UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q




þ
            Quarterly
      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934





For
the quarterly period ended September 30, 2010





Or





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





For
the transition period
from            to





Commission
File Number: 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  ̈





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  ̈
      No  ̈





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 November 5, 2010.








TABLE OF
CONTENTS




PagePART I — FINANCIAL
      INFORMATION
                
                3Item 1. Financial
      Statements
                
                3Item 2.
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations
                
                28Item 3.
      Quantitative and Qualitative Disclosures About Market Risk
                
                34Item 4. Controls
      and Procedures
                
                35PART II — OTHER
      INFORMATION
                
                36Item 1. Legal
      Proceedings
                
                36Item 1A. Risk
      Factors
                
                36Item 2.
      Unregistered Sales of Equity Securities and Use of
Proceeds
                
                36Item 3. Defaults
      Upon Senior Securities
                
                36Item 4. (Removed
      and Reserved)
                
                36Item 5. Other
      Information
                
                36Item 6.
      Exhibits
                
                36SIGNATURES
                
                37EXHIBIT
      INDEX
                
                38




2


PART I — FINANCIAL INFORMATION


Item 1.
Financial Statements


CHINACAST
EDUCATION CORPORATION


CONDENSED
CONSOLIDATED BALANCE SHEETS (Unaudited)


(In
thousands, except share-related data)




As ofAs of September 30,
                                    
                                    
                                    December 31,2010
                                    
                                    
                                    2010
                                    
                                    
                                    2009US$
                                    
                                    
                                    RMB
                                    
                                    
                                    RMB(Note 1)
                                    
                                    
                                    
                                    
                                    
                                    
                                    (Note 1)AssetsCurrent
      assets:Cash
      and cash equivalents
                                    
                                    
                                    60,471
                                    
                                    
                                    
                                    405,153
                                    
                                    
                                    
                                    327,628Term
      deposits
                                    
                                    
                                    89,552
                                    
                                    
                                    
                                    600,000
                                    
                                    
                                    
                                    507,000Accounts
      receivable
                                    
                                    
                                    7,470
                                    
                                    
                                    
                                    50,050
                                    
                                    
                                    
                                    53,828Inventory
                                    
                                    
                                    215
                                    
                                    
                                    
                                    1,438
                                    
                                    
                                    
                                    1,386Prepaid
      expenses and other current assets
                                    
                                    
                                    4,303
                                    
                                    
                                    
                                    28,825
                                    
                                    
                                    
                                    19,212Amounts
      due from related parties
                                    
                                    
                                    513
                                    
                                    
                                    
                                    3,438
                                    
                                    
                                    
                                    6,388Deferred
      tax assets
                                    
                                    
                                    102
                                    
                                    
                                    
                                    682
                                    
                                    
                                    
                                    1,010Current
      portion of prepaid lease payments for land use rights
                                    
                                    
                                    484
                                    
                                    
                                    
                                    3,246
                                    
                                    
                                    
                                    3,246Total
      current assets
                                    
                                    
                                    163,110
                                    
                                    
                                    
                                    1,092,832
                                    
                                    
                                    
                                    919,698Non-current
      deposits
                                    
                                    
                                    1,815
                                    
                                    
                                    
                                    12,159
                                    
                                    
                                    
                                    14,550Property
      and equipment, net
                                    
                                    
                                    109,179
                                    
                                    
                                    
                                    731,498
                                    
                                    
                                    
                                    516,938Prepaid
      lease payments for land use rights - non-current
                                    
                                    
                                    26,758
                                    
                                    
                                    
                                    179,281
                                    
                                    
                                    
                                    144,818Acquired
      intangible assets, net
                                    
                                    
                                    17,471
                                    
                                    
                                    
                                    117,055
                                    
                                    
                                    
                                    71,286Long-term
      investments
                                    
                                    
                                    450
                                    
                                    
                                    
                                    3,015
                                    
                                    
                                    
                                    3,101Non-current
      advances to related party
                                    
                                    
                                    14,874
                                    
                                    
                                    
                                    99,665
                                    
                                    
                                    
                                    99,727Goodwill
                                    
                                    
                                    114,737
                                    
                                    
                                    
                                    768,741
                                    
                                    
                                    
                                    503,771Total
      assets
                                    
                                    
                                    448,394
                                    
                                    
                                    
                                    3,004,246
                                    
                                    
                                    
                                    2,273,889




3




As ofAs of September 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 RMB1,705 and RMB719 as of
      September 30, 2010 and December 31, 2009, respectively)
                                                                        
                                                                        
                                                                        5,938
                                                                        
                                                                        
                                                                        
                                                                        39,782
                                                                        
                                                                        
                                                                        
                                                                        16,061Accrued
      expenses and other current liabilities (including accrued expenses and
      other liabilities of the consolidated VIE without recourse to ChinaCast
      Education Corporation of RMB18,210 and RMB16,740 as of September 30, 2010
      and December 31, 2009, respectively)
                                                                        
                                                                        
                                                                        39,290
                                                                        
                                                                        
                                                                        
                                                                        263,241
                                                                        
                                                                        
                                                                        
                                                                        215,631Deferred
      revenues (including deferred revenues of  the consolidated VIE
      without recourse  to ChinaCast Education Corporation of nil as
      of September 30, 2010 and December 31, 2009)
                                                                        
                                                                        
                                                                        47,626
                                                                        
                                                                        
                                                                        
                                                                        319,097
                                                                        
                                                                        
                                                                        
                                                                        156,645Income
      taxes payable (including income taxes payable of  the
      consolidated VIE without recourse  to ChinaCast Education
      Corporation of RMB4,179 and RMB2,293 as of September 30, 2010 and December
      31, 2009, respectively)
                                                                        
                                                                        
                                                                        13,998
                                                                        
                                                                        
                                                                        
                                                                        93,793
                                                                        
                                                                        
                                                                        
                                                                        68,731Current
      portion of long-term bank borrowings (including current portion of
      long-term bank borrowings of  the consolidated VIE without
      recourse  to ChinaCast Education Corporation of nil as of
      September 30, 2010 and December 31, 2009)
                                                                        
                                                                        
                                                                        25,075
                                                                        
                                                                        
                                                                        
                                                                        168,000
                                                                        
                                                                        
                                                                        
                                                                        104,400Current
      portion of capital lease obligation (including current portion of capital
      lease obligation of  the consolidated VIE without
      recourse  to ChinaCast Education Corporation of nil as of
      September 30, 2010 and December 31, 2009)
                                                                        
                                                                        
                                                                        196
                                                                        
                                                                        
                                                                        
                                                                        1,313
                                                                        
                                                                        
                                                                        
                                                                        1,323Other
      borrowings (including other borrowings of  the consolidated VIE
      without recourse  to ChinaCast Education Corporation of nil as
      of September 30, 2010 and December 31, 2009)
                                                                        
                                                                        
                                                                        224
                                                                        
                                                                        
                                                                        
                                                                        1,500
                                                                        
                                                                        
                                                                        
                                                                        200Total
      current liabilities
                                                                        
                                                                        
                                                                        132,347
                                                                        
                                                                        
                                                                        
                                                                        886,726
                                                                        
                                                                        
                                                                        
                                                                        562,991Non-current
      liabilities:Long-term
      bank borrowings (including long-term bank borrowings of  the
      consolidated VIE without recourse  to ChinaCast Education
      Corporation of nil as of September 30, 2010 and December 31,
      2009)
                                                                        
                                                                        
                                                                        16,418
                                                                        
                                                                        
                                                                        
                                                                        110,000
                                                                        
                                                                        
                                                                        
                                                                        134,000Deferred
      tax liabilities – non-current (including deferred tax liabilities –
      non-current of  the consolidated VIE without
      recourse  to ChinaCast Education Corporation of nil as of
      September 30, 2010 and December 31, 2009)
                                                                        
                                                                        
                                                                        8,150
                                                                        
                                                                        
                                                                        
                                                                        54,606
                                                                        
                                                                        
                                                                        
                                                                        30,923Unrecognized
      tax benefits – non-current (including unrecognized tax benefits of the
      consolidated VIE without recourse to ChinaCast Education Corporation of
      RMB5,662 and RMB5,257 as of September 30, 2010 and December 31, 2009,
      respectively)
                                                                        
                                                                        
                                                                        15,111
                                                                        
                                                                        
                                                                        
                                                                        101,244
                                                                        
                                                                        
                                                                        
                                                                        62,457Total
      non-current liabilities
                                                                        
                                                                        
                                                                        39,679
                                                                        
                                                                        
                                                                        
                                                                        265,850
                                                                        
                                                                        
                                                                        
                                                                        227,380Total
      liabilities
                                                                        
                                                                        
                                                                        172,026
                                                                        
                                                                        
                                                                        
                                                                        1,152,576
                                                                        
                                                                        
                                                                        
                                                                        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 September 30, 2010 and
      December 31, 2009, respectively)
                                                                        
                                                                        
                                                                        5
                                                                        
                                                                        
                                                                        
                                                                        36
                                                                        
                                                                        
                                                                        
                                                                        33Additional
      paid-in capital
                                                                        
                                                                        
                                                                        228,379
                                                                        
                                                                        
                                                                        
                                                                        1,530,140
                                                                        
                                                                        
                                                                        
                                                                        1,290,651Statutory
      reserve
                                                                        
                                                                        
                                                                        5,842
                                                                        
                                                                        
                                                                        
                                                                        39,139
                                                                        
                                                                        
                                                                        
                                                                        39,139Accumulated
      other comprehensive loss
                                                                        
                                                                        
                                                                        (599
                                                                        )
                                                                        
                                                                        
                                                                        (4,011
                                                                        )
                                                                        
                                                                        
                                                                        (6,055
                                                                        )Retained
      earnings
                                                                        
                                                                        
                                                                        36,093
                                                                        
                                                                        
                                                                        
                                                                        241,822
                                                                        
                                                                        
                                                                        
                                                                        136,583Total
      ChinaCast Education Corporation shareholders’ equity
                                                                        
                                                                        
                                                                        269,720
                                                                        
                                                                        
                                                                        
                                                                        1,807,126
                                                                        
                                                                        
                                                                        
                                                                        1,460,351Noncontrolling
      interest
                                                                        
                                                                        
                                                                        6,648
                                                                        
                                                                        
                                                                        
                                                                        44,544
                                                                        
                                                                        
                                                                        
                                                                        23,167Total
      equity
                                                                        
                                                                        
                                                                        276,368
                                                                        
                                                                        
                                                                        
                                                                        1,851,670
                                                                        
                                                                        
                                                                        
                                                                        1,483,518Total
      liabilities and equity
                                                                        
                                                                        
                                                                        448,394
                                                                        
                                                                        
                                                                        
                                                                        3,004,246
                                                                        
                                                                        
                                                                        
                                                                        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 September 30,
                                                                
                                                                
                                                                For the nine months ended September
      302010
                                                                
                                                                
                                                                2010
                                                                
                                                                
                                                                2009
                                                                
                                                                
                                                                2010
                                                                
                                                                
                                                                2010
                                                                
                                                                
                                                                2009US$
                                                                
                                                                
                                                                RMB
                                                                
                                                                
                                                                RMB
                                                                
                                                                
                                                                US$
                                                                
                                                                
                                                                RMB
                                                                
                                                                
                                                                RMB(Note 1)
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                (Note 1)
                                                                
                                                                
                                                                (Note
      1)
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                (Note
      1)Revenues:Service
                                                                
                                                                
                                                                18,238
                                                                
                                                                
                                                                
                                                                122,195
                                                                
                                                                
                                                                
                                                                80,289
                                                                
                                                                
                                                                
                                                                50,921
                                                                
                                                                
                                                                
                                                                341,170
                                                                
                                                                
                                                                
                                                                228,391Equipment
                                                                
                                                                
                                                                436
                                                                
                                                                
                                                                
                                                                2,924
                                                                
                                                                
                                                                
                                                                1,896
                                                                
                                                                
                                                                
                                                                441
                                                                
                                                                
                                                                
                                                                2,955
                                                                
                                                                
                                                                
                                                                6,06518,674
                                                                
                                                                
                                                                
                                                                125,119
                                                                
                                                                
                                                                
                                                                82,185
                                                                
                                                                
                                                                
                                                                51,362
                                                                
                                                                
                                                                
                                                                344,125
                                                                
                                                                
                                                                
                                                                234,456Cost
      of revenues:Service
                                                                
                                                                
                                                                (9,157
                                                                )
                                                                
                                                                
                                                                (61,358
                                                                )
                                                                
                                                                
                                                                (28,468
                                                                )
                                                                
                                                                
                                                                (24,136
                                                                )
                                                                
                                                                
                                                                (161,713
                                                                )
                                                                
                                                                
                                                                (83,479
                                                                )Equipment
                                                                
                                                                
                                                                (423
                                                                )
                                                                
                                                                
                                                                (2,832
                                                                )
                                                                
                                                                
                                                                (1,875
                                                                )
                                                                
                                                                
                                                                (423
                                                                )
                                                                
                                                                
                                                                (2,832
                                                                )
                                                                
                                                                
                                                                (6,001
                                                                )(9,580
                                                                )
                                                                
                                                                
                                                                (64,190
                                                                )
                                                                
                                                                
                                                                (30,343
                                                                )
                                                                
                                                                
                                                                (24,559
                                                                )
                                                                
                                                                
                                                                (164,545
                                                                )
                                                                
                                                                
                                                                (89,480
                                                                )Gross
      profit
                                                                
                                                                
                                                                9,094
                                                                
                                                                
                                                                
                                                                60,929
                                                                
                                                                
                                                                
                                                                51,842
                                                                
                                                                
                                                                
                                                                26,803
                                                                
                                                                
                                                                
                                                                179,580
                                                                
                                                                
                                                                
                                                                144,976Operating
      (expenses) income:Selling
      and marketing expenses (including share-based compensation of RMB nil and
      RMB267 for the three months ended September 30 for 2010 and 2009,
      respectively, share-based compensation of RMB410 and RMB1,373 for the nine
      months ended September 30 for 2010 and 2009,
      respectively)
                                                                
                                                                
                                                                (59
                                                                )
                                                                
                                                                
                                                                (394
                                                                )
                                                                
                                                                
                                                                (899
                                                                )
                                                                
                                                                
                                                                (254
                                                                )
                                                                
                                                                
                                                                (1,702
                                                                )
                                                                
                                                                
                                                                (3,442
                                                                )General
      and administrative expenses (including share-based compensation of
      RMB1,922 and RMB2,868 for the three months ended September 30 for
      2010 and 2009, respectively, share-based compensation of RMB6,114 and
      RMB11,474 for the nine months ended September 30 for 2010 and 2009,
      respectively)
                                                                
                                                                
                                                                (2,957
                                                                )
                                                                
                                                                
                                                                (19,817
                                                                )
                                                                
                                                                
                                                                (12,964
                                                                )
                                                                
                                                                
                                                                (7,816
                                                                )
                                                                
                                                                
                                                                (52,369
                                                                )
                                                                
                                                                
                                                                (43,603
                                                                )Foreign
      exchange gain (loss)
                                                                
                                                                
                                                                (1
                                                                )
                                                                
                                                                
                                                                (4
                                                                )
                                                                
                                                                
                                                                (51
                                                                )
                                                                
                                                                
                                                                (83
                                                                )
                                                                
                                                                
                                                                (557
                                                                )
                                                                
                                                                
                                                                65Management
      service fee
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                510
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                3,806Gain
      from change in contingent consideration
                                                                
                                                                
                                                                1,413
                                                                
                                                                
                                                                
                                                                9,467
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                1,413
                                                                
                                                                
                                                                
                                                                9,467
                                                                
                                                                
                                                                
                                                                -Other
      operating income
                                                                
                                                                
                                                                (5
                                                                )
                                                                
                                                                
                                                                (34
                                                                )
                                                                
                                                                
                                                                41
                                                                
                                                                
                                                                
                                                                27
                                                                
                                                                
                                                                
                                                                180
                                                                
                                                                
                                                                
                                                                548Total
      operating expenses, net
                                                                
                                                                
                                                                (1,609
                                                                )
                                                                
                                                                
                                                                (10,782
                                                                )
                                                                
                                                                
                                                                (13,363
                                                                )
                                                                
                                                                
                                                                (6,713
                                                                )
                                                                
                                                                
                                                                (44,981
                                                                )
                                                                
                                                                
                                                                (42,626
                                                                )




5




For the three months ended September 30,
                                                                
                                                                
                                                                For the nine months ended September
      30,2010
                                                                
                                                                
                                                                2010
                                                                
                                                                
                                                                2009
                                                                
                                                                
                                                                2010
                                                                
                                                                
                                                                2010
                                                                
                                                                
                                                                2009US$
                                                                
                                                                
                                                                RMB
                                                                
                                                                
                                                                RMB
                                                                
                                                                
                                                                US$
                                                                
                                                                
                                                                RMB
                                                                
                                                                
                                                                RMB(Note 1)
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                (Note 1)
                                                                
                                                                
                                                                (Note
      1)
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                (Note
      1)Income
      from operations
                                                                
                                                                
                                                                7,485
                                                                
                                                                
                                                                
                                                                50,147
                                                                
                                                                
                                                                
                                                                38,479
                                                                
                                                                
                                                                
                                                                20,090
                                                                
                                                                
                                                                
                                                                134,599
                                                                
                                                                
                                                                
                                                                102,350Interest
      income
                                                                
                                                                
                                                                572
                                                                
                                                                
                                                                
                                                                3,829
                                                                
                                                                
                                                                
                                                                2,134
                                                                
                                                                
                                                                
                                                                1,540
                                                                
                                                                
                                                                
                                                                10,316
                                                                
                                                                
                                                                
                                                                6,922Interest
      expense
                                                                
                                                                
                                                                (606
                                                                )
                                                                
                                                                
                                                                (4,058
                                                                )
                                                                
                                                                
                                                                (2,421
                                                                )
                                                                
                                                                
                                                                (1,585
                                                                )
                                                                
                                                                
                                                                (10,623
                                                                )
                                                                
                                                                
                                                                (5,591
                                                                )Income
      before provision for income taxes and earnings in equity method
      investments
                                                                
                                                                
                                                                7,451
                                                                
                                                                
                                                                
                                                                49,918
                                                                
                                                                
                                                                
                                                                38,192
                                                                
                                                                
                                                                
                                                                20,045
                                                                
                                                                
                                                                
                                                                134,292
                                                                
                                                                
                                                                
                                                                103,681Provision
      for income taxes
                                                                
                                                                
                                                                (1,163
                                                                )
                                                                
                                                                
                                                                (7,792
                                                                )
                                                                
                                                                
                                                                (7,619
                                                                )
                                                                
                                                                
                                                                (4,110
                                                                )
                                                                
                                                                
                                                                (27,540
                                                                )
                                                                
                                                                
                                                                (21,090
                                                                )Net
      income before earnings in equity investments
                                                                
                                                                
                                                                6,288
                                                                
                                                                
                                                                
                                                                42,126
                                                                
                                                                
                                                                
                                                                30,573
                                                                
                                                                
                                                                
                                                                15,935
                                                                
                                                                
                                                                
                                                                106,752
                                                                
                                                                
                                                                
                                                                82,591Loss in
      equity investments
                                                                
                                                                
                                                                (4
                                                                )
                                                                
                                                                
                                                                (26
                                                                )
                                                                
                                                                
                                                                (793
                                                                )
                                                                
                                                                
                                                                (13
                                                                )
                                                                
                                                                
                                                                (86
                                                                )
                                                                
                                                                
                                                                (1,370
                                                                )Income
      from continuing operation, net of tax
                                                                
                                                                
                                                                6,284
                                                                
                                                                
                                                                
                                                                42,100
                                                                
                                                                
                                                                
                                                                29,780
                                                                
                                                                
                                                                
                                                                15,922
                                                                
                                                                
                                                                
                                                                106,666
                                                                
                                                                
                                                                
                                                                81,221Discontinued
      operationsLoss
      from discontinued operations, net of taxes of RMB nil for the three months
      and nine months ended September 30 for 2010 and 2009:
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                (388
                                                                )
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                (1,441
                                                                )Net
      income
                                                                
                                                                
                                                                6,284
                                                                
                                                                
                                                                
                                                                42,100
                                                                
                                                                
                                                                
                                                                29,392
                                                                
                                                                
                                                                
                                                                15,922
                                                                
                                                                
                                                                
                                                                106,666
                                                                
                                                                
                                                                
                                                                79,780Less:
      Net income attributable to noncontrolling interest
                                                                
                                                                
                                                                (84
                                                                )
                                                                
                                                                
                                                                (559
                                                                )
                                                                
                                                                
                                                                (2,036
                                                                )
                                                                
                                                                
                                                                (213
                                                                )
                                                                
                                                                
                                                                (1,427
                                                                )
                                                                
                                                                
                                                                (6,945
                                                                )Net
      income attributable to ChinaCast Education Corporation
                                                                
                                                                
                                                                6,200
                                                                
                                                                
                                                                
                                                                41,541
                                                                
                                                                
                                                                
                                                                27,356
                                                                
                                                                
                                                                
                                                                15,709
                                                                
                                                                
                                                                
                                                                105,239
                                                                
                                                                
                                                                
                                                                72,835Net
      income
                                                                
                                                                
                                                                6,284
                                                                
                                                                
                                                                
                                                                42,100
                                                                
                                                                
                                                                
                                                                29,392
                                                                
                                                                
                                                                
                                                                15,922
                                                                
                                                                
                                                                
                                                                106,666
                                                                
                                                                
                                                                
                                                                79,780Foreign
      currency translation adjustments
                                                                
                                                                
                                                                50
                                                                
                                                                
                                                                
                                                                338
                                                                
                                                                
                                                                
                                                                43
                                                                
                                                                
                                                                
                                                                298
                                                                
                                                                
                                                                
                                                                1,994
                                                                
                                                                
                                                                
                                                                (697
                                                                )Comprehensive
      income
                                                                
                                                                
                                                                6,334
                                                                
                                                                
                                                                
                                                                42,438
                                                                
                                                                
                                                                
                                                                29,435
                                                                
                                                                
                                                                
                                                                16,220
                                                                
                                                                
                                                                
                                                                108,660
                                                                
                                                                
                                                                
                                                                79,083Comprehensive
      income attributable to noncontrolling interest
                                                                
                                                                
                                                                (76
                                                                )
                                                                
                                                                
                                                                (510
                                                                )
                                                                
                                                                
                                                                (2,040
                                                                )
                                                                
                                                                
                                                                (206
                                                                )
                                                                
                                                                
                                                                (1,377
                                                                )
                                                                
                                                                
                                                                (6,945
                                                                )Comprehensive
      income attributable to ChinaCast Education Corporation
                                                                
                                                                
                                                                6,258
                                                                
                                                                
                                                                
                                                                41,928
                                                                
                                                                
                                                                
                                                                27,395
                                                                
                                                                
                                                                
                                                                16,014
                                                                
                                                                
                                                                
                                                                107,283
                                                                
                                                                
                                                                
                                                                72,138Net
      income per shareNet
      income attributable to ChinaCast Education Corporation per
      share:Basic
                                                                
                                                                
                                                                0.12
                                                                
                                                                
                                                                
                                                                0.83
                                                                
                                                                
                                                                
                                                                0.76
                                                                
                                                                
                                                                
                                                                0.32
                                                                
                                                                
                                                                
                                                                2.21
                                                                
                                                                
                                                                
                                                                2.03Diluted
                                                                
                                                                
                                                                0.12
                                                                
                                                                
                                                                
                                                                0.82
                                                                
                                                                
                                                                
                                                                0.75
                                                                
                                                                
                                                                
                                                                0.32
                                                                
                                                                
                                                                
                                                                2.18
                                                                
                                                                
                                                                
                                                                2.03Weighted
      average shares used in computation:Basic
                                                                
                                                                
                                                                49,834,291
                                                                
                                                                
                                                                
                                                                49,834,291
                                                                
                                                                
                                                                
                                                                36,133,233
                                                                
                                                                
                                                                
                                                                47,693,969
                                                                
                                                                
                                                                
                                                                47,693,969
                                                                
                                                                
                                                                
                                                                35,814,325Diluted
                                                                
                                                                
                                                                50,370,903
                                                                
                                                                
                                                                
                                                                50,370,903
                                                                
                                                                
                                                                
                                                                36,379,884
                                                                
                                                                
                                                                
                                                                48,176,902
                                                                
                                                                
                                                                
                                                                48,176,902
                                                                
                                                                
                                                                
                                                                35,945,264




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
                                                                                              
                                                                                              
                                                                                              
                                                                                              232,967
                                                                                              
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              232,970Share-based
      compensation
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              6,522
                                                                                              
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              6,522Issuance
      of vested shares
                                                                                              
                                                                                              
                                                                                              180,000
                                                                                              
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              —Noncontrolling
      interest contribution in joint venture
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              20,000
                                                                                              
                                                                                              
                                                                                              
                                                                                              20,000Net
      income
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              105,239
                                                                                              
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              1,427
                                                                                              
                                                                                              
                                                                                              
                                                                                              106,666Foreign
      currency translation adjustments
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              2,044
                                                                                              
                                                                                              
                                                                                              
                                                                                              (50
                                                                                              )
                                                                                              
                                                                                              
                                                                                              1,994Balance
      at September 30, 2010
                                                                                              
                                                                                              
                                                                                              49,778,952
                                                                                              
                                                                                              
                                                                                              
                                                                                              36
                                                                                              
                                                                                              
                                                                                              
                                                                                              1,530,140
                                                                                              
                                                                                              
                                                                                              
                                                                                              39,139
                                                                                              
                                                                                              
                                                                                              
                                                                                              241,822
                                                                                              
                                                                                              
                                                                                              
                                                                                              (4,011
                                                                                              )
                                                                                              
                                                                                              
                                                                                              44,544
                                                                                              
                                                                                              
                                                                                              
                                                                                              1,851,670US$
                                                                                              5
                                                                                              
                                                                                              
                                                                                              US$
                                                                                              228,379
                                                                                              
                                                                                              
                                                                                              US$
                                                                                              5,842
                                                                                              
                                                                                              
                                                                                              US$
                                                                                              36,093
                                                                                              
                                                                                              
                                                                                              US$
                                                                                              (599
                                                                                              )
                                                                                              
                                                                                              US$
                                                                                              6,648
                                                                                              
                                                                                              
                                                                                              US$
                                                                                              276,368





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 restricted shares of common stock for acquisition of additional
      interests in subsidiary
                                                                                                        
                                                                                                        
                                                                                                        2,582,947
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        2
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        28,746
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        —
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        —
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        —
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (28,748
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        —Share-based
      compensation
                                                                                                        
                                                                                                        
                                                                                                        120,000
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        —
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        12,847
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        —
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        —
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        —
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        —
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        12,847Net
      income
                                                                                                        
                                                                                                        
                                                                                                        —
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        —
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        —
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        —
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        72,835
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        —
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        6,945
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        79,780Foreign
      currency translation adjustments
                                                                                                        
                                                                                                        
                                                                                                        —
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        —
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        —
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        —
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        —
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (697
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        (2
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        (699
                                                                                                        )Balance
      at September 30, 2009
                                                                                                        
                                                                                                        
                                                                                                        38,351,198
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        29
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        989,945
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        28,117
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        128,361
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (6,159
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        22,774
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        1,163,067US$
                                                                                                        4
                                                                                                        
                                                                                                        
                                                                                                        US$
                                                                                                        140,580
                                                                                                        
                                                                                                        
                                                                                                        US$
                                                                                                        4,135
                                                                                                        
                                                                                                        
                                                                                                        US$
                                                                                                        18,877
                                                                                                        
                                                                                                        
                                                                                                        US$
                                                                                                        (906
                                                                                                        )
                                                                                                        
                                                                                                        US$
                                                                                                        3,349
                                                                                                        
                                                                                                        
                                                                                                        US$
                                                                                                        171,039




See notes
to unaudited condensed consolidated financial statements.


7


CHINACAST EDUCATION
CORPORATION


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)


(In
thousands)


For the nine months ended September 30,2010
                                            
                                            
                                            2010
                                            
                                            
                                            2009US$
                                            
                                            
                                            RMB
                                            
                                            
                                            RMB(Note 1)
                                            
                                            
                                            
                                            
                                            
                                            
                                            (Note 1)Cash
      flows from operating activities:Net
      income
                                            
                                            
                                            15,922
                                            
                                            
                                            
                                            106,666
                                            
                                            
                                            
                                            79,780Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
                                            
                                            
                                            5,497
                                            
                                            
                                            
                                            36,832
                                            
                                            
                                            
                                            18,268Amortization
      of acquired intangible assets
                                            
                                            
                                            4,064
                                            
                                            
                                            
                                            27,231
                                            
                                            
                                            
                                            11,833Amortization
      of land use rights
                                            
                                            
                                            375
                                            
                                            
                                            
                                            2,510
                                            
                                            
                                            
                                            1,973Share-based
      compensation
                                            
                                            
                                            973
                                            
                                            
                                            
                                            6,522
                                            
                                            
                                            
                                            12,847Loss
      on disposal of property, plant and equipment
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            519Loss
      in equity investments
                                            
                                            
                                            13
                                            
                                            
                                            
                                            86
                                            
                                            
                                            
                                            1,370Changes
      in assets and liabilities:Accounts
      receivable
                                            
                                            
                                            720
                                            
                                            
                                            
                                            4,823
                                            
                                            
                                            
                                            (23,080
                                            )Inventory
                                            
                                            
                                            (8
                                            )
                                            
                                            
                                            (52
                                            )
                                            
                                            
                                            (570
                                            )Prepaid
      expenses and other current assets
                                            
                                            
                                            (538
                                            )
                                            
                                            
                                            (3,607
                                            )
                                            
                                            
                                            3,019Non-current
      deposits
                                            
                                            
                                            804
                                            
                                            
                                            
                                            5,390
                                            
                                            
                                            
                                            (133
                                            )Amounts
      due from related parties
                                            
                                            
                                            440
                                            
                                            
                                            
                                            2,950
                                            
                                            
                                            
                                            5,751Accounts
      payable
                                            
                                            
                                            (397
                                            )
                                            
                                            
                                            (2,657
                                            )
                                            
                                            
                                            6,587Accrued
      expenses and other current liabilities
                                            
                                            
                                            (1,964
                                            )
                                            
                                            
                                            (13,158
                                            )
                                            
                                            
                                            (13,856
                                            )Deferred
      revenues
                                            
                                            
                                            23,834
                                            
                                            
                                            
                                            159,699
                                            
                                            
                                            
                                            23,120Amount
      due to related party
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (599
                                            )Income
      taxes payable
                                            
                                            
                                            2,934
                                            
                                            
                                            
                                            19,656
                                            
                                            
                                            
                                            13,415Deferred
      tax assets
                                            
                                            
                                            139
                                            
                                            
                                            
                                            931
                                            
                                            
                                            
                                            -Deferred
      tax liabilities
                                            
                                            
                                            (710
                                            )
                                            
                                            
                                            (4,765
                                            )
                                            
                                            
                                            (1,816
                                            )Unrecognized
      tax benefits
                                            
                                            
                                            1,987
                                            
                                            
                                            
                                            13,320
                                            
                                            
                                            
                                            5,791Net
      cash provided by operating activities
                                            
                                            
                                            54,085
                                            
                                            
                                            
                                            362,377
                                            
                                            
                                            
                                            144,219Cash
      flows from investing activities:Advance
      to related party
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (20,000
                                            )Purchase
      of subsidiaries, net of cash acquired
                                            
                                            
                                            (55,876
                                            )
                                            
                                            
                                            (374,374
                                            )Cash
      received from noncontrolling interest for establishing joint
      venture
                                            
                                            
                                            2,985
                                            
                                            
                                            
                                            20,000Repayment
      from advance to related party
                                            
                                            
                                            9
                                            
                                            
                                            
                                            62
                                            
                                            
                                            
                                            27,544Purchase
      of property and equipment
                                            
                                            
                                            (8,165
                                            )
                                            
                                            
                                            (54,708
                                            )
                                            
                                            
                                            (26,153
                                            )Term
      deposits
                                            
                                            
                                            (13,881
                                            )
                                            
                                            
                                            (93,000
                                            )
                                            
                                            
                                            89,000Deposits
      for investments
                                            
                                            
                                            (448
                                            )
                                            
                                            
                                            (3,000
                                            )
                                            
                                            
                                            (103,000
                                            )Net
      cash used in investing activities
                                            
                                            
                                            (75,376
                                            )
                                            
                                            
                                            (505,020
                                            )
                                            
                                            
                                            (32,609
                                            )





8




For the nine months ended September 30,2010
                                        
                                        
                                        2010
                                        
                                        
                                        2009US$
                                        
                                        
                                        RMB
                                        
                                        
                                        RMB(Note 1)
                                        
                                        
                                        
                                        
                                        
                                        (Note 1)Cash
      flows from financing activities:Other
      borrowings raised
                                        
                                        
                                        13,955
                                        
                                        
                                        
                                        93,500
                                        
                                        
                                        
                                        10,350Other
      borrowings raised from related party
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        500Repayment
      of other borrowings
                                        
                                        
                                        (13,761
                                        )
                                        
                                        
                                        (92,200
                                        )
                                        
                                        
                                        (11,367
                                        )Bank
      borrowings raised
                                        
                                        
                                        11,940
                                        
                                        
                                        
                                        80,000
                                        
                                        
                                        
                                        128,400Bank
      borrowings repaid
                                        
                                        
                                        (14,090
                                        )
                                        
                                        
                                        (94,400
                                        )
                                        
                                        
                                        (58,400
                                        )Guarantee
      deposit paid
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (3,000
                                        )Repayment
      of capital lease obligation
                                        
                                        
                                        (1
                                        )
                                        
                                        
                                        (10
                                        )
                                        
                                        
                                        88Proceeds
      from issuance of shares, net of issuance costs
                                        
                                        
                                        34,772
                                        
                                        
                                        
                                        232,970
                                        
                                        
                                        
                                        -Net
      cash provided by financing activities
                                        
                                        
                                        32,815
                                        
                                        
                                        
                                        219,860
                                        
                                        
                                        
                                        66,571Effect
      of foreign exchange rate changes
                                        
                                        
                                        46
                                        
                                        
                                        
                                        308
                                        
                                        
                                        
                                        -Net
      increase in cash and cash equivalents
                                        
                                        
                                        11,524
                                        
                                        
                                        
                                        77,217
                                        
                                        
                                        
                                        178,181Cash
      and cash equivalents at beginning of the period
                                        
                                        
                                        48,901
                                        
                                        
                                        
                                        327,628
                                        
                                        
                                        
                                        220,131Cash
      and cash equivalents at end of the period
                                        
                                        
                                        60,471
                                        
                                        
                                        
                                        405,153
                                        
                                        
                                        
                                        398,312





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 consolidated variable interest entity
(collectively, the “Company” or "ChinaCast"). All significant intercompany
balances and transactions have been eliminated in consolidation.





Newly
Established Subsidiaries




In
October 2009, one of
the Company’s major operating subsidiaries, ChinaCast Technology (Shanghai)
Limited (“CCT Shanghai”), entered into an agreement with Qingdao China
University of Petroleum Holding Limited ("CUP") to establish Qingdao Petroleum
University Education Development Limited (“QPU”). The total registered capital
is RMB 50,000, with 60% owned by CCT Shanghai, and CUP to hold the rest of the
equity interest. In September 2010, the Company completed its capital injection
of RMB30,000. Since CCT Shanghai has a majority voting power after the
completion of all the capital injection, QPU has been consolidated by the
Company since September 2010.


The
VIE Arrangements




PRC laws
and regulations currently restrict direct foreign ownership of business entities
providing telecommunications services, Internet access and the distribution of
news and information in the PRC where certain licenses are required. As a
Delaware company, the Company is deemed a foreign legal person under the PRC
laws. To comply with the PRC laws and regulations, the Group provides
substantially all of its satellite broadband business activities in the PRC
through its variable interest entity (“VIE”), ChinaCast Li Xiang Co. Ltd.
(“CCLX”).


Arrangement with
CCLX





CCLX is a
variable interest entity established on May 7, 2003. ChinaCast and its
majority-owned subsidiaries do not have legal ownership of CCLX which is
licensed to provide value-added satellite broadband services in the PRC. CCLX is
legally owned by CCL and Li Wei, a PRC citizen. Each of these investors is the
related party of the Company acting as de facto agent for the Company. To
provide the Company the ability to receive the majority of the expected residual
returns of the VIE and their subsidiaries, the Company’s 98.5% owned subsidiary,
CCT Shanghai entered into a series of contractual arrangements with
CCLX.




10


Technology
services agreement:Pursuant to a technical services agreement (the "CCLX
TSA") and the Supplemental Agreement to CCLX TSA, CCT Shanghai assists CCLX in
implementing CCLX's businesses relating to the provision of computer,
telecommunications and information technology products and services, including
the provision of Internet service and content. As consideration for these
services, CCT Shanghai is entitled to charge CCLX monthly service fees equal to
the total revenue earned by CCLX, less operating expenses reasonably incurred in
the course of conducting the business for which CEC and its subsidiaries provide
technical services. In the event that CCLX operating expenses exceed CCLX
revenue for a given month, CCT Shanghai shall reimburse CCLX an amount
equivalent to such excess. Pursuant to the CCLX TSA, CCLX prepares an annual
budget for its business, which includes project revenue, operating expenses,
pricing policies and payment terms. CCLX submits this budget to CCT Shanghai for
approval and CCT Shanghai reviews it quarterly. Changes to or deviation from the
budget require approval of CCT Shanghai.





Equity
pledge agreement:Pursuant to the equity pledge agreement, as a
collateral security for the prompt and complete return of the equipment, CCLX's
shareholders pledged to CCT Shanghai all of their rights, title and interest in
the CCLX's shares, including ownership rights and rights to dividends and other
distributions.





The
Company is the primary beneficiary and absorbs 100% of the economic benefits of
CCLX. CCL and Li Wei contributed their own funds in an aggregate amount of
Renminbi ("RMB") 19,063, which no loans provided by ChinaCast or its
majority-owned subsidiaries. Accordingly, the investment was reported as
noncontrolling interest in the accompanying consolidated financial statements.
ChinaCast's subsidiaries have also provided funding to CCLX totaling RMB18,531
through December 31, 2009 to finance the development of CCLX's business
operations.





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





As ofAs of September 30,
                                            
                                            
                                            December 31,2010
                                            
                                            
                                            2010
                                            
                                            
                                            2009US$
                                            
                                            
                                            RMB
                                            
                                            
                                            RMBCurrent
      assets
                                            
                                            
                                            5,503
                                            
                                            
                                            
                                            36,872
                                            
                                            
                                            
                                            45,388Non-current
      assets
                                            
                                            
                                            577
                                            
                                            
                                            
                                            3,866
                                            
                                            
                                            
                                            5,374Total
      assets
                                            
                                            
                                            6,080
                                            
                                            
                                            
                                            40,738
                                            
                                            
                                            
                                            50,762Current
      liabilities
                                            
                                            
                                            3,596
                                            
                                            
                                            
                                            24,094
                                            
                                            
                                            
                                            19,752Non-current
      liabilities
                                            
                                            
                                            845
                                            
                                            
                                            
                                            5,663
                                            
                                            
                                            
                                            5,257Total
      liabilities
                                            
                                            
                                            4,441
                                            
                                            
                                            
                                            29,757
                                            
                                            
                                            
                                            25,009





For the three months ended September
      30,
                        
                        
                        For the nine months ended September
      30,2010
                        
                        
                        2010
                        
                        
                        2009
                        
                        
                        2010
                        
                        
                        2010
                        
                        
                        2009US$
                        
                        
                        RMB
                        
                        
                        RMB
                        
                        
                        US$
                        
                        
                        RMB
                        
                        
                        RMBRevenues
                        
                        
                        4,621
                        
                        
                        
                        30,961
                        
                        
                        
                        33,557
                        
                        
                        
                        13,881
                        
                        
                        
                        93,006
                        
                        
                        
                        91,974Net
      income (loss)
                        
                        
                        4
                        
                        
                        
                        26
                        
                        
                        
                        1,050
                        
                        
                        
                        13
                        
                        
                        
                        86
                        
                        
                        
                        237





For the nine months ended September
      30,2010
                                  
                                  
                                  2010
                                  
                                  
                                  2009US$
                                  
                                  
                                  RMB
                                  
                                  
                                  RMBNet
      cash provided by /(used in) operating activities
                                  
                                  
                                  2,214
                                  
                                  
                                  
                                  14,834
                                  
                                  
                                  
                                  (28,964
                                  )Net
      cash provided by /(used in) investing activities
                                  
                                  
                                  (65
                                  )
                                  
                                  
                                  (434
                                  )
                                  
                                  
                                  19,625Net
      cash provided by/(used in) financing activities
                                  
                                  
                                  (2,205
                                  )
                                  
                                  
                                  (14,771
                                  )
                                  
                                  
                                  11,187





There are
no consolidated CCLX assets that are collateral for the CCLX’s obligations and
can only be used to settle the CCLX’s obligations.





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 RMB6.7 to US$1 was applied as of September 30,
2010. Such translation should not be construed to be the amounts that would have
been reported under US GAAP.




11


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 nine months ended September 30, 2010, there
were no significant changes in previously adopted accounting policies or their
application, with the exception of additional disclosures upon adoption of 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 September 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 the Company's 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 (VSOE), vendor objective evidence (VOE) or
third-party evidence (TPE) 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.


12







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 nine months ended September 30, 2009 and 2010,
respectively:





Three months ended
                                      September 30,
                                    
                                    
                                    Nine months ended
                                      September 30,2009
                                    
                                    
                                    2010
                                    
                                    
                                    2009
                                    
                                    
                                    2010RMB
                                    
                                    
                                    RMB
                                    
                                    
                                    RMB
                                    
                                    
                                    RMBRevenues
                                    
                                    
                                    751
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,495
                                    
                                    
                                    
                                    -Loss
      before provision of income taxes from discontinued
    operations
                                    
                                    
                                    (223
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (1,441
                                    )
                                    
                                    
                                    -Provision
      for income taxes
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Noncontrolling
      interest in discontinued operations
                                    
                                    
                                    3
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    22
                                    
                                    
                                    
                                    -Loss
      from discontinued operations attributable to ChinaCast Education
      Corporation, net of tax
                                    
                                    
                                    (220
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (1,419
                                    )
                                    
                                    
                                    -Net
      loss on discontinued operations attributable to ChinaCast Education
      Corporation per share – basic
                                    
                                    
                                    (0.01
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (0.03
                                    )
                                    
                                    
                                    -Net
      loss on discontinued operations attributable to ChinaCast Education
      Corporation per share – diluted
                                    
                                    
                                    (0.01
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (0.03
                                    )
                                    
                                    
                                    -





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




13


4.
            ACQUISITIONS




East Achieve
Limited





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 as of the
acquisition date and at each reporting date thereafter.  As a result, the
expected total consideration was RMB325,482 as of the date of acquisition. In
September, 2010, the final payment of the consideration was determined to be
RMB20,540, and the gain of RMB9,942 from change in contingent consideration was
included in the operating income.





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
      (allocated to TUG segment)
                            
                            
                            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




14





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 31,2009RMBRevenues
                                      
                                      
                                      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





Wintown
Limited




On August
23, 2010, CEH, the Company's subsidiary in the British Virgin Island,
consummated the acquisition of the entire interest in Wintown Limited
(“Wintown”) from the former sole owner of Wintown.  Wintown ultimately
holds the entire interest in Business College of Hubei Industrial University
(“HIUBC”).  HIUBC is a private college affiliated with Hubei Industrial
University.  The total consideration for the acquisition is up to
RMB450,000, of which RMB360,000 was paid during 2010.  The remaining amount
of the consideration is to be calculated as below.
 
 For the
academic year of 2010 (i.e. from September 1, 2010 to August 31, 2011), if the
net profit as determined under the relevant sale and purchase agreement of the
HIUBC is less than RMB50,000, CEH is entitled to deduct an amount equal to 9
times of the difference between the net profit and RMB50,000 from the remaining
amount of consideration.
  The
contingent consideration was recorded as a liability at fair value of
RMB78,721 and the change of its fair value will be recorded in earnings at each
reporting date.  As a result, the expected total consideration was
RMB438,721 as of the date of acquisition.
 
 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.
 
 HIUBC has
not obtained land use right certificates for the 4 land parcels purchased yet as
of September 30, 2010, however, the management of the Company believe they will
be able to get them and have the absolute right to use or dispose the
lands.
 Due to
the fact that there is neither land use rights certificate nor official
government documents made available to the valuation firm, and disposal of the
subject land parcels to third party in the open market may need further approval
from the government,  the  assessment of the fair value of
the four land parcels is not completed as of the date of this Form
10-Q.
 
 Since the
valuation and the purchase price allocation is not completed yet as of the date
of this Form 10-Q, based on the preliminary purchase price allocation,
provisional amounts were recognized for identifiable assets and liabilities. The
Company will retrospectively adjust the provisional amounts recognized at the
acquisition date before the end of the measurement period. The preliminary
purchase price allocation was as follows:
 
 AmortizationRMB
                  
                  periodCash
                  
                  
                  19,941Other
      current assets
                  
                  
                  7,430Non-current
      deposits
                  
                  
                  -Property
      and equipment
                  
                  
                  218,981
                  
                  3-20
      yearsPrepaid
      lease payments for land use rights
                  
                  
                  36,973
                  
                  Over
      the remaining leasetermIntangible
      assets:Customer
      relationship
                  
                  
                  41,000
                  
                  48
      monthsAffiliation
      agreement
                  
                  
                  32,000
                  
                  36
      monthsGoodwill
      (allocated to TUG segment)
                  
                  
                  264,970Other
      current liabilities
                  
                  
                  (69,908
                  )Deferred
      revenues
                  
                  
                  (2,753
                  )Deferred
      tax liabilities
                  
                  
                  (27,844
                  )Long-term
      bank borrowings
                  
                  
                  (54,000
                  )Unrecognized
      tax benefits
                  
                  
                  (28,069
                  )Total
                  
                  
                  438,721


15


The
preliminary valuation analyses utilized and considered generally accepted
valuation methodologies such as income, market and cost approach.





An affiliation
agreement ("Affiliation Agreement") was signed between Jiyang and Hubei
Industrial University in relation to the operations of HIUBC.  Under
the Affiliation Agreement, Hubei Industrial University authorizes HIUBC 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 period
ended September 30, 2010 and September 30, 2009 presented the acquisition as if
it had occurred on January 1, 2010 and 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 period
                                    
                                    
                                    For
      the periodended
      September 30,
                                    
                                    
                                    ended
      September 30,2010
                                    
                                    
                                    2009RMB
                                    
                                    
                                    RMBRevenues
                                    
                                    
                                    413,488
                                    
                                    
                                    
                                    336,298Net
      income attributable toChinaCast
      Education Corporation
                                    
                                    
                                    91,786
                                    
                                    
                                    
                                    56,520Net
      income attributable to ChinaCast EducationCorporation
      per share – basic
                                    
                                    
                                    1.92
                                    
                                    
                                    
                                    1.58Net
      income attributable to ChinaCast EducationCorporation
      per share – diluted
                                    
                                    
                                    1.91
                                    
                                    
                                    
                                    1.57


16


5.
            NON-CURRENT
      DEPOSITS





Non-current
deposits consisted of the following:





As of
                                September30,
                                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
                              
                              
                              5,044
                              
                              
                              
                              3,000Deposit
      for acquiring of land use rights
                              
                              
                              -
                              
                              
                              
                              5,492Total
                              
                              
                              12,159
                              
                              
                              
                              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 establishment of a wholly-owned
foreign enterprise in the PRC.




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




17


6.
            ACQUIRED
      INTANGIBLE ASSETS, NET





Acquired intangible assets, net consisted of the
following:





As of September
      30,
                                      
                                      
                                      As of
                                        December 31,2010
                                      
                                      
                                      2009RMB
                                      
                                      
                                      RMBCustomer
      relationshipsCost
                                      
                                      
                                      132,329
                                      
                                      
                                      
                                      91,329Less:
      Accumulated amortization
                                      
                                      
                                      (57,538
                                      )
                                      
                                      
                                      (33,331
                                      )74,791
                                      
                                      
                                      
                                      57,998Affiliation
      agreementCost
                                      
                                      
                                      46,000
                                      
                                      
                                      
                                      14,000Less:
      Accumulated amortization
                                      
                                      
                                      (3,736
                                      )
                                      
                                      
                                      (712
                                      )42,264
                                      
                                      
                                      
                                      13,288Acquired
      intangible assets, net
                                      
                                      
                                      117,055
                                      
                                      
                                      
                                      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.





On August
23, 2010, the Company acquired another customer relationship through the
acquisition of Wintown (see Note 4).  The customer relationship is being
amortized using accelerated amortization method over 48 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 nine months ended September 30, 2010, the Company recorded
amortization expense in respect of the customer relationships amounting to
RMB8,395 and RMB24,207, respectively. The Company will record further
amortization expenses in respect of the customer relationships of RMB9,372,
RMB32,609, RMB19,726, RMB10,351 and RMB2,733 for the three months ended December
31, 2010 and year 2011, 2012 ,2013 and 2014, 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.





On August
23, 2010, the Company acquired an affiliation agreement through the acquisition
of Wintown (see Note 4).  The affiliation agreement is being amortized on a
straight-line basis over 36 months.





For the
three months and nine months ended September 30, 2010, the Company recorded
amortization expense in respect of the affiliation agreement amounting to
RMB1,601 and RMB3,024, respectively.  The Company will record amortization
expenses in respect of the affiliation agreement of RMB3,379, RMB13,514,
RMB13,514, RMB9,959 and RMB1,898 for the three 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 helpChinaCast Co., Ltd. ("CCL") build up its satellite
business over the years.CCL was an investment holding company
established in 1999 to invest in tradable shares, technology companies, real
estate and other long-term investments. The Company itself has no equity
investment in CCL. In 2002, CCL entered into a technical services agreement (the
"CCL TSA") and an equity pledge agreement with the Company, pursuant to which
the Company agreed to assist CCL in the implementation of business relating to
the provision of the broadband satellite services in the PRC. The Company
provided CCL with interest free cash advances to finance acquisition of related
satellite equipment. CCL established a branch office in Beijing, CCLBJ, (though
it is registered in Shanghai) to conduct CCL's Turbo 163 business, DDN
Enhancement business and Cablenet business, and agreed to pay monthly service
fees to the Company in an amount equal to the difference between total cash
revenue that CCLBJ received in the preceding month and CCLBJ's cash paid out or
allocated to pay for operating expenses for the preceding month. Through the CCL
TSA, the Company is effectively entitled to the net profit of CCLBJ, but is not
obligated to fund any losses of CCLBJ. CCL was treated as an VIE, but was never
included in the accompanying consolidated financial statements because the
Company was not considered to be the primary beneficiary of CCL. Effective
January 1, 2010, the CCL TSA was terminated and CCL is no longer considered a
VIE of the Company thereafter.
 
 CCL is treated as a
related party, and theamounts advanced to this related party were
RMB99,665 and RMB99,727 as at September 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 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.
  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 advances is lower than the outstanding amount of the advances,
and therefore believes that the advances are recoverable.
  For the
three months and nine months ended September 30, 2009, the Company received a
management service fee of RMB510 and RMB3,806, respectively. CCLBJ was
gradually scaling down its business operations, and effective January 1, 2010,
CCLBJ no longer provided any satellite related services, including those to the
Company. CCLX has been providing the satellite related services to the Company,
and the intercompany transactions between CCLX and the Company have been
eliminated upon consolidation.




18


8.
            BORROWINGS




The
Company repaid the bank borrowing amounting to RMB58,400, RMB20,000 and
RMB16,000, respectively, in January, June and September 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
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.





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
connection with the acquisition of Wintown, a bank borrowing amounting to
RMB54,000 was assumed. The bank borrowing RMB24,000 carried interests at 5.31%
per annum and will be repayable in November 2010, RMB30,000 carried interests at
7.02% per annum and will be repayable in October 2010. The bank borrowing was
secured by guarantee Jiyang,





During
the nine months ended September 30, 2010, an aggregate amount of other
borrowings amounting to RMB93,500 was raised. RMB1,500 of other borrowings
carried interest at 7.2% per annum and will be repayable in 2010. Other
borrowings amounting to RMB92,200 were repaid by the Company as at its maturity
date.




9.
            SHARE
      OFFERINGS




On
January 5, 2010, the Company issued 692,520 shares of its common stock to
Thriving Blue Limited, a British Virgin Islands company that is 100% owned by
the Company’s Chief Executive Officer (“Thriving Blue”) pursuant to a
Subscription Agreement dated December 21, 2009 between the Company and Thriving
Blue for a total purchase price of US$5,000. The shares are held on behalf of
the Chief Executive Officer and certain other executives of the
Company.





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 purchased 3,735,734 shares of the Company’s common stock (the
“Shares”) on June
2, 2010for a total purchase price of US$29,300.




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.




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




19





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 accelerated the date of the vesting of his final
grant 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
                    
                    
                    (186,118
                    )
                    
                    
                    6.19
                    
                    
                    
                    (1,152
                    )Fortified
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Nonvested
      share unvested at September 30, 2010
                    
                    
                    330,560
                    
                    
                    
                    6.07
                    
                    
                    
                    2,006





Share
options





On
January 11, 2008, CEC granted, under the 2007 Plan, 1,200,000 share options on
the Company's common stock to selected employees at no consideration. The
exercise price of the share options granted is US$6.30 and the expiry date is
January 11, 2018. A total of 401,000, 401,000 and 398,000 share options were
vested on March 31, 2008, March 31, 2009 and March 31, 2010, respectively. Upon
exercise of these share options, a total of 1,200,000 common stock will be
issued.





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
                    
                    
                    —
                    
                    
                    
                    —


20




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





A
summary of the status of the Company's nonvested share options as of September
30, 2010 and changes during the nine months ended September 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 September 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
September 30, 2010 was US$ 310l.


The
weighted average remaining contractual life is 7.25 years as of September 30,
2010.


Total
share-based compensation expenses amounting to RMB1,922 and RMB3,134 were
recognized for the three months ended September 30, 2010 and 2009, respectively.
Total share-based compensation expenses amounting to RMB6,114 and RMB12,847 were
recognized for the nine months ended September 30, 2010 and 2009,
respectively.


There was
RMB12,705 of unrecognized compensation expense related to the stock based
compensation arrangements for the restricted shares and share options as of
September 30, 2010.





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


21





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, 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 and is subject to the preferential tax rate
of 15% until the end
of2010 in accordance with the western development preferential
policy.





HIUBC was
incorporated in Wuhan and is subject to the preferential tax rate of 25%. Due to
the acquisition of HIUBC, the unrecognized tax benefits increased by
RMB27,956.





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 nine months ended September 30, 2010, the unrecognized tax benefits
increased from RMB62,457 to RMB101,244.





12.
            GOODWILL





Changes
in the carrying amount of goodwill for the year ended December 31, 2009 and
nine-month period ended September 31, 2010 consisted of the
following:





As
      of September
                          30,
                        
                        
                        As
      of
                          December
      31,2010
                        
                        
                        2009RMB
                        
                        
                        RMBBeginning
      balance
                        
                        503,771
                        
                        
                        311,331Addition
      from acquisitions
                        
                        
                        264,970
                        
                        
                        
                        192,440Ending
      balances
                        
                        
                        768,741
                        
                        
                        
                        503,771





No
impairment charges have been recorded for the nine-month period ended September
30, 2010.


22




13.
            NET INCOME PER
      SHARE





For
      the three months ended September 30,
                                                    
                                                    
                                                    For
      the nine months ended September 30,2010
                                                    
                                                    
                                                    2009
                                                    
                                                    
                                                    2010
                                                    
                                                    
                                                    2009Numerator
      used in basic and diluted net income per share:Income
      from continuing operations attributable to ChinaCast Education
      Corporation
                                                    
                                                    RMB
                                                    41,541
                                                    
                                                    
                                                    RMB
                                                    27,744
                                                    
                                                    
                                                    RMB
                                                    105,239
                                                    
                                                    
                                                    RMB
                                                    74,276Loss
      on discontinued operations attributable to ChinaCast Education
      Corporation
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    RMB
                                                    (388
                                                    )
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    RMB
                                                    (1,441
                                                    )Net
      income attributable to ChinaCast Education Corporation
                                                    
                                                    RMB
                                                    41,541
                                                    
                                                    
                                                    RMB
                                                    27,356
                                                    
                                                    
                                                    RMB
                                                    105,239
                                                    
                                                    
                                                    RMB
                                                    72,835Shares
      (denominator):Weighted
      average ordinary shares outstanding used in computing basic net income per
      share
                                                    
                                                    
                                                    49,834,291
                                                    
                                                    
                                                    
                                                    36,133,233
                                                    
                                                    
                                                    
                                                    47,693,969
                                                    
                                                    
                                                    
                                                    35,814,325Plus:Incremental
      ordinary shares from assumed conversions of stock options, vesting of
      restricted shares and exercises of Underwriter Warrants
                                                    
                                                    
                                                    536,612
                                                    
                                                    
                                                    
                                                    246,651
                                                    
                                                    
                                                    
                                                    482,933
                                                    
                                                    
                                                    
                                                    130,939Weighted
      average ordinary shares outstanding used in computing diluted net income
      per share
                                                    
                                                    
                                                    50,370,903
                                                    
                                                    
                                                    
                                                    36,379,884
                                                    
                                                    
                                                    
                                                    48,176,902
                                                    
                                                    
                                                    
                                                    35,945,264Net
      income per share – basic:Income
      from continuing operations attributable to ChinaCast Education
      Corporation
                                                    
                                                    RMB
                                                    0.83
                                                    
                                                    
                                                    RMB
                                                    0.77
                                                    
                                                    
                                                    RMB
                                                    2.21
                                                    
                                                    
                                                    RMB
                                                    2.07Loss
      on discontinued operations attributable to ChinaCast Education
      Corporation
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    RMB
                                                    (0.01
                                                    )
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    RMB
                                                    (0.04
                                                    )Net
      income attributable to ChinaCast Education Corporation
                                                    
                                                    RMB
                                                    0.83
                                                    
                                                    
                                                    RMB
                                                    0.76
                                                    
                                                    
                                                    RMB
                                                    2.21
                                                    
                                                    
                                                    RMB
                                                    2.03Net
      income per share – diluted:Income
      from continuing operations attributable to ChinaCast Education
      Corporation
                                                    
                                                    RMB
                                                    0.82
                                                    
                                                    
                                                    RMB
                                                    0.76
                                                    
                                                    
                                                    RMB
                                                    2.18
                                                    
                                                    
                                                    RMB
                                                    2.07Loss
      on discontinued operations attributable to ChinaCast Education
      Corporation
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    RMB
                                                    (0.01
                                                    )
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    RMB
                                                    (0.04
                                                    )Net
      income attributable to ChinaCast Education Corporation
                                                    
                                                    RMB
                                                    0.82
                                                    
                                                    
                                                    RMB
                                                    0.75
                                                    
                                                    
                                                    RMB
                                                    2.18
                                                    
                                                    
                                                    RMB
                                                    2.03


23




14.
            SEGMENT
      INFORMATION





For
      the three months ended September 30,
                            
                            
                            For
      the nine months ended September 30,2010
                            
                            
                            2009
                            
                            
                            2010
                            
                            
                            2009RMB
                            
                            
                            RMB
                            
                            
                            RMB
                            
                            
                            RMBRevenues
      from external customers:ELG
                            
                            
                            49,881
                            
                            
                            
                            50,747
                            
                            
                            
                            143,901
                            
                            
                            
                            144,631TUG
                            
                            
                            75,238
                            
                            
                            
                            31,438
                            
                            
                            
                            200,224
                            
                            
                            
                            89,825125,119
                            
                            
                            
                            82,185
                            
                            
                            
                            344,125
                            
                            
                            
                            234,456Additional
      analysis of revenues from ELG by product or service:Service
                            
                            
                            46,957
                            
                            
                            
                            48,851
                            
                            
                            
                            140,946
                            
                            
                            
                            138,566Equipment
                            
                            
                            2,924
                            
                            
                            
                            1,896
                            
                            
                            
                            2,955
                            
                            
                            
                            6,06549,881
                            
                            
                            
                            50,747
                            
                            
                            
                            143,901
                            
                            
                            
                            144,631Additional
      analysis of revenues from ELG by business lines:Post
      secondary education distance learning
                            
                            
                            28,575
                            
                            
                            
                            28,857
                            
                            
                            
                            85,040
                            
                            
                            
                            81,308K-12
      and content delivery
                            
                            
                            15,996
                            
                            
                            
                            16,047
                            
                            
                            
                            47,977
                            
                            
                            
                            48,310Vocational
      training, enterprise/government training and networking
      services
                            
                            
                            5,310
                            
                            
                            
                            5,843
                            
                            
                            
                            10,884
                            
                            
                            
                            15,01349,881
                            
                            
                            
                            50,747
                            
                            
                            
                            143,901
                            
                            
                            
                            144,631Income
      from operations:ELG
                            
                            
                            36,702
                            
                            
                            
                            27,505
                            
                            
                            
                            89,537
                            
                            
                            
                            72,162TUG
                            
                            
                            13,445
                            
                            
                            
                            10,974
                            
                            
                            
                            45,062
                            
                            
                            
                            30,18850,147
                            
                            
                            
                            38,479
                            
                            
                            
                            134,599
                            
                            
                            
                            102,350





As
      of September
                    
                    
                    As
      of
                      December30,
      2010
                    
                    
                    31,
      2009RMB
                    
                    
                    RMBSegment
      assets:ELG
                    
                    
                    762,631
                    
                    
                    
                    805,116TUG
                    
                    
                    2,241,615
                    
                    
                    
                    1,468,7733,004,246
                    
                    
                    
                    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.


24


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





Three
customers as of September 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 35.7% and 35.8% of the Company’s accounts
receivable balances at September 30, 2010 and December 31, 2009,
respectively.





15.
            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 September 30, 2010, there were 255,000 Underwriter
Warrants outstanding.


25







16.
            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.


26





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
      August 23, 2010, CEH, the Company's subsidiary in British Virgin Islands,
      consummated the acquisition of the entire interest in Wintown from the
      former sole owner of Wintown. Wintown holds the entire interest in
      Rubao. Rubao holds the entire interest in Jiyang which in turns holds
      the entire interest in HIUBC.  HIUBC is a private college
      affiliated with Hubei Industrial University.  The total
      consideration for the acquisition is up to RMB450,000, of which RMB360,000
      was paid during 2010.  The remaining amount of the consideration
      is to be calculated based on the net profit of HIUBC. For the academic
      year of 2010 (i.e. from September 1, 2010 to August 31, 2011), if the net
      profit as determined under the relevant sale and purchase agreement of
      HIUBC is less than RMB50,000, CEH is entitled to deduct an amount equal to
      9 times of the difference between the net profit and RMB50,000 from the
      remaining amount of consideration. The contingent consideration was
      recorded as a liability at fair value of RMB78,721 and the change of its
      fair value was recorded in earnings at each reporting date.  As
      a result, the expected total consideration was RMB438,721 as of the date
      of acquisition. There was no change in the fair value of the remaining
      consideration up to September 30,
2010.




17.
            RELATED PARTY
      TRANSACTIONS





The
Company had the following balances with related parties as of December 31, 2009
and September 30, 2010, respectively:





(a)
            Amounts
      due to a shareholder





As
      of
                            
                            
                            As
      ofDecember
      31,
                            
                            
                            September
      30,2009
                            
                            
                            2010Mr.
      Wu Shi Xin
                            
                            RMB
                            -
                            
                            
                            RMB
                            (74,887
                            )
      (i)





i.
            The
      amount represents consideration payable to Mr. Wu for the acquisition of
      HIUBC (See Note 4).





(b)
            Amounts
      due to/from a unconsolidated VIE





As
      of
                                          
                                          
                                          As
      ofDecember
      31,
                                          
                                          
                                          September
      30,2009
                                          
                                          
                                          2010Due
      to CCL
                                          
                                          RMB
                                          -
                                          
                                          
                                          RMB
                                          -
                                          (ii)Due
      from CCL
                                          
                                          RMB
                                          99,727
                                          
                                          
                                          RMB
                                          99,665
                                          (ii)





ii.
            The
      amount due to CCL represents satellite usage service fee due from CCT
      Shanghai to CCLBJ. The amount due from CCL represents the technical
      service fee due from CCLBJ to CCT
Shanghai.





18.
            SUBSEQUENT
      EVENTS





The
Company has evaluated events subsequent to the balance sheet date of September
30, 2010 through November 9, 2010, the date the unaudited condensed consolidated
financial statements were available to be issued.




In
October, 2010, CEI established a wholly owned subsidiary, ChinaCast(Beijing)
Education Technolgy Limited("CET"). The principle activities of CET are to
provide educational service. The initial capital inject of US$750 was completed
in September 25, 2010, and the capital verfication is still in progress as of
November 09, 2010.




27




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.


28


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 = RMB6.7 at
September 30, 2010 for the three months and nine months ended September 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 nine months ended September 30,
2010 amounted to RMB125.1 million (US$18.7 million) and RMB344.1 million
(US$51.4 million) respectively, representing an increase of 52.2% and 46.8% 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 and
the acquisition of Wintown in the third quarter of 2010.




Revenue
of the ELG amounted to RMB49.9 million (US$7.4 million) and RMB143.9 million
(US$21.5 million) for the three months and nine months ended September 30, 2010
respectively, as compared to revenue of RMB50.7 million and RMB144.6 million of
the ELG for the three months and nine months ended September 30, 2009
respectively. Service income amounted to RMB47.0 million (US$7.0 million) and
RMB140.9 million (US$21.0 million) for the three months and nine months ended
September 30, 2010, compared to RMB48.9 million and RMB138.6 million for the
corresponding periods in 2009. Equipment sales amounted to RMB2.9 million
(US$0.4 million) and RMB3.0 million (US$0.4 million) for the three months and
nine months ended September 30, 2010, against RMB1.9 million and RMB6.1 million
for the same periods last year. The following table provides a summary of the
ELG’s revenue by business lines:





Three
      Months endedSeptember
      30, 2010
                    
                    
                    September
      30, 2009(millions)
                    
                    
                    (millions)US$
                    
                    
                    RMB
                    
                    
                    RMBPost
      secondary education distance learning
                    
                    
                    4.2
                    
                    
                    
                    28.6
                    
                    
                    
                    28.9K-12
      and content delivery
                    
                    
                    2.4
                    
                    
                    
                    16.0
                    
                    
                    
                    16.0Vocational
      training, enterprise / government training
                    
                    
                    0.8
                    
                    
                    
                    5.3
                    
                    
                    
                    5.8Total
      ELG revenue
                    
                    
                    7.4
                    
                    
                    
                    49.9
                    
                    
                    
                    50.7





Nine
      Months endedSeptember
      30, 2010
                  
                  
                  September
      30, 2009(millions)
                  
                  
                  (millions)US$
                  
                  
                  RMB
                  
                  
                  RMBPost
      secondary education distance learning
                  
                  
                  12.7
                  
                  
                  
                  85.0
                  
                  
                  
                  81.3K-12
      and content delivery
                  
                  
                  7.2
                  
                  
                  
                  48.0
                  
                  
                  
                  48.3Vocational
      training, enterprise / government training
                  
                  
                  1.6
                  
                  
                  
                  10.9
                  
                  
                  
                  15.0Total
      ELG revenue
                  
                  
                  21.5
                  
                  
                  
                  143.9
                  
                  
                  
                  144.6




Net
revenue from post secondary education distance learning services increased from
RMB81.3 million in the nine months ended September 30, 2009 to
RMB85.0 million (US$12.7 million) in nine months ended
September 30, 2010. Net revenue from post secondary education distance
learning services decreased slightly from RMB28.9 million in the three
months ended September 30, 2009 to RMB28.6 million
(US$4.2 million) in three months ended September 30, 2010. The total
number of post-secondary students enrolled in courses using the Company’s
distance learning platforms increased to 143,000 at September 30, 2010 from
141,000 at September 30, 2009. The increase was due to the growth of
students enrolled in distance learning degree courses with the
universities.   29


The revenue from the K-12 and
content delivery business decreased slightly by approximately 0.6% from RMB48.3
million for the nine months ended September 30, 2009 to RMB48.0 million (US$7.2
million) for the nine months ended September 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 September 30, 2010 and for the three months
ended September 30, 2009. The number of subscribing schools for K-12 distance
learning services has stabilized at 6,500.








The
revenue of TUG increased from RMB31.4 million and RMB89.8 million in the three
months and nine months ended September 30, 2009 respectively to RMB75.2 million
(US$11.2 million) and RMB200.2 million (US$29.9 million) in the three months and
nine months ended September 30, 2010. The increase was mainly due to the
acquisition of East Achieve in the fourth quarter of 2009 and the acquition of
Wintown in the third quarter of 2010. TUG’s total student enrolment increased
from approximately 12,200 as at September 30, 2009 to approximately 32,700 as at
September 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 83.9% from RMB89.5 million during the first
three quarters of 2009 to RMB164.5 million (US$24.6 million) during the first
three quarters of 2010. Cost of sales of the Company increased by 111.9% from
RMB30.3 million during the third quarter of 2009 to RMB64.2 million (US$9.6
million) during the third quarter of 2010. The increase was mainly due to the
acquisition of East Achieve in the fourth quarter of 2009 and Wintown in the
third quarter of 2010, which increased the cost of sales of the
TUG.





ELG’s
cost of sales decreased from RMB34.3 million during the first three quarters of
2009 to RMB22.6 million (US$3.4 million) during the first three quarters of
2010. ELG’s cost of sales decreased from RMB11.7 million during the third
quarter of 2009 to RMB9.4 million (US$1.4 million) during the third quarter of
2010. The decrease was mainly due to the termination of the payment of satellite
platform usage fee to CCLBJ. ELG’s cost of materials for the three months and
nine months ended September 30, 2010 amounted to RMB2.8 million (US$0.4 million)
and RMB2.8 million (US$0.4 million) respectively whereas ELG’s cost of materials
were RMB1.9 million and RMB6.0 million for the three months and nine months
ended September 30, 2009. The cost of service for the ELG amounted to RMB6.6
million (US$1.0 million) and RMB19.7 million (US$2.9 million) for the three
months and nine months ended September 30, 2010, as compared to RMB9.8 million
and RMB28.3 million for the same periods in 2009. Satellite platform fee to
CCLBJ amounted to RMB1.7 million and RMB5.1 million for the third quarter and
the first three quarters 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 RMB54.8 million (US$8.2 million) and RMB142.0 million
(US$21.2 million) for the three months and nine months ended September 30, 2010
as compared to RMB19.2 million and RMB56.9 million for the same periods in 2009.
The increase was due to the acquisition of East Achieve in the fourth quarter of
2009 and Wintown in the third quarter of 2010, after which there were three
universities operated under TUG.





ELG’s
gross profit margin increased by 3.9 percentage points, from 77.3% in the third
quarter of 2009 to 81.2% in the third 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 27.1% for the third quarter of 2010 as
compared to 38.8% for the same period of 2009. The decrease was mainly due to
the lower margin of the newly acquired LJC and HIUBC, which had a higher revenue
split to the parent university as compared to FTBC.





For the
three months and nine months ended September 30, 2009, the Company received a
management service fee of RMB0.5 million and RMB3.8 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 RMB3.6 million in the first three quarters
of 2009 to RMB1.7 million (US$0.3 million) in the first three quarters of 2010.
Selling and marketing expenses decreased from RMB0.9 million in the third
quarter of 2009 to RMB0.4 million (US$0.06 million) in the third quarter of
2010. The decrease was due to the drop in share option expense from RMB0.3
million and RMB1.4 million for the three months and nine months ended September
30, 2009 respectively to RMB nil (US$ nil) and RMB0.4 million (US$0.06 million)
for the corresponding periods in 2010.


30


General and administrative
expenses increased by 48.9% and 17.8% to RMB19.8 million (US$3.0 million) and
RMB52.4 million (US$7.8 million) in the three months and nine months ended
September 30, 2010 as compared to the same periods last year. The reduction of
share option expense from RMB11.5 million for the first three quarters of 2009
to RMB6.1 million (US$0.9 million) for the first three quarters of 2010 was
offset by the increase in general and administrative expenses of the East
Achieve Group and the Wintown Group after its acquisition.





The
Company has foreign exchange loss of RMB0.6 million (US$0.09 million) for the
first three quarters of 2010 compared to a gain of RMB0.1 million during the
first three quarters of 2009. The Company has foreign exchange loss of RMB0.004
million (US$0.001 million) for the thrid quarter of 2010 compared to a loss of
RMB0.05 million during the third quarter of 2009. The change was a result of the
change in the RMB/US exchange rate.





The last
tranche of the consideration for acquiring East Achieve amounting to RMB20.5
million (US$3.1 million) was settled in the third quarter of 2010. The amount
was less than the contingent consideration recorded by the Company resulting in
a gain of RMB9.9 million (US$1.5 million) for the third quarter of
2010.





Interest
income increased from RMB6.9 million in the first three quarters of 2009 to
RMB10.3 million (US$1.5 million) in the first three quarters of 2010. Interest
income increased from RMB2.1 million in the third quarter of 2009 to RMB3.8
million (US$0.6 million) in the third quarter of 2010. The increase was due to
the increase in the amount of the Company’s term deposits.





Interest
expense increased from RMB5.6 million in the first three quarters of 2009 to
RMB10.6 million (US$1.6 million) in the first three quarters of 2010. Interest
expense increased from RMB2.4 million in the third quarter of 2009 to RMB4.1
million (US$0.6 million) in the third 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 and the reduction in
interest capitalized in the construction project of TUG.





Overall,
profit before income tax and loss in equity investments increased from RMB37.8
million in the three months ended September 30, 2009 to RMB49.9 million (US$7.4
million) in the three months ended September 30, 2010, an increase of 32.0%. 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 third quarter of 2010 compared to a loss of RMB0.8
million in the third quarter of 2009.





Income
taxes increased by 28.6% from RMB21.1 million in the first three quarters of
2009 to RMB27.5 million (US$4.1 million) in the first three quarters of 2010.
The increase was due to the increase in business.





Noncontrolling
interest amounted to RMB0.6 million (US$0.09 million) for the three months ended
September 30, 2010 as compared to RMB2.0 million for the three months ended
September 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 51.5% to RMB41.5 million (US$6.2
million) in the three months ended September 30, 2010 from RMB27.4 million in
the three months ended September 30, 2009.





On March
16, 2007, the National People’s Congress of China enacted a 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.


31


Liquidity and Capital Resources





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




As
      ofAs
      of
                  
                  
                  December
      31,September
      30, 2010
                  
                  
                  2009(millions)
                  
                  
                  (millions)RMB
                  
                  
                  US$
                  
                  
                  RMBCash
      and cash equivalents
                  
                  
                  405.2
                  
                  
                  
                  60.5
                  
                  
                  
                  327.6Term
      deposits
                  
                  
                  600.0
                  
                  
                  
                  89.6
                  
                  
                  
                  507.0Subtotal
                  
                  
                  1,005.2
                  
                  
                  
                  150.1
                  
                  
                  
                  834.6Accounts
      receivable
                  
                  
                  50.1
                  
                  
                  
                  7.5
                  
                  
                  
                  53.8Inventory
                  
                  
                  1.4
                  
                  
                  
                  0.2
                  
                  
                  
                  1.4Prepaid
      expenses and other current assets
                  
                  
                  28.8
                  
                  
                  
                  4.3
                  
                  
                  
                  19.2Total
      current assets
                  
                  
                  1,092.8
                  
                  
                  
                  163.1
                  
                  
                  
                  919.7Non-current
      advances to a related party
                  
                  
                  99.7
                  
                  
                  
                  14.9
                  
                  
                  
                  99.7Total
      assets
                  
                  
                  3,004.2
                  
                  
                  
                  448.4
                  
                  
                  
                  2,273.9





Cash and
cash equivalents balances increased from RMB327.6 million as at December 31,
2009, to RMB405.2 million (US$60.5 million) as at September 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 RMB362.4 million (US$54.8 million) for the
nine months ended September 30, 2010 as compared to net cash from operating
activities of RMB144.2 million for the nine months ended September 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 increase of net cash from operating
activities for the first three quarters of 2010 as compared to the first three
quarters of 2009 was mainly because of the addition of two universities under
TUG. Cash generated from deferred revenues amounted to RMB159.7 million (US$23.8
million) for the nine months ended September 30, 2010 as compared to RMB23.1
million for the same period in 2009. Account receivables reduced by RMB4.8
million (US$0.7 million) in the first three quarters of 2010 whereas account
receivables increased by RMB23.1 million in the first three quarters 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 nine months ended September 30, 2010 was
RMB505.0 million (US$75.4 million), mainly reflecting the payment of
consideration for the acquisition of Wintown and East Achieve amounting to
RMB374.4 million (US$55.9 million) and the transfer from term deposit of RMB93.0
million (US$13.9 million) For the nine months ended September 30, 2009, transfer
from term deposit amounted to RMB89.0 million, which resulted in a cash inflow
of RMB32.6 million for the period.





Net cash
provided by financing activities in the first three quarters of 2010 was
RMB219.9 million (US$32.8 million) as compared to RMB66.5 million in the first
three quarters of 2009. New shares were issued in the first three quarters of
2010 to investors to finance future acquisition of the TUG, the proceeds of
which amounted to RMB233.0 million (US$34.8 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 September 30, 2010 amounted to RMB3,004.2 million (US$448.4 million),
an increase of 32.1%, when compared to the total assets amounting to RMB2,273.9
million at December 31, 2009. Total current assets increased by 18.8% to
RMB1,092.8 million at September 30, 2010.





Accounts
receivable decreased slightly from RMB53.8 million as at December 31, 2009 to
RMB50.1 million (US$7.5 million) at September 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 September 30, 2010.


32


Prepaid expenses and other current assets increased from RMB19.2
million as at December 31, 2009 to RMB28.8 million (US$4.3 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.





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 advances 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$14.9 million) as at September 30, 2010.
As at December 31, 2009, the amount advanced was RMB99.7
million.





As at
September 30, 2010, the Company had total bank loans of RMB278.0 million
(US$41.5 million). RMB168.0 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 RMB110.0 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.


33


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 September 30, 2010, the exchange rate between the RMB and
the U.S. dollar was RMB6.7 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 RMB0.004 million (US$0.001 million) and RMB0.6 million (US$0.09
million) for the three months and nine months ended September 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 nine months ended September 30,
2010, we recorded an interest income of RMB3.8 million (US$0.6 million) and
RMB10.3 million (US$1.5 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 RMB278.0 million (US$41.5 million) as at September 30, 2010.
Interest paid in the three months and nine months ended September 30, 2010 was
RMB4.1 million (US$0.6 million), and RMB10.6 million (US$1.6 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.


34


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 September 30, 2010. Based upon their
evaluation and subject to the foregoing, the Chief Executive Officer and Chief
Financial Officer concluded that as of September 30, 2010 our disclosure
controls and procedures were effective.





There were no changes in our internal
control over financial reporting that occurred during the third 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.


35


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.





None.


Item
3. Defaults upon Senior Securities.





None.





Item 4. (Removed and Reserved).





Item 5. Other Information.





None.





Item 6. Exhibits.




10.1
              English
      Translation of Share Transfer Agreement dated August 19, 2010 by and among
      ChinaCast Education Holdings Limited, Wu Shi Xing, Wintown Enterprises
      Limited, Shanghai Rubao Information Technology Co., Ltd., Wuhan Jiyang
      Education Investment Co., Ltd. and Hubei Industrial University Business
      College. (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 August
27, 2010


36


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:
      November 9, 2010
                    By:
                    /s/
      Ron Chan Tze NgonName:
                    Ron
      Chan Tze NgonTitle:
                    Chairman
      of the Board,Chief
      Executive Officer (Principal Executive Officer)Date:
      November 9, 2010
                    By:
                    /s/
      Antonio SenaName:
                    Antonio
      SenaTitle:
                    Chief
      Financial Officer andSecretary
      (Principal Accounting and Financial
Officer)


37




EXHIBIT
INDEX





Exhibit
                            No.
                          
                          Description10.1
                          
                          English
      Translation of Share Transfer Agreement dated August 19, 2010 by and among
      ChinaCast Education Holdings Limited, Wu Shi Xing, Wintown Enterprises
      Limited, Shanghai Rubao Information Technology Co., Ltd., Wuhan Jiyang
      Education Investment Co., Ltd. and Hubei Industrial University Business
      College. (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 August 27, 2010


38