and Tongfang had a 51% stake in Beijing Tongfang Chuangxin
Technology Limited (Tongfang Chuangxin). On February 9, 2007 (Closing Date), the Company
completed the transaction under a sale and purchase agreement with Tongfang Co. Limited to
dispose all of its shareholding in Tongfang in return for a 17.85% interest in Tongfang
Chuangxin. As part of the consideration for the sale, the Company offset the RMB6,300 payable to
Tongfang Co. Limited against the sale proceeds. No significant gain or loss was reported as a
result of the sale. Tongfang ceased to be a subsidiary of the Company and the Company has
accounted for its investment in Tongfang Chuangxin amounting to RMB8,936 under the cost method
of accounting thereafter.The following is a summary of the net assets sold as of the Closing Date and December 31, 2006:
 8




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##### Table of Contents



As of
    
    As ofFebruary 9, 2007
    
    December 31, 2006RMB
    
    RMBCurrent assets of discontinued operations:Cash and cash equivalents
    
    
    9,113
    
    
    
    7,432Accounts receivable, net
    
    
    2,715
    
    
    
    2,994Prepaid expenses and other current assets
    
    
    1,732
    
    
    
    1,42813,560
    
    
    
    11,854Non-current assets of discontinued operations:Property and equipment, net
    
    
    1,433
    
    
    
    1,464Acquired intangible assets, net
    
    
    13,581
    
    
    
    14,02815,014
    
    
    
    15,492Current liabilities of discontinued operations:Accounts payable
    
    
    1,355
    
    
    
    1,355Accrued expenses and other current liabilities
    
    
    6,884
    
    
    
    5,4838,239
    
    
    
    6,838Minority interest
    
    
    6,694
    
    
    
    6,463Attributable goodwill
    
    
    1,595
    
    
    
    1,595
 Summarized operating results from the discontinued operations included in the Companys
consolidated statements of operations are as follows for the three months and nine months ended
September 30, 2007 and 2006.
 For the three months ended September 30,
    
    For the nine months ended September 30,2007
    
    2006
    
    2007
    
    2006RMB
    
    RMB
    
    RMB
    
    RMBRevenues
    
    
    
    
    
    
    3,967
    
    
    
    1,096
    
    
    
    11,047Income (loss) before provision of
income taxes from
discontinued operations
    
    
    
    
    
    
    205
    
    
    
    (139
    )
    
    
    (1,235
    )Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Minority interest in
discontinued operations
    
    
    
    
    
    
    (1,152
    )
    
    
    (230
    )
    
    
    (2,067
    )Loss from discontinued
operations, net of tax
    
    
    
    
    
    
    (974
    )
    
    
    (369
    )
    
    
    (3,302
    )Reduction in net income
per share of the Company
 basic and diluted
    
    
    
    
    
    
    (0.05
    )
    
    
    (0.01
    )
    
    
    (0.19
    )
 
 4.
    
    NON-CURRENT DEPOSITSNon-current deposits consisted of the following:
 As of September 30,2007
    
    As of December 31,2006RMB
    
    RMBRental deposits
    
    
    1,099
    
    
    
    1,099
    
    
    
    
 Rental deposits represented satellite rental deposit for ChinaCast satellite business
operations and office rental deposits for the Companys daily operations. These deposits are classified
into non-current deposits since they cannot be withdrawn within one year.
 5.
    
    COMPREHENSIVE INCOMEThe components of comprehensive income for the periods presented are as follows:
 For the three months ended September 30,
    
    For the nine months ended September 30,2007
    
    2006
    
    2007
    
    2006RMB
    
    RMB
    
    RMB
    
    RMBNet income
    
    
    16,835
    
    
    
    10,155
    
    
    
    43,874
    
    
    
    26,940Foreign currency translation adjustment
    
    
    (222
    )
    
    
    (478
    )
    
    
    (3,137
    )
    
    
    (1,151
    )Comprehensive income
    
    
    16,613
    
    
    
    9,677
    
    
    
    40,737
    
    
    
    25,789
 6.
    
    ACQUIRED INTANGIBLE ASSET, NET
 9




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On August 30, 2007, ChinaCast acquired 100% of the outstanding registered capital of Modern
English Trademark Limited (MET), in exchange for cash of
US$3 million, which is payable within 90 days from August 30, 2007 according
to the sale and purchase agreement. The consideration has not been
paid as of September 30, 2007 and was recorded under accrued
expenses and other current liabilities. MET has no asset or
liability except for a 10-year exclusive brand name usage right. The acquisition was recorded as an
intangible asset, which is being amortized on a straight-line basis over 10 years.
 As of September 30,2007
    
    As of December 31,2006RMB
    
    RMBBrand name usage right
    
    
    22,532
    
    
    
    Distance learning service
agreements with universities
    
    
    
    
    
    
    20,465Training school operating right
    
    
    
    
    
    
    271Less: accumulated amortization
    
    
    (187
    )
    
    
    (6,708
    )22,345
    
    
    
    14,028
 For the three months and nine months ended September 30, 2007, the Company recorded amortization
expense in respect of the brand name usage right amounting to RMB187. The Company will record
amortization expenses of RMB751, RMB2,253, RMB2,253, RMB2,253, RMB2,253 in 2007, 2008, 2009,
2010 and 2011, respectively.In 2005, the Company acquired certain agreements with universities and a training school
operating right through the acquisition of Tongfang. The Company also recorded amortization
expenses in respect of agreements with universities and a training school operating right
amounting to RMBnil and RMB1,341 for the three months ended September
30, 2007 and 2006, respectively and RMB447 and RMB4,008 for the nine
months ended September 30, 2007 and 2006, respectivley. In February 2007, Tongfang ceased to be a subsidiary of the Company and the Company has
accounted for its investment in Tongfang Chuangxin under the cost method of accounting
thereafter, the related agreements and operating right were no longer recorded as the Companys
intangible assets. The transaction was reported as discontinued
operations (see Note 3).7.
    
    STOCK INCENTIVE PLAN2007 Omnibus Securities and Incentive Plan (2007 Plan)Under the 2007 Plan adopted in May 2007, the Company may grant any awards to eligible participates,
including employees, directors or consultants, to purchase up to 2,500,000 ordinary shares.On July 11, 2007, the Company granted, under the 2007 Plan, 12,500 ordinary shares to its
employees at no consideration. The per share fair value of ordinary shares as of the grant date was
US$5.65. Total share-based compensation costs recognized in income were RMB530 and RMBnil for the
three-month and nine-month periods ended September 30, 2007 and 2006 respectively.As of September 30, 2007, no other awards have been granted under the 2007 Plan.8.
    
    INCOME TAXESThe Company adopted the provisions of FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes  An
Interpretation of FASB Statement No. 109 (FIN 48) on January 1, 2007. 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.On March 16, 2007, the National Peoples Congress passed a new enterprise income tax law, which
will take effect beginning January 1, 2008. The new law applies a uniform 25% enterprise income
tax rate to both foreign invested enterprises and domestic enterprises. The new law provides a
five-year transition period from its effective date form those enterprises which were established
before the promulgation date of the new tax law and which were entitled to a preferential tax
treatment such as a reduced tax rate or a tax holiday. According to
the new tax law, one of the Companys major operating
subsidiaries, ChinaCast Technology (Shanghai) Limited (CCT
Shanghai), may no longer be able to enjoy the preferential tax rates
presently offered to it because of its location in specially designed region. As the law was
newly issued and no implementing rules have been promulgated to date, it is uncertain whether CCT
Shanghai may continue to enjoy the reduced tax rate going forward. Nevertheless, this uncertainty
does not have a material impact on the Companys deferred tax
position as of September 30, 2007
because the temporary differences between the tax basis of assets and liabilities of CCT Shanghai
will be fully reversed as of December 31, 2007.9.
    
    NET INCOME PER SHAREReconciliation of the basic and diluted net income per share is as follows:
 10




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For the three months ended September 30,
    
    For the nine months ended September 30,2007
    
    2006
    
    2007
    
    2006Numerator used in basic and
diluted net income per share:Income from continuing operations
    
    RMB16,835
    
    RMB11,102
    
    RMB44,243
    
    RMB30,242Loss on discontinued operation
    
    RMB-
    
    RMB(947)
    
    RMB(369)
    
    RMB(3,302)Income attributable to holders of
ordinary shares
    
    RMB16,835
    
    RMB10,155
    
    RMB43,874
    
    RMB26,940Shares (denominator):Weighted average ordinary shares
outstanding used in computing
basic net income per share
    
    
    27,266,564
    
    
    
    16,657,872
    
    
    
    26,315,541
    
    
    
    16,657,872Plus:Incremental ordinary shares from
assumed conversions of stock
options and exercises of
Warrants (Note 11)
    
    
    517,108
    
    
    
    748,915
    
    
    
    1,176,400
    
    
    
    702,481Weighted average ordinary shares
outstanding used in computing
diluted net income per share
    
    
    27,783,672
    
    
    
    17,406,787
    
    
    
    27,491,941
    
    
    
    17,360,353Net income per share-basic:Income from continuing operations
    
    RMB0.62
    
    RMB0.67
    
    RMB1.68
    
    RMB1.82Loss on discontinued operations
    
    RMB-
    
    RMB(0.06)
    
    RMB(0.01)
    
    RMB(0.20)Net income
    
    RMB0.62
    
    RMB0.61
    
    RMB1.67
    
    RMB1.62Net income per share-diluted:Income from continuing operations
    
    RMB0.61
    
    RMB0.63
    
    RMB1.61
    
    RMB1.74Loss on discontinued operations
    
    RMB-
    
    RMB(0.05)
    
    RMB(0.01)
    
    RMB(0.19)Net income
    
    RMB0.61
    
    RMB0.58
    
    RMB1.60
    
    RMB1.55
 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 or the related warrants (Note 11) since
the effect is anti-dilutive.10.
    
    SEGMENT INFORMATIONThe Company has one segment. The Companys revenue and net income are substantially derived from
provision of satellite bandwidth and network access services throughout the Peoples Republic of
China (the PRC). Most of the assets and capital expenditure of the Company are employed in the
PRC. The Companys chief operating decision maker is the Chief Executive Officer.Four customers contributed to RMB17,191, or 37.3% and RMB49,195, or 38.4%, of the Companys total net revenues during
the three months and nine months ended September 30, 2007, respectively, and the same four customers contributed to RMB11,830, or 32.1% and RMB50,422,
or 42.4%, of the Companys total net revenues during the three months and nine months ended September 30, 2006, respectively, as
follows:
 For the three months ended September 30,
    
    For the nine months ended September 30,2007
    
    2006
    
    2007
    
    2006RMB
    
    RMB
    
    RMB
    
    RMBCustomers:A
    
    
    7,894
    
    
    
    
    
    
    
    21,286
    
    
    
    B
    
    
    4,056
    
    
    
    4,047
    
    
    
    12,176
    
    
    
    12,263C
    
    
    5,241
    
    
    
    5,231
    
    
    
    15,733
    
    
    
    15,849D
    
    
    
    
    
    
    2,552
    
    
    
    
    
    
    
    22,310Total
    
    
    17,191
    
    
    
    11,830
    
    
    
    49,195
    
    
    
    50,422
 11




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Three customers as of September 30, 2007 and two customers as of December 31, 2006 each
accounted for 10% or more of the Companys accounts receivable balances, representing an
aggregate of 32.8% and 26.8% of the Companys accounts receivable balances at September 30, 2007 and December 31,
2006, respectively.
 12




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11.
    
    WARRANTS AND UNIT PURCHASE OPTIONSIn March 2004, the Company sold 4,515,975 units in its initial public offering. Each unit
consists of one share of the Companys common stock and two redeemable common stock purchase
warrants (Warrants). Each Warrant will entitle the holder to purchase from the Company two shares of common stock at an exercise price of US$5 commencing on the consummation of the Share
Exchange Transaction. In no event will the Company be required to net cash settle the warrant
exercise.In connection with the initial public offering, the Company issued, for $100, an option (UPO)
to the representative of the underwriters to purchase 400,000 units at an exercise price of
US$9.90 per Unit. In addition, the warrants underlying such units are exercisable at US$6.95 per
share.There was no remeasurement required for these assumed Warrants and UPO because such assumption
is part of the recapitalization in connection with the Share Exchange Transaction. As of
September 30, 2007, there were 400,000 UPO and 9,031,950 Warrants outstanding.
 12.
    
    CONTINGENCIES
 a)
    
    On March 21, 2006, after obtaining the approval of its shareholders, the Company
amended certificate of incorporation, the effect of which was, among other things, to
eliminate the provision of the certificate of incorporation that purported to prohibit
amendment of the business combination provisions contained therein and to extend the
date before which the Company must complete a business combination, to avoid being
required to liquidate, from March 23, 2006 to December 31, 2006. Because extending the
period during which the Company could consummate a business combination was not
contemplated by the initial public offering (IPO) prospectus, shareholders may have
securities law claims against the Company for rescission (under which a successful
claimant would have the right to receive the total amount paid for his or her shares, plus
interest and less any income earned on the shares, in exchange for surrender of the shares) or damages (compensation for loss on an investment caused by alleged material
misrepresentations or omissions in the sale of the security). Such claims might entitle
shareholders asserting them to up to US$6.00 per share of common stock, based on the
initial offering price of the public units comprised of stock and warrants, less any
amount received from sale of the original warrants purchased with them and plus interest
from the date of the IPO. A successful claimant for damages under federal or state law
could be awarded an amount to compensate for the decrease in value of his or her shares
caused by the alleged violation (including, possibly, punitive damages), together with
interest, while retaining the shares. The Company believes the shareholder claims for
rescission or damages are remote. As such, the Company has not recorded a liability for
such possible rescission. However, the Company cannot definitively predict whether
shareholders will bring such claims, how many might bring them or the extent to which they
might be successful.b)
    
    The Company may be subject to claims for rescission or other securities law claims
resulting from the failure to disclose that the charter provision purporting to prohibit
certain amendments was possibly inconsistent with Delawares General Corporation Law. The
Company may also be subject to such claims as a result of inaccuracies in other
disclosures, as follows: It may be argued that the IPO prospectus misstated the vote
required by its charter to approve a business combination by providing that [w]e will
proceed with a business combination only if the public shareholders who own at least a
majority of the shares of common stock sold in [that] offering vote in favor [of it] ...,
and that the Exchange Act reports have been inaccurate in describing ChinaCast as a
leading provider of e-learning content (as opposed to being primarily a content carrier).
On November 13, 2006, the Company filed a Current Report on Form 8-K with the SEC
regarding this last item. The Company is unable to predict the likelihood that claims
might be made with regard to the foregoing or estimate any amounts for which it might be
liable if any such claim was made. As such, the Company has not recorded a liability for
such possible rescission.
 13.
    
    SUBSEQUENT EVENTSEffective on October 29 2007, CEC is listed on the Nasdaq Global Market.On August 30, 2007, CEC entered into an agreement with an independent third party to dispose of its
20% stake in Beijing Dongshi-ChinaCast Education Corporation (Dongshi ChinaCast) for a
consideration of RMB12 million, which was recorded as a cost method investment with a carrying
value of RMB1.73 million. The transaction was completed on October 9, 2007. As such, the gain on
disposal of this cost method investment will be recorded in the last quarter of 2007.
 13




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Item 2. Managements Discussion and Analysis or Plan of Operation.
         14




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Results of Operations
  Three Months and Nine Months Ended September 30 2007 compared to the three Months and Nine Months Ended September 30 2006.
 Three Months ended
    
    Three Months EndedSeptember 30, 2007
    
    September 30, 2006(millions)
    
    RMB
    
    US$
    
    RMB
    
    US$Post secondary
education distance
learning
    
    
    17.6
    
    
    
    2.4
    
    
    
    13.3
    
    
    
    1.7K-12 and content delivery
    
    
    15.6
    
    
    
    2.0
    
    
    
    21.5
    
    
    
    2.7Vocational training,
enterprise / government
training and networking
and English training
services
    
    
    12.8
    
    
    
    1.7
    
    
    
    2.1
    
    
    
    0.2Total revenue
    
    
    46.0
    
    
    
    6.1
    
    
    
    36.9
    
    
    
    4.6
 Nine Months ended
    
    Nine Months EndedSeptember 30, 2007
    
    September 30, 2006(millions)
    
    RMB
    
    US$
    
    RMB
    
    US$Post secondary
education distance
learning
    
    
    47.8
    
    
    
    6.4
    
    
    
    40.1
    
    
    
    5.0K-12 and content delivery
    
    
    49.1
    
    
    
    6.5
    
    
    
    57.5
    
    
    
    7.2Vocational training,
enterprise / government
training and networking
and English training
services
    
    
    31.3
    
    
    
    4.2
    
    
    
    21.3
    
    
    
    2.7Total revenue
    
    
    128.2
    
    
    
    17.1
    
    
    
    118.9
    
    
    
    14.9
  15




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Liquidity and Capital Resources
  As of
    
    As ofSeptember 30, 2007
    
    December 31, 2006(millions)
    
    RMB
    
    US$
    
    RMB
    
    US$Cash and cash equivalents
    
    
    307.8
    
    
    
    41.0
    
    
    
    278.1
    
    
    
    35.6Term deposits
    
    
    427.5
    
    
    
    57.0
    
    
    
    442.9
    
    
    
    56.7Subtotal
    
    
    735.3
    
    
    
    98.0
    
    
    
    721.0
    
    
    
    92.3Accounts receivable
    
    
    33.0
    
    
    
    4.4
    
    
    
    41.7
    
    
    
    5.3Inventory
    
    
    3.2
    
    
    
    0.4
    
    
    
    3.1
    
    
    
    0.4Prepaid expenses and other current assets
    
    
    6.5
    
    
    
    0.9
    
    
    
    5.2
    
    
    
    0.7Total current assets
    
    
    779.9
    
    
    
    104.0
    
    
    
    773.5
    
    
    
    99.0Non-current advances to a related party
    
    
    122.1
    
    
    
    16.3
    
    
    
    129.9
    
    
    
    16.6Total assets
    
    
    951.5
    
    
    
    126.9
    
    
    
    940.6
    
    
    
    120.4
          19




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Item 3. Controls and Procedures.
   21




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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.
     22




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SIGNATURES
  CHINACAST EDUCATION CORPORATION(Registrant)Date: November 13, 2007
    
    By:
    /s/ Ron Chan Tze NgonName:
    Ron Chan Tze NgonTitle:
    Chairman of the Board,Chief Executive Officer (Principal Executive Officer)By:
    /s/ Antonio SenaName:
    Antonio SenaTitle:
    Chief Financial Officer andSecretary (Principal Financial Officer) 23