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
      1934For
      the quarterly period ended June 30,
2010




Or





o
                Transition
      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934For
      the transition period
      from            to





Commission
File Number: 001-33771





CHINACAST
EDUCATION CORPORATION


(Exact
Name of Registrant as Specified in Its Charter)


Delaware
              (State
      or Other Jurisdiction of
              Incorporation
      or Organization)
            
            20-0178991
              (I.R.S.
      Employer Identification Number)





Suite
08, 20/F, One International Financial Centre, 1 Harbour View
Street,


Central,
Hong Kong





(Address
of Principal Executive Offices) (Zip Code)





(852) 3960
6506


(Registrant’s
Telephone Number, Including Area Code)





(Former
name, former address and former fiscal year, if changed since last
report)





Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes þ
      No o





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o
      No o





Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.:


Large accelerated filer 
      o
            
            Accelerated
      filer þ
            
            Non-accelerated
      filer   o
              (Do not check if a smaller reporting
              company)
            
            Smaller
      reporting
              company
      o





Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes o
      No þ





There
were 49,778,952 shares of the Company’s common stock, par value $0.0001 per
share, outstanding as of August 6, 2010.

















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
              
              26Item 3.
      Quantitative and Qualitative Disclosures About Market Risk
              
              32Item 4. Controls
      and Procedures
              
              33PART II — OTHER
      INFORMATION
              
              34Item 1. Legal
      Proceedings
              
              34Item 1A. Risk
      Factors
              
              34Item 2.
      Unregistered Sales of Equity Securities and Use of
Proceeds
              
              34Item 3. Defaults
      Upon Senior Securities
              
              34Item 4. (Removed
      and Reserved)
              
              34Item 5. Other
      Information
              
              34Item 6.
      Exhibits
              
              34SIGNATURES
              
              35EXHIBIT
      INDEX





2





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 June 30,
                
                
                December 31,2010
                
                
                2010
                
                
                2009US$
                
                
                RMB
                
                
                RMB(Note 1)
                
                
                
                
                
                
                (Note 1)AssetsCurrent
      assets:Cash
      and cash equivalents
                
                
                76,034
                
                
                
                517,034
                
                
                
                327,628Term
      deposits
                
                
                80,882
                
                
                
                550,000
                
                
                
                507,000Accounts
      receivable
                
                
                7,050
                
                
                
                47,942
                
                
                
                53,828Inventory
                
                
                212
                
                
                
                1,440
                
                
                
                1,386Prepaid
      expenses and other current assets
                
                
                3,127
                
                
                
                21,263
                
                
                
                19,212Amounts
      due from related parties
                
                
                506
                
                
                
                3,438
                
                
                
                6,388Deferred
      tax assets
                
                
                59
                
                
                
                404
                
                
                
                1,010Current
      portion of prepaid lease payments for land use rights
                
                
                477
                
                
                
                3,246
                
                
                
                3,246Total
      current assets
                
                
                168,347
                
                
                
                1,144,767
                
                
                
                919,698Non-current
      deposits
                
                
                1,929
                
                
                
                13,115
                
                
                
                14,550Property
      and equipment, net
                
                
                75,821
                
                
                
                515,579
                
                
                
                516,938Prepaid
      lease payments for land use rights - non-current
                
                
                21,058
                
                
                
                143,191
                
                
                
                144,818Acquired
      intangible assets, net
                
                
                7,949
                
                
                
                54,051
                
                
                
                71,286Long-term
      investments
                
                
                447
                
                
                
                3,041
                
                
                
                3,101Non-current
      advances to related party
                
                
                14,659
                
                
                
                99,682
                
                
                
                99,727Goodwill
                
                
                74,081
                
                
                
                503,753
                
                
                
                503,771Total
      assets
                
                
                364,291
                
                
                
                2,477,179
                
                
                
                2,273,889





3





As ofAs of June 30,
                
                
                December 31,2010
                
                
                2010
                
                
                2009US$
                
                
                RMB
                
                
                RMB(Note 1)
                
                
                
                
                
                
                (Note 1)Liabilities and equityCurrent
      liabilities:Accounts
      payable (including accounts payable of the consolidated VIE without
      recourse to ChinaCast Education Corporation of RMB718 and RMB719 as of
      June 30, 2010 and December 31, 2009, respectively)
                
                
                2,926
                
                
                
                19,898
                
                
                
                16,061Accrued
      expenses and other current liabilities (including accrued expenses and
      other liabilities of the consolidated VIE without recourse to ChinaCast
      Education Corporation of RMB16,553 and RMB16,740 as of June 30, 2010 and
      December 31, 2009, respectively)
                
                
                28,363
                
                
                
                192,868
                
                
                
                215,631Deferred
      revenues
                
                
                5,927
                
                
                
                40,302
                
                
                
                156,645Income
      taxes payable (including income taxes payable of  the
      consolidated VIE without recourse  to ChinaCast Education
      Corporation of RMB3,560 and RMB2,293 as of June 30, 2010 and December 31,
      2009, respectively)
                
                
                12,022
                
                
                
                81,753
                
                
                
                68,731Current
      portion of long-term bank borrowings
                
                
                9,706
                
                
                
                66,000
                
                
                
                104,400Current
      portion of capital lease obligation
                
                
                188
                
                
                
                1,279
                
                
                
                1,323Other
      borrowings
                
                
                2,206
                
                
                
                15,000
                
                
                
                200Total
      current liabilities
                
                
                61,338
                
                
                
                417,100
                
                
                
                562,991Non-current
      liabilities:Long-term
      bank borrowings
                
                
                25,588
                
                
                
                174,000
                
                
                
                134,000Deferred
      tax liabilities – non-current
                
                
                4,157
                
                
                
                28,270
                
                
                
                30,923Unrecognized
      tax benefits – non-current (including unrecognized tax benefits of the
      consolidated VIE without recourse to ChinaCast Education Corporation of
      RMB5,526 and RMB5,257 as of June 30, 2010 and December 31, 2009,
      respectively)
                
                
                10,372
                
                
                
                70,527
                
                
                
                62,457Total
      non-current liabilities
                
                
                40,117
                
                
                
                272,797
                
                
                
                227,380Total
      liabilities
                
                
                101,455
                
                
                
                689,897
                
                
                
                790,371Commitments
      and contingencies (Note 15)Equity:Ordinary
      shares (US$0.0001 par value; 100,000,000 shares authorized; 49,778,952 and
      45,170,698 shares issued and outstanding as of June 30, 2010 and December
      31, 2009, respectively)
                
                
                5
                
                
                
                36
                
                
                
                33Additional
      paid-in capital
                
                
                224,741
                
                
                
                1,528,238
                
                
                
                1,290,651Statutory
      reserve
                
                
                5,756
                
                
                
                39,139
                
                
                
                39,139Accumulated
      other comprehensive loss
                
                
                (647
                )
                
                
                (4,399
                )
                
                
                (6,055
                )Retained
      earnings
                
                
                29,453
                
                
                
                200,281
                
                
                
                136,583Total
      ChinaCast Education Corporation shareholders’ equity
                
                
                259,308
                
                
                
                1,763,295
                
                
                
                1,460,351Noncontrolling
      interest
                
                
                3,528
                
                
                
                23,987
                
                
                
                23,167Total
      equity
                
                
                262,836
                
                
                
                1,787,282
                
                
                
                1,483,518Total
      liabilities and equity
                
                
                364,291
                
                
                
                2,477,179
                
                
                
                2,273,889





See notes
to unaudited condensed consolidated financial statements.


4





CHINACAST EDUCATION CORPORATION


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)


(In
thousands, except share-related data)


For the three months ended June 30,
                                        
                                        
                                        For
      the six months ended June 302010
                                        
                                        
                                        2010
                                        
                                        
                                        2009
                                        
                                        
                                        2010
                                        
                                        
                                        2010
                                        
                                        
                                        2009US$
                                        
                                        
                                        RMB
                                        
                                        
                                        RMB
                                        
                                        
                                        US$
                                        
                                        
                                        RMB
                                        
                                        
                                        RMB(Note 1)
                                        
                                        
                                        
                                        
                                        
                                        (Note 1)
                                        
                                        
                                        (Note
      1)
                                        
                                        
                                        
                                        
                                        
                                        (Note
      1)Revenues:Service
                                        
                                        
                                        16,270
                                        
                                        
                                        
                                        110,645
                                        
                                        
                                        
                                        74,461
                                        
                                        
                                        
                                        32,202
                                        
                                        
                                        
                                        218,975
                                        
                                        
                                        
                                        148,102Equipment
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        1,293
                                        
                                        
                                        
                                        5
                                        
                                        
                                        
                                        31
                                        
                                        
                                        
                                        4,16916,270
                                        
                                        
                                        
                                        110,645
                                        
                                        
                                        
                                        75,754
                                        
                                        
                                        
                                        32,207
                                        
                                        
                                        
                                        219,006
                                        
                                        
                                        
                                        152,271Cost
      of revenues:Service
                                        
                                        
                                        (7,667
                                        )
                                        
                                        
                                        (52,136
                                        )
                                        
                                        
                                        (27,644
                                        )
                                        
                                        
                                        (14,759
                                        )
                                        
                                        
                                        (100,355
                                        )
                                        
                                        
                                        (55,011
                                        )Equipment
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (1,288
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (4,126
                                        )(7,667
                                        )
                                        
                                        
                                        (52,136
                                        )
                                        
                                        
                                        (28,932
                                        )
                                        
                                        
                                        (14,759
                                        )
                                        
                                        
                                        (100,355
                                        )
                                        
                                        
                                        (59,137
                                        )Gross
      profit
                                        
                                        
                                        8,603
                                        
                                        
                                        
                                        58,509
                                        
                                        
                                        
                                        46,822
                                        
                                        
                                        
                                        17,448
                                        
                                        
                                        
                                        118,651
                                        
                                        
                                        
                                        93,134Operating
      (expenses) income:Selling
      and marketing expenses (including share-based compensation of RMB nil and
      RMB266 for the three months ended June 30 for 2010 and 2009,
      respectively, share-based compensation of RMB410 and RMB1,106 for the six
      months ended June 30 for 2010 and 2009, respectively)
                                        
                                        
                                        (74
                                        )
                                        
                                        
                                        (503
                                        )
                                        
                                        
                                        (793
                                        )
                                        
                                        
                                        (192
                                        )
                                        
                                        
                                        (1,308
                                        )
                                        
                                        
                                        (2,543
                                        )General
      and administrative expenses (including share-based compensation of
      RMB1,712 and RMB2,868 for the three months ended June 30 for 2010 and
      2009, respectively, share-based compensation of RMB4,192 and RMB8,606 for
      the six months ended June 30 for 2010 and 2009,
      respectively)
                                        
                                        
                                        (2,195
                                        )
                                        
                                        
                                        (14,925
                                        )
                                        
                                        
                                        (13,013
                                        )
                                        
                                        
                                        (4,787
                                        )
                                        
                                        
                                        (32,552
                                        )
                                        
                                        
                                        (30,639
                                        )Foreign
      exchange gain (loss)
                                        
                                        
                                        (37
                                        )
                                        
                                        
                                        (250
                                        )
                                        
                                        
                                        (53
                                        )
                                        
                                        
                                        (81
                                        )
                                        
                                        
                                        (553
                                        )
                                        
                                        
                                        116Management
      service fee
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        2,329
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        3,296Other
      operating income
                                        
                                        
                                        30
                                        
                                        
                                        
                                        207
                                        
                                        
                                        
                                        2
                                        
                                        
                                        
                                        31
                                        
                                        
                                        
                                        214
                                        
                                        
                                        
                                        507Total
      operating expenses, net
                                        
                                        
                                        (2,276
                                        )
                                        
                                        
                                        (15,471
                                        )
                                        
                                        
                                        (11,528
                                        )
                                        
                                        
                                        (5,029
                                        )
                                        
                                        
                                        (34,199
                                        )
                                        
                                        
                                        (29,263
                                        )





5




For the three months ended June 30,
                                                    
                                                    
                                                    For the six months ended June
      30,2010
                                                    
                                                    
                                                    2010
                                                    
                                                    
                                                    2009
                                                    
                                                    
                                                    2010
                                                    
                                                    
                                                    2010
                                                    
                                                    
                                                    2009US$
                                                    
                                                    
                                                    RMB
                                                    
                                                    
                                                    RMB
                                                    
                                                    
                                                    US$
                                                    
                                                    
                                                    RMB
                                                    
                                                    
                                                    RMB(Note 1)
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    (Note 1)
                                                    
                                                    
                                                    (Note
      1)
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    (Note
      1)Income
      from operations
                                                    
                                                    
                                                    6,327
                                                    
                                                    
                                                    
                                                    43,038
                                                    
                                                    
                                                    
                                                    35,294
                                                    
                                                    
                                                    
                                                    12,419
                                                    
                                                    
                                                    
                                                    84,452
                                                    
                                                    
                                                    
                                                    63,871Interest
      income
                                                    
                                                    
                                                    521
                                                    
                                                    
                                                    
                                                    3,534
                                                    
                                                    
                                                    
                                                    2,476
                                                    
                                                    
                                                    
                                                    954
                                                    
                                                    
                                                    
                                                    6,488
                                                    
                                                    
                                                    
                                                    4,788Interest
      expense
                                                    
                                                    
                                                    (529
                                                    )
                                                    
                                                    
                                                    (3,594
                                                    )
                                                    
                                                    
                                                    (1,717
                                                    )
                                                    
                                                    
                                                    (965
                                                    )
                                                    
                                                    
                                                    (6,565
                                                    )
                                                    
                                                    
                                                    (3,170
                                                    )Income
      before provision for income taxes and earnings in equity method
      investments
                                                    
                                                    
                                                    6,319
                                                    
                                                    
                                                    
                                                    42,978
                                                    
                                                    
                                                    
                                                    36,053
                                                    
                                                    
                                                    
                                                    12,408
                                                    
                                                    
                                                    
                                                    84,375
                                                    
                                                    
                                                    
                                                    65,489Provision
      for income taxes
                                                    
                                                    
                                                    (1,461
                                                    )
                                                    
                                                    
                                                    (9,938
                                                    )
                                                    
                                                    
                                                    (7,146
                                                    )
                                                    
                                                    
                                                    (2,904
                                                    )
                                                    
                                                    
                                                    (19,749
                                                    )
                                                    
                                                    
                                                    (13,471
                                                    )Net
      income before earnings in equity investments
                                                    
                                                    
                                                    4,858
                                                    
                                                    
                                                    
                                                    33,040
                                                    
                                                    
                                                    
                                                    28,907
                                                    
                                                    
                                                    
                                                    9,504
                                                    
                                                    
                                                    
                                                    64,626
                                                    
                                                    
                                                    
                                                    52,018Loss in
      equity investments
                                                    
                                                    
                                                    (4
                                                    )
                                                    
                                                    
                                                    (30
                                                    )
                                                    
                                                    
                                                    (311
                                                    )
                                                    
                                                    
                                                    (9
                                                    )
                                                    
                                                    
                                                    (60
                                                    )
                                                    
                                                    
                                                    (577
                                                    )Income
      from continuing operation, net of tax
                                                    
                                                    
                                                    4,854
                                                    
                                                    
                                                    
                                                    33,010
                                                    
                                                    
                                                    
                                                    28,596
                                                    
                                                    
                                                    
                                                    9,495
                                                    
                                                    
                                                    
                                                    64,566
                                                    
                                                    
                                                    
                                                    51,441Discontinued
      operationsLoss
      from discontinued operations, net of taxes of RMB nil for the three months
      and six months ended June 30 for 2010 and 2009:
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (449
                                                    )
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (1,053
                                                    )Net
      income
                                                    
                                                    
                                                    4,854
                                                    
                                                    
                                                    
                                                    33,010
                                                    
                                                    
                                                    
                                                    28,147
                                                    
                                                    
                                                    
                                                    9,495
                                                    
                                                    
                                                    
                                                    64,566
                                                    
                                                    
                                                    
                                                    50,388Less:
      Net income attributable to noncontrolling interest
                                                    
                                                    
                                                    (64
                                                    )
                                                    
                                                    
                                                    (434
                                                    )
                                                    
                                                    
                                                    (2,350
                                                    )
                                                    
                                                    
                                                    (128
                                                    )
                                                    
                                                    
                                                    (868
                                                    )
                                                    
                                                    
                                                    (4,909
                                                    )Net
      income attributable to ChinaCast Education Corporation
                                                    
                                                    
                                                    4,790
                                                    
                                                    
                                                    
                                                    32,576
                                                    
                                                    
                                                    
                                                    25,797
                                                    
                                                    
                                                    
                                                    9,367
                                                    
                                                    
                                                    
                                                    63,698
                                                    
                                                    
                                                    
                                                    45,479Net
      income
                                                    
                                                    
                                                    4,854
                                                    
                                                    
                                                    
                                                    33,010
                                                    
                                                    
                                                    
                                                    28,147
                                                    
                                                    
                                                    
                                                    9,495
                                                    
                                                    
                                                    
                                                    64,566
                                                    
                                                    
                                                    
                                                    50,388Foreign
      currency translation adjustments
                                                    
                                                    
                                                    212
                                                    
                                                    
                                                    
                                                    1,442
                                                    
                                                    
                                                    
                                                    62
                                                    
                                                    
                                                    
                                                    244
                                                    
                                                    
                                                    
                                                    1,656
                                                    
                                                    
                                                    
                                                    (740
                                                    )Comprehensive
      income
                                                    
                                                    
                                                    5,066
                                                    
                                                    
                                                    
                                                    34,452
                                                    
                                                    
                                                    
                                                    28,209
                                                    
                                                    
                                                    
                                                    9,738
                                                    
                                                    
                                                    
                                                    66,222
                                                    
                                                    
                                                    
                                                    49,648Comprehensive
      income attributable to noncontrolling interest
                                                    
                                                    
                                                    (63
                                                    )
                                                    
                                                    
                                                    (448
                                                    )
                                                    
                                                    
                                                    (2,352
                                                    )
                                                    
                                                    
                                                    (127
                                                    )
                                                    
                                                    
                                                    (868
                                                    )
                                                    
                                                    
                                                    (4,905
                                                    )Comprehensive
      income attributable to ChinaCast Education Corporation
                                                    
                                                    
                                                    5,003
                                                    
                                                    
                                                    
                                                    34,004
                                                    
                                                    
                                                    
                                                    25,857
                                                    
                                                    
                                                    
                                                    9,612
                                                    
                                                    
                                                    
                                                    65,354
                                                    
                                                    
                                                    
                                                    44,743Net
      income per shareNet
      income attributable to ChinaCast Education Corporation per
      share:Basic
                                                    
                                                    
                                                    0.10
                                                    
                                                    
                                                    
                                                    0.69
                                                    
                                                    
                                                    
                                                    0.72
                                                    
                                                    
                                                    
                                                    0.20
                                                    
                                                    
                                                    
                                                    1.37
                                                    
                                                    
                                                    
                                                    1.28Diluted
                                                    
                                                    
                                                    0.10
                                                    
                                                    
                                                    
                                                    0.69
                                                    
                                                    
                                                    
                                                    0.72
                                                    
                                                    
                                                    
                                                    0.20
                                                    
                                                    
                                                    
                                                    1.36
                                                    
                                                    
                                                    
                                                    1.27Weighted
      average shares used in computation:Basic
                                                    
                                                    
                                                    47,250,261
                                                    
                                                    
                                                    
                                                    47,250,261
                                                    
                                                    
                                                    
                                                    35,656,163
                                                    
                                                    
                                                    
                                                    46,606,070
                                                    
                                                    
                                                    
                                                    46,606,070
                                                    
                                                    
                                                    
                                                    35,652,229Diluted
                                                    
                                                    
                                                    47,454,800
                                                    
                                                    
                                                    
                                                    47,454,800
                                                    
                                                    
                                                    
                                                    35,802,327
                                                    
                                                    
                                                    
                                                    46,880,355
                                                    
                                                    
                                                    
                                                    46,880,355
                                                    
                                                    
                                                    
                                                    35,725,311Amount
      attributable to ChinaCast Education Corporation:Income
      from continuing operation, net of tax
                                                    
                                                    
                                                    4,790
                                                    
                                                    
                                                    
                                                    32,576
                                                    
                                                    
                                                    
                                                    26,246
                                                    
                                                    
                                                    
                                                    9,367
                                                    
                                                    
                                                    
                                                    63,698
                                                    
                                                    
                                                    
                                                    46,532Discontinued
      operations, net of tax
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (449
                                                    )
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (1,053
                                                    )Net
      income attributable to ChinaCast Education Corporation
                                                    
                                                    
                                                    4,790
                                                    
                                                    
                                                    
                                                    32,576
                                                    
                                                    
                                                    
                                                    25,797
                                                    
                                                    
                                                    
                                                    9,367
                                                    
                                                    
                                                    
                                                    63,698
                                                    
                                                    
                                                    
                                                    45,479




See notes
to unaudited condensed consolidated financial statements.





6




CHINACAST EDUCATION CORPORATION


CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Unaudited)


(In
thousands, except share-related data)




ChinaCast Education Corporation ShareholdersAccumulatedAdditional
                        
                        
                        
                        
                        
                        
                        
                        
                        otherOrdinary
                        
                        
                        paid-in
                        
                        
                        Statutory
                        
                        
                        Retained
                        
                        
                        comprehensive
                        
                        
                        Noncontrolling
                        
                        
                        TotalShares
                        
                        
                        Amount
                        
                        
                        capital
                        
                        
                        reserve
                        
                        
                        earnings
                        
                        
                        loss
                        
                        
                        interest
                        
                        
                        equityRMB
                        
                        
                        RMB
                        
                        
                        RMB
                        
                        
                        RMB
                        
                        
                        RMB
                        
                        
                        RMB
                        
                        
                        RMBBalance
      at January 1, 2010
                        
                        
                        45,170,698
                        
                        
                        
                        33
                        
                        
                        
                        1,290,651
                        
                        
                        
                        39,139
                        
                        
                        
                        136,583
                        
                        
                        
                        (6,055
                        )
                        
                        
                        23,167
                        
                        
                        
                        1,483,518Issuance
      of shares of common stock
                        
                        
                        4,428,254
                        
                        
                        
                        3
                        
                        
                        
                        232,987
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        232,990Share-based
      compensation
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        4,600
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        4,600Issuance
      of vested shares
                        
                        
                        180,000
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —Net
      income
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        63,698
                        
                        
                        
                        —
                        
                        
                        
                        868
                        
                        
                        
                        64,566Foreign
      currency translation adjustments
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        1,656
                        
                        
                        
                        (48
                        )
                        
                        
                        1,608Balance
      at June 30, 2010
                        
                        
                        49,778,952
                        
                        
                        
                        36
                        
                        
                        
                        1,528,238
                        
                        
                        
                        39,139
                        
                        
                        
                        200,281
                        
                        
                        
                        (4,399
                        )
                        
                        
                        23,987
                        
                        
                        
                        1,787,282US$
                        5
                        
                        
                        US$
                        224,741
                        
                        
                        US$
                        5,756
                        
                        
                        US$
                        29,453
                        
                        
                        US$
                        (647
                        )
                        
                        US$
                        3,528
                        
                        
                        US$
                        262,836




ChinaCast Education Corporation ShareholdersAccumulatedAdditional
                              
                              
                              
                              
                              
                              
                              
                              
                              otherOrdinary
                              
                              
                              paid-in
                              
                              
                              Statutory
                              
                              
                              Retained
                              
                              
                              comprehensive
                              
                              
                              Noncontrolling
                              
                              
                              TotalShares
                              
                              
                              Amount
                              
                              
                              capital
                              
                              
                              reserve
                              
                              
                              earnings
                              
                              
                              loss
                              
                              
                              interest
                              
                              
                              equityRMB
                              
                              
                              RMB
                              
                              
                              RMB
                              
                              
                              RMB
                              
                              
                              RMB
                              
                              
                              RMB
                              
                              
                              RMBBalance
      at January 1, 2009
                              
                              
                              35,648,251
                              
                              
                              
                              27
                              
                              
                              
                              948,352
                              
                              
                              
                              28,117
                              
                              
                              
                              55,526
                              
                              
                              
                              (5,462
                              )
                              
                              
                              44,579
                              
                              
                              
                              1,071,139Issuance
      of common stock
                              
                              
                              120,000
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —Share-based
      compensation
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              9,712
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              9,712Net
      income
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              45,479
                              
                              
                              
                              —
                              
                              
                              
                              4,909
                              
                              
                              
                              50,388Foreign
      currency translation adjustments
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              (736
                              )
                              
                              
                              (4
                              )
                              
                              
                              (740
                              )Balance
      at June 30, 2009
                              
                              
                              35,768,251
                              
                              
                              
                              27
                              
                              
                              
                              958,064
                              
                              
                              
                              28,117
                              
                              
                              
                              101,005
                              
                              
                              
                              (6,198
                              )
                              
                              
                              49,484
                              
                              
                              
                              1,130,499US$
                              4
                              
                              
                              US$
                              140,892
                              
                              
                              US$
                              4,134
                              
                              
                              US$
                              14,854
                              
                              
                              US$
                              (911
                              )
                              
                              US$
                              7,277
                              
                              
                              US$
                              166,250




See notes
to unaudited condensed consolidated financial statements.





7




CHINACAST EDUCATION CORPORATION


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)


(In
thousands)


For the six months ended June 30,2010
                
                
                2010
                
                
                2009US$
                
                
                RMB
                
                
                RMB(Note 1)
                
                
                
                
                
                
                (Note 1)Cash
      flows from operating activities:Net
      income
                
                
                9,495
                
                
                
                64,566
                
                
                
                50,388Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
                
                
                3,118
                
                
                
                21,204
                
                
                
                11,704Amortization
      of acquired intangible assets
                
                
                2,535
                
                
                
                17,235
                
                
                
                8,181Amortization
      of land use rights
                
                
                239
                
                
                
                1,627
                
                
                
                1,308Share-based
      compensation
                
                
                676
                
                
                
                4,600
                
                
                
                9,712Loss
      on disposal of property, plant and equipment
                
                
                -
                
                
                
                1
                
                
                
                3Loss
      in equity investments
                
                
                9
                
                
                
                60
                
                
                
                577Changes
      in assets and liabilities:Accounts
      receivable
                
                
                842
                
                
                
                5,722
                
                
                
                (13,824
                )Inventory
                
                
                (8
                )
                
                
                (54
                )
                
                
                10Prepaid
      expenses and other current assets
                
                
                (302
                )
                
                
                (2,054
                )
                
                
                1,410Non-current
      deposits
                
                
                652
                
                
                
                4,434
                
                
                
                (364
                )Amounts
      due from related parties
                
                
                434
                
                
                
                2,950
                
                
                
                600Accounts
      payable
                
                
                566
                
                
                
                3,852
                
                
                
                2,308Accrued
      expenses and other current liabilities
                
                
                (280
                )
                
                
                (1,903
                )
                
                
                6,256Deferred
      revenues
                
                
                (17,109
                )
                
                
                (116,343
                )
                
                
                (61,280
                )Amount
      due to related party
                
                
                -
                
                
                
                -
                
                
                
                (27
                )Income
      taxes payable
                
                
                1,915
                
                
                
                13,022
                
                
                
                9,145Deferred
      tax assets
                
                
                89
                
                
                
                606
                
                
                
                -Deferred
      tax liabilities
                
                
                (390
                )
                
                
                (2,653
                )
                
                
                (1,252
                )Unrecognized
      tax benefits
                
                
                1,187
                
                
                
                8,070
                
                
                
                3,764Net
      cash provided by operating activities
                
                
                3,668
                
                
                
                24,942
                
                
                
                28,619Cash
      flows from investing activities:Advance
      to related party
                
                
                -
                
                
                
                -
                
                
                
                (20,000
                )Repayment
      from advance to related party
                
                
                7
                
                
                
                45
                
                
                
                29,392Purchase
      of property and equipment
                
                
                (5,743
                )
                
                
                (39,051
                )
                
                
                (25,142
                )Term
      deposits
                
                
                (6,324
                )
                
                
                (43,000
                )
                
                
                (137,700
                )Deposits
      for investments
                
                
                (441
                )
                
                
                (3,000
                )
                
                
                -Net
      cash used in investing activities
                
                
                (12,501
                )
                
                
                (85,006
                )
                
                
                (153,450
                )





8





For the six months ended June 30,2010
                
                
                2010
                
                
                2009US$
                
                
                RMB
                
                
                RMB(Note 1)
                
                
                
                
                
                (Note 1)Cash
      flows from financing activities:Other
      borrowings raised
                
                
                12,059
                
                
                
                82,000
                
                
                
                10,350Other
      borrowings raised from related party
                
                
                -
                
                
                
                -
                
                
                
                500Repayment
      of other borrowings
                
                
                (9,882
                )
                
                
                (67,200
                )
                
                
                (517
                )Bank
      borrowings raised
                
                
                11,764
                
                
                
                80,000
                
                
                
                30,000Bank
      borrowings repaid
                
                
                (11,530
                )
                
                
                (78,400
                )
                
                
                (3,000
                )Repayment
      of capital lease obligation
                
                
                (6
                )
                
                
                (44
                )
                
                
                20Proceeds
      from issuance of shares, net of issuance costs
                
                
                34,263
                
                
                
                232,990
                
                
                
                -Net
      cash provided by financing activities
                
                
                36,668
                
                
                
                249,346
                
                
                
                37,353Effect
      of foreign exchange rate changes
                
                
                18
                
                
                
                124
                
                
                
                (1
                )Net
      increase(decrease) in cash and cash equivalents
                
                
                27,853
                
                
                
                189,406
                
                
                
                (87,479
                )Cash
      and cash equivalents at beginning of the period
                
                
                48,181
                
                
                
                327,628
                
                
                
                220,131Cash
      and cash equivalents at end of the period
                
                
                76,034
                
                
                
                517,034
                
                
                
                132,652





See notes
to unaudited condensed consolidated financial statements.





9





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”) 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 annual 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,
2009.





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, 2010.





The
accompanying unaudited condensed consolidated financial statements include the
accounts of CEC, its subsidiaries, and variable interest entity (collectively,
the “Company”). All significant intercompany balances and transactions have been
eliminated in consolidation.





PRC
regulations prohibit direct foreign ownership of business entities providing
value-added telecommunications services in the PRC where certain licenses are
required for the provision of such services. To comply with PRC laws and
regulations, CEC engages in such businesses through its variable interest entity
(“VIE”), ChinaCast Li Xiang Co. Ltd. (“CCLX”).





ChinaCast
Technology (Shanghai) Limited (“CCT Shanghai”) entered into Technical Services
Agreement (“TSA”) with the VIE and its shareholders, where CCT Shanghai agrees
to provide a broad array of technical, consulting and administrative services
and ancillary equipments to the VIE in exchange for a fee that constitutes
substantially all of the VIE’s revenues. CCLX’s shareholders also pledged all of
their rights and obligations to CCT Shanghai, including ownership rights and
rights to declare dividends and other distributions. CCT Shanghai agreed to
extend financial support to CCLX via cash advances if it deems necessary.
Because CCT Shanghai absorbs the majority of the economic rewards of the VIE
through dividends and nominal equity holders do not absorb the expected losses
because they provided no equity investment with funds borrowed from CCT
Shanghai, the Company is the primary beneficiary of the VIE. CEC consolidated
the VIE from their inception.





The
following unaudited financial statement amounts and balances of the VIE was
included in the accompanying unaudited condensed consolidated financial
statements as of and for the six months ended June 30, 2010:


As ofAs of June 30,
                        
                        
                        December 31,2010
                        
                        
                        2010
                        
                        
                        2009US$
                        
                        
                        RMB
                        
                        
                        RMBCurrent
      assets
                        
                        
                        5,863
                        
                        
                        
                        39,870
                        
                        
                        
                        45,388Non-current
      assets
                        
                        
                        658
                        
                        
                        
                        4,476
                        
                        
                        
                        5,374Total
      assets
                        
                        
                        6,521
                        
                        
                        
                        44,346
                        
                        
                        
                        50,762Current
      liabilities
                        
                        
                        3,063
                        
                        
                        
                        20,831
                        
                        
                        
                        19,752Non-current
      liabilities
                        
                        
                        813
                        
                        
                        
                        5,526
                        
                        
                        
                        5,257Total
      liabilities
                        
                        
                        3,876
                        
                        
                        
                        26,357
                        
                        
                        
                        25,009





For the three months ended June
      30,
                                  
                                  
                                  For the six months ended June
      30,2010
                                  
                                  
                                  2010
                                  
                                  
                                  2009
                                  
                                  
                                  2010
                                  
                                  
                                  2010
                                  
                                  
                                  2009US$
                                  
                                  
                                  RMB
                                  
                                  
                                  RMB
                                  
                                  
                                  US$
                                  
                                  
                                  RMB
                                  
                                  
                                  RMBRevenues
                                  
                                  
                                  4,655
                                  
                                  
                                  
                                  31,654
                                  
                                  
                                  
                                  30,107
                                  
                                  
                                  
                                  9,124
                                  
                                  
                                  
                                  62,046
                                  
                                  
                                  
                                  58,417Net
      income (loss)
                                  
                                  
                                  4
                                  
                                  
                                  
                                  30
                                  
                                  
                                  
                                  (506
                                  )
                                  
                                  
                                  9
                                  
                                  
                                  
                                  60
                                  
                                  
                                  
                                  (813
                                  )





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, 2009, except for the additional accounting policies
adopted as stated in (1) of Note 2.





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 June 30, 2010.
Such translation should not be construed to be the amounts that would have been
reported under US GAAP.


10




The
Share Exchange Transaction





On
December 22, 2006, Great Wall Acquisition
Corporation (“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 (“CCH”). Pursuant to the
terms of the Offer, CCH shareholders had the option to receive either shares of
CEC or a cash payment for each CCH 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 CCH 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 CCH 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 CCH 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 CCH shareholders
and, as of July 11, 2007, CEC increased its holdings to 100% of the
outstanding ordinary shares of CCH. 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




(1) 
       Newly
Adopted Accounting Pronouncements




In June
2009, the FASB issued an authoritative pronouncement to amend the accounting
rules for variable interest entities. The amendments effectively replace
the quantitative-based risks-and-rewards calculation for determining which
reporting entity, if any, has a controlling financial interest in a variable
interest entity with an approach focused on identifying which reporting entity
has (1) the power to direct the activities of a variable interest entity that
most significantly affect the entity’s economic performance and (2) the
obligation to absorb losses of, or the right to receive benefits from, the
entity. Additionally, an enterprise is required to assess whether it has an
implicit financial responsibility to ensure that a variable interest entity
operates as designed when determining whether it has the power to direct the
activities of the variable interest entity that most significantly impact the
entity’s economic performance. The new guidance also requires additional
disclosures about a reporting entity’s involvement with variable interest
entities and about any significant changes in risk exposure as a result of that
involvement. The new guidance is effective at the start of a reporting entity’s
first fiscal year beginning after November 15, 2009, and all interim and annual
periods thereafter.  During
the quarter ended June 30, 2010, there were no significant changes in previously
adopted accounting policies or their application, except for the adoption of FAS
167, (ASC 810-10-45-25), under which the reporting entity needs to present
separately on the face of the condensed consolidated balance sheets the
liabilities of a consolidated variable interest entity for which creditors (or
beneficial interest holders) do not have recourse to the general credit of the
primary beneficiary. As a result, the Company presents the additional
disclosures on the face of the unaudited condensed financial statements as of
June 30, 2010 and December 31, 2009.




In
January 2010, the FASB issued authoritative guidance to improve disclosures
about fair value measurements. This guidance amends previous guidance on fair
value measurements to add new requirements for disclosures about transfers into
and out of Levels 1 and 2 and separate disclosures about purchases, sales,
issuances, and settlements relating to Level 3 measurement on a gross basis
rather than on a net basis as currently required. This guidance also clarifies
existing fair value disclosures about the level of disaggregation and about
inputs and valuation techniques used to measure fair value. This guidance is
effective for annual and interim periods beginning after December 15, 2009,
except for the requirement to provide the Level 3 activities of purchases,
sales, issuances, and settlements on a gross basis, which will be effective for
annual and interim periods beginning after December 15, 2010. Early
application is permitted and, in the period of initial adoption, entities are
not required to provide the amended disclosures for any previous periods
presented for comparative purposes. The adoption of this pronouncement did not
have a significant impact on its financial condition or results of
operations.




(2) 
       Recently Issued Accounting
Pronouncements Not Yet Adopted




In
October 2009, the FASB issued amended revenue recognition guidance for
arrangements with multiple deliverables. The new guidance eliminates the
residual method of revenue recognition and allows the use of management’s best
estimate of selling price for individual elements of an arrangement when vendor
specific objective evidence, vendor objective evidence or third-party evidence
is unavailable. Prospective application of this new guidance for revenue
arrangements entered into or materially modified in fiscal years beginning on or
after June 15, 2010, with earlier application permitted. Alternatively, an
entity can elect to adopt this guidance on a retrospective basis. The Company
does not expect the adoption of this pronouncement to have a significant impact
on its financial condition or results of operations.





In
October 2009, the FASB issued authoritative guidance which amends the scope
of existing software revenue recognition accounting. Tangible products
containing software components and non-software components that function
together to deliver the product’s essential functionality would be scoped out of
the accounting guidance on software and accounted for based on other appropriate
revenue recognition guidance.  Prospective application of this new guidance
for revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010, with earlier application permitted.
Alternatively, an entity can elect to adopt this new guidance on a retrospective
basis. The Company does not expect the adoption of this pronouncement to have a
significant impact on its financial condition or results of
operations.


11


On March
5, 2010, the FASB issued authoritative guidance to clarify the type of embedded
credit derivative that is exempt from embedded derivative bifurcation
requirements. Specifically, only one form of embedded credit derivative
qualifies for the exemption – one that is related only to the subordination of
one financial instrument to another. As a result, entities that have contracts
containing an embedded credit derivative feature in a form other than such
subordination may need to separately account for the embedded credit derivative
feature. This guidance also has transition provisions, which permit entities to
make a special one-time election to apply the fair value option to any
investment in a beneficial interest in securitized financial assets, regardless
of whether such investments contain embedded derivative features. This guidance
is effective on the first day of the first fiscal quarter beginning after June
15, 2010. Early adoption is permitted at the beginning of any fiscal quarter
beginning after March 5, 2010. The Company does not expect the adoption of this
pronouncement to have a significant impact on its financial condition or results
of operations.





In April
2010, the FASB issued authoritative guidance on milestone method of revenue
recognition. The scope of this consensus is limited to arrangements that include
milestones relating to research or development deliverables. The guidance
specifies guidance that must be met for a vendor to recognize consideration that
is contingent upon achievement of a substantive milestone in its entirety in the
period in which the milestone is achieved. The guidance applies to milestones in
arrangements within the scope of this consensus regardless of whether the
arrangement is determined to have single or multiple deliverables or units of
accounting. The guidance will be effective for fiscal years, and interim periods
within those years, beginning on or after June 15, 2010. Early application is
permitted. Companies can apply this guidance prospectively to milestones
achieved after adoption. However, retrospective application to all prior periods
is also permitted. The Company does not expect the adoption of this
pronouncement to have a significant impact on its financial condition or results
of operations.





In April
2010, the FASB issued authoritative guidance on effect of denominating the
exercise price of a share-based payment award in the currency of the market in
which the underlying equity securities trades and that currency is different
from (1) entity's functional currency, (2) functional currency of the foreign
operation for which the employee provides services, and (3) payroll currency of
the employee. The guidance clarifies that an employee share-based payment award
with an exercise price denominated in the currency of a market in which a
substantial portion of the entity's equity securities trades should be
considered an equity award assuming all other criteria for equity classification
are met. The guidance will be effective for interim and annual periods beginning
on or after December 15, 2010, and will be applied prospectively. Affected
entities will be required to record a cumulative catch-up adjustment for all
awards outstanding as of the beginning of the annual period in which the
guidance is adopted. The Company is in the process of evaluating the effect of
adoption of this pronouncement.





In July
2010, the FASB issued an authoritative pronouncement on disclosure about the
credit quality of financing receivables and the allowance for credit losses. The
objective of this guidance is to provide financial statement users with greater
transparency about an entity’s allowance for credit losses and the credit
quality of its financing receivables. The guidance requires an entity to provide
disclosures on a disaggregated basis on two defined levels: (1) portfolio
segment; and (2) class of financing receivable. The guidance includes additional
disclosure requirements about financing receivables, including: (1) Credit
quality indicators of financing receivables at the end of the reporting period
by class of financing receivables; (2) The aging of past due financing
receivables at the end of the reporting period by class of financing
receivables; and (3) The nature and extent of troubled debt restructurings that
occurred during the period by class of financing receivables and their effect on
the allowance for credit losses. For public entities, the disclosures as of the
end of a reporting period are effective for interim and annual reporting periods
ending on or after December 15, 2010. The disclosures about activity that occurs
during a reporting period are effective for interim and annual reporting periods
beginning on or after December 15, 2010. The Company is in the process of
evaluating the effect of adoption of this pronouncement.




3.       
DISCONTINUED
OPERATIONS





Starting
from 2007, the Company provided Modern English training services through Jiangsu
English Training Technology Limited (“JSET”).  During 2009, the Company
gradually closed all the training centers.  On December 29, 2009, the
Company completed the transaction under a sale and purchase agreement with a
third party to dispose of its brand name usage right associated with the English
training services with a consideration of RMB6,000.  A gain amounting to
RMB1,552 was reported for the fiscal year ended December 31, 2009.  The
Company ceased all English training services in JSET thereafter.




Summarized
operating results from the discontinued operations included in the Company's
condensed consolidated statements of operations were as follows for the three
months and six months ended June 30, 2009 and 2010, respectively:





Three months ended
                              June 30,
                            
                            
                            Six months ended
                              June 30,2009
                            
                            
                            2010
                            
                            
                            2009
                            
                            
                            2010RMB
                            
                            
                            RMB
                            
                            
                            RMB
                            
                            
                            RMBRevenues
                            
                            
                            323
                            
                            
                            
                            -
                            
                            
                            
                            744
                            
                            
                            
                            -Loss
      before provision of income taxes from discontinued
    operations
                            
                            
                            (449
                            )
                            
                            
                            -
                            
                            
                            
                            (1,053
                            )
                            
                            
                            -Provision
      for income taxes
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Noncontrolling
      interest in discontinued operations
                            
                            
                            7
                            
                            
                            
                            -
                            
                            
                            
                            16
                            
                            
                            
                            -Loss
      from discontinued operations attributable to ChinaCast Education
      Corporation, net of tax
                            
                            
                            (442
                            )
                            
                            
                            -
                            
                            
                            
                            (1,037
                            )
                            
                            
                            -Net
      loss on discontinued operations attributable to ChinaCast Education
      Corporation per share – basic
                            
                            
                            (0.01
                            )
                            
                            
                            -
                            
                            
                            
                            (0.02
                            )
                            
                            
                            -Net
      loss on discontinued operations attributable to ChinaCast Education
      Corporation per share – diluted
                            
                            
                            (0.01
                            )
                            
                            
                            -
                            
                            
                            
                            (0.02
                            )
                            
                            
                            -





All notes
to the accompanying unaudited condensed consolidated financial statements have
been retrospectively adjusted to reflect the effect of the discontinued
operations, where applicable.


12


4.       
ACQUISITION




On
October 5, 2009, CCH, the Company's subsidiary in Bermuda, consummated the
acquisition of the entire interest in East Achieve Limited (“East Achieve”) from
the former sole owner of East Achieve.  East Achieve holds the entire
interest in Shanghai Xijui Information Technology Co., Ltd. (“Xijiu”). 
Xijiu holds the entire interest in China Lianhe Biotechnology Co., Ltd.
(“Lianhe”) which in turns holds the entire interest in Lijiang College of
Guangxi Normal University (“Lijiang College”).  Lijiang College is a
private college affiliated with Guangxi Normal University.  The total
consideration for the acquisition is up to RMB365,000, of which RMB295,000 was
paid during 2009.  The remaining amount of the consideration is to be
calculated as below.





For the
academic year of 2009 (i.e. from September 1, 2009 to August 31, 2010), if the
net profit as determined under the relevant sale and purchase agreement of the
Lijiang College is less than RMB55,000, CCH is entitled to deduct an amount
equal to 6.6 times of the difference between the net profit and RMB55,000 from
the remaining amount of consideration.




The
contingent consideration was recorded as a liability at fair value of
RMB30,482 and the change of its fair value was recorded in earnings at each
reporting date.  As a result, the expected total consideration was
RMB325,482 as of the date of acquisition. There was no change in the fair value
of the remaining consideration up to June 30, 2010.





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
                    
                    
                    73,113Other
      current assets
                    
                    
                    2,408Non-current
      deposits
                    
                    
                    6,374Property
      and equipment
                    
                    
                    261,543
                    
                    3-20
      yearsPrepaid
      lease payments for land use rights
                    
                    
                    28,920
                    
                    Over
      the remaining lease
                      term
      of 48 yearsIntangible
      assets:Customer
      relationship
                    
                    
                    51,000
                    
                    47
      monthsAffiliation
      agreement
                    
                    
                    14,000
                    
                    59
      monthsGoodwill
                    
                    
                    192,440Other
      current liabilities
                    
                    
                    (105,424
                    )Deferred
      revenues
                    
                    
                    (89,114
                    )Deferred
      tax liabilities
                    
                    
                    (12,616
                    )Long-term
      bank borrowings
                    
                    
                    (90,000
                    )Unrecognized
      tax benefits
                    
                    
                    (7,162
                    )Total
                    
                    
                    325,482


13


The
Company performed the purchase price allocation for the acquisition.  The
valuation analyses utilized and considered generally accepted valuation
methodologies such as income, market and cost approach.





An affiliation
agreement ("Affiliation Agreement") was signed between Lianhe and Guangxi Normal
University in relation to the operations of Lijiang College.  Under
the Affiliation Agreement, Guangxi Normal University authorizes Lijiang College
to use its school name and offers certain management and operational supports
for an agreed amount of fees.





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
forma
 
 The
following supplemental unaudited pro forma results of operations for the year
ended December 31, 2009 presented the acquisition as if it had occurred on
January 1, 2009.  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 date indicated, or that may result in the
future:
 
 For
      the yearended December 31,2009RMB(unaudited)Revenues
                                    
                                    
                                    427,484Net
      income attributable toChinaCast
      Education Corporation
                                    
                                    
                                    91,401Net
      income attributable to ChinaCast EducationCorporation
      per share - basic
                                    
                                    
                                    2.47Net
      income attributable to ChinaCast EducationCorporation
      per share - diluted
                                    
                                    
                                    2.46


14





5.     
 NON-CURRENT
DEPOSITS





Non-current
deposits consisted of the following:





As of June
                    30, 2010
                  
                  
                  As of
                    December 31,
                    2009RMB
                  
                  
                  RMBRental
      deposits
                  
                  
                  415
                  
                  
                  
                  358Utilities
      deposits
                  
                  
                  208
                  
                  
                  
                  208Guarantee
      deposit for borrowings
                  
                  
                  4,000
                  
                  
                  
                  3,000Guarantee
      deposits for construction projects
                  
                  
                  2,492
                  
                  
                  
                  2,492Deposit
      for investment project
                  
                  
                  6,000
                  
                  
                  
                  3,000Deposit
      for acquiring of land use rights
                  
                  
                  -
                  
                  
                  
                  5,492Total
                  
                  
                  13,115
                  
                  
                  
                  14,550





Rental
deposits represented office rental deposits for the Company’s daily
operations.





Guarantee
deposit represented deposits placed with Chongqing Education Guarantee Co.,
Ltd.,a long-term investment of the Company, which in turn provided guarantee in
favor of the relevant bank for the Company’s bank borrowings of RMB30,000 and
RMB20,000, respectively.




Deposit
for investment project represented deposit for a potential investment project.
The Company deposited an additional RMB3,000 during
the six months ended June 30, 2010for the same project.




These
deposits are classified into non-current deposits since they will not be
refunded within one year.


15


6.       
ACQUIRED INTANGIBLE ASSETS,
NET





Acquired intangible assets, net consisted of the
following:





As of June
                  30,
                
                
                As of
                  December 31,2010
                
                
                2009RMB
                
                
                RMBCustomer
      relationshipsCost
                
                
                91,329
                
                
                
                91,329Less:
      Accumulated amortization
                
                
                (49,142
                )
                
                
                (33,331
                )42,187
                
                
                
                57,998Affiliation
      agreementCost
                
                
                14,000
                
                
                
                14,000Less:
      Accumulated amortization
                
                
                (2,136
                )
                
                
                (712
                )11,864
                
                
                
                13,288Acquired
      intangible assets, net
                
                
                54,051
                
                
                
                71,286





On
April 11, 2008, the Company acquired a customer relationship through the
acquisition of Hai Lai Education Technology Limited. 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.





On
October 5, 2009, the Company acquired another customer relationship through the
acquisition of East Achieve (see Note 4).  The customer relationship is
being amortized using accelerated amortization method over 47 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 and six months ended June 30, 2010, the Company recorded
amortization expense in respect of the customer relationships amounting to
RMB7,906 and RMB15,812, respectively. The Company will record further
amortization expenses in respect of the customer relationships of RMB12,300,
RMB17,576, RMB8,793 and RMB3,517 for the
six months ended December 31, 2010 and year 2011, 2012 and 2013,
respectively.





On
October 5, 2009, the Company acquired an affiliation agreement through the
acquisition of East Achieve (see Note 4).  The affiliation agreement is
being amortized on a straight-line basis over 59 months.





For the
three months and six months ended June 30, 2010, the Company recorded
amortization expense in respect of the affiliation agreement amounting to RMB712
and RMB1,423, respectively.  The Company will record amortization expenses
in respect of the affiliation agreement of RMB1,423, RMB2,847, RMB2,847,
RMB2,847 and RMB1,900 for the six months ended December 31, 2010 and year
2011, 2012, 2013 and 2014, respectively.




7.     
NON-CURRENT ADVANCES TO RELATED
PARTY




The
noncurrent advances to a related party represent money spent on assets and
expenses to build up the satellite business of ChinaCast Co., Ltd. ( “ CCL
” ) over the years. Amounts advanced to the related party were RMB99,682 and
RMB99,727 as at June 30, 2010 and December 31, 2009, respectively.




CCL has
undertaken that when regulation allows, the ownership of CCLX and all the
relevant assets attributable to the satellite business operations in the books
of CCL and Beijing Branch of CCL ( “ CCLBJ ” ) will be transferred to the
Company, the consideration of which will be settled against the above advances
to CCL in the books of the Company at the sole discretion of the Company.
Accordingly, we consider the advances are of the nature of a deemed
investment.




In
addition, the Company has obtained an undertaking from CCL that, at the time of
such transfer, CCL will make a payment to the Company for any shortfall if the
valuation of the deemed investment is lower than the outstanding amount of the
advances, and therefore believes that the advances are recoverable.




For the
three months and six months ended June 30, 2009, the Company received a
management service fee of RMB2,329 and RMB3,296, respectively. The
management service fee was terminated with effect from January 1,
2010.


16


8.     
 BORROWINGS




The
Company repaid the bank borrowing amounting to RMB58,400 and RMB20,000,
respectively, in January and June 2010 as at their maturity date.
 
 In
March and April 2010, a bank borrowing amounting to RMB12,000 and RMB8,000
was raised by Foreign Trade and Business College of Chongqing Normal University
(“FTBC”). The bank borrowing carried interests at the benchmark interest rate
announced by the People’s Bank of China plus 10% per annum and was secured by
guarantees given by Chongqing Education Guarantee Co., Ltd. (“CQEG”) and in
favor of the relevant bank. In connection with the guarantee given by CQEG, a
deposit of RMB1,000 were pledged to CQEG. RMB10,000 of the borrowing will be
repayable in September 2011, the remaining RMB2,000 will be repayable in
September 2012.
 
 In
March 2010, a bank borrowing amounting to RMB30,000 was raised by Lijiang
College. The bank borrowing carried interests at 5.31% per annum and will be
repayable in March 2011.
 
 In
May 2010, a bank borrowing amounting to RMB30,000 was raised by FTBC. The
bank borrowing carried interests at 9.5% per annum and was secured by guarantees
given by Chongqing Yutai Guarantee Co., Ltd. (“CQYT”) and in favor of the
relevant bank. In connection with the guarantee given by CQYT, certain buildings
of RMB45,000 are pledged to CQYT as counter-guarantee objective, and Hai Lai and
three employees of the Company are jointly liable to CQYT. RMB10,000 of the
borrowing will be repayable in October 2010, and remaining RMB20,000 will be
repayable in September 2011.
 
 During
the six months ended June 30, 2010, an aggregate amount of other borrowings
amounting to RMB88,000 was raised. RMB15,000 of other borrowings carried
interest at 7.2% per annum and will be repayable in 2010. Other borrowings
amounting to RMB73,000 were repaid by the Company as at its maturity
date.
  9. 
SHARE
OFFERINGS
  On April
29, 2010, the Company entered into a Stock Purchase Agreement (the “Stock
Purchase Agreement”) with Wu Shi Xin, the sole stockholder of Wintown
Enterprises Limited, a British Virgin Islands company (“Wintown”), pursuant to
which Mr. Wu agreed to purchase 3,735,734 shares of the Company’s common stock
(the “Shares”) for a purchase price of US$7.85 per share, or an aggregate
purchase price of US$29.3 million. Wintown is the holding company for Hubei
Industrial University Business College (“HIUBC”), a private, accredited
university in Wuhan, China.
  Pursuant
to the Stock Purchase Agreement, the Company granted Mr. Wu a one time demand
registration right with respect to the Shares, exercisable at any time on or
after October 1, 2010. The purchase of the Shares by Mr. Wu is an initial step
in the Company’s acquisition of HIUBC pursuant to a Memorandum of Understanding
previously announced on March 30, 2010 for an expected total consideration of
US$66.0 million in common stock and/or cash.
  The
Company consummated the sale of the Shares to Mr. Wu on June 02,
2010.


10.     
 STOCK COMPENSATION
PLAN





Under the
2007 Omnibus Securities and Incentive Plan (“2007 Plan”) adopted in
May 2007, CEC may grant any awards to eligible participants, including
employees, directors or consultants, to purchase up to 2,500,000 ordinary
shares.


Nonvested shares




On
July 11, 2007, CEC 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).




17




On
January 11, 2008, CEC agreed to grant, under the 2007 Plan, restricted shares to
its three independent directors at no consideration. Each of the three directors
was agreed to be granted 100,000 restricted shares of the Company's common
stock. All of the shares of restricted stock to be 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 of the restricted shares were vested on February 9, 2008, February 9,
2009 and February 9, 2010, respectively. In December 2009, Mr. Richard
Xue decided not to stand for re-election to the board of directors of
CEC. CEC's board of directors has decided to accelerate the date of the vesting
of his final branch of 60,000 restricted shares from February 9, 2010 to the
date of his resignation.
  On June
22, 2010, CEC granted, under the 2007 Plan, 396,678 restricted shares to six
employees at no consideration. All of the shares of restricted stock to the
employees were granted at fair market value based on the closing price of June
22, 2010 of US$6.07 (RMB41.26). 33,062 of the restricted shares were vested on
the date of granting. 33,056 of the restricted shares  vested on July 31,
2010 and an equal number of restricted shares shall be vested at the end of
every three months thereafter until January 31, 2013.
  Number of
      shares
                
                
                Fair values of
      shares
                
                
                Intrinsic
                  valueUS$
                
                
                US$Nonvested share unvested at
      January 1, 2010
                
                
                120,000
                
                
                
                6.25
                
                
                
                750Granted
                
                
                396,678
                
                
                
                6.07
                
                
                
                2,408Vested
                
                
                (153,062
                )
                
                
                6.21
                
                
                
                (951
                )Fortified
                
                
                -
                
                
                
                -
                
                
                
                -Nonvested share unvested at June
      30, 2010
                
                
                363,616
                
                
                
                6.07
                
                
                
                2,207
  Share options
    A summary
of the share option activity under 2007 Plan was as follows:
 
 WeightedaverageNumber
                  
                  
                  exerciseof options
                  
                  
                  priceUS$Options
      outstanding at December 31, 2009
                  
                  
                  1,200,000
                  
                  
                  
                  6.30Granted
                  
                  
                  —
                  
                  
                  
                  —Exercised
                  
                  
                  —
                  
                  
                  
                  —Cancelled
                  
                  
                  —
                  
                  
                  
                  —




18




WeightedaverageNumber
                    
                    
                    exerciseof options
                    
                    
                    priceUS$Options
      outstanding at June 30, 2010
                    
                    
                    1,200,000
                    
                    
                    
                    6.30Options
      exercisable at December 31, 2009
                    
                    
                    802,000
                    
                    
                    
                    6.30Options
      exercisable at June 30, 2010
                    
                    
                    1,200,000
                    
                    
                    
                    6.30





A
summary of the status of the Company's nonvested share options as of June
30, 2010 and changes during the six months ended June 30, 2010, is presented as
below:





Weighted
                  average
                
                
                Weightedgrant date
                
                
                averageNonvested
share options
                
                Shares
                
                
                fair value
                
                
                exercise priceUS$
                
                
                US$Nonvested
      at January 1, 2010
                
                
                398,000
                
                
                
                2.67
                
                
                
                6.30Granted
                
                
                -
                
                
                
                -
                
                
                
                -Vested
                
                
                (398,000
                )
                
                
                2.67
                
                
                
                6.30Forfeited
                
                
                -
                
                
                
                -
                
                
                
                -Nonvested
      at June 30, 2010
                
                
                -
                
                
                
                -
                
                
                
                -




The per
share fair value of share options as of January 11, 2008, the grant date
was US$2.67 (RMB19.33).





The
aggregate intrinsic value of share options outstanding and exercisable as of
June 30, 2010 was US$ nil.


The
weighted average remaining contractual life is 7.5 years as of
June 30, 2010.


Total
share-based compensation expenses amounting to RMB1,712 and RMB3,134 were
recognized for the three months ended June 30, 2010 and 2009, respectively.
Total share-based compensation expenses amounting to RMB4,600 and RMB9,712 were
recognized for the six months ended June 30, 2010 and 2009,
respectively.


There was
RMB14,627 of unrecognized compensation expense related to the stock based
compensation arrangements for the restricted shares and share options as of June
30, 2010.





As of
June 30, 2010, no such
restricted shares or share options have been forfeited andno other
awards have been granted under the 2007 Plan.


19





11.
            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, ChinaCast Technology (Shanghai)
Limited (“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.




FTBC and
Hai Yuen Company Limited (“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.





Lijiang
College was incorporated in Guilin of the PRC and is 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.





During
the six months ended June 30, 2010, the unrecognized tax benefits increased from
RMB62,457 to RMB70,527.


20




12.
            NET INCOME PER
      SHARE





For the three months ended June 30,
                                            
                                            
                                            For the six months ended June 30,2010
                                            
                                            
                                            2009
                                            
                                            
                                            2010
                                            
                                            
                                            2009Numerator used in basic and
      diluted net income per share:Income
      from continuing operations attributable to ChinaCast Education
      Corporation
                                            
                                            RMB
                                            32,576
                                            
                                            
                                            RMB
                                            26,239
                                            
                                            
                                            RMB
                                            63,698
                                            
                                            
                                            RMB
                                            46,516Loss
      on discontinued operations attributable to ChinaCast Education
      Corporation
                                            
                                            
                                            -
                                            
                                            
                                            RMB
                                            (442
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            RMB
                                            (1,037
                                            )Net income attributable to
      ChinaCast Education Corporation
                                            
                                            RMB
                                            32,576
                                            
                                            
                                            RMB
                                            25,797
                                            
                                            
                                            RMB
                                            63,968
                                            
                                            
                                            RMB
                                            45,479Shares (denominator):Weighted average ordinary shares
      outstanding used in computing basic net income per share
                                            
                                            
                                            47,250,261
                                            
                                            
                                            
                                            35,656,163
                                            
                                            
                                            
                                            46,606,070
                                            
                                            
                                            
                                            35,652,229Plus:Incremental ordinary shares from
      assumed conversions of stock options, vesting of restricted shares and
      exercises of Underwriter Warrants
                                            
                                            
                                            204,539
                                            
                                            
                                            
                                            146,164
                                            
                                            
                                            
                                            274,285
                                            
                                            
                                            
                                            73,082Weighted average ordinary shares
      outstanding used in computing diluted net income per share
                                            
                                            
                                            47,454,800
                                            
                                            
                                            
                                            35,802,327
                                            
                                            
                                            
                                            46,880,355
                                            
                                            
                                            
                                            35,725,311Net
      income per share – basic:Income
      from continuing operations attributable to ChinaCast Education
      Corporation
                                            
                                            RMB
                                            0.69
                                            
                                            
                                            RMB
                                            0.73
                                            
                                            
                                            RMB
                                            1.37
                                            
                                            
                                            RMB
                                            1.30Loss
      on discontinued operations attributable to ChinaCast Education
      Corporation
                                            
                                            
                                            -
                                            
                                            
                                            RMB
                                            (0.01
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            RMB
                                            (0.02
                                            )Net income attributable to
      ChinaCast Education Corporation
                                            
                                            RMB
                                            0.69
                                            
                                            
                                            RMB
                                            0.72
                                            
                                            
                                            RMB
                                            1.37
                                            
                                            
                                            RMB
                                            1.28Net
      income per share – diluted:Income
      from continuing operations attributable to ChinaCast Education
      Corporation
                                            
                                            RMB
                                            0.69
                                            
                                            
                                            RMB
                                            0.73
                                            
                                            
                                            RMB
                                            1.36
                                            
                                            
                                            RMB
                                            1.29Loss
      on discontinued operations attributable to ChinaCast Education
      Corporation
                                            
                                            
                                            -
                                            
                                            
                                            RMB
                                            (0.01
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            RMB
                                            (0.02
                                            )Net income attributable to
      ChinaCast Education Corporation
                                            
                                            RMB
                                            0.69
                                            
                                            
                                            RMB
                                            0.72
                                            
                                            
                                            RMB
                                            1.36
                                            
                                            
                                            RMB
                                            1.27




21




13.
            SEGMENT
      INFORMATION





For the three months ended June 30,
                  
                  
                  For the six months ended June 30,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009RMB
                  
                  
                  RMB
                  
                  
                  RMB
                  
                  
                  RMBRevenues
      from external customers:ELG
                  
                  
                  47,621
                  
                  
                  
                  47,111
                  
                  
                  
                  94,020
                  
                  
                  
                  93,884TUG
                  
                  
                  63,024
                  
                  
                  
                  28,643
                  
                  
                  
                  124,986
                  
                  
                  
                  58,387110,645
                  
                  
                  
                  75,754
                  
                  
                  
                  219,006
                  
                  
                  
                  152,271Additional
      analysis of revenues from ELG by product or service:Service
                  
                  
                  47,621
                  
                  
                  
                  45,818
                  
                  
                  
                  93,989
                  
                  
                  
                  89,715Equipment
                  
                  
                  -
                  
                  
                  
                  1,293
                  
                  
                  
                  31
                  
                  
                  
                  4,16947,621
                  
                  
                  
                  47,111
                  
                  
                  
                  94,020
                  
                  
                  
                  93,884Additional
      analysis of revenues from ELG by business lines:Post
      secondary education distance learning
                  
                  
                  28,412
                  
                  
                  
                  26,622
                  
                  
                  
                  56,465
                  
                  
                  
                  52,451K-12
      and content delivery
                  
                  
                  15,974
                  
                  
                  
                  16,044
                  
                  
                  
                  31,981
                  
                  
                  
                  32,263Vocational
      training, enterprise/government training and networking
      services
                  
                  
                  3,235
                  
                  
                  
                  4,445
                  
                  
                  
                  5,574
                  
                  
                  
                  9,17047,621
                  
                  
                  
                  47,111
                  
                  
                  
                  94,020
                  
                  
                  
                  93,884Income
      from operations:ELG
                  
                  
                  27,395
                  
                  
                  
                  26,417
                  
                  
                  
                  52,835
                  
                  
                  
                  44,656TUG
                  
                  
                  15,643
                  
                  
                  
                  8,877
                  
                  
                  
                  31,617
                  
                  
                  
                  19,21543,038
                  
                  
                  
                  35,294
                  
                  
                  
                  84,452
                  
                  
                  
                  63,871





As of June
                      
                      
                      As of
                        December30, 2010
                      
                      
                      31, 2009RMB
                      
                      
                      RMBSegment
      assets:ELG
                      
                      
                      1,070,221
                      
                      
                      
                      805,116TUG
                      
                      
                      1,406,958
                      
                      
                      
                      1,468,7732,477,179
                      
                      
                      
                      2,273,889





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.


22





There
were no customers accounting for 10% or more of total net revenues for the three
months and six months ended June 30, 2010.





Two
customers as of June 30, 2010 and three customers as of December 31, 2009 each
accounted for 10% or more of the Company’s accounts receivable balances,
representing an aggregate of 26.2% and 35.8% of the Company’s accounts
receivable balances at June 30, 2010 and December 31, 2009,
respectively.





14.
            WARRANTS AND UNIT PURCHASE
      OPTIONS




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 and are classified as Equity in the accompanying consolidated
financial statements. As of June 30, 2010, there were 255,000 Underwriter
Warrants outstanding.


23




15.
            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.


24





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.c)
              On
      October 5, 2009, CCH, the Company's subsidiary in Bermuda, consummated the
      acquisition of the entire interest in East Achieve from the former sole
      owner of East Achieve.  East Achieve holds the entire interest
      in Xijui. Xijiu holds the entire interest in which in Lianhe turns
      holds the entire interest in Lijiang College.  Lijiang College
      is a private college affiliated with Guangxi Normal
      University.  The total consideration for the acquisition is up
      to RMB365,000, of which RMB295,000 was paid during 2009.  The
      remaining amount of the consideration is to be calculated as following
      statement. For the academic
      year of 2009 (i.e. from September 1, 2009 to August 31, 2010), if the net
      profit as determined under the relevant sale and purchase agreement of the
      Lijiang College is less than RMB55,000, CCH is entitled to deduct an
      amount equal to 6.6 times of the difference between the net profit and
      RMB55,000 from the remaining amount of consideration. The contingent
      consideration was recorded as a liability at fair value of RMB30,482 and
      the change of its fair value was recorded in earnings at each reporting
      date.  As a result, the expected total consideration was
      RMB325,482 as of the date of acquisition. There was no change in the fair
      value of the remaining consideration up to June 30,
  2010.




25




Item 2. Management’s Discussion and
Analysis of Financial Condition and Results of Operations.




Forward
Looking Statements




Portions
of the discussion and analysis below contain certain statements that are not
descriptions of historical facts, but are forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities and Exchange Act of 1934. These forward-looking statements may
include statements about our plans and objectives for future expansion,
including into post-secondary brick and mortar education market; expectations
for E-learning and training services the PRC; anticipated margins for our
solutions; general and cyclical economic and business conditions, and, in
particular, those in the PRC’s education market; our ability to enter into and
renew key corporate and strategic relationships with our customers and
suppliers; changes in the favorable tax incentives enjoyed by our PRC operating
companies; and other statements containing forward looking terminology such as
“may”, “expects”, “believes”, “anticipates”, “intends”, “projects”, “looking
forward” or similar terms, variations of such terms or the negative of such
terms. Such information is based upon various assumptions made by, and
expectations of, our management that were reasonable when made but may prove to
be incorrect. All of such assumptions are inherently subject to uncertainties
and contingencies beyond our control and upon assumptions with respect to future
business decisions which are subject to change. Accordingly, there can be no
assurance that actual results will meet expectations and actual results may vary
(perhaps materially) from certain of the results anticipated herein. For a
further description of these and other risks and uncertainties, see our most
recent Annual Report filed with the Securities and Exchange Commission (SEC) on
Form 10-K, and our subsequent SEC filings. The following discussion of our
financial condition and results of operations should also be read in conjunction
with our unaudited condensed consolidated financial statements and the notes to
those financial statements appearing elsewhere in this Form 10-Q.




Overview




We were
formed on August 20, 2003 to serve as a vehicle to effect a merger, capital
stock exchange, asset acquisition or other similar business combination with a
company having its primary operations in the PRC.




On
December 22, 2006, we consummated the acquisition of ChinaCast Communication
Holdings Limited (“CCH”). As of December 22, 2006, shareholders of CCH that had
previously executed Letters of Undertaking with us with respect to the sale of
their shares of CCH and that collectively held 239,648,953 shares of CCH or
51.22% of CCH’s outstanding shares accepted the voluntary conditional offer (the
“Offer”) made in Singapore by DBS Bank, for and on our behalf, to acquire all of
the outstanding ordinary shares of CCH. On January 18, 2007, at the end of the
Offer period, acceptance of the Offer totaled 80.27% which is the basis we
accounted for the acquisition. As a result of this acceptance of the Offer by
CCH shareholders, CCH became our subsidiary and such acquisition qualified as a
“business combination” under our amended and restated certificate of
incorporation. During 2007, CEC acquired additional shares by issuing shares of
CEC to certain original ChinaCast shareholders and increased its holdings to
100% of the outstanding ordinary shares of ChinaCast. The 19.73% of the
additional shares acquired were accounted for on the same basis as the
acquisition of the 80.27% shares.




We are
subject to risks common to companies operating in China, including risks
inherent in our distribution and commercialization efforts, uncertainty of
foreign regulatory approvals and laws, the need for future capital and retention
of key employees. We cannot provide assurance that we will generate revenues or
achieve and sustain profitability in the future.




Critical
Accounting Policies




For
summary of the critical accounting policies and the significant judgments and
estimates made on the part of the management, see item 7 of Form 10-K for the
year ended December 31, 2009 filed by the Company on March 29,
2010.


26





Results
of Operations




For the
purpose of the discussion and analysis of the results of ChinaCast Education
Corporation (“CEC”), its subsidiaries, and variable interest entity in this
section, the consolidated group is referred to as the “Company”. CCL was not
accounted for as a consolidated variable interest entity, because the Company
was not considered to be the primary beneficiary of CCL. The US dollar figures
presented below were based on the historical exchange rate of US$1 = RMB6.8 at
June 30, 2010 for the three months and six months ended June 30,
2010.




Since our
acquisition of Hai Lai, we have been organized as two business segments, the
E-learning and training service Group (the “ELG”), encompassing all the
Company’s businesses before the acquisition, and the Traditional University
Group (the “TUG”), offering bachelor and diploma programs to students in
China.




The
revenue of the Company for the three months and six months ended June 30, 2010
amounted to RMB110.6 million (US$16.3 million) and RMB219.0 million (US$32.2
million) respectively, representing an increase of 46.1% and 43.8% over the
revenue of the corresponding periods in 2009. The increase in revenue was mainly
due to the acquisition of East Achieve in the fourth quarter of
2009.




Revenue
of the ELG amounted to RMB47.6 million (US$7.0 million) and RMB94.0 million
(US$13.8 million) for the three months and six months ended June 30, 2010
respectively, as compared to revenue of RMB47.1 million and RMB93.9 million of
the ELG for the three months and six months ended June 30, 2009 respectively.
Service income, mainly of a recurring nature amounted to RMB47.6 million (US$7.0
million) and RMB94.0 million (US$13.8 million) for the three months and six
months ended June 30, 2010, compared to RMB45.8 million and RMB89.7 million for
the corresponding periods in 2009. Equipment sales, mainly project based,
amounted to RMB nil (US$ nil) and RMB0.03 million (US$0.005 million) for the
three months and six months ended June 30, 2010, against RMB1.3 million and
RMB4.2 million for the same periods last year. The following table provides a
summary of the ELG’s revenue by business lines:





Three Months endedJune 30, 2010
                
                
                June 30, 2009(millions)
                
                
                (millions)US$
                
                
                RMB
                
                
                RMBPost
      secondary education distance learning
                
                
                4.2
                
                
                
                28.4
                
                
                
                26.6K-12
      and content delivery
                
                
                2.3
                
                
                
                16.0
                
                
                
                16.0Vocational
      training, enterprise / government training and networking
                
                
                0.5
                
                
                
                3.2
                
                
                
                4.5Total
      ELG revenue
                
                
                7.0
                
                
                
                47.6
                
                
                
                47.1





Six Months endedJune 30, 2010
                
                
                June 30, 2009(millions)
                
                
                (millions)US$
                
                
                RMB
                
                
                RMBPost
      secondary education distance learning
                
                
                8.3
                
                
                
                56.5
                
                
                
                52.5K-12
      and content delivery
                
                
                4.7
                
                
                
                32.0
                
                
                
                32.2Vocational
      training, enterprise / government training and networking
                
                
                0.8
                
                
                
                5.5
                
                
                
                9.2Total
      ELG revenue
                
                
                13.8
                
                
                
                94.0
                
                
                
                93.9




Net
revenue from post secondary education distance learning services increased from
RMB52.5 million in the six months ended June 30, 2009 to
RMB56.5 million (US$8.3 million) in six months ended June 30,
2010. Net revenue from post secondary education distance learning services
increased from RMB26.6 million in the three months ended June 30, 2009
to RMB28.4 million (US$4.1 million) in three months ended
June 30, 2010. The total number of post-secondary students enrolled in
courses using the Company’s distance learning platforms increased to 141,000 at
June 30, 2010 from 135,000 at June 30, 2009. The increase was due to
the growth of students enrolled in distance learning degree courses with the
universities.


27





The
revenue from the K-12 and content delivery business decreased slightly by
approximately 0.6% from RMB32.2 million for the six months ended June 30, 2009
to RMB32.0 million (US$4.7 million) for the six months ended June 30, 2010. The
revenue from the K-12 and content delivery business remained the same at RMB16.0
million (US$2.4 million) for the three months ended June 30, 2010 and for the
three months ended June 30, 2009. The number of subscribing schools for K-12
distance learning services has stabilized at 6,500.




Net
revenue from vocational and career training services, enterprise government
training and networking services decreased from RMB9.2 million during the six
months ended June 30, 2009 to RMB5.5 million (US$0.8 million) during the six
months ended June 30, 2010. Net revenue from vocational and career training
services, enterprise government training and networking services decreased from
RMB4.5 million during the three months ended June 30, 2009 to RMB3.2 million
(US$0.5 million) during the three months ended June 30, 2010. The decrease was
mainly due to fluctuations in equipment sales, the nature of which is not
recurring. Equipment sales included in the revenue of this business line
amounted to RMBnil (US$nil) and RMB0.03 million (US$0.005 million)for the three
months and six months ended June 30, 2010, against RMB1.3 million and RMB4.2
million and RMB million during the same periods last year.




The
revenue of TUG increased from RMB28.6 million and RMB58.4 million in the three
months and six months ended June 30, 2009 respectively to RMB63.0 million
(US$9.3 million) and RMB125.0 million (US$18.4 million) in the three months and
six months ended June 30, 2010. The increase was mainly due to the acquisition
of East Achieve in the fourth quarter of 2009. TUG’s total student enrolment
increased from approximately 11,000 as at June 30, 2009 to approximately 20,400
as at June 30, 2010. Average revenue per student for 2010 amounted to RMB3,100
per student per quarter as compared to RMB2,700 per student per quarter for
2009.




Cost of
sales of the Company increased by 69.7% from RMB59.1 million during the first
half of 2009 to RMB100.4 million (US$14.8 million) during the first half of
2010. Cost of sales of the Company increased by 80.2% from RMB28.9 million
during the second quarter of 2009 to RMB52.1 million (US$7.7 million) during the
second quarter of 2010. The increase was mainly due to the acquisition of East
Achieve, which increased the cost of sales of the TUG.




ELG’s
cost of sales decreased from RMB21.5 million during the first half of 2009 to
RMB13.2 million (US$1.9 million) during the first half of 2010. ELG’s cost of
sales decreased from RMB9.9 million during the second quarter of 2009 to RMB6.6
million (US$1.0 million) during the second quarter of 2010. The decrease was
mainly due to reduction in equipment sales and the termination of the payment of
satellite platform usage fee to CCLBJ. There was no cost of materials for ELG
for the first half of 2010 whereas ELG’s cost of materials was RMB1.3 million
and RMB4.1 million for the three months and six months ended June 30, 2009. The
cost of service for the ELG amounted to RMB6.6 million (US$1.0 million) and
RMB13.2 million (US$1.9 million) for the three months and six months ended June
30, 2010, as compared to RMB8.6 million and RMB17.4 million for the same periods
in 2009. Satellite platform fee to CCLBJ amounted to RMB1.7 million and RMB3.4
million for the second quarter and the first half of 2009 quarter
respectively and the payment of the satellite platform fee to CCLBJ was
terminated with effect from January 1, 2010.




TUG’s
cost of sales amounted to RMB45.6 million (US$6.7 million) and RMB87.1 million
(US$12.8 million) for the three months and six months ended June 30, 2010 as
compared to RMB19.0 million and RMB37.7 million for the same periods in 2009.
The increase was due to the acquisition of East Achieve in the fourth quarter of
2009, after which there were two universities operated under TUG.




ELG’s
gross profit margin increased by 8.2 percentage points, from 78.0% in the second
quarter of 2009 to 86.2% in the second quarter of 2010. The increase was due to
the increase in economy of scale as well as the reduction in equipment sales,
which has a low margin and the termination of the satellite platform usage fee
to CCLBJ. TUG’s gross profit margin was 27.7% for the second quarter of 2010 as
compared to 33.6% for the same period of 2009. The decrease was mainly due to
the lower margin of the newly acquired LJC, which had a higher revenue split to
the parent university as compared to FTBC.




For the
three months and six months ended June 30, 2009, the Company received a
management service fee of RMB2.3 million and RMB3.3 million. The management
service fee arose from various agreements with CCL that entitled the Company to
the economic benefits of its Beijing Branch — CCLBJ. The management service fee
was terminated with effect from January 1, 2010.




Selling
and marketing expenses decreased from RMB2.5 million in the first half of 2009
to RMB1.3 million (US$0.2 million) in the first half of 2010. Selling and
marketing expenses decreased from RMB0.8 million in the second quarter of 2009
to RMB0.5 million (US$0.1 million) in the second quarter of 2010. The decrease
was due to the drop in share option expense from RMB0.3 million and RMB1.1
million for the three months and six months ended June 30, 2009 respectively to
RMB nil (US$ nil) and RMB0.4 million (US$0.06 million) for the corresponding
periods in 2010.


28





General and administrative expenses increased by
14.7% and 6.2% to RMB14.9 million (US$2.2 million) and RMB32.6 million
(US$4.8 million) in the three months and six months ended June 30, 2010 as
compared to the same periods last year. The reduction of share option expense
from RMB8.6 million for the first half of 2009 to RMB4.2 million (US$0.6
million) for the first half of 2010 was offset by the increase in general and
administrative expenses of the East Achieve Group after its
acquisition.




The
Company has foreign exchange loss of RMB0.6 million (US$0.08 million) for the
first half of 2010 compared to a gain of RMB0.1 million during the first half of
2009. The Company has foreign exchange loss of RMB0.3 million (US$0.04 million)
for the second quarter of 2010 compared to a loss of RMB0.05 million during the
second quarter of 2009. The change was a result of the change in the RMB/US
exchange rate.




Interest
income increased from RMB4.8 million in the first half of 2009 to RMB6.5 million
(US$1.0 million) in the first half of 2010. Interest income increased from
RMB2.5 million in the second quarter of 2009 to RMB3.5 million (US$0.5 million)
in the second quarter of 2010. The increase was due to the increase in the
amount of the Company’s term deposits.




Interest
expense increased from RMB3.2 million in the first half of 2009 to RMB6.6
million (US$1.0 million) in the first half of 2010. Interest expense increased
from RMB1.7 million in the second quarter of 2009 to RMB3.6 million (US$0.5
million) in the second quarter of 2010. Interest expense was mainly associated
with the loan of the TUG to finance the construction of the campus. The increase
was due to the increase in bank loan.




Overall,
profit before income tax and loss in equity investments increased from RMB36.1
million in the three months ended June 30, 2009 to RMB43.0 million (US$6.3
million) in the three months ended June 30, 2010, an increase of 19.2%. The
increase was mainly due to the increase in revenue.




The
Company recorded a loss in equity investments amounted to RMB0.03 million
(US$0.004 million) in the second quarter of 2010 compared to a loss of RMB0.3
million in the second quarter of 2009.




Income
taxes increased by 39.1% from RMB7.1 million in the second quarter of 2009 to
RMB9.9 million (US$1.5 million) in the second quarter of 2010. The increase was
due to the increase in business and a higher tax rate for the ELG.




Noncontrolling
interest amounted to RMB0.4 million (US$0.06 million) for the three months ended
June 30, 2010 as compared to RMB2.4 million for the three months ended June 30,
2009. On September 18, 2009, the Company acquired the 20% minority stake in Hai
Lai, which resulted in a reduction of the noncontrolling interest.




Net
income attributable to the Company increased by 26.3% to RMB32.6 million (US$4.8
million) in the three months ended June 30, 2010 from RMB25.8 million in the
three months ended June 30, 2009.




On March
16, 2007, the National People’s Congress of China enacted a new tax law, under
which foreign-invested enterprises and domestic companies will be subject to
enterprise income tax at a uniform rate of 25% . The new tax law became
effective on January 1, 2008. There is a transition period, during which
enterprises may continue to enjoy existing preferential tax treatment or in
which their tax rates may be gradually adjusted to 25%. Following the
effectiveness of the new 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, which is 18% in 2008, 20% in 2009,
22% in 2210, 24% in 2011, 25% in 2012 and thereafter.


29





Liquidity and
Capital Resources




The
following is a summary of the key items from the consolidated balance
sheets.


As ofAs of
                
                
                December 31,June 30, 2010
                
                
                2009(millions)
                
                
                (millions)RMB
                
                
                US$
                
                
                RMBCash
      and cash equivalents
                
                
                517.0
                
                
                
                76.0
                
                
                
                327.6Term
      deposits
                
                
                550.0
                
                
                
                80.9
                
                
                
                507.0Subtotal
                
                
                1,067.0
                
                
                
                156.9
                
                
                
                834.6Accounts
      receivable
                
                
                47.9
                
                
                
                7.1
                
                
                
                53.8Inventory
                
                
                1.4
                
                
                
                0.2
                
                
                
                1.4Prepaid
      expenses and other current assets
                
                
                21.3
                
                
                
                3.1
                
                
                
                19.2Total
      current assets
                
                
                1,144.8
                
                
                
                168.3
                
                
                
                919.7Non-current
      advances to a related party
                
                
                99.7
                
                
                
                14.7
                
                
                
                99.7Total
      assets
                
                
                2,477.2
                
                
                
                364.3
                
                
                
                2,273.9




Cash and
cash equivalents balances increased from RMB327.6 million as at December 31,
2009, to RMB517.0 million (US$76.0 million) as at June 30, 2010. The increase
was mainly due to the issuance of new shares to an investor as well as the
collection of account receivable.




There was
net cash from operating activities of RMB24.9 million (US$3.7 million) for the
six months ended June 30, 2010 as compared to net cash from operating activities
of RMB28.6 million for the six months ended June 30, 2009. The universities
under the TUG enroll students at the beginning of an academic year and collect
most of the tuition and other fee in September as well as the subsequent months
every year. For the remaining of the academic year, the TUG would have a net
cash outflow. The reduction of net cash from operating activities for the first
half of 2010 as compared to the first half of 2009 was mainly because of the
addition of another university under TUG. Account receivables reduced by RMB5.9
million (US$0.9 million) in the first half of 2010 whereas account receivables
increased by RMB13.8 million in the first half of 2009. Revenue is recognized
ratably throughout the periods services are provided, but payments may be
received ahead of or behind the revenue being recognized. Payments received
before recognition of revenue are recorded as deferred revenue while payments
not received at the time goods and service have been provided are recorded as
accounts receivable. For revenue related to project sales, the timing of
payments depended upon the terms of the contracts.




Net cash
used in investment activities in the six months ended June 30, 2010 was RMB85.0
million (US$12.5 million), mainly reflecting the transfer from term deposit of
RMB43.0 million (US$6.3 million) and settlement for the purchase and
construction of fixed assets of RMB39.1 million (US$5.7 million). For the six
months ended June 30, 2009, transfer from term deposit amounted to RMB137.7
million, which resulted in a cash outflow of RMB153.5 million for the
period.




Net cash
provided by financing activities in the first half of 2010 was RMB249.3 million
(US$36.7 million) as compared to RMB37.4 million in the first half of 2009. New
shares were issued in the first half of 2010 to investors to finance future
acquisition of the TUG, the proceeds of which amounted to RMB233.0 million
(US$34.3 million).




The
Company believes that its cash and cash equivalents balances, together with its
access to financing sources, will continue to be sufficient to meet the working
capital needs associated with its current operations on an ongoing basis,
although that cannot be assured. Also, it is possible that the Company’s cash
flow requirements could increase as a result of a number of factors, including
unfavorable timing of cash flow events, the decision to increase investment in
marketing and development activities or the use of cash for acquisitions to
accelerate its growth.




Total
assets at June 30, 2010 amounted to RMB2,477.2 million (US$364.3 million), an
increase of 8.9%, when compared to the total assets amounting to RMB2,273.9
million at December 31, 2009. Total current assets increased by 24.5% to
RMB1,144.8 million at June 30, 2010.




Accounts
receivable decreased slightly from RMB53.8 million as at December 31, 2009 to
RMB47.9 million (US$7.1 million) at June 30, 2010. Most of the business partners
are long term customers and settle their accounts promptly. All accounts
receivable are reviewed regularly and provisions have been made for any balances
that are disputed or doubtful.




Inventory,
mainly made up of satellite transmission and receiving equipment, amounted to
RMB1.4 million (US$0.2 million) at June 30, 2010.


30




Prepaid
expenses and other current assets increased from RMB19.2 million as at December
31, 2009 to RMB21.3 million (US$3.1 million). The increase was mainly due to the
changes in the deposits paid by the TUG.




The
noncurrent advances to a related party represent money spent on assets and
expenses to build up the satellite business of CCL over the years. CCL has
undertaken that when regulation allows, the ownership of CCLX and all the
relevant assets attributable to the satellite business operations in the books
of CCL and CCLBJ will be transferred to the Company, the consideration of which
will be settled against the above advances to CCL in the books of the Company at
the sole discretion of the Company. Accordingly, we consider that the advances
are of the nature of a deemed investment.




In
addition, we have obtained an undertaking from CCL that, at the time of such
transfer, CCL will make a payment to the Company for any shortfall if the
valuation of the deemed investment is lower than the outstanding amount of the
advances, and therefore believe that the advances are recoverable. Amounts
advanced to the related party were RMB99.7 million (US$14.7 million) as at June
30, 2010. As at December 31, 2009, the amount advanced was RMB99.7
million.




As at
June 30, 2010, the Company had total bank loans of RMB240.0 million (US$35.3
million). RMB66.0 million of the bank loans are expiring within one year were
secured by pledge of certain land use rights and buildings, the entitlement to
accommodation income of the student apartments and guarantees given by certain
individuals. The remaining RMB174.0 million of the bank loan is expiring over
one year and was secured by the guarantees provided by Chongqing Education
Guarantee Co., Ltd. (“CQEG”) and Hai Lai. In consideration of the guarantees
provided by CQEG, the entitlement to tuition fee of FTBC and a deposit of RMB4
million paid to CQEG were used as securities.




Off-Balance
Sheet Arrangements




The
Company has not entered any financial guarantees or other commitments to
guarantee the payment obligations of any third parties.


31




Item 3. Quantitative and Qualitative
Disclosures about Market Risk.




Foreign
Exchange Risk




Our
reporting currency is the Renminbi (“RMB”). Transactions in other currencies are
recorded in RMB at the rates of exchange prevailing when the transactions occur.
Monetary assets and liabilities denominated in other currencies are remeasured
into RMB at rates of exchange in effect at the balance sheet dates. Exchange
gains and losses are recorded in our statements of operations as a component of
current period earnings.




The
PRC State Administration for Foreign Exchange, under the authority of the
People’s Bank of China, controls the conversion of Renminbi into foreign
currencies. The principal regulation governing foreign currency exchange in
China is the Foreign Currency Administration Rules (1996), as amended, or the
“Rules.” Under the Rules, once various procedural requirements are met, RMB is
convertible for current account transactions, including trade and
service-related foreign exchange transactions and dividend payments, but not for
capital account transactions, including direct investment, loans or investments
in securities outside China, without prior approval of the State Administration
of Foreign Exchange of the People’s Republic of China, or its local
counterparts.




Since
July 2005, the RMB has no longer been pegged to the U.S. dollar. Although
currently the Renminbi exchange rate versus the U.S. dollar is restricted to a
rise or fall of no more than 0.3% per day and the People’s Bank of China
regularly intervenes in the foreign exchange market to prevent significant
short-term fluctuations in the exchange rate, the Renminbi may appreciate or
depreciate significantly in value against the U.S. dollar in the medium to long
term. Moreover, it is possible that in the future, the PRC authorities may lift
restrictions on fluctuations in the Renminbi exchange rate and lessen
intervention in the foreign exchange market. As of the close of business on
June 30, 2010, the exchange rate between the RMB and the U.S. dollar was
RMB6.8 to US$1.




We
conduct substantially all of our operations through our PRC operating companies,
and their financial performance and position are measured in terms of RMB. The
majority of our net sales and purchases are denominated in RMB.




Any
devaluation of the RMB against the U.S. dollar would consequently have an
adverse effect on our financial performance and asset values when measured in
terms of U.S. dollars. In addition, from time to time we may have U.S. dollar
denominated fixed deposits, and therefore a decoupling of the RMB may affect our
financial performance in the future.




We
recognized a foreign exchange loss of approximately RMB0.3 million
(US$0.04 million) and RMB0.6 million (US$0.08 million) for the
three months and six months ended June 30, 2010, respectively. We do not
currently engage in hedging activities, as such, we may in the future experience
economic loss as a result of any foreign currency exchange rate
fluctuations.




Interest
Rate Risk




We
have a long history of investing excess cash under a conservative corporate
policy that only allows investments in bank fixed deposits, with preservation of
capital and liquidity as the primary objectives. For the three months and six
months ended June 30, 2010, we recorded an interest income of
RMB3.5 million (US$0.5 million) and RMB6.5 million
(US$1.0 million) respectively. Any significant changes in interest rate
might have an adverse effect on this interest income.




We
have short-term and long-term debt amounting to RMB240.0 million
(US$35.3 million) as at June 30, 2010. Interest paid in the three
months and six months ended June 30, 2010 was RMB3.6 million
(US$0.5 million) and RMB6.6 million (US$1.0 million)
respectively. Any significant changes in interest rate might have an adverse
effect on interest expense. There have been no material changes associated with
the impact of inflation and concentration of credit risk from that previously
disclosed in our 2009 Annual Report on Form 10-K.




Inflation




There
have been no material changes associated with the impact of inflation from that
previously disclosed in our 2009 Annual Report on Form 10-K.


32





Item 4.
Controls and Procedures.




We
maintain “disclosure controls and procedures,” as such term is defined under
Exchange Act Rule 13a-15(e) and 15d-15(e), that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized, and reported within the time periods specified in the
SEC’s rules and forms, and that such information is accumulated and communicated
to our management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosures. In designing and evaluating the disclosure controls and procedures,
our management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives and in reaching a reasonable level of assurance our
management necessarily was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures. We have carried
out an evaluation under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of our disclosure controls and
procedures as of June 30, 2010. Based upon their evaluation and subject to
the foregoing, the Chief Executive Officer and Chief Financial Officer concluded
that as of June 30, 2010 our disclosure controls and procedures were
effective.





There
were no changes in our internal control over financial reporting that occurred
during the second fiscal quarter of 2010 covered by this Quarterly Report on
Form 10-Q that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.


33




PART II — OTHER
INFORMATION




Item 1. Legal Proceedings.




We
are not currently a party to any pending material legal proceeding.




Item 1A.
Risk Factors.




There
are no material changes from risk factors previously disclosed in the Annual
Report on Form 10-K for the year ended December 31, 2009, filed with the
SEC on March 29, 2010.




Item 2. Unregistered Sales of
Equity Securities and Use of Proceeds.





On April
29, 2010, we entered into a Stock Purchase Agreement with Wu Shi Xin, the sole
stockholder of Wintown Enterprises Limited, a British Virgin Islands company
(“Wintown”), pursuant to which Mr. Wu agreed to purchase 3,735,734 shares of our
common stock for a purchase price of US$7.85 per share, or an aggregate purchase
price of US$29.3 million. Wintown is the holding company for Hubei Industrial
University Business College, a private, accredited university in Wuhan,
China.





The
sale of the shares to Mr. Wu is exempt from the registration requirements of the
Securities Act of 1933, as amended (the “Act”) pursuant to Regulation S under
the Act due to the fact that the offering of the shares was not made in the
United States and that Mr. Wu is not a U.S. Person.




Item 3. Defaults upon Senior
Securities.





None.




Item 4. (Removed and
Reserved).




Item 5. Other Information.




None.




Item 6. Exhibits.





10.1
                      
                      Stock
      Purchase Agreement dated April 29, 2010 between ChinaCast Education
      Corporation and Wu Shi Xin. (1)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.







(1)
Incorporated by reference to the Registrant’s Current Report on Form 8-K filed
with the Securities and Exchange Commission on May 5, 2010




34




SIGNATURES




Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.




CHINACAST
      EDUCATION CORPORATION(Registrant)Date:
      August 9, 2010
                    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 Accounting and Financial
Officer)




35




EXHIBIT
INDEX





Exhibit
                        No.
                      
                      Description10.1
                      
                      Stock
      Purchase Agreement dated April 29, 2010 between ChinaCast Education
      Corporation and Wu Shi Xin. (1)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.







(1)
Incorporated by reference to the Registrant’s Current Report on Form 8-K filed
with the Securities and Exchange Commission on May 5, 2010





36