##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended March 31, 2009
 o
    
    Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period                      to
 Commission File Number 000-50550
 
 CHINACAST EDUCATION CORPORATION
  Delaware
(State or Other Jurisdiction of 
Incorporation or Organization)
    
    20-0178991
(I.R.S. Employer Identification Number)
 10/F Xu Jie Mansion,
No. 29, Nanmofang Road,
Beijing, 100020, Peoples Republic of China
 (8610) 6566-7788
  þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
(Do not check if a smaller
reporting company)
    
    Smaller reporting company o
 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
    
    
    15Item 3.Quantitative and Qualitative Disclosures About Market Risk
    
    
    21Item 4.Controls and Procedures
    
    
    21PART II OTHER INFORMATION
    
    
    22Item 1.Legal Proceedings
    
    
    22Item 1A.Risk Factors
    
    
    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
    
    
    22EX-31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002EX-31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002EX-32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley ActEX-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
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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1.
Financial Statements (unaudited)
 CHINACAST EDUCATION CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands, except share-related data)
 As ofAs of March 31,
    
    December 31,2009
    
    2009
    
    2008US$
    
    RMB
    
    RMB(Note 1)AssetsCurrent assets:Cash and cash equivalents
    
    
    12,944
    
    
    
    88,021
    
    
    
    220,131Term deposits
    
    
    73,927
    
    
    
    502,700
    
    
    
    369,000Accounts receivable
    
    
    6,902
    
    
    
    46,934
    
    
    
    32,581Inventory
    
    
    206
    
    
    
    1,402
    
    
    
    1,419Prepaid expenses and other current assets
    
    
    948
    
    
    
    6,446
    
    
    
    8,987Amounts due from related parties
    
    
    248
    
    
    
    1,688
    
    
    
    2,488Total current assets
    
    
    95,175
    
    
    
    647,191
    
    
    
    634,606Non-current deposits
    
    
    144
    
    
    
    981
    
    
    
    686Property and equipment, net
    
    
    41,149
    
    
    
    279,813
    
    
    
    283,982Land use rights, net
    
    
    17,814
    
    
    
    121,133
    
    
    
    121,783Acquired intangible assets, net
    
    
    4,006
    
    
    
    27,239
    
    
    
    31,330Long-term investments
    
    
    729
    
    
    
    4,958
    
    
    
    5,224Non-current advances to a related party
    
    
    15,338
    
    
    
    104,295
    
    
    
    110,217Goodwill
    
    
    45,784
    
    
    
    311,333
    
    
    
    311,331Total assets
    
    
    220,139
    
    
    
    1,496,943
    
    
    
    1,499,159Liabilities and shareholders equityCurrent liabilities:Accounts payable
    
    
    2,012
    
    
    
    13,682
    
    
    
    11,467Accrued expenses and other current liabilities
    
    
    18,950
    
    
    
    128,862
    
    
    
    132,807Deferred revenues
    
    
    7,537
    
    
    
    51,254
    
    
    
    84,372Amount due to related party
    
    
    124
    
    
    
    838
    
    
    
    1,127Income taxes payable
    
    
    7,960
    
    
    
    54,128
    
    
    
    50,594Current portion of long-term bank borrowings
    
    
    11,529
    
    
    
    78,400
    
    
    
    20,000Current portion of capital lease obligation
    
    
    200
    
    
    
    1,358
    
    
    
    1,191Other borrowings
    
    
    161
    
    
    
    1,097
    
    
    
    1,097Total current liabilities
    
    
    48,473
    
    
    
    329,619
    
    
    
    302,655Non-current liabilities:Long-term bank borrowings
    
    
    
    
    
    
    
    
    
    
    58,400Capital lease obligations, net of current portion
    
    
    180
    
    
    
    1,223
    
    
    
    1,323Deferred tax liabilities
    
    
    2,999
    
    
    
    20,392
    
    
    
    21,030Unrecognized tax benefits
    
    
    6,846
    
    
    
    46,555
    
    
    
    44,612Total non-current liabilities
    
    
    10,025
    
    
    
    68,170
    
    
    
    125,365Total liabilities
    
    
    58,498
    
    
    
    397,789
    
    
    
    428,020Commitments and contingencies (Note 12)Shareholders equity:Ordinary shares (US$0.0001 par value; 100,000,000
shares authorized; 35,648,251 and
35,648,251 shares issued and outstanding)
    
    
    4
    
    
    
    27
    
    
    
    27Additional paid-in capital
    
    
    140,431
    
    
    
    954,928
    
    
    
    948,352Statutory reserve
    
    
    4,135
    
    
    
    28,117
    
    
    
    28,117Accumulated other comprehensive loss
    
    
    (920
    )
    
    
    (6,258
    )
    
    
    (5,462
    )Retained earnings
    
    
    11,060
    
    
    
    75,208
    
    
    
    55,526Total ChinaCast Education Corporation shareholders equity
    
    
    154,710
    
    
    
    1,052,022
    
    
    
    1,026,560Noncontrolling interest
    
    
    6,931
    
    
    
    47,132
    
    
    
    44,579Total shareholders equity
    
    
    161,641
    
    
    
    1,099,154
    
    
    
    1,071,139Total liabilities and shareholders equity
    
    
    220,139
    
    
    
    1,496,943
    
    
    
    1,499,159
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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 31,2009
    
    2009
    
    2008US$
    
    RMB
    
    RMB(Note 1)Revenues:Service
    
    
    10,891
    
    
    
    74,062
    
    
    
    40,205Equipment
    
    
    423
    
    
    
    2,876
    
    
    
    19,28911,314
    
    
    
    76,938
    
    
    
    59,494Cost of revenues:Service
    
    
    (4,109
    )
    
    
    (27,941
    )
    
    
    (11,986
    )Equipment
    
    
    (417
    )
    
    
    (2,838
    )
    
    
    (19,105
    )(4,526
    )
    
    
    (30,779
    )
    
    
    (31,091
    )Gross profit
    
    
    6,788
    
    
    
    46,159
    
    
    
    28,403Operating (expenses) income:Selling and marketing expenses (including share-based
compensation of RMB840 and RMB1,281 for the three months
ended March 31, 2009 and 2008, respectively)
    
    
    (277
    )
    
    
    (1,883
    )
    
    
    (3,487
    )General and administrative expenses (including
share-based compensation of RMB5,736 and RMB7,834 for the
three months ended March 31, 2009 and 2008, respectively)
    
    
    (2,639
    )
    
    
    (17,944
    )
    
    
    (18,216
    )Foreign
exchange gain (loss)
    
    
    25
    
    
    
    169
    
    
    
    (465
    )Management service fee
    
    
    142
    
    
    
    967
    
    
    
    798Other operating income
    
    
    74
    
    
    
    505
    
    
    
    Total operating expenses, net
    
    
    (2,675
    )
    
    
    (18,186
    )
    
    
    (21,370
    )Income from operations
    
    
    4,113
    
    
    
    27,973
    
    
    
    7,033Interest income
    
    
    340
    
    
    
    2,312
    
    
    
    5,852Interest expense
    
    
    (214
    )
    
    
    (1,453
    )
    
    
    (4
    )Income before provision for income taxes and loss in
equity investments
    
    
    4,239
    
    
    
    28,832
    
    
    
    12,881Provision for income taxes
    
    
    (930
    )
    
    
    (6,325
    )
    
    
    (3,859
    )Income before loss in equity investments
    
    
    3,309
    
    
    
    22,507
    
    
    
    9,022Loss in equity investments
    
    
    (39
    )
    
    
    (266
    )
    
    
    (408
    )Net income
    
    
    3,270
    
    
    
    22,241
    
    
    
    8.614Less: Net income attributable to noncontrolling interest
    
    
    (375
    )
    
    
    (2,559
    )
    
    
    (384
    )Net income attributable to ChinaCast Education Corporation
    
    
    2,895
    
    
    
    19,682
    
    
    
    8,230Earnings per
shareNet income
attributable to ChinaCast Education Corporation per shareBasic
    
    
    0.08
    
    
    
    0.55
    
    
    
    0.30Diluted
    
    
    0.08
    
    
    
    0.55
    
    
    
    0.29Weighted average shares used in computation:Basic
    
    
    35,648,251
    
    
    
    35,648,251
    
    
    
    27,297,256Diluted
    
    
    35,648,251
    
    
    
    35,648,251
    
    
    
    28,292,257
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CHINACAST EDUCATION CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME (Unaudited)
(In thousands, except share-related data)
 ChinaCast Education Corporation ShareholdersAccumulated other
    
    
    
    
    
    
    TotalOrdinary
    
    
    Additional
    
    
    
    
    
    
    
    
    
    
    comprehensive
    
    
    Noncontrolling
    
    
    stockholders'Shares
    
    
    Amount
    
    
    paid-in capital
    
    
    Statutory Reserve
    
    
    Retained 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
    
    
    
    1,071,139Share-based compensation
    
    
    
    
    
    
    
    
    
    
    6,576
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,576Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,682
    
    
    
    
    
    
    
    2,559
    
    
    
    22,241Foreign
currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (796
    )
    
    
    (6
    )
    
    
    (802
    )Balance at March 31, 2009
    
    
    35,648,251
    
    
    
    27
    
    
    
    954,928
    
    
    
    28,117
    
    
    
    75,208
    
    
    
    (6,258
    )
    
    
    47,132
    
    
    
    1,099,154US$
    4
    
    
    US$
    140,431
    
    
    US$
    4,135
    
    
    US$
    11,060
    
    
    US$
    (920
    )
    
    US$
    6,931
    
    
    US$
    161,641
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CHINACAST EDUCATION CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
 For the three months ended March 31,2009
    
    2009
    
    2008US$
    
    RMB
    
    RMB(Note 1)Cash flows from operating activities:Net income
    
    
    3,270
    
    
    
    22,241
    
    
    
    8,614Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    1,582
    
    
    
    10,757
    
    
    
    1,421Share-based compensation
    
    
    967
    
    
    
    6,576
    
    
    
    9,115Loss in equity investments
    
    
    39
    
    
    
    266
    
    
    
    408Changes in assets and liabilities:Accounts receivable
    
    
    (2,107
    )
    
    
    (14,328
    )
    
    
    (18,869
    )Inventory
    
    
    3
    
    
    
    17
    
    
    
    22Prepaid expenses and other current assets
    
    
    373
    
    
    
    2,541
    
    
    
    (2,078
    )Non-current deposits
    
    
    (43
    )
    
    
    (295
    )
    
    
    837Amounts due from related parties
    
    
    118
    
    
    
    800
    
    
    
    (200
    )Accounts payable
    
    
    326
    
    
    
    2,215
    
    
    
    6,300Accrued expenses and other current liabilities
    
    
    (320
    )
    
    
    (2,178
    )
    
    
    3,345Deferred
revenues
    
    
    (4,870
    )
    
    
    (33,118
    )
    
    
    798Amount due to related party
    
    
    (43
    )
    
    
    (289
    )
    
    
    Income taxes payable
    
    
    520
    
    
    
    3,534
    
    
    
    3,210Deferred taxes liabilities
    
    
    (94
    )
    
    
    (638
    )
    
    
    Unrecognized tax benefits
    
    
    285
    
    
    
    1,943
    
    
    
    124Net cash provided by operating activities
    
    
    6
    
    
    
    44
    
    
    
    13,047Cash flows from investing activities:Advance to
related party
    
    
    (2,941)
    
    
    
    (20,000)
    
    
    
    Repayment
from advance to related party
    
    
    3,812
    
    
    
    25,922
    
    
    
    8,817Purchase of property and equipment
    
    
    (643
    )
    
    
    (4,377
    )
    
    
    (642
    )Term deposits
    
    
    (19,662
    )
    
    
    (133,700
    )
    
    
    (24,308
    )Net cash used in investing activities
    
    
    (19,434
    )
    
    
    (132,155
    )
    
    
    (16,133
    )Cash flows from financing activities:Exercise of warrants
    
    
    
    
    
    
    
    
    
    
    347Repayment of capital lease obligations
    
    
    
    
    
    
    
    
    
    
    (33
    )Net cash provided by financing activities
    
    
    
    
    
    
    
    
    
    
    314Effect of foreign exchange rate changes
    
    
    
    
    
    
    1
    
    
    
    (24
    )Net decrease in cash and cash equivalents
    
    
    (19,428
    )
    
    
    (132,110
    )
    
    
    (2,796
    )Cash and cash equivalents at beginning of the period
    
    
    32,372
    
    
    
    220,131
    
    
    
    138,610Cash and cash equivalents at end of the period
    
    
    12,944
    
    
    
    88,021
    
    
    
    135,814
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NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In thousands, except share-related data)
 1.
    
    BASIS OF PREPARATION
 The accompanying unaudited condensed consolidated financial statements
of ChinaCast Education Corporation (CEC, formerly Great Wall
Acquisition Corporation (Great Wall)) have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission
(SEC) regarding interim financial reporting. Accordingly, they do
not include all of the information and notes required by accounting
principles generally accepted in the United States of America (US
GAAP) for complete financial statements and should be read in
conjunction with the audited financial statements included in CECs
Annual Report on Form 10-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 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 Policies
 The 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 quarter ended March 31, 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 its
consolidated financial statements for the quarter ended
March 31, 2009.
 Convenience Translation
 Amounts 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 March 31, 2009. Such translation should not be construed
to be the amounts that would have been reported under US GAAP.
 The Share Exchange Transaction
 On 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 (FSP) No. FAS 107-1 and APB 28-1,
Interim Disclosures about Fair Value of Financial
Instruments. 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 of publicly traded companies as well as in
annual financial statements. 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 will be effective on April 1, 2009.
FAS 107-1 and APB 28-1 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
Company is currently evaluating whether the adoption of FAS 107-1 and
APB 28-1 will have a significant effect on its consolidated financial
statements.On April 9, 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2,
Recognition and Presentation of Other-Than-Temporary
Impairments. FAS 115-2 and FAS 124-2 amend the
other-than-temporary impairment guidance in US 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 will be effective on April 1, 2009. FAS 115-2 and
FAS 124-2 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 Company is currently
evaluating whether the adoption of FAS 115-2 and FAS 124-2 will have a
significant effect on its consolidated financial position or results
of operations.On April 9, 2009, the FASB issued FSP 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 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 will be effective on April 1, 2009 and will be applied
prospectively. FAS 157-4 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
Company is currently evaluating whether the adoption of FAS 157-4 will
have a significant effect on its consolidated financial position or
results of operations.
 7




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##### Table of Contents



3.
    
    ACQUISITION
 On April 11, 2008, Yupei 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 Yuan Company
Limited (Hai Yuan). 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
    )Minority interest
    
    
    (16,550
    )Total
    
    
    480,000
 The Company performed the purchase price allocation for the acquisition after
considering a valuation analysis provided by a third party valuation firm. 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.
 4.
    
    NON-CURRENT DEPOSITS
 Non-current deposits consisted of the following:
 As of March 31,
    
    As of December 31,2009
    
    2008RMB
    
    RMBRental deposits
    
    
    461
    
    
    
    166Utilities deposits
    
    
    270
    
    
    
    270Other deposits
    
    
    250
    
    
    
    250Total
    
    
    981
    
    
    
    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.
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5.
    
    COMPREHENSIVE INCOME
  For the three months ended March 31,2009
    
    2008RMB
    
    RMBNet income
    
    
    22,241
    
    
    
    8,614Foreign currency translation adjustment
    
    
    (802
    )
    
    
    (183
    )Comprehensive income
    
    
    21,439
    
    
    
    8,431Comprehensive income attributable to
noncontrolling interest
    
    
    (2,553
    )
    
    
    (384
    )Comprehensive income attributable to
ChinaCast Education Corporation
    
    
    18,886
    
    
    
    8,047
 6.
    
    ACQUIRED INTANGIBLE ASSETS, NET
 Acquired intangible assets, net consisted of the following:
 As of March 31,
    
    As of December 31,2009
    
    2008RMB
    
    RMBBrand name usage rightCost
    
    
    22,532
    
    
    
    22,532Less:
Accumulated amortization
    
    
    (3,149
    )
    
    
    (3,004
    )Less:
Impairment loss
    
    
    (14,500
    )
    
    
    (14,500
    )4,883
    
    
    
    5,028Customer
relationshipCost
    
    
    40,329
    
    
    
    40,329Less:
Accumulated amortization
    
    
    (17,973
    )
    
    
    (14,027
    )22,356
    
    
    
    26,302Acquired
intangible assets, net
    
    
    27,239
    
    
    
    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 months ended March 31, 2009, the Company recorded amortization
expense in respect of the brand name usage right amounting to RMB145. The
Company will record amortization expenses in respect of brand name usage right
of RMB435, 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 months ended March 31, 2009, the Company recorded amortization
expense in respect of the customer relationship amounting to RMB3,946. The
Company will record amortization expenses in respect of the customer
relationship of RMB10,081, RMB8,767 and RMB3,508 in 2009, 2010 and 2011,
respectively.
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7.
    
    STOCK COMPENSATION PLAN
 Under 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 ordinary shares
to its employees at no consideration. The per share fair value of
ordinary shares as of the grant date was US$5.65 (RMB42.75).On January 11, 2008, the Company granted, under the 2007 Plan, restricted shares
to its three directors at no consideration. Each of the three directors was
granted 100,000 restricted shares of the Companys common stock. All of the shares of restricted stock granted to the directors were issued at fair market
value based on the closing price on January 11, 2008 of US$6.25 (RMB45.38). For
each of the three directors of CEC, 10,000, 30,000 and 60,000 restricted shares
were/will be vested on February 9, 2008, February 9, 2009 and February 9, 2010,
respectively. On January 11, 2008, the Company granted, under the 2007 Plan,
1,200,000 share options on the Companys common stock to selected employees at
no consideration. The exercise price of the 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 March 31, 2009, no restricted shares or share options have been forfeited.
 A summary of the share option activity under 2007 Plan was as
follows:
 Number
    
    
    Weighted averageof option
    
    
    exercise priceUS$Options outstanding at January 1, 2007
and December 31, 2007
    
    
    
    
    
    
    Granted
    
    
    1,200,000
    
    
    
    6.30Exercised
    
    
    
    
    
    
    Cancelled
    
    
    
    
    
    
    Options outstanding at December 31, 2008
    
    
    1,200,000
    
    
    
    6.30Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Cancelled
    
    
    
    
    
    
    Options
outstanding at March 31, 2009
    
    
    1,200,000
    
    
    
    6.30Options exercisable at March 31, 2009
    
    
    802,000
    
    
    
    6.30
 The per share fair value of options as of January 11,
2008, the grant date was as follows:
 Ordinary shares
    
    US$2.67 (RMB19.33)
 The aggregate intrinsic value of share options outstanding and exercisable as of March 31,
2009 was US$nil and US$nil, respectively.
 The weighted average remaining contractual life is 8.75 years as of March 31, 2009.Total share-based compensation expenses amounting to RMB6,576 and RMB9,115 were recognized for
the three-month periods ended March 31, 2009 and 2008, respectively.There was
RMB12,577 of total unrecognized compensation expense related to nonvested restricted shares and share options as of March 31, 2009.As of March 31, 2009, no other awards have been granted under the 2007 Plan.
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8.
    
    INCOME TAXES
 On March 16, 2007, the National Peoples Congress enacted a new enterprise income tax law, which 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 three months ended March 31,
2009, the unrecognized tax benefits increased from RMB44,612 to
RMB46,555.
 9.
    
    NET INCOME ATTRIBUTABLE TO CHINACAST EDUCATION CORPORATION PER SHARE
 Reconciliation of the basic and diluted net income attributable
to ChinaCast Education Corporation per share is as follows:
 For the three months ended March 31,2009
    
    2008Numerator used in basic and diluted
net income attributable
to ChinaCast Education Corporation per share:Income attributable to holders
of ordinary shares
    
    RMB
    19,682
    
    
    
    8,230Shares (denominator):Weighted average ordinary
shares outstanding used in
computing basic net income
 attributable
to ChinaCast Education Corporation per share
    
    
    35,648,251
    
    
    
    27,297,256Plus:Incremental ordinary shares
from assumed exercises
of Warrants (Note 11)
    
    
    
    
    
    
    995,001Weighted average ordinary shares
outstanding used in computing
diluted net income attributable
to ChinaCast Education Corporation per share
    
    
    35,648,251
    
    
    
    28,292,257Net income attributable
to ChinaCast Education Corporation per sharebasic:
    
    RMB
    0.55
    
    
    
    0.30Net income attributable
to ChinaCast Education Corporation per sharediluted:
    
    RMB
    0.55
    
    
    
    0.29
 The diluted net income attributable
to ChinaCast Education Corporation per share calculations for
three month ended March 31, 2009 have not included the outstanding unit purchase
option (the UPO) or the related warrants (Note 11) since the effect is anti-dilutive.
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10.
    
    SEGMENT INFORMATION
 Since 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 March 31,2009
    
    2008RMB
    
    RMBRevenues from external customers:ELG
    
    
    47,195
    
    
    
    59,494TUG
    
    
    29,743
    
    
    
    76,938
    
    
    
    59,494Additional analysis of revenues
from ELG by product or service:Service
    
    
    44,319
    
    
    
    40,205Equipment
    
    
    2,876
    
    
    
    19,28947,195
    
    
    
    59,494Additional analysis of revenue
from ELG by business lines:Post secondary education distance
learning
    
    
    25,829
    
    
    
    22,758K-12 and content delivery
    
    
    16,219
    
    
    
    15,862Vocational training, enterprise/government
training and networking services
    
    
    5,147
    
    
    
    20,87447,195
    
    
    
    59,494Income from operations:ELG
    
    
    17,055
    
    
    
    7,033TUG
    
    
    10,918
    
    
    
    27,973
    
    
    
    7,033
 As of March
    
    As of December31, 2009
    
    31, 2008RMB
    
    RMBSegment assets:ELG
    
    
    744,387
    
    
    
    725,516TUG
    
    
    752,556
    
    
    
    773,6431,496,943
    
    
    
    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 months
ended March 31, 2009.Four customers as of March 31, 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
53.9% and 55.4% of the Companys accounts receivable balance at
March 31, 2009 and December
31, 2008, respectively.
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11.
    
    WARRANTS AND UNIT PURCHASE OPTIONS
 In March 2004, Great Wall sold 4,515,975 units in its initial public offering. Each unit consists of one share of
the Companys common stock and two redeemable common stock purchase warrants (Warrants). Each Warrant will entitle
the holder to purchase from the Company 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, an 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.As of March 31, 2009, there were 395,000 UPO units, 10,000 UPO Warrants and 255,000 Underwriter Warrants outstanding.
 12.
    
    CONTINGENCIES
 a)
    
    On March 21, 2006, after obtaining the approval of its shareholders,
the Company amended its certificate of incorporation, the effect of
which was, among other things, to eliminate the provision of the
certificate of incorporation that purported to prohibit the amendment
of the business combination provisions contained therein and to
extend the date before which the Company must complete a business
combination, to avoid being required to liquidate, from March 23, 2006
to December 31, 2006. Because extending the period during which the
Company could consummate a business combination was not contemplated
by the initial public offering (IPO) prospectus, shareholders may
have securities law claims against the Company for rescission (under
which a successful claimant would have the right to receive the total
amount paid for his or her shares, plus interest and less any income
earned on the shares, in exchange for surrender of the shares) or
damages (compensation for loss on an investment caused by alleged
material misrepresentations or omissions in the sale of the security).
Such claims might entitle shareholders asserting them to up to US$6.00
per share of common stock, based on the initial offering price of the
public units comprised of stock and warrants, less any amount received
from sale of the original warrants purchased with them and plus
interest from the date of the IPO. A successful claimant for damages
under federal or state law could be awarded an amount to compensate
for the decrease in value of his or her shares caused by the alleged
violation (including, possibly, punitive damages), together with
interest, while retaining the shares. The Company believes the
shareholder claims for rescission or damages are remote. As such, the
Company has not recorded a liability for such possible rescission.
However, the Company cannot definitively predict whether shareholders
will bring such claims, how many might bring them or the extent to
which they might be successful.
 b)
    
    The Company may be subject to claims for rescission or other
securities law claims resulting from the failure to disclose that the
charter provision purporting to prohibit certain amendments was
possibly inconsistent with Delawares General Corporation Law. The
Company may also be subject to such claims as a result of inaccuracies
in other disclosures, as follows: It may be argued that the IPO
prospectus misstated the vote required by its charter to approve a
business combination by providing that [w]e will proceed with a
business combination only if the public shareholders who own at least
a majority of the shares of common stock sold in [that] offering vote
in favor [of it] ..., and that the Exchange Act reports have been
inaccurate in describing ChinaCast as a leading provider of e-learning
content (as opposed to being primarily a content carrier). On November
13, 2006, the Company filed a Current Report on Form 8-K with the SEC
regarding this last item. The Company is unable to predict the
likelihood that claims might be made with regard to the foregoing or
estimate any amounts for which it might be liable if any such claim
was made. As such, the Company has not recorded a liability for such
possible rescission.
 13




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13.
    
    SUBSEQUENT EVENT
 On April 13, 2009, the Company announced that it has signed a
Memorandum of Understanding to acquire a 100% interest in the holding
company of a private, accredited university located in Southwestern
China. The acquisition will be subject to the completion of the required audited financials
and other customary closing conditions.
 14




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Item 2. Managements Discussion and Analysis or Plan of Operation.
 Forward Looking Statement
  Overview
    Critical Accounting Policies
      15




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Results of Operations
   Three Months Ended March 31, 2009 compared to the Three Months Ended March 31, 2008.
  Three MonthsEndedThree Months ended
    
    March 31,March 31, 2009
    
    2008(millions)
    
    US$
    
    RMB
    
    RMBPost secondary education distance learning
    
    
    3.8
    
    
    
    25.9
    
    
    
    22.8K-12 and content delivery
    
    
    2.4
    
    
    
    16.2
    
    
    
    15.9Vocational training, enterprise /
government training and networking and
English training services
    
    
    0.7
    
    
    
    5.1
    
    
    
    20.9Total ELG revenue
    
    
    6.9
    
    
    
    47.2
    
    
    
    59.5
  16




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Liquidity and Capital Resources
  As ofAs of
    
    December 31,March 31, 2009
    
    2008(millions)
    
    RMB
    
    US$
    
    RMBCash and cash equivalents
    
    
    88.0
    
    
    
    12.9
    
    
    
    220.1Term deposits
    
    
    502.7
    
    
    
    73.9
    
    
    
    369.0Subtotal
    
    
    590.7
    
    
    
    86.8
    
    
    
    589.1Accounts receivable
    
    
    46.9
    
    
    
    6.9
    
    
    
    32.6Inventory
    
    
    1.4
    
    
    
    0.2
    
    
    
    1.4Prepaid expenses and other current assets
    
    
    6.4
    
    
    
    0.9
    
    
    
    9.0Total current assets
    
    
    647.2
    
    
    
    95.2
    
    
    
    634.6Non-current advances to a related party
    
    
    104.3
    
    
    
    15.3
    
    
    
    110.2Total assets
    
    
    1,496.9
    
    
    
    220.1
    
    
    
    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.
   
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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.
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SIGNATURES
  CHINACAST EDUCATION CORPORATION
(Registrant)Date: May 11, 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 and
Secretary (Principal Financial Officer) 23