##### 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 September 30, 2009
 Or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from            to
 Commission File Number: 000-50550
 CHINACAST EDUCATION CORPORATION
  Delaware
(State or Other Jurisdiction of 
Incorporation or Organization)
    
    20-0178991
(I.R.S. Employer Identification Number)
 Suite 3316, 33/F, One IFC
1 Harbour View Street,
Central, Hong Kong
 (852) 2811 2389
  þ o
 o o
  Large accelerated filer
o

    
    Accelerated filer
þ
    
    Non-accelerated filer   o
(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
    
    
    24Item 3.Quantitative and Qualitative Disclosures About Market Risk
    
    
    30Item 4.Controls and Procedures
    
    
    30PART II OTHER INFORMATION
    
    
    32Item 1.Legal Proceedings
    
    
    32Item 1A.Risk Factors
    
    
    32Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    32Item 3.Defaults Upon Senior Securities
    
    
    32Item 4.Submission of Matters to a Vote of Security Holders
    
    
    32Item 5.Other Information
    
    
    32Item 6.Exhibits
    
    
    32SIGNATURES
    
    
    33EXHIBIT
INDEX
  2




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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 ofAs of September 30,
    
    
    December 31,2009
    
    
    2009
    
    
    2008US$
    
    
    RMB
    
    
    RMB(Note 1)
    
    
    
    
    
    
    (Note 1)AssetsCurrent assets:Cash and cash equivalents
    
    
    58,575
    
    
    
    398,312
    
    
    
    220,131Term deposits
    
    
    41,176
    
    
    
    280,000
    
    
    
    369,000Accounts receivable
    
    
    8,187
    
    
    
    55,670
    
    
    
    32,581Inventories
    
    
    251
    
    
    
    1,705
    
    
    
    1,419Prepaid expenses and other current assets
    
    
    951
    
    
    
    6,468
    
    
    
    8,987Amounts due from related parties
    
    
    307
    
    
    
    2,088
    
    
    
    2,488Total current assets
    
    
    109,447
    
    
    
    744,243
    
    
    
    634,606Non-current deposits
    
    
    561
    
    
    
    3,818
    
    
    
    686Property and equipment, net
    
    
    38,521
    
    
    
    261,940
    
    
    
    283,982Land use rights, net
    
    
    17,619
    
    
    
    119,810
    
    
    
    121,783Acquired intangible assets, net
    
    
    2,867
    
    
    
    19,497
    
    
    
    31,330Deposits for investments
    
    
    15,147
    
    
    
    103,000
    
    
    
    Long-term investments
    
    
    567
    
    
    
    3,854
    
    
    
    5,224Non-current advances to related party
    
    
    14,354
    
    
    
    97,606
    
    
    
    110,217Goodwill
    
    
    45,784
    
    
    
    311,332
    
    
    
    311,331Total assets
    
    
    244,867
    
    
    
    1,665,100
    
    
    
    1,499,159Liabilities and shareholders equityCurrent liabilities:Accounts payable
    
    
    2,655
    
    
    
    18,054
    
    
    
    11,467Accrued expenses and other current liabilities
    
    
    13,346
    
    
    
    90,751
    
    
    
    132,807Deferred revenues
    
    
    15,808
    
    
    
    107,492
    
    
    
    84,372Amount due to related party
    
    
    77
    
    
    
    528
    
    
    
    1,127Income taxes payable
    
    
    9,413
    
    
    
    64,009
    
    
    
    50,594Current portion of long-term bank borrowings
    
    
    13,882
    
    
    
    94,400
    
    
    
    20,000Current portion of capital lease obligation
    
    
    190
    
    
    
    1,289
    
    
    
    1,191Other borrowings
    
    
    85
    
    
    
    580
    
    
    
    1,097Total current liabilities
    
    
    55,456
    
    
    
    377,103
    
    
    
    302,655Non-current liabilities:Long-term bank borrowings
    
    
    7,941
    
    
    
    54,000
    
    
    
    58,400Capital lease obligation, net of current portion
    
    
    193
    
    
    
    1,313
    
    
    
    1,323Deferred tax liabilities
    
    
    2,826
    
    
    
    19,214
    
    
    
    21,030Unrecognized tax benefits
    
    
    7,412
    
    
    
    50,403
    
    
    
    44,612Total non-current liabilities
    
    
    18,372
    
    
    
    124,930
    
    
    
    125,365
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##### Table of Contents



As ofAs of September 30,
    
    
    December 31,2009
    
    
    2009
    
    
    2008US$
    
    
    RMB
    
    
    RMB(Note 1)
    
    
    
    
    
    
    (Note 1)Total liabilities
    
    
    73,828
    
    
    
    502,033
    
    
    
    428,020Commitments and contingencies (Note 13)Shareholders equity:Ordinary shares (US$0.0001 par value; 100,000,000
shares authorized; 38,351,198 and 35,648,251 shares
issued and outstanding in 2009 and 2008, respectively)
    
    
    4
    
    
    
    29
    
    
    
    27Additional paid-in capital
    
    
    145,580
    
    
    
    989,945
    
    
    
    948,352Statutory reserve
    
    
    4,135
    
    
    
    28,117
    
    
    
    28,117Accumulated other comprehensive loss
    
    
    (906
    )
    
    
    (6,159
    )
    
    
    (5,462
    )Retained earnings
    
    
    18,877
    
    
    
    128,361
    
    
    
    55,526Total ChinaCast Education Corporation shareholders equity
    
    167,690
    
    
    1,140,293
    
    
    
    1,026,560Noncontrolling interest
    
    
    3,349
    
    
    
    22,774
    
    
    
    44,579Total shareholders equity
    
    
    171,039
    
    
    
    1,163,067
    
    
    
    1,071,139Total liabilities and shareholders equity
    
    
    244,867
    
    
    
    1,665,100
    
    
    
    1,499,159
  4




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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 30,2009
    
    
    2009
    
    
    2008
    
    
    2009
    
    
    2009
    
    
    2008US$
    
    
    RMB
    
    
    RMB
    
    
    US$
    
    
    RMB
    
    
    RMB(Note 1)
    
    
    
    
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    
    
    
    
    (Note 1)Revenues:Service
    
    
    11,917
    
    
    
    81,040
    
    
    
    70,856
    
    
    
    33,806
    
    
    
    229,886
    
    
    
    181,869Equipment
    
    
    279
    
    
    
    1,896
    
    
    
    1,923
    
    
    
    892
    
    
    
    6,065
    
    
    
    24,32712,196
    
    
    
    82,936
    
    
    
    72,779
    
    
    
    34,698
    
    
    
    235,951
    
    
    
    206,196Cost of revenues:Service
    
    
    (4,277
    )
    
    
    (29,077
    )
    
    
    (28,887
    )
    
    
    (12,528
    )
    
    
    (85,188
    )
    
    
    (71,369
    )Equipment
    
    
    (275
    )
    
    
    (1,875
    )
    
    
    (1,898
    )
    
    
    (882
    )
    
    
    (6,001
    )
    
    
    (24,093
    )(4,552
    )
    
    
    (30,952
    )
    
    
    (30,785
    )
    
    
    (13,410
    )
    
    
    (91,189
    )
    
    
    (95,462
    )Gross profit
    
    
    7,644
    
    
    
    51,984
    
    
    
    41,994
    
    
    
    21,288
    
    
    
    144,762
    
    
    
    110,734Operating (expenses) income:Selling and marketing expenses (including
share-based compensation of RMB267 and RMB114 for the three months
ended September 30 for 2009 and 2008,
respectively, share-based compensation of
RMB1,373 and RMB1,506 for the
nine months ended September 30 for 2009 and
2008, respectively)
    
    
    (135
    )
    
    
    (919
    )
    
    
    (2,001
    )
    
    
    (535
    )
    
    
    (3,640
    )
    
    
    (6,370
    )General and administrative expenses
(including share-based compensation of
RMB2,868 and RMB2,115 for the three months
ended September 30 for 2009 and 2008,
respectively, share-based compensation of
RMB11,474 and RMB12,079 for the nine months
ended September 30 for 2009 and 2008,
respectively)
    
    
    (1,958
    )
    
    
    (13,313
    )
    
    
    (16,577
    )
    
    
    (6,541
    )
    
    
    (44,472
    )
    
    
    (46,976
    )Foreign exchange gain (loss)
    
    
    (8
    )
    
    
    (51
    )
    
    
    (392
    )
    
    
    10
    
    
    
    65
    
    
    
    (1,043
    )Management service fee
    
    
    76
    
    
    
    510
    
    
    
    1,864
    
    
    
    560
    
    
    
    3,806
    
    
    
    4,655Other operating income (loss)
    
    
    (18
    )
    
    
    (120
    )
    
    
    232
    
    
    
    57
    
    
    
    387
    
    
    
    232Total operating expenses, net
    
    
    (2,043
    )
    
    
    (13,893
    )
    
    
    (16,874
    )
    
    
    (6,449
    )
    
    
    (43,854
    )
    
    
    (49,502
    )
 5




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For the three months ended September 30,
    
    
    For the nine months ended September 30,2009
    
    
    2009
    
    
    2008
    
    
    2009
    
    
    2009
    
    
    2008US$
    
    
    RMB
    
    
    RMB
    
    
    US$
    
    
    RMB
    
    
    RMB(Note 1)
    
    
    
    
    
    
    (Note 1)
    
    
    (Note 1)
    
    
    
    
    
    
    (Note 1)Income from operations
    
    
    5,601
    
    
    
    38,091
    
    
    
    25,120
    
    
    
    14,839
    
    
    
    100,908
    
    
    
    61,232Interest income
    
    
    314
    
    
    
    2,134
    
    
    
    4,191
    
    
    
    1,018
    
    
    
    6,923
    
    
    
    15,764Interest expense
    
    
    (356
    )
    
    
    (2,421
    )
    
    
    (251
    )
    
    
    (822
    )
    
    
    (5,591
    )
    
    
    (437
    )Income before provision for income taxes
and loss in equity investments
    
    
    5,559
    
    
    
    37,804
    
    
    
    29,060
    
    
    
    15,035
    
    
    
    102,240
    
    
    
    76,559Provision for income taxes
    
    
    (1,120
    )
    
    
    (7,619
    )
    
    
    (6,733
    )
    
    
    (3,101
    )
    
    
    (21,090
    )
    
    
    (16,601
    )Income before loss in equity investments
    
    
    4,439
    
    
    
    30,185
    
    
    
    22,327
    
    
    
    11,934
    
    
    
    81,150
    
    
    
    59,958(Loss)gain in equity investments
    
    
    (117
    )
    
    
    (793
    )
    
    
    182
    
    
    
    (202
    )
    
    
    (1,370
    )
    
    
    (634
    )Net income
    
    
    4,322
    
    
    
    29,392
    
    
    
    22,509
    
    
    
    11,732
    
    
    
    79,780
    
    
    
    59,324Less: Net income attributable to
noncontrolling interest
    
    
    (299
    )
    
    
    (2,036
    )
    
    
    (2,820
    )
    
    
    (1,021
    )
    
    
    (6,945
    )
    
    
    (5,661
    )Net income attributable to ChinaCast
Education Corporation
    
    
    4,023
    
    
    
    27,356
    
    
    
    19,689
    
    
    
    10,711
    
    
    
    72,835
    
    
    
    53,663Earnings per shareNet income attributable to ChinaCast
Education Corporation per share:Basic
    
    
    0.11
    
    
    
    0.76
    
    
    
    0.63
    
    
    
    0.30
    
    
    
    2.03
    
    
    
    1.87Diluted
    
    
    0.11
    
    
    
    0.75
    
    
    
    0.63
    
    
    
    0.30
    
    
    
    2.03
    
    
    
    1.85Weighted average shares used in computation:Basic
    
    
    36,133,233
    
    
    
    36,133,233
    
    
    
    31,373,482
    
    
    
    35,814,325
    
    
    
    35,814,325
    
    
    
    28,695,241Diluted
    
    
    36,379,884
    
    
    
    36,379,884
    
    
    
    31,373,482
    
    
    
    35,945,264
    
    
    
    35,945,264
    
    
    
    29,026,908
  6




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CHINACAST EDUCATION CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME (Unaudited)
(In thousands, except share-related data)
 ChinaCast Education Corporation ShareholdersAccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    other
    
    
    
    
    
    
    TotalOrdinary
    
    
    paid-in
    
    
    Statutory
    
    
    Retained
    
    
    comprehensive
    
    
    Noncontrolling
    
    
    stockholdersAmount
    
    
    capital
    
    
    Reserve
    
    
    earnings
    
    
    loss
    
    
    interest
    
    
    EquityShares
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMBBalance at
January 1, 2009
    
    
    35,648,251
    
    
    
    27
    
    
    
    948,352
    
    
    
    28,117
    
    
    
    55,526
    
    
    
    (5,462
    )
    
    
    44,579
    
    
    
    1,071,139Issuance of
restricted shares
of common stock for acquisition of additional interests in subsidiary
    
    
    2,582,947
    
    
    
    2
    
    
    
    28,746
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28,748
    )
    
    
    Share-based
compensation
    
    
    120,000
    
    
    
    
    
    
    
    12,847
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,847Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    72,835
    
    
    
    
    
    
    
    6,945
    
    
    
    79,780Foreign currency
translation
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (697
    )
    
    
    (2
    )
    
    
    (699
    )Balance at
September 30, 2009
    
    
    38,351,198
    
    
    
    29
    
    
    
    989,945
    
    
    
    28,117
    
    
    
    128,361
    
    
    
    (6,159
    )
    
    
    22,774
    
    
    
    1,163,067US$
    4
    
    
    US$
    145,580
    
    
    US$
    4,135
    
    
    US$
    18,877
    
    
    US$
    (906
    )
    
    US$
    3,349
    
    
    US$
    171,039
  7




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CHINACAST EDUCATION CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
 For the nine months ended September 30,2009
    
    
    2009
    
    
    2008US$
    
    
    RMB
    
    
    RMB(Note 1)
    
    
    
    
    
    
    (Note 1)Cash flows from operating activities:Net income
    
    
    11,732
    
    
    
    79,780
    
    
    
    59,324Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    4,717
    
    
    
    32,074
    
    
    
    23,083Share-based compensation
    
    
    1,889
    
    
    
    12,847
    
    
    
    13,585Loss (gain) on disposal of property and equipment
    
    
    76
    
    
    
    519
    
    
    
    (232
    )Loss in equity investments
    
    
    201
    
    
    
    1,370
    
    
    
    634Changes in assets and liabilities:Accounts receivable
    
    
    (3,394
    )
    
    
    (23,080
    )
    
    
    (24,822
    )Inventories
    
    
    (84
    )
    
    
    (570
    )
    
    
    (42
    )Prepaid expenses and other current assets
    
    
    444
    
    
    
    3,019
    
    
    
    (2,302
    )Non-current deposits
    
    
    (20
    )
    
    
    (133
    )
    
    
    1,640Amounts due from related parties
    
    
    846
    
    
    
    5,751
    
    
    
    960Accounts payable
    
    
    969
    
    
    
    6,587
    
    
    
    (3,022
    )Accrued expenses and other current liabilities
    
    
    (2,037
    )
    
    
    (13,856
    )
    
    
    4,698Deferred revenues
    
    
    3,400
    
    
    
    23,120
    
    
    
    60,415Amount due to related party
    
    
    (88
    )
    
    
    (599
    )
    
    
    Income taxes payable
    
    
    1,973
    
    
    
    13,415
    
    
    
    13,728Deferred taxes liabilities
    
    
    (267
    )
    
    
    (1,816
    )
    
    
    (1,611
    )Unrecognized tax benefits
    
    
    851
    
    
    
    5,791
    
    
    
    1,529Net cash provided by operating activities
    
    
    21,208
    
    
    
    144,219
    
    
    
    147,565Cash flows from investing activities:Advance to related party
    
    
    (2,941
    )
    
    
    (20,000
    )
    
    
    (149
    )Repayment from advance to related party
    
    
    4,051
    
    
    
    27,544
    
    
    
    10,991Purchase of property and equipment
    
    
    (3,846
    )
    
    
    (26,153
    )
    
    
    (14,235
    )Purchase of subsidiaries, net of cash acquired
    
    
    
    
    
    
    
    
    
    
    (465,507
    )Term deposits
    
    
    13,088
    
    
    
    89,000
    
    
    
    187,768Disposal of property and equipment
    
    
    
    
    
    
    
    
    
    
    256Deposits for investments
    
    
    (15,147
    )
    
    
    (103,000
    )
    
    
    (19,000
    )Net cash used in investing activities
    
    
    (4,795
    )
    
    
    (32,609
    )
    
    
    (299,876
    )Cash flows from financing activities:Other borrowings raised
    
    
    1,522
    
    
    
    10,350
    
    
    
    5,298Other
borrowing raised from related party
    
    
    74
    
    
    
    500
    
    
    
    Repayment of other borrowings
    
    
    (1,672
    )
    
    
    (11,367
    )
    
    
    (7,600
    )Repayment of Bank borrowings
    
    
    18,882
    
    
    
    128,400
    
    
    
    Bank borrowings repaid
    
    
    (8,588
    )
    
    
    (58,400
    )
    
    
    Guarantee deposit paid
    
    
    (441
    )
    
    
    (3,000
    )
    
    
    Exercise of warrants
    
    
    
    
    
    
    
    
    
    
    16,778Repayment of capital lease obligation
    
    
    13
    
    
    
    88
    
    
    
    (184
    )Collection of subscription receivable
    
    
    
    
    
    
    
    
    
    
    87,670Net cash provided by financing activities
    
    
    9,790
    
    
    
    66,571
    
    
    
    101,962
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##### Table of Contents



For the nine months ended September 30,2009
    
    
    2009
    
    
    2008US$
    
    
    RMB
    
    
    RMB(Note 1)
    
    
    
    
    
    
    (Note 1)Effect of foreign exchange rate changes
    
    
    
    
    
    
    
    
    
    
    (377
    )Net increase(decrease)  in cash and cash equivalents
    
    
    26,203
    
    
    
    178,181
    
    
    
    (50,726
    )Cash and cash equivalents at beginning of the period
    
    
    32,372
    
    
    
    220,131
    
    
    
    138,610Cash and cash equivalents at end of the period
    
    
    58,575
    
    
    
    398,312
    
    
    
    87,884
  9




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##### Table of Contents



NOTES TO 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-K for the fiscal year ended December 31,
2008.In the opinion of the management of CEC, the accompanying unaudited condensed consolidated
financial statements are prepared on the same basis as the audited financial statements and these
unaudited condensed consolidated financial statements reflect all adjustments, consisting only of
normal recurring adjustments that are, in the opinion of management, necessary for a fair
presentation of the results of the interim periods presented. The results of operations for the
interim periods presented are not necessarily indicative of the operating results expected for any
subsequent interim period or for CECs fiscal year ending December 31, 2009.The accompanying unaudited condensed consolidated financial statements include the accounts of
CEC, its subsidiaries, and variable interest entities (collectively, the Company). All
significant intercompany balances and transactions have been eliminated in consolidation.Significant Accounting PoliciesThe accompanying unaudited condensed consolidated financial statements have been using the same
accounting policies used in the preparation of the audited financial statements included in CECs
Annual Report on Form 10-K for the fiscal year ended December 31, 2008, except for the following
additional accounting policies:(1) Adoption of authoritative pronouncement issued by Financial Accounting Standards Board (FASB) regarding the noncontrolling interest.Effective January 1, 2009, the Company adopted authoritative pronouncement issued by FASB regarding the noncontrolling interest. The adoption did not impact the
condensed consolidated financial statements for the three and nine month periods ended September
30, 2009, except for the accounting requirements for acquisitions of additional interests in subsidiaries, and 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 authoritative pronouncement issued by the FASB regarding business combinations.Effective January 1, 2009, the Company adopted authoritative pronouncement issued by the FASB regarding business combinations. The adoption did not have a
significant effect on the Companys consolidated financial statements for the three and nine month
periods ended September 30, 2009.Convenience TranslationAmounts in United States dollars (US$) are presented solely for the convenience of
readers and an exchange rate of RMB6.8 to US$1 was applied as of September 30, 2009. Such
translation should not be construed to be the amounts that would have been reported under US GAAP.The Share Exchange TransactionOn December 22, 2006, Great Wall consummated the voluntary conditional offer (the Offer)
made in Singapore to acquire all of the outstanding ordinary shares of ChinaCast Communication
Holdings Limited (ChinaCast). Pursuant to the terms of the Offer, ChinaCast shareholders had the
option to receive either shares of CEC or a cash payment for each ChinaCast share tendered. On
January 18, 2007, the closing date of the Offer, total shares acquired were 80.27%. Since Great
Wall was not an operating company and the shareholders of ChinaCast control the combined company
after the above transaction consummated on December 22, 2006 (the Share Exchange Transaction),
the Share Exchange Transaction was accounted for as a recapitalization in which ChinaCast was the
accounting
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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 amounted 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 PRONOUNCEMENTSOn April 9, 2009, the FASB issued authoritative pronouncement regarding interim
disclosures about fair value of financial instruments. This pronouncement
amends FASB Statement No. 107, Disclosures about Fair Value of Financial
Instruments, to require disclosures about fair value of financial instruments
for interim reporting periods as well as in annual financial statements of
publicly traded companies. This pronouncement also amends APB Opinion No. 28,
Interim Financial Reporting, to require those disclosures in summarized
financial information at interim reporting periods. This pronouncement became
effective on April 1, 2009. They do not require disclosures for earlier periods
presented for comparative purposes at initial adoption. In periods after
initial adoption, this pronouncement requires comparative disclosures only for
periods ending after initial adoption. The adoption of this pronouncement did
not have a material effect on the Companys consolidated financial statements.On April 9, 2009, the FASB issued authoritative pronouncement regarding
recognition and presentation of other-than-temporary impairments. This
pronouncement amends the other-than-temporary impairment guidance in U.S. GAAP
for debt securities to make the guidance more operational and to improve the
presentation and disclosure of other-than-temporary impairments on debt and
equity securities in the financial statements. This pronouncement does not
amend existing recognition and measurement guidance related to
other-than-temporary impairments of equity securities. This pronouncement
became effective on April 1, 2009. They do not require disclosures for earlier
periods presented for comparative purposes at initial adoption. In periods
after initial adoption, this pronouncement requires comparative disclosures
only for periods ending after initial adoption. The adoption of this
pronoucement did not have a significant effect on the Companys consolidated
financial position or results of operations.On April 9, 2009, the FASB issued authoritative pronouncement regarding
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. This pronouncement 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. This pronouncement also includes guidance on
identifying circumstances that indicate a transaction is not orderly. This
pronouncement 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. This pronouncement became
effective on April 1, 2009 and is applied prospectively. It does not require
disclosures for earlier periods presented for comparative purposes at initial
adoption. In periods after initial adoption, this pronouncement requires
comparative disclosures only for periods ending after initial adoption. The
adoption of the Codification has no significant effect on the Companys
consolidated financial position or results of operations.On May 28, 2009, the FASB issued authoritative pronouncement regarding
subsequent events. The objective of this pronouncement is to establish general
standards for the accounting and disclosure of events that occur after the
balance sheet date but before financial statements are issued or are available
to be issued. In particular, this pronouncement sets forth the period after the
balance sheet date during which management of a reporting entity should
evaluate events or transactions that may occur for potential recognition or
disclosure in the financial statements; the circumstances under which an entity
should recognize events or transactions occurring after the balance sheet date
in its financial statements; and the disclosures that an entity should make
about events or transactions that occurred after the balance sheet date. This
pronouncement is effective for interim or annual periods ending after June 15,
2009. The adoption of the Codification has no significant effect on the
Companys consolidated financial position or results of operations.On June 12, 2009, the FASB issued authoritative pronouncement regarding
amendments to FASB Interpretation No. 46(R) (Fin 469R)). This pronouncement
is a revision to FIN 46(R) and changes how a company determines when an entity
that is insufficiently capitalized or is not controlled through voting (or
similar rights) should be consolidated. The determination of whether a company
is required to consolidate an entity is based on, among other things, an
entitys purpose and design and a companys ability to direct the activities of
the entity that most significantly impact the entitys economic performance.
This pronouncement retains the scope of FIN 46(R) with the addition of entities
previously considered qualifying special-purpose entities, as the concept of
these entities was eliminated in FASB Statement 166. The Statement is effective
as of the beginning of the first fiscal year that begins after November 15,
2009. The Company is currently evaluating whether the adoption of this
pronouncement will have a significant effect on its consolidated financial
position or results of operations.On July 1, 2009, the FASB issued authoritative pronouncement, The FASB Accounting Standards Codification and the Hierarchy
of Generally Accepted Accounting Principles  a replacement of FASB Statement No. 162, the FASB Accounting Standards Codification (the Codification) became the single source of
authoritative nongovernmental US GAAP. The Codification is effective for interim and annual
periods ending after September 15, 2009. The adoption of this pronouncement did not have a significant effect on the Companys consolidated financial position or results of operations.
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On August 28, 2009, the FASB issued ASU 2009-05 (previously exposed for comments as proposed FSP
FAS 157-f) to provide guidance on measuring the fair value of liabilities under ASC 820. The ASU
clarifies that the quoted price for the identical liability, when traded as an asset in an active
market, is also a Level 1 measurement for that liability when no adjustment to the quoted price is
required. In the absence of a Level 1 measurement, an entity must use one or more of the following
valuation techniques to estimate fair value (in a manner consistent with the principles in ASC
820), which can be classified into two broad categories:A valuation technique that uses a quoted price:Of an identical liability when traded as an asset.Of a similar liability or of a similar liability when traded as an asset.Another valuation technique (e.g., a market approach or an income approach), including one of the
following:A technique based on the amount an entity would pay to transfer the identical liability.A technique based on the amount an entity would receive to enter into an identical liability.The ASU is effective for the first interim or annual reporting period beginning after the
ASUs issuance. The Company is currently evaluating whether the adoption will have a significant effect on its consolidated financial position or results of operations
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3.
    
    ACQUISITIONOn April 11, 2008, Yupei Training Information Technology Co., Ltd. (YPSH), the Companys subsidiary
in the Peoples Republic of China (the PRC), consummated the acquisition of an 80%
interest in Hai Lai Education Technology Limited (Hai Lai) from Beijing Heng Tai Jufu
Investment Limited. Hai Lai holds the entire interest in the Foreign Trade and Business
College of Chongqing Normal University (FTBC) and Hai Yuen Company Limited (Hai Yuen).
FTBC is a private college affiliated with Chongqing Normal University. The consideration for
the acquisition was RMB480,000. 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 borrowings
    
    
    (20,000
    )Unrecognized tax benefits
    
    
    (6,837
    )Noncontrolling interest
    
    
    (16,550
    )Total
    
    
    480,000
 The Company performed the purchase price allocation for the acquisition. The valuation analysis utilized and
considered generally accepted valuation methodologies such as income, market and cost approach.The Company believes that the acquisition furthers its
strategy of expanding into the post-secondary bricks and
mortar education market. The combination of these factors is the rationale for the excess of purchase price over
the value of the assets acquired and liabilities assumed.Pro formaThe following supplemental unaudited pro forma results of
operations for the three months and nine months ended
September 30, 2008 presented the acquisition as if it had occurred on January 1, 2008. The unaudited pro forma
results include estimates and assumptions regarding amortization of acquired intangible assets which the Company
believes are reasonable. However, pro forma results are not necessarily indicative of the results that would have
occurred if the acquisition had occurred on the dates, indicated, or that may result in the future:
 For the three months
    
    For the nine months endedended September 30,
    
    September 30,2008
    
    2008RMB
    
    RMBNet revenues
    
    
    72,779
    
    
    
    236,492Net income
attributable to ChinaCast Education Corporation
    
    
    23,288
    
    
    
    54,914Net income per share  basic
    
    
    0.74
    
    
    
    1.91Net income per share  diluted
    
    
    0.74
    
    
    
    1.89
 On September 18, 2009, YPSH consummated the acquisition of the entire interest in Chongqing
Chaosheng Education and Investment Co., Ltd. (Chaosheng), which holds a 20% interest in Hai Lai,
for a total purchase price of RMB135,000. In return, the Company issued 2,582,947 shares
of its common stock to the parties designated by the original owners of Chaosheng.
Upon Consummation of the above acquisition, YPSH effectively owns the 100% interest in Hai Lai.
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4.
    
    NON-CURRENT DEPOSITSNon-current deposits consisted of the following:
 As of September
    
    
    As of30,
    
    
    December 31,2009
    
    
    2008RMB
    
    
    RMBRental deposits
    
    
    298
    
    
    
    166Utilities deposits
    
    
    270
    
    
    
    270Guarantee deposit
    
    
    3,000
    
    
    
    Other deposits
    
    
    250
    
    
    
    250Total
    
    
    3,818
    
    
    
    686
 Rental deposits represented office rental deposits for the Companys daily operations. These
deposits are classified into non-current deposits since they will not be refunded within one year.Guarantee deposit represented a deposit placed with Chongqing Education Guarantee Co., Ltd.
(CQEG), a long-term investment of the Company, which in turn provided guarantee in favor of the
relevant bank for the Companys bank borrowing of RMB30,000.
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5.
    
    COMPREHENSIVE INCOMEThe components of comprehensive income for the periods presented were as follows:
 For the three months ended September 30,
    
    
    For the nine months ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008RMB
    
    
    RMB
    
    
    RMB
    
    
    RMBNet income
    
    
    29,392
    
    
    
    22,509
    
    
    
    79,780
    
    
    
    59,324Foreign currency translation adjustments
    
    
    41
    
    
    
    (75
    )
    
    
    (699
    )
    
    
    (321
    )Comprehensive income
    
    
    29,433
    
    
    
    22,434
    
    
    
    79,081
    
    
    
    59,003Comprehensive income attributable to
noncontrolling interest
    
    
    (2,038
    )
    
    
    (2,820
    )
    
    
    (6,943
    )
    
    
    (5,661
    )Comprehensive income attributable to
ChinaCast Education Corporation
    
    
    27,935
    
    
    
    19,614
    
    
    
    72,138
    
    
    
    53,342
 6.
    
    ACQUIRED INTANGIBLE ASSETS, NETAcquired intangible assets, net consisted of the following:
 As of September 30,
    
    
    As of December 31,2009
    
    
    2008RMB
    
    
    RMBBrand name usage rightCost
    
    
    22,532
    
    
    
    22,532Less: Accumulated amortization
    
    
    (3,439
    )
    
    
    (3,004
    )Less: Impairment loss
    
    
    (14,500
    )
    
    
    (14,500
    )4,593
    
    
    
    5,028Customer relationshipCost
    
    
    40,329
    
    
    
    40,329Less: Accumulated amortization
    
    
    (25,425
    )
    
    
    (14,027
    )14,904
    
    
    
    26,302Acquired intangible assets, net
    
    
    19,497
    
    
    
    31,330
 On August 30, 2007, the Company acquired 100% of the
outstanding registered
capital of Modern English Trademark Limited (MET), in exchange for
cash of RMB22,532 (US$3,000). MET has no assets or liabilities except for a
10-year exclusive brand name usage right. The acquisition was recorded as an
intangible asset, which is being amortized on a straight-line basis over 10
years. In 2008, an impairment loss amounting to RMB14,500 was recorded in
relation to this brand name usage right.For the three and nine month periods ended September 30, 2009, the Company
recorded amortization expense in respect of the brand name usage right
amounting to RMB145 and RMB435, respectively. The Company will record
further amortization expenses in respect of brand name usage right of RMB145, RMB580,
RMB580, RMB580, RMB580, RMB2,128 in 2009, 2010, 2011, 2012, 2013 and 2014 and
thereafter, respectively.On April 11, 2008, the Company acquired a customer
relationship through an acquisition
(see Note 3). The customer relationship is being amortized using
accelerated amortization method over 41 months based on the estimated
progression of the students through the respective courses, giving
consideration to the revenue and cash flow associated.For the three and nine month periods ended September 30,
2009, the Company recorded
amortization expense in respect of the customer relationship amounting
to RMB3,507 and RMB11,398, respectively. The Company will record
further amortization
expenses in respect of the customer relationship of RMB2,629, RMB8,767 and
RMB3,508 in 2009, 2010 and 2011, respectively.
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7.
    
    BORROWINGSIn June 2009, a bank borrowing amounting to RMB30,000 was raised. The bank
borrowing carried interests at the benchmark interest rate announced by the
Peoples Bank of China plus 10% to 20% per annum and was secured by guarantees
given by CQEG and by Hai Lai in favor of the relevant bank. In connection with
the guarantee given by CQEG, the entitlement to tuition fees from students of
FTBC and a deposit of RMB3,000 were pledged to CQEG. RMB10,000 of the borrowing
will be repayable in September 2010, the remaining RMB20,000 will be repayable
in June 2011.In August 2009, an aggregate amount of bank borrowings amounting to RMB40,000 was
raised. The bank borrowings carried interests at the benchmark interest rate
announced by the Peoples Bank of China plus 10% to 20% per annum and were secured by guarantees given by CQEG and by Hai Lai in favor of the relevant
bank. RMB6,000, RMB14,000 and RMB20,000 of the borrowings will be repayable in
September 2010, September 2011 and August 2012. These borrowings were
secured by either land use rights of FTBC or the entitlement to tuition fees
from students of FTBC.A bank borrowing outstanding as of January 1, 2009 amounting to RMB20,000 was
repayable in June 2009 under its original terms of the loan agreement. In June
2009, the Company entered into an agreement with the relevant bank that
effectively extended the maturity of the borrowing to June 2010.During the nine months ended September 30, 2009, an aggregate amount of other
borrowings amounting to RMB10,850 was raised. The borrowings carried interest
at 6.31% per annum, were unsecured and fully repaid in September 2009.8.
    
    STOCK COMPENSATION PLANUnder the 2007 Omnibus Securities and Incentive Plan
(2007 Plan) adopted in May 2007, the Company may grant any awards to eligible participants,
including employees, directors or consultants, to purchase up to 2,500,000 ordinary shares.On July 11, 2007, the Company granted, under the 2007
Plan, 12,500 restricted shares to its employees at no consideration. The per share fair value
of ordinary shares as of the grant date was US$5.65 (RMB42.75).On January 11, 2008, the Company agree to grant, under the 2007
Plan, restricted shares to its three directors at no consideration. Each of the three directors
was entitled to 100,000 restricted shares of the Companys
common stock. The fair value of these restricted shares was determined based on the closing price on January 11, 2008 of US$6.25 (RMB45.38). For each of the three directors of CEC, 10,000,
30,000 and 60,000 restricted shares were/will be vested on February 9, 2008, February 9, 2009 and February 9, 2010, respectively. On June 25, 2009,
120,000 restricted shares were issued.On January 11, 2008, the Company granted, under the 2007 Plan, 1,200,000 share options on the Companys common
stock to selected employees at no consideration. The exercise price of the share options granted is US$6.30 and the expiry date is January 11, 2018. A
total of 401,000, 401,000 and 398,000 share options were/will be vested on March 31, 2008, March 31, 2009 and March 31, 2010, respectively. Upon
exercise of these share options, a total of 1,200,000 common stock will be issued.None of these shares based compensations have been forfeited up to
September 30, 2009.A summary of the share option activity under 2007 Plan was as follows:
 WeightedAverageExerciseNumber
    
    
    Priceof options
    
    
    US$Options outstanding at January 1, 2007 and December 31, 2007
    
    
    
    
    
    
    Granted
    
    
    1,200,000
    
    
    
    6.30Exercised
    
    
    
    
    
    
    Cancelled
    
    
    
    
    
    
    Options outstanding at December 31, 2008
    
    
    1,200,000
    
    
    
    6.30Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Cancelled
    
    
    
    
    
    
    
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WeightedAverageExerciseNumber
    
    
    Priceof options
    
    
    US$Options outstanding at September 30, 2009
    
    
    1,200,000
    
    
    
    6.30Options exercisable at September 30, 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(RMB
    19.33
    )
 The aggregate intrinsic value of share options outstanding and exercisable as of September
30, 2009 was US$1,164 and US$778, respectively.The weighted average remaining contractual life is 8.25 years as of September 30, 2009.Total share-based compensation expenses amounting to RMB3,135
and RMB2,229 were recognized
for the three-month periods ended September 30, 2009 and 2008, respectively.
Total share-based compensation expenses amounting to RMB12,847 and RMB13,585 were recognized
for the nine month periods ended September 30, 2009 and 2008, respectively.There was RMB6,308 of total unrecognized compensation expense related to the stock based compensation arrangements for the restricted shares and share options as of September 30, 2009.As of September 30, 2009, no other awards have been granted under the 2007 Plan.
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9.
    
    INCOME TAXESOn March 16, 2007, the National Peoples Congress
enacted a new enterprise income tax law, which took effect on January 1, 2008. The new law applies a uniform 25% enterprise income
tax rate to both foreign invested enterprises and domestic enterprises. The new law provides a five-year transition period from its effective date for the entitled
enterprises which were established before the promulgation date of the new tax law and which were entitled to a preferential tax treatment such as a reduced tax rate or a tax
holiday. According to transitional rules published after the new income tax law, one of the Companys major operating subsidiaries, CCT Shanghai, which was subject to the
preferential tax rate of 15%, is now eligible to the phased-in rates: 18% in 2008, 20% in 2009, 22% in 2010, 24% in 2011, 25% in 2012 and thereafter.On April 11, 2008, the Company consummated the acquisition of an 80% interest in Hai Lai. Hai Lai holds the entire interest in FTBC and Hai Yuen. Hai Lai was incorporated in the
PRC and is subject to PRC income tax rate of 25% since 2008. FTBC and Hai Yuen were incorporated in Chongqing of the PRC and are subject to the preferential tax rate of 15% until
2010 in accordance with the western development preferential policy.The Company considers itself to be permanently reinvested
with respect to its investment in its foreign subsidiaries. Accordingly, no deferred income tax liability related to the
unremitted earnings of its foreign subsidiaries has been included in the Companys provision for income taxes. Upon distribution of subsidiaries earnings in the form of
dividends or otherwise, the Company would be subject to a withholding tax calculated based on 10% of the gross amount of distribution.The Company adopted the authoritative pronouncement issued by
FASB regarding accounting for uncertainty in income taxes on January 1, 2007.
During the nine months ended September 30, 2009, the unrecognized tax benefits increased from RMB44,612 to RMB50,403.
 10.
    
    NET INCOME ATTRIBUTABLE TO CHINACAST EDUCATION CORPORATION PER SHAREReconciliation of the basic and diluted net income per share is as follows:
 For the three months ended September 30,
    
    
    For the nine months ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Numerator used in basic and diluted net income
attributable to ChinaCast Education Corporation per
share:Income attributable to holders of ordinary shares
    
    RMB27,356
    
    RMB19,689
    
    RMB72,835
    
    RMB53,663Shares (denominator):Weighted average ordinary shares outstanding
used in computing basic net income
attributable to ChinaCast Education
Corporation per share
    
    
    36,133,233
    
    
    
    31,373,482
    
    
    
    35,814,325
    
    
    
    28,695,241Plus:Incremental
ordinary shares from assumed conversions of stock options and exercises of Underwriter Warrants and
restricted shares granted to directors (Note
12)
    
    
    246,651
    
    
    
    
    
    
    
    130,939
    
    
    
    331,667Weighted average ordinary shares outstanding used in
computing diluted net income attributable to
ChinaCast Education Corporation per share
    
    
    36,379,884
    
    
    
    31,373,482
    
    
    
    35,945,264
    
    
    
    29,026,908Net income attributable to ChinaCast Education
Corporation per sharebasic:
    
    RMB0.76
    
    RMB0.63
    
    RMB2.03
    
    RMB1.87Net income attributable to ChinaCast Education
Corporation per share diluted:
    
    RMB0.75
    
    RMB0.63
    
    RMB2.03
    
    RMB1.85
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The diluted net income attributable to ChinaCast Education
Corporation per share calculations for three and nine months periods
ended September 30, 2009 have not included the outstanding Warrants,
UPO, UPO Warrants (see Note 12) or the outstanding employee share
options since they are either anti-dilutive or expired.
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11.
    
    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 authoritative pronouncement issued by FASB regarding 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 September 30,
    
    
    For the nine months ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008RMB
    
    
    RMB
    
    
    RMB
    
    
    RMBRevenues from external customers:ELG
    
    
    51,497
    
    
    
    46,317
    
    
    
    146,125
    
    
    
    154,122TUG
    
    
    31,439
    
    
    
    26,462
    
    
    
    89,826
    
    
    
    52,07482,936
    
    
    
    72,779
    
    
    
    235,951
    
    
    
    206,196Additional analysis of revenues from ELG by product
or service:Service
    
    
    49,601
    
    
    
    44,394
    
    
    
    140,060
    
    
    
    129,795Equipment
    
    
    1,896
    
    
    
    1,923
    
    
    
    6,065
    
    
    
    24,32751,497
    
    
    
    46,317
    
    
    
    146,125
    
    
    
    154,122Additional analysis of revenues from ELG by
business lines:Post secondary education distance learning
    
    
    28,857
    
    
    
    24,274
    
    
    
    81,308
    
    
    
    71,082K-12 and content delivery
    
    
    16,047
    
    
    
    16,220
    
    
    
    48,310
    
    
    
    49,500Vocational training, enterprise/government
training and networking services
    
    
    6,593
    
    
    
    5,823
    
    
    
    16,507
    
    
    
    33,54051,497
    
    
    
    46,317
    
    
    
    146,125
    
    
    
    154,122Income from operations:ELG
    
    
    27,117
    
    
    
    16,768
    
    
    
    70,720
    
    
    
    46,207TUG
    
    
    10,974
    
    
    
    8,352
    
    
    
    30,188
    
    
    
    15,02538,091
    
    
    
    25,120
    
    
    
    100,908
    
    
    
    61,232
 As of September
    
    
    As of December30, 2009
    
    
    31, 2008RMB
    
    
    RMBSegment assets:ELG
    
    
    785,916
    
    
    
    725,516TUG
    
    
    879,184
    
    
    
    773,6431,665,100
    
    
    
    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
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Company are employed in the
PRC.There were no customers accounting for 10% or more of total net revenues for
the three and nine months periods ended September 30, 2009.One customers as of September 30, 2009 and four different customers as of
December 31, 2008 each accounted for 10% or more of the Companys accounts
receivable balances, representing an aggregate of 15.3% and 55.4% of the
Companys accounts receivable balance at September 30, 2009 and December 31,
2008, respectively.
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12.
    
    WARRANTS AND UNIT PURCHASE OPTIONSIn March 2004, Great Wall sold 4,515,975 units in its
initial public offering. Each
unit consists of one share of the Companys common stock and two redeemable
common stock purchase warrants (Warrants). Each Warrant will entitle the holder to
purchase from the Company one share of common stock at an exercise price of US$5
commencing on the consummation of the Share Exchange Transaction. In no event will
the Company be required to net cash settle the warrant exercise.In April 2008, 50,100 Warrants had been exercised at an exercise price of US$5.In June and July 2008, the Company entered into agreements with Fir Tree Value
Master Fund, L.P. and Fir Tree Capital Opportunity Master Fund, L.P. (collectively,
Fir Tree), Sherleigh Associates Inc. Profit Sharing Plan and Sherleigh Associates
Inc. Defined Benefit Pension Plan (collectively, Sherleigh) and Capela Overseas
Ltd (Capela), (Fir Tree, Sherleigh and Capela, collectively, the
Warrantholders), whereby the Company agreed to reduce the exercise price of the
Warrants held by Fir Tree, Sherleigh and Capela from US$5.00 per share to US$4.25
per share. In connection with the reduction in the price of the Warrants, in June
2008, Fir Tree exercised in full an aggregate of 3,007,200 Warrants and Sherleigh
exercised in full an aggregate of 411,882 Warrants. In July, Capela exercised in
full an aggregate of 94,117 Warrants. As additional consideration for the
Warrantholders exercising the Warrants in full as well as for the value of the
Warrants, in June 2008 the Company issued 459,924 restricted shares of common stock
of the Company to Fir Tree and 62,993 restricted shares of common stock of the
Company to Sherleigh. In July, the Company issued 14,394 restricted shares of common
stock of the Company to Capela.All the outstanding Warrants expired in March 2009.In connection with the initial public offering, Great Wall
issued, for $100, a UPO
to the representative of the underwriters to purchase 400,000 units at an
exercise price of US$9.90 per unit. In addition, the warrants (UPO Warrants)
underlying such units are exercisable at US$6.95 per share. In January 2008, the
underwriters exercised the UPO to purchase 5,000 units.There was no remeasurement required for these assumed Warrants and UPO because such
assumption is part of the recapitalization in connection with the Share Exchange
Transaction.In connection with the share offering which was consummated
in October 2008, the
Company sold to the underwriter in December 2008, for nominal consideration, an
aggregate of 255,000 Underwriter Warrants with a price of US$3.15 per share. The
Underwriter Warrants will be exercisable for five years from the closing date of the
share offering. There was no remeasurement required for these Underwriter Warrants
since they do not provide for a net cash settlement.All the outstanding UPO and UPO Warrants expired during the
nine months ended September 30,
2009. As of September 30, 2009, there were 255,000 Underwriter
Warrants outstanding.
 13.
    
    CONTINGENCIES
 a)
    
    On March 21, 2006, after obtaining the approval of its shareholders, the
Company amended its certificate of incorporation, the effect of which was,
among other things, to eliminate the provision of the certificate of
incorporation that purported to prohibit the amendment of the business
combination provisions contained therein and to extend the date before which
the Company must complete a business combination, to avoid being required to
liquidate, from March 23, 2006 to December 31, 2006. Because extending the
period during which the Company could consummate a business combination was not
contemplated by the initial public offering (IPO) prospectus, shareholders
may have securities law claims against the Company for rescission (under which
a successful claimant would have the right to receive the total amount paid for
his or her shares, plus interest and less any income earned on the shares, in
exchange for surrender of the shares) or damages (compensation for loss on an
investment caused by alleged material misrepresentations or omissions in the
sale of the security). Such claims might entitle shareholders asserting them to
up to US$6.00 per share of common stock, based on the initial offering price of
the public units comprised of stock and warrants, less any amount received from
sale of the original warrants purchased with them and plus interest from the
date of the IPO. A successful claimant for damages under federal or state law
could be awarded an amount to compensate for the decrease in value of his or
her shares caused by the alleged violation (including, possibly, punitive
damages), together with interest, while retaining the shares. The Company
believes the shareholder claims for rescission or damages are remote. As such,
the Company has not recorded a liability for such possible rescission. However,
the Company cannot definitively predict whether shareholders will bring such
claims, how many might bring them or the extent to which they might be
successful.b)
    
    The Company may be subject to claims for rescission or other securities law
claims resulting from the failure to disclose that the charter provision
purporting to prohibit certain amendments was possibly inconsistent with
Delawares General Corporation Law. The Company may also be subject to such
claims as a result of inaccuracies in other disclosures, as follows: It may be
argued that the IPO prospectus misstated the vote required by its charter to
approve a business combination by providing that [w]e will
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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.
 14.
    
    SUBSEQUENT EVENTThe Company has performed an evaluation of the subsequent events
review through November 9, 2009, which is the date the unaudited condensed consolidated financial statements were issued.On October 5, 2009, the Company made an announcement regarding the completion of its acquisition of the entire interest in East Achieve
Limited, the holding company which owns the 100% indirect interest in Lijiang
College for a total purchase price of RMB365,000. Lijiang College offers fully accredited bachelor degree and
diploma courses in tourism, hospitality, language studies, computer
engineering, economics, law, music, art and physical education.On October 12, 2009, the Company entered into an agreement with the China
University of Petroleum (CUP) to establish a new entity. The entity will
be held 60% by the Company, which will invest RMB30,000 and 40% by
CUP, which will invest RMB20,000 and will provide e-learning service to
students using CUPs distance learning license.
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Forward Looking Statements
  Overview
    Critical Accounting Policies
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Results of Operations
     Three Months endedSeptember 30, 2009
    
    September 30, 2008(millions)
    
    US$
    
    RMB
    
    RMBPost secondary education distance learning
    
    
    4.2
    
    
    
    28.9
    
    
    
    24.3K-12 and content delivery
    
    
    2.4
    
    
    
    16.0
    
    
    
    16.2Vocational training, enterprise / government
training and networking and English training
services
    
    
    1.0
    
    
    
    6.6
    
    
    
    5.8Total ELG revenue
    
    
    7.6
    
    
    
    51.5
    
    
    
    46.3
 Nine Months endedSeptember 30, 2009
    
    September 30, 2008(millions)
    
    US$
    
    RMB
    
    RMBPost secondary education distance learning
    
    
    12.0
    
    
    
    81.3
    
    
    
    71.1K-12 and content delivery
    
    
    7.1
    
    
    
    48.3
    
    
    
    49.5Vocational training, enterprise / government
training and networking and English training
services
    
    
    2.4
    
    
    
    16.5
    
    
    
    33.5Total ELG revenue
    
    
    21.5
    
    
    
    146.1
    
    
    
    154.1
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Liquidity and Capital Resources
  As ofAs of
    
    December 31,September 30, 2009
    
    2008(millions)
    
    RMB
    
    US$
    
    RMBCash and cash equivalents
    
    
    398.3
    
    
    
    58.6
    
    
    
    220.1Term deposits
    
    
    280.0
    
    
    
    41.2
    
    
    
    369.0Subtotal
    
    
    678.3
    
    
    
    99.8
    
    
    
    589.1Accounts receivable
    
    
    55.7
    
    
    
    8.2
    
    
    
    32.6Inventory
    
    
    1.7
    
    
    
    0.3
    
    
    
    1.4Prepaid expenses and other current assets
    
    
    6.5
    
    
    
    1.0
    
    
    
    9.0Total current assets
    
    
    744.2
    
    
    
    109.4
    
    
    
    634.6Non-current advances to a related party
    
    
    97.6
    
    
    
    14.4
    
    
    
    110.2Total assets
    
    
    1,665.1
    
    
    
    244.9
    
    
    
    1,499.2
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
 Foreign Exchange Risk
       Interest Rate Risk
  
 Inflation
  
 Item 4. Controls and Procedures.
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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.
 2.1
    
    Share Transfer Agreement dated August 11, 2009 by and between Yupei Training
Information Technology Co., Ltd. and Chongqing Chaosheng Education and Investment
Co., Ltd. (filed as Exhibit 2.1 to the Companys Current Report on Form 8-K dated
August 11, 2009)2.2
    
    Summary of Cancellation Agreement dated September 18, 2009 by and between
Yupei Training Information Technology Co., Ltd. and Chongqing Chaosheng Education
and Investment Co., Ltd. (filed as Exhibit 2.1 to the Companys Current Report on Form 8-K/A dated August 11, 2009)2.3
    
    Summary of Share Transfer Agreement dated September 18, 2009 by and between
Yupei Training Information Technology Co., Ltd. and the shareholders of Chongqing
Chaosheng Education and Investment Co., Ltd.(filed as Exhibit 2.2 to the Companys
Current Report on Form 8-K/A dated August 11, 2009)2.4
    
    Share Transfer Agreement dated September 28, 2009 by and among ChinaCast
Communication Holdings Limited, Xie Jiqing, East Achieve Limited, Shanghai Xijiu
Information Technology Co., Ltd., China Lianhe Biotechnology Co., Ltd. and Lijiang
College of Guangxi Normal University (filed as Exhibit 2.1 to the Companys Current
Report on Form 8-K dated September 28, 2009)10.1
    
    Share Purchase Agreement dated as of September 18, 2009 by and among
Chinacast Education Corporation and the investors named therein (filed as Exhibit 10.1
to the Companys Current Report on Form 8-K/A dated September 17, 2009)
 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: November 9, 2009
    
    By:
    
    /s/ Ron Chan Tze NgonName:
    
    Ron Chan Tze NgonTitle:
    
    Chairman of the Board,Chief Executive Officer (Principal Executive Officer)By:
    
    /s/ Antonio SenaName:
    
    Antonio SenaTitle:
    
    Chief Financial Officer andSecretary (Principal Financial Officer)
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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description2.1
    
    Share Transfer Agreement dated August 11, 2009 by and between
Yupei Training Information Technology Co., Ltd. and Chongqing
Chaosheng Education and Investment Co., Ltd. (filed as Exhibit
2.1 to the Companys Current Report on Form 8-K dated August
11, 2009).2.2
    
    Summary of Cancellation Agreement dated September 18, 2009 by
and between Yupei Training Information Technology Co., Ltd.
and Chongqing Chaosheng Education and Investment Co., Ltd.
(filed as Exhibit 2.1 to the Companys Current Report on Form
8-K/A dated August 11, 2009).2.3
    
    Summary of Share Transfer Agreement dated September 18, 2009
by and between Yupei Training Information Technology Co., Ltd.
and the shareholders of Chongqing Chaosheng Education and
Investment Co., Ltd.(filed as Exhibit 2.2 to the Companys
Current Report on Form 8-K/A dated August 11, 2009).2.4
    
    Share Transfer Agreement dated September 28, 2009 by and among
ChinaCast Communication Holdings Limited, Xie Jiqing, East
Achieve Limited, Shanghai Xijiu Information Technology Co.,
Ltd., China Lianhe Biotechnology Co., Ltd. and Lijiang College
of Guangxi Normal University (filed as Exhibit 2.1 to the
Companys Current Report on Form 8-K dated September 28,
2009).10.1
    
    Share Purchase Agreement dated as of September 18, 2009 by and
among ChinaCast Education Corporation and the investors named
therein (filed as Exhibit 10.1 to the Companys Current Report
on Form 8-K/A dated September 17, 2009).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.